CRC-ACE REVIEW SCHOOL, INC.

INTEGRATED REVIEW FEB 18, 2015; 900AM-12:00NN

MIDTERM EXAMINATIONS MAS

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for
each item by SHADING corresponding to the letter of your choice on the answer sheet provided. STRICTLY
NO ERASURES ALLOWED. Use Pencil No. 1 or No. 2 only.

MANAGEMENT ACCOUNTING SERVICES (1-40)

1. The following represents the budgeted and actual manufacturing data for LPT Ltd. for Year 3:
Budget Actual
Units of direct materials 65,000 units 75,000 units
Direct labour hours 100,000 hours 120,000 hours
Machine hours 60,000 hours 70,000 hours
Direct materials P325,000 P380,000
Direct labour P275,000 P340,000
Overhead P300,000 P320,000

Assuming overhead is applied based on direct labour hours, by how much was overhead
overapplied or underapplied in Year 3?
A. P40,000 overapplied C. P20,000 underapplied
B. P70,000 underapplied D. P60,000 overapplied

2. Which one of the following statements about the cost hierarchies of activity-based costing is correct?
A. Engineering costs incurred to change product designs is a facility-sustaining cost.
B. If the cost of an activity increases with each hour of machine time, it is an input-level cost.
C. The cost of resources used each time in setting up the machine for a production run is a batch-
level cost.
D. The compensation for a quality engineer, who is responsible for continuous quality improvement
projects implemented in the plant, is a product-sustaining cost.

3. Which of the following is the most appropriate explanation for a company that experienced a
favourable material price variance and an unfavourable material quantity variance?
A. Materials were purchased at a discount and workers were well trained.
B. The price of materials has decreased and demand for the product has decreased.
C. The actual quantity of material purchased was less than the estimated budgeted amount.
D. Lower-quality materials that resulted in excessive waste were purchased at a discount.

Items 4 and 5 are based on the following information:

YEH Manufacturing Company produces two models of lawnmowers: Standard and Extreme. Yalena Yoon,
Manager of Marketing and Sales, estimates that YEH can sell between 6,000 and 15,000 units of either
product during the upcoming year, Year 8. The following information has been provided by the accounting
department:
Standard Extreme
Expected selling price P 280 P 350
Standard cost per unit:
Direct materials P 80 P 100
Direct labour (@P20 per hour) 20 40
Variable overhead (@P10 per DLH) 10 20
Fixed overhead (@P30 per DLH) 30 60
Standard cost per unit P140 P220

Direct labour is a variable manufacturing cost and factory workers are paid by the hour. An annual practical
capacity of 24,000 direct labour hours (DLH) is used in establishing the manufacturing overhead rates. Plant
capacity allows up to a maximum of 30,000 direct labour hours. Overtime pay above and beyond the
practical capacity is 1½ times regular pay and a maximum of 6,000 direct labour hours is allowed for
overtime under the union contract. YEH also has a hiring freeze policy for Year 8. Variable selling and
administrative costs are P10 per unit for each of the Standard and Extreme model, and the total fixed selling
and administrative costs budgeted for Year 8 are P480,000. Fixed manufacturing overhead as well as fixed
selling and administrative costs budgeted for Year 8 will not be affected by the production plan. CP
MIDTERM EXAMINATIONS: MAS Page 2 of 2
Hardware Store, a national chain, approaches YEH and increases its order of the Standard Model from
1,000 units to 4,000 units for Year 8, and a price discount of 5% is given on the order. Ms Yoon revises her
sales forecasts for the Standard model from 12,000 units to 15,000 units (including the CP order) and the
Extreme model from 12,000 units to 10,000 units, respectively, to reflect changes in the industry’s economic
condition.
4. YEH should accept the CP order of 4,000 units as net income will increase by:
A. P438,000. C. P108,000.
B. P 78,000. D. P154,000.

5. Because of changes in consumers’ preference, YEH decides to focus its labour capacity on the
production of the Extreme model first. Ms Yoon revises her sales forecast of the Extreme model to
12,000 units for Year 8, and the remaining capacity will be used to manufacture the Standard model.
In Year 8, YEH should produce 12,000 units of the Extreme model
A. for a budgeted income of P960,000.
B. and 6,000 units of the Standard model for a budgeted income of P1,920,000.
C. and 6,000 units of the Standard model for a budgeted income of P1,860,000.
D. for a budgeted income of P1,080,000.

6. CCN Inc. manufactures hockey sticks, and expected sales for the four quarters of Year 6 are as
follows:
Quarter Units
First 115,000
Second 27,000
Third 122,000
Fourth 138,000
The company generally maintains an ending finished goods inventory volume of 15% of the next
quarter’s sales volume and it keeps no work-in-process inventory. The hockey stick sells for P55 and
the standard cost of production is P24 per unit. What will be the budgeted cost of goods manufactured
for the third quarter of Year 6?
A. P2,870,400 C. P3,782,000
B. P2,928,000 D. P2,985,600

Items 7 and 8 are based on the following information:

JH Plastics uses a standard costing system and predetermined overhead rates in determining product
costs. The standard cost per unit of Product K is as follows:
Direct materials (P6.00 x 2 kg) P 12.00
Direct labour (P24.00 x 0.5 direct labour hour) 12.00
Variable overhead (P10.00 x 0.3 machine hour) 3.00
Fixed overhead (P20.00 x 1 machine hour) 20.00
P 47.00
Predetermined overhead rates are based on a practical capacity of 12,000 machine hours per month.
In July, 35,000 kg of direct materials, 7,500 direct labour hours, and 5,000 machine hours were used
in producing 15,900 units of Product K.
7. Which of the following variances for July is unfavourable?
A. Direct materials quantity (usage) variance.
B. Direct labour efficiency variance.
C. Variable overhead efficiency variance.
D. Both a) and c) above.

8. Assume that actual total overhead incurred in July is P365,500 and the fixed overhead spending
variance is P15,000 favourable. What is the variable overhead spending variance?
A. P 90,500 unfavourable. C. P236,000 unfavourable.
B. P 5,500 unfavourable. D. P 9,500 favourable.

9. The budgeted total fixed and variable costs of the machine insertion activity centre for XYZ Corp. in
Year 8 is P530,000, assuming an activity level of 50,000 parts inserted. Cost behaviour analysis
indicates that the variable cost per part inserted is P2.20 and that fixed costs remain the same within
the relevant range of 48,000 to 52,000 parts inserted. Activity analysis indicates that the cost driver for
the machine insertion activity is the number of parts inserted. In preparing a flexible budget for Year 8
at an activity level of 51,000 parts inserted, what would be the budgeted total costs of the machine
insertion activity (rounded to the nearest hundred pesos)?
a. P642,200
b. P540,600
c. P532,200
d. P530,000
MIDTERM EXAMINATIONS: MAS Page 3 of 3

10. Actual and projected sales of a company for May and June are as follows:
Cash Sales Credit Sales
May (actual) P185,000 P270,000
June (projected) P225,000 P290,000
All credit sales are collected in the month following the month in which the sale is made. The cash
balance as at May 31 is P50,000. Cash disbursements for operating expenses in June are projected
to be P350,000. The company plans to declare a P50,000 cash dividend on June 30 but will not pay it
until 30 days later. A P160,000 down payment on a piece of equipment will be made in June. To
ensure a P60,000 cash balance on June 30, what amount should the company plan to borrow in
June?
A. P250,000
B. P75,000
C. P25,000
D. P185,000

11. Last month, Talbot Ltd. bought raw lumber for P480,000. Talbot separates and processes the raw
lumber into 3 grades: A, B and C. It has the following information:
A B C Total
Final sales value after processing P320,000 P480,000 P180,000 P980,000
Cost of processing P100,000 P120,000 P20,000 P240,000

The lumber could also be sold immediately after separation and without further processing:
A B C
Sales value before further processing P240,000 P300,000 P120,000

Based on this information, which of the following should the company do?
A. Sell A as is and do not process further.
B. Sell B as is and do not process further.
C. Sell C as is and do not process further.
D. Process all three grades further.

Items 12 and 13 are based on the following information:

Clarkson Company is a retailer with a fiscal year ending March 31. Data pertaining to sales of a ceiling
fan that sells for P60 is as follows:
Actual Sales (in units) Budgeted Sales (in units)
April 2,000 June 5,000
May 4,000 July 7,000
August 8,000
September 6,000
October 3,000
The average purchase price for the fan is P25 per unit. The company’s policy is to have an inventory
equal to 30% of the following month’s unit sales at the end of each month. The merchandise inventory
balance on May 31 is P37,500. The payment terms with the supplier are such that 80% of any month’s
purchases is payable in the month of purchase, while the balance is paid in the following month.
12. The total amount spent on fans during the second fiscal quarter (July to September) is
A. P547,500.
B. P495,000.
C. P472,500.
D. P1,188,000.

13. On June 30, the estimated account balances for Merchandise Inventory and Accounts Payable are:
A. P52,500 and P22,000, respectively.
B. P37,500 and P28,000, respectively.
C. P52,500 and P28,000, respectively.
D. P52,500 and P112,000, respectively.

14. A company makes one product and uses a standard cost system. Last month 4,500 units of the
product were made, and the labour efficiency variance was P8,000 favourable. The standards for
direct labour are 2.5 hours per unit at P16 per hour.

What was the actual number of direct labour hours worked last month?
A. 11,750
B. 10,750
MIDTERM EXAMINATIONS: MAS Page 4 of 4
C. 12,500
D. 11,050

15. Which of the following statements about activity-based costing is most accurate?
A. It requires that all manufacturing overhead be included in product cost.
B. It must be used for external financial reporting.
C. It will allocate more overhead to low-volume products, when compared to the traditional costing
approach.
D. It will allocate more overhead to high-volume products, when compared to the traditional costing
approach.

Items 16 and 17 are based on the following information:

Adventure Products (AP) sells camping equipment. One of the company’s products, a camp lantern,
sells for P80. The company uses a standard costing system, and all variances are adjusted to cost
of goods sold at month end. The standard production cost per unit for the camp lantern for Year 9 is
as follows:
Direct materials P 13
Direct labour (0.8 DLH @ P15 per DLH) 12
Variable overhead (0.5 MCH @ P10 per MCH) 5
Fixed overhead (0.5 MCH @ P20 per MCH) 10
Standard Cost per Unit P 40

The manufacturing facility has a capacity of 60,000 machine-hours (MCH) per year. The facility has
been operating on average at 80% capacity, which is used as the denominator activity in setting the
overhead rates. Commission of 5% of selling price is the only variable selling cost. The fixed selling
and administrative costs are budgeted at P420,000 for Year 9.

16. What are the breakeven sales (in units) for the camp lantern for Year 9?
A. 34,500
B. 38,334
C. 30,000
D. 9,131

17. Adventure Products (AP) is considering purchasing a new component, CP8, to replace an existing
component, CP5, in production. CP8 is more expensive than CP5 and will increase direct material
cost by P2. There will also be a 20% reduction in machine-hours required for the production.
Moreover, sales are expected to increase by 10% to 99,000 units per year as the selling price remains
unchanged at P80 per unit. All other costs are unaffected by the use of the new component, CP8. With
respect to the new component, CP8, AP should
A. not use the new component in production as income will decrease by P531,000.
B. use the new component in production as income will increase by P99,000.
C. use the new component in production as income will decrease by P720,000.
D. use the new component in production as income will increase by P315,000.

18. A company produces three products, A, B and C, all using the same direct materials. The company is
experiencing an unexpected spike in the demand for these products and a shortage in the supply of
direct materials. The price of materials is P16 per gram, and only 6,000 grams of material are currently
available each week. Per unit data is as follows:
Product A Product B Product C
Sales price P120 P180 P190
Costs:
Direct materials P24 P64 P32
Direct labour P54 P28 P110
Variable manufacturing overhead P6 P16 P8
Fixed manufacturing overhead P1 P38 P7

In what order should the company produce its products?

A. A, C, B
B. B, C, A
C. B, A, C
D. A, B, C

19. Downward Inc. has budgeted sales for the second quarter of P400,000 for April, P525,000 for May
and P600,000 for June. Normally, 20% are cash sales and 80% of sales are on account. As well, 30%
MIDTERM EXAMINATIONS: MAS Page 5 of 5
of the sales on account are normally collected during the month of sale, 50% in the following month,
and 20% in the second month following sale.

What is the expected cash collection for June?

A. P642,500
B. P522,500
C. P264,000
D. P538,000

20. DeBerg Company has developed the following sales projections for its second and third quarters: April
P100,000 July P160,000 May 120,000 August 150,000 June 140,000 September 130,000

Normal cash collection experience has been that 50 percent of sales are collected during the month of
sale, 30 percent in the month following sale, and 15 percent in the second month following sale. The
remaining 5 percent of sales is never collected. DeBerg’s budgeted cash collections for the third
quarter are
A. P337,000.
B. P439,000.
C. P418,000.
D. P440,000.

21. The budgeted income for RST Ltd. for next year is as follows:
Sales – 125,000 units @ P40 P 5,000,000
Variable manufacturing costs P2,000,000
Fixed manufacturing costs 1,250,000
Sales commissions - P2.60 per unit 325,000
Fixed selling and administration expenses 950,000 4,525,000
Operating income P 475,000

Assume that a regular customer has requested RST Ltd. to provide a quote for a special order of
20,000 units. RST Ltd. has sufficient capacity to fill the order and would be required to pay only
P8,000 in sales commissions for the order. If RST Ltd. would like the special order to make a
contribution to operating income of P48,000, the sales price per unit that should be quoted to the
customer for the special order is
A. P40.00.
B. P20.20.
C. P28.80.
D. P18.80.

22. Broihan Corporation has the following purchases budget for the last half of 2016:
July P 100,000 October P 90,000
August 80,000 November 100,000
September 110,000 December 94,000

Historically, the company pays one half at the time of purchase and the remainder in the month
following purchase. What are the expected cash disbursements in August?
a. P 80,000. b. P 90,000. c. P 95,000. d. P100,000

23. Debt to Total Assets of a firm is .2. The Debt to Equity would be:
a. 0.80 b. 0.25 c. 1.00 d. 0.75

24. XYZ Ltd. has earned 8% Return on Total Assets of P. 50,00,000 and has a Net Profit Ratio of 5%.
Find out the Sales of the firm.
a. P. 4,00,000 b. P. 2,50,000 c. P. 80,00,000 d. P. 83,33,333.

25. ZIL Inc. operates two divisions, which are treated as investment centres. Data for each division for
Year 4 are as follows (in ‘000s):
Division A Division B
Net income P65,000 P140,000
Total assets P400,000 P850,000
MIDTERM EXAMINATIONS: MAS Page 6 of 6
The company’s required rate of return is 15%. The president wishes to evaluate the performance of
these divisions and is not sure whether to use return on investment (ROI) or residual income (RI) as
the performance measure. Which division performed better based on the ROI and RI performance
measures?
A. Division A, because its RI is higher than that of Division B.
B. Division B, because its ROI and RI are higher than those of Division A.
C. Division A, because its ROI is higher than that of Division B.
D. Both a) and c) above.

26. Company E is a large manufacturer that treats its divisions as profit centers. Division X produces an
electronic component at the following costs:
Variable production costs P80/unit
Variable selling costs P10/unit
Fixed costs (based on 10,000 units) P10/unit

A. Division Y currently purchases a similar component from an outside supplier for P105/unit. It
has determined that the component produced by Division X could be used instead with no
adverse effects on the quality of the final product. Currently, Division X, which is operating at
full capacity, sells all of its output to outside customers at P112/unit per component. What is
the lowest price at which Division X would agree to transfer the component to Division Y?

A. P112. B. P90. C. P100. D. P102.

27. PPT Ltd. has two divisions operating as profit centres, East and West. East produces widgets and
currently sells only to external customers for P700 per widget. The variable manufacturing costs and
variable selling expenses for each widget is P450 and P20 respectively. The following is production
data for East during a normal year:
Production and sales capacity 20,000 Units
Production and sales volume 18,000 units

West is planning on manufacturing a new product and will require 5,000 widgets to produce 5,000
units of a new product. West could meet its requirements by purchasing widgets from East or an
external supplier for P665 per unit. East would not incur any variable selling expenses on internal
sales. What is the minimum transfer price per unit that East would be willing to accept to supply West
with 5,000 widgets?
A. P588 B. P665 C. P700 D. P680

28. A company has two divisions that are treated as investment centres. Data for each division are as
follows:
East Division West Division
Revenue P80,000 P260,000
Net income P20,000 P35,000
Average total investment P180,000 P270,000

The company has a target rate of return of 12% for all investments. In evaluating the performance of
these divisions, it can be concluded that
A. East Division met the target minimum rate of return.
B. West Division performed better because both its return on investment and residual income are
higher.
C. West Division performed better because its return on investment is higher but its residual income is
lower.
D. East Division performed better because both its return on investment and residual income are
higher.

29. Felton Farm Supplies, Inc., has an 8 percent return on total assets of P300,000 and a net profit margin
of 5 percent. What are its sales?
A. P 3,750,000 B. P 480,000 C. P 300,000 D. P 1,500,000

30. Determine a firm's total asset turnover (TAT) if its net profit margin (NPM) is 5 percent, total assets are
P8 million, and ROI is 8 percent.
A. 1.60 B. 2.05 C. 2.50 D. 4.00
MIDTERM EXAMINATIONS: MAS Page 7 of 7
31. Benson Company makes and sells a single product. Last period the company’s labour rate variance
was P11,690 favourable. During the period, the total actual direct labour cost was P295,590. The
standard labour rate for the product was P9.20 per hour. What was the actual labour rate for the
product in PESOs per hour? Round your answer to the nearest cent.
A. P 8.85
B. P 8.94
C. P 9.56
D. P 9.58

32. CGA Manufacturing Inc. experienced actual variable overhead of P41,000 for 32,000 units of
production that used 8,500 direct labour hours. If budgeted volume was 36,000 units at 9,000 direct
labour hours, at a standard rate of P5.00 per direct labour-hour, what is the variable overhead
efficiency and spending variances?
A. P2,000 unfavourable efficiency variance; P1,500 unfavourable spending variance
B. P2,500 favourable efficiency variance; P1,500 unfavourable spending variance
C. P2,500 unfavourable efficiency variance; P2,000 favourable spending variance
D. P2,500 unfavourable efficiency variance; P1,500 favourable spending variance

33. Borgonovo Inc.’s labour rate variance was P80 unfavourable, and its efficiency variance was P30
favourable. It reports a standard cost per unit of product of 2 hours of direct labour at P7.50 per hour.
Assuming 250 units were produced, what were the actual direct labour-hours?
A. 450
B. 496
C. 500
D. 504

34. The actual materials price was P3.50, the actual quantity of material was 5,100 units, and the total
materials price variance was P1,275 unfavourable. What was the standard materials price?
A. P3.00
B. P3.25
C. P3.30
D. P3.75

35. The manager of which of the following centers has the most authority and responsibility?
a. cost center b. profit center c. data center d. investment center

36. The profit margin for Division Q is 15% and the investment turnover is 1.2. What is the rate of return
on investment for Division Q?
a. 12.5% b. 15% c. 18% d. 20%

37. Which of the following BEST describes a flexible budget?

A. A budget which shows variable production costs only
B. A monthly budget which is changed to reflect the number of days in the month
C. A budget which shows sales revenue and costs at different levels of activity
D. A budget that is updated halfway through the year to incorporate the actual results for the first
half of the year

38. Firm A has a Return on Equity (ROE) equal to 24%, while firm B has an ROE of 15% during the same
year. Both firms have a total debt ratio (D/V) equal to 0.8. Firm A has an asset turnover ratio of 0.9,
while firm B has an asset turnover ratio equal to 0.4. From this we know that
A. Firm A has a higher profit margin than firm B
B. Firm B has a higher profit margin than firm A
C. Firm A and B have the same profit margin

D. Firm A has a higher equity multiplier than firm B

39. If a firm has P100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the
firm's Net Working Capital?
A. P0
B. P100
C. P200
MIDTERM EXAMINATIONS: MAS Page 8 of 8
D. P1,000

40. To measure a firm's solvency as completely as possible, we need to consider

A. The firm's relative proportion of debt and equity in its capital structure
B. The firm's capital structure and the liquidity of its current assets
C. The firm's ability to use Net Working Capital to pay off its current liabilities
D. The firms leverage and its ability to make interest payments on its long-term debt

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