PAMANTASAN NG LUNGSOD NG VALENZUELA
College of Business, Accountancy and Public Administration
Name: ___________________________ Section.: _____________Date: ______________
FINAL EXAMINATION
MULTIPLE CHOICE
DIRECTION: IN EACH OF THE FOLLOWING QUESTIONS, CHOOSE THE BEST ANSWER.
1.
Management accounting is an integral part of the management process. As such, it
provides essential information for the following objectives except
A.
B.
C.
D.
2.
Maintaining the current level of resource utilization as well as internal and
external communication
Measuring and evaluating performance.
Planning strategies and controlling current activities of the organization.
Enhancing objectivity in decision-making.
Statement 1: Managerial control and engineering control are synonymous.
Statement 2: Control from the viewpoint of management accounting is defined as
the process of setting maximum limits on financial expenditures.
A
True
True
Statement 1
Statement 2
3.
B.
C.
D.
5.
C
True
False
D
False
True
A difference between standard costs used for cost control and budgeted costs
A.
4.
B
False
False
Can exist because standard costs must be determined after the budget is
completed.
Can exist because standard costs represent what costs should be while
budgeted costs represent expected actual costs.
Can exist because budgeted costs are historical costs while standard costs are
based on engineering studies.
Can exist because establishing budgeted costs involves employee participation
and standard costs do not.
For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000
bags of flour with a quality rating two grades below that which the company
normally purchased. This purchase covered about 90% of the flour requirement for
the period. As to the material variances, what will be the likely effect?
A.
B.
C.
D.
Price
variance
Unfavorable
Favorable
No effect
Favorable
Usage
variance
Favorable
Unfavorable
Unfavorable
Favorable
All of the following statements are valid except
A.
B.
C.
D.
The short term creditor is more interested in cash flows and in working capital
management that he is in how much accounting net income is reported.
If the return on total assets is higher than the after-tax cost of long-term debt,
then leverage is positive, and the common stockholders will benefit.
The results of financial statements analysis are of value only when viewed in
comparison with the results of other periods or other firms.
The inventory turnover is computed by dividing sales by average inventory.
Page 1 of 12
6.
The company issued new common shares in a three-for-one stock split. Identify the
statements that indicate the correct effect(s) of this transaction.
A. It reduced equity per share of common stock.
B. Share of each common stockholder is reduced.
C. The peso amount of capital stock is increased.
D. Sampras’ cost structure cannot be determined from this information. Working
capital and current ratio are increased
7.
Which of the following statements is correct?
A.
B.
C.
D.
8.
Assume that a company's debt ratio is currently 50%. It plans to purchase fixed
assets either by using borrowed funds for the purchase or by entering into an
operating lease. The company's debt ratio as measured by the balance sheet will
A.
B.
C.
D.
9.
An increase in a firm’s inventories will call for additional financing unless the
increase is offset by an equal or larger decrease in some other asset account.
A high quick ratio is always a good indication of a well-managed liquidity
position.
A relatively low return on assets (ROA) is always an indicator of managerial
incompetence.
A high degree of operating leverage lowers the risk by stabilizing the firm’s
earnings stream.
Increase whether the assets are purchased or leased.
Increase if the assets are purchased, and remain unchanged if the assets are
leased.
Increase if the assets are purchased, and decrease if the assets are leased.
Remain unchanged whether the assets are purchased or leased.
In choosing from among mutually exclusive investments, the manager should
normally select the one with the highest;
A.
B.
C.
D.
Net present value
Internal rate of return
Profitability index
Book rate of return
10. Depreciation charges indirectly affect the after-tax cash flow because the company
A.
B.
C.
D.
Can deduct depreciation expenses on their financial statements, reducing
reported income before tax.
Can deduct depreciation expense on their financial statements, increasing cash
flows.
Can deduct depreciation expense on their income tax returns, reducing cash
flow for taxes.
Cannot deduct depreciation expenses on their income tax returns.
11. Sensitivity analysis is
A.
B.
C.
D.
an appropriate response to uncertainty in cash flow projections
useful in measuring the variance of the Fisher rate
typically conducted in the post investment audit
useful to compare projects requiring vastly different levels of initial investment
12. When comparing NPV and IRR, which is incorrect?
A.
With NPV, the discount rate can be adjusted to take into account increased risk
and the uncertainty of cash flows
Page 2 of 12
B.
C.
D.
With IRR, cash flows can be adjusted to account for risk
NPV can be used to compare investments of various size or magnitude
Both NPV and IRR can be used for screening decisions
13. Which of the following is the potential use of the payback method?
A.
B.
C.
D.
Help managers control the risk of estimating cash flows
Help minimize the impact of the investment on liquidity
Help control the risk of obsolescence
All of the answers are correct
Questions 14 through 17 are based on the following information.
In order to increase production capacity, Lord Gee
Industries is considering
replacing an existing production machine with a new technologically improved
machine effective January 1. The following information is being considered by Lord
Gee Industries:





The new machine would be purchased for P160,000 in cash. Shipping,
installation, and testing would cost an additional P30,000.
The new machine is expected to increase annual sales by 20,000 units at a sales
price of P40 per unit. Incremental operating costs include P30 per unit in variable
costs and total fixed costs of P40,000 per year.
The investment in the new machine will require an immediate increase in working
capital of P35,000. This cash outflow will be recovered at the end of year5.
Lord Gee uses straight-line depreciation for financial reporting and tax reporting
purposes. The new machine has an estimated useful life of 5 years and zero
salvage value.
Lord Gee is subject to a 40% corporate income tax rate.
Lord Gee uses the net present value method to analyze investments and will employ
the following factors and rates:
14.
Period
Present Value pf P1
Present value of an
Ordinary Annuity of P1
1
0.909
0.909
2
0.826
1.736
3
0.751
2.487
4
0.683
3.170
5
0.621
3.791
Lord Gee Industries’ net cash outflow in a capital budgeting decision is
a. P190,000
b. P195,000.
c. P204,525.
d. P225,000.
15. Lord Gee Industries’ discounted annual depreciation tax shield for the year of
replacement is
a. P13,817.
b. P16,762.
c. P20,725.
d. P22,800.
Page 3 of 12
16. The acquisition of the new production machine by Lord Gee Industries will
contribute a discounted net-of-tax contribution margin of
a. P242,624.
b. P303,280.
c. P363,936.
d. P454,920.
17. The overall discounted cash flow impact of Lord Gee Industries’ working capital
investment for the new production machine would be
a. P(7,959).
b. P(10,080).
c. P13,265).
d. P(35,000).
Questions 18 through 20 are based on the following information.
Pear Inc. uses a 12% hurdle rate for all capital expenditures and has done the following
analysis for four projects for the upcoming year:
Project 1
Initial
outlay
capital
Project 2
Project 3
Project 4
P200,000
P298,000
P248,000
P272,000
Year 1
P65,000
P100,000
P80,000
P95,000
Year 2
70,000
135,000
95,000
125,000
Year 3
80,000
90,000
90,000
125,000
Year 4
40,000
65,000
80,000
60,000
(3,798)
4,276
14,064
14,662
Profitability
index
98%
101%
106%
105%
Internal rate of
return
11%
13%
14%
15%
Annual
net
cash inflows
Net
value
present
18. Which project(s) should Pearl Inc. undertake during the upcoming year assuming it
has no budget restrictions?
a. All of the projects.
b. Projects 1, 2, and 3.
c. Projects 2, 3, and 4.
d. Projects 1, 3, and 4.
19. Which project(s) should Pearl Inc. undertake during the upcoming year if it has only
P600,000 of funds available?
a. Projects 1 and 3.
b. Projects 2, 3, and 4.
c. Projects 2 and 3.
d. Projects 3 and 4.
20. Which project(s) should Pearl Inc. undertake during the upcoming year if it has only
P300,000 of capital funds available?
a. Projects 1.
b. Projects 2, 3, and 4.
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c. Projects 3 and 4.
d. Project 3.
Questions 21 through 24 are based on the following information.
A proposed investment is not expected to have any salvage value at the end of its 5year life. For present value purposes, cash flows are assumed to occur at the end of each
year. The company uses a 12% after-tax target rate of return.
Year
Purchase Cost and
Book Value
Annual Net After –
Tax Cash Flows
P
Annual Net Income
0
P500,000
0
P
0
1
336,000
240,000
70,000
2
200,000
216,000
78,000
3
100,000
192,000
86,000
4
36,000
168,000
94,000
5
0
144,000
102,000
21. The accounting rate of return based on the average investment is
a. 84.9%
b. 34.4%
c. 40.8%
d. 12%
22. The net present value is
a. P304,060.
b. P212,320.
c. P(70,000).
d. (P712,320.
23. The traditional payback period is
a. Over 5 years.
b. 2.23 years.
c. 1.65 years.
d. 2.83 years.
24. The profitability index is
a. 0.61.
b. 0.42.
c. 0.86.
d. 1.425.
25. Which statement about the internal rate of return of the investment is true?
a. The IRR is exactly 12%.
b. The IRR is over 12%.
c. The IRR is under 12%.
d. NO information about the IRR can be determined.
26.
During 2010, a department’s three-variance overhead standard costing system
reported unfavorable spending and volume variances. The activity level selected for
allocating overhead to the product was based on 80% of practical capacity. If 100%
of practical capacity had been selected instead, how would the reported unfavorable
spending and volume variances be affected?
Spending
Volume Variance
Page 5 of 12
A.
B.
C.
D.
Variance
Increased
Increased
Unchanged
Unchanged
Unchanged
Increased
Increased
Unchanged
27. Computechs is an all-equity firm that is analyzing a potential mass communications
project which will require an initial, after-tax cash outlay of $100,000, and will
produce after-tax cash inflows of $12,000 per year for 10 years. In addition, this
project will have an after-tax salvage value of $20,000 at the end of Year 10. If the
risk-free rate is 5 percent, the return on an average stock is 10 percent, and the
beta of this project is 1.80, then what is the project's NPV?
A.
B.
C.
D.
$10,655
$ 3,234
($37,407)
($32,012)
Questions 28 through 29 are based on the following information.
The Sampaguita Steam Laundry bought a laundry truck that can be used for 5 years.
The cost of the truck is P225,000 with a salvage value of P35,000. Since the truck is not
working efficiently, management has thought of selling the truck immediately and buy a
delivery wagon which will serve the company’s purposes more properly. The estimated
net returns of the truck for 5 years is P150,000. If the truck is sold, management can
only recover P175,000. (In all calculations, use the straight line method of depreciation)
28. The net gain (loss) that will arise if the Company decides to sell the truck is:
a. P(50,000)
b. P(75,000)
c. P75,000
d. P140,000
29. If the firm decides to keep the truck, the net gain (loss) over the 5-year period is
A.
B.
C.
D.
P(40,000)
P(75,000)
P50,000
P140,000
Questions 30 through 35 are based on the following information.
Turkey Company’s average production of valve stems over the past three years has been
80,000 units each year. Expectations are that this volume will remain constant over the
next four years. Cost records indicate that unit product costs for the valve stem over the
last several years have been as follows:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead*
Unit product cost
P 3.60
3.90
1.50
9.00
P 18.00
* Depreciation of tools (that must now be replaced) accounts for one-third of the
fixed overhead. The balance is for other fixed overhead costs of the factory that
require cash expenditures.
If the specialized tools are purchased, they will cost P2,500,000 and will have a disposal
value of P100,000 at the end of their four-year useful life. Turkey Company has a 30%
tax rate, and management requires a 12% after-tax return on investment. Straight-line
Page 6 of 12
depreciation would be used for financial reporting purposes, but for tax purposes, the
following amounts of variable depreciation will be used.
Year
Year
Year
Year
1
2
3
4
P
832,500
1,112,500
370,000
185,000
The sales representative for the manufacture of the specialized tools has stated, “The
new tools will allow direct labor and variable overhead to be reduced by P1.60 per unit.”
Data from another company using identical tools and experiencing similar operating
conditions, except that annual production generally averages 100,000 units, confirms the
direct labor and variable overhead cost savings. However, the other company indicates
that it experienced an increase in raw material cost due to the higher quality of material
that had to be used with the new tools. The other company indicates that its unit product
costs have been as follows:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Unit product cost
P
4.50
3.00
0.80
10.80
P 19.10
Referring to the figures above, the production manager stated, “These numbers look
great until you consider the difference in volume. Even with the reduction in labor and
variable overhead cost, I’ll bet our total unit cost figure would increase to over P20 with
the new tools.”
Although the old tools being used by Turkey Company are now fully depreciated, they
have a salvage value of P45,000. These tools will be sold if the new tools are purchased;
however, if the new tools are not purchased, then the old tools will be retained as
standby equipment. Turkey Company’s accounting department has confirmed that total
fixed manufacturing overhead costs, other than depreciation, will not change regardless
of the decision made concerning the value stems. However, the accounting department
has estimated that working capital needs will increase by P60,000 if the new tools are
purchased due to the higher quality of material required in the manufacture of the value
stems.
The present values of 1 at the end of each period using 12 percent are:
Period 1
Period 2
Period 3
Period 4
PV of annuity of 1, 4 periods
30. The
A.
B.
C.
D.
0.89286
0.79719
0.71178
0.63552
3.03735
net investment in new tools amounted to:
P 1,873,300
P 2,515,000
P 2,528,500
P 2,546,500
31. How much annual cost savings will be generated if the Turkey Company purchases
the new tools?
A. P 128,000
B. P 216,000
C. P 936,000
D. P 1,008,000
Page 7 of 12
32. The
is:
A.
B.
C.
D.
present value of tax benefits expected from the use of the new machine tools
P
P
P
P
603,333
804,444
1,407,777
2,011,111
33. The present value of the salvage value of the new tools to be received at the end of
fourth year is:
A. P 63,552
B. P 19,065
C. P 44,486
D. P 212,615
34. Using the minimum acceptable rate of return of 12 percent, the net present value of
the investment in new tools is
A. P 108,913
B. P 127,979
C. P 147,073
D. P 166,139
35. The net advantage of the use of declining method of depreciation instead of
straight-line method is
A. P 33,830
B. P 56,610
C. P 112,767
D. P 147,731
36. Mario Hernandez plans to buy a haymaker. It costs P175,000 and is expected to
last for five years. He presently hires 6 workers at P10,000 per month for each of
the three harvesting months each year. The equipment would eliminate the need
for two workers. Hernandez uses straight-line depreciation and projects a salvage
value of P25,000. His tax rate is 25% and opportunity cost of funds is 12.0%. The
present value of 1discounted at 12 percent at the end of 5 periods is 0.56743 and
the present value of an annuity of 1 for 5 periods is 3.60478. Which of the
following is true?
A. The present value of cash flows in year 5 is P22,710
B. NPV is P28,436
C. NPV is P15,250
D. NPV is P14,186
37. Tabucol Aggregates, Inc. plans to replace one of its machines with a new efficient
one. The old machine has a net book value of P120,000 with remaining economic
life of 4 years. This old machine can be sold for P80,000. If the new machine were
acquired, the cash operating expenses will be reduced from P240,000 to P160,000
for each of the four years, the expected economic life of the new machine. The new
machine will cost Tabucol a cash payment to the dealer of P300,000. The company
is subject to 32 percent tax and for this kind of investment, a marginal cost of
capital of 9 percent. The present value of annuity of 1 and the present value of 1
for 4 periods using 9 percent are 3.23972 and 0.70843, respectively.
The net present value to be provided by the replacement of the old machine is
A.
B.
C.
D.
P28,493
P46,794
P15,693
P59,594
Page 8 of 12
38. Katol Company invested in a machine with a useful life of six years and no salvage
value. The machine was depreciated using the straight-line method. It was
expected to produce annual cash inflow from operations, net of income taxes, of
P6,000. The present value of an ordinary annuity of P1 for six periods at 10% is
4.355. The present value of P1 for six periods at 10% is 0.564. Assuming that
Katol used a time- adjusted rate of return of 10%, what was the amount of the
original investment?
A. P10,640
B. P22,750
C. P29,510
D. P26,130
39. Calma Company uses a standard cost system. The following budget, at normal
capacity, and the actual results are summarized for the month of December:
Direct labor hours
Variable factory OH
Fixed factory OH
Total factory OH per DLH
Actual data for December were as follows:
Direct labor hours worked
Total factory OH
Standard DLHs allowed for capacity attained
24,000
P 48,000
P108,000
P
6.50
22,000
P147,000
21,000
Using the two-way analysis of overhead variance, what is the controllable variance for
December?
A. P 3,000 Favorable
B. P 9,000 Favorable
C.
D.
P 5,000 Favorable
P10,500 Unfavorable
40. The following data are the actual results for Wow Company for the month of May:
Actual output
4,500 units
Actual variable overhead
P360,000
Actual fixed overhead
P108,000
Actual machine time
14,000 MH
Standard cost and budget information for Wow Company follows:
Standard variable overhead rate
P6.00 per MH
Standard quantity of machine hours
3 hours per unit
Budgeted fixed overhead
P777,600 per year
Budgeted output
4,800 units per month
The overhead efficiency variance is
A. P3,000 Favorable
C. P3,000 Unfavorable
B. P5,400 Favorable
D. P5,400 Unfavorable
41.
The standard factory overhead rate is P10 per direct labor hour (P8 for variable
factory overhead and P2 for fixed factory overhead) based on 100% capacity of
30,000 direct labor hours. The standard cost and the actual cost of factory overhead
for the production of 5,000 units during May were as follows:
Standard:
25,000 hours at P10
Actual: Variable factory overhead
Fixed factory overhead
What is the amount of the factory overhead volume variance?
A. 12,500 favorable
C. 12,500 unfavorable
B. 10,000 unfavorable
D. 10,000 favorable
42.
P250,000
202,500
60,000
The Fire Company has a standard absorption and flexible budgeting system and
uses a two-way analysis of overhead variances.
Selected data for the June
production activity are:
Page 9 of 12
Budgeted fixed factory overhead costs
P 64,000
Actual factory overhead
230,000
Variable factory overhead rater per DLH
P
5
Standard DLH
32,000
Actual DLH
32,000
The budget (controllable) variance for June is
A. P1,000 favorable
C. P1,000 unfavorable
B. P6,000 favorable
43.
D.
P6,000 unfavorable
Information of Hanes’ direct labor costs for the month of May is as follows:
Actual direct labor rate
P7.50
Standard direct labor hours allowed
11,000
Actual direct labor hours
10,000
Direct labor rate variance – favorable
P5,500
What was the standard direct labor rate in effect for the month of May?
A. P6.95
C. P8.00
B. P7.00
D. P8.05
44. A company’s breakeven point in peso sales may be affected by equal percentage
increases in both selling price and variable cost per unit (assume all other factors are
equal within the relevant range). The equal percentage changes in selling price and
variable cost per unit will cause the breakeven point in peso sales to
A. Decrease by less than the percentage increase in selling price.
B. Decrease by more than the percentage increase in the selling price.
C. Increase by less than the percentage increase in selling price.
D. Remain unchanged.
45.
Which of the following is an incorrect statement?
A. The contribution income statement that is prepared for internal users is better
than the traditional income statement as a management tool to predict the results
of increases or decreases in sales volume, variable costs, and fixed costs.
B. The greater the proportion of fixed costs in a firm's cost structure, the smaller will
be the impact on profit from a given percentage change in sales revenue.
C. In an economic recession, the highly automated company with high fixed costs will
be less able to adapt to lower consumer demand than will a firm with a more
labor-intensive production process.
D. A major difference between income statements prepared under the traditional
format and those prepared under the contribution format is that expenses under
the traditional format are shown by function, while the expenses shown under the
contribution format are shown by function and cost behavior.
46. Marquez Co. manufactures a single product. For 2006, the company had sales of
P90,000, variable costs of P50,000, and fixed costs of P30,000. Marquez expects its
cost structure and sales price per unit to remain the same in 2007; however total
sales are expected to jump by 20%. If the 2007 projections are realized, net income
in 2007 should exceed net income in 2006 by
A. 100%
B. 80%
C.
D
20%
50%
47. Almos Corporation produces a product that sells for P10 per unit. The variable cost
per unit is P6 and total fixed costs are P12,000. At this selling price, the company
Page 10 of 12
earns a profit equal to 10% of total peso sales. By reducing its selling price to P9 per
unit, the manufacturer can increase its unit sales volume by 25%. Assume that there
are no taxes and that total fixed costs and variable cost per unit remain unchanged.
If the selling price were reduced to P9 per unit, the company’s profit would have been
A. P3,000.
C. P5,000.
B. P4,000.
D. P6,000.
48. Pansipit Company had a 25 percent margin of safety. Its after-tax return on sales is
6 percent. The company’s income is subject to tax rate of 40 percent. If fixed costs
amount to P320,000, how much peso sales did Pansipit make for the year?
A. P1,066,667
C. P1,280,000
B. P1,000,000
D. P800,000
49. A cost is variable if it varies with the
a. number of units manufactured.
b. number of units sold.
c. level of some activity.
d. selling price of the product.
50. Fixed costs that cannot be reduced within a short period of time are
a. committed.
b. variable.
c. avoidable.
d. unnecessary.
51.
The following were reflected from the records of War Freak Company:
Earnings before interest and
P1,250,000
taxes
Interest expense
250,000
Preferred dividends
200,000
Payout ratio
40%
Shares outstanding throughout
2003
Preferred
20,000
Common
35,000
Income tax ratio
40%
Price earnings ratio
5 times
The dividend yield ratio is:
A. 0.50
B. 0.40
C. 0.12
D. 0.08
52.
The following ratios and data were computed from the 1997 financial statements
of Star Co.:
Current ratio
1.5
Working capital
P20,000
Debt/equity ratio
.8
Return on equity
.2
If net income for 1997 is P40,000, the balance sheet at the end of 1997 total assets
of
a. P340,000
b. P360,000
c. P300,000
d. P400,000
53.
Selected information from the accounting records of the Blackwood Co. is as
follows:
Net A/R at December 31, 2000
$ 900,000
Net A/R at December 31, 2001
$1,000,000
Accounts receivable turnover
5 to 1
Inventories at December 31,
$1,100,000
2000
Inventories at December 31,
$1,200,000
2001
Inventory turnover
4 to 1
What was the gross margin for 2001?
a. $150,000
b. $200,000
c. $300,000
d. $400,000
Page 11 of 12
Questions 53 through 57 are based on the following information.
You are requested to reconstruct the accounts of Angela Trading for analysis.
following data were made available to you:
Gross margin for 19x8
P472,500
Ending balance of merchandise inventory
P300,000
Total stockholders’ equity as of December 31, 19x8
P750,000
Gross margin ratio
35%
Debt to equity ratio
0.8:1
Times interest earned
10
Quick ratio
1.3:1
Ratio of operating expenses to sales
18%
Long-term liabilities consisted of bonds payable with interest rate of 20%
Based on the above information,
54.
What was the operating income for 19x8?
a. P472,500 b.
P243,500
c. P205,550
d. P229,500
55.
How much was the bonds payable?
a. P400,000
b. P200,750
d. P370,500
c. P114,750
56.
Total current liabilities would amount to
a. P600,000
b. P714,750
c. P485,250
d. P550,00
57.
Total current assets would amount to
a. P630,825
b. P780,000
c. P580,000
d. P930,825
The
58.
A useful tool in financial statement analysis is the common-size financial
statement. What does this tool enable the financial analyst to do?
a. Evaluate financial statements of companies within a given industry of
approximately the same value.
b. Determine which companies in the same industry are at approximately the same
stage of development.
c. Compare the mix of assets, liabilities, capital, revenue, and expenses within a
company over time or between companies within a given industry without respect
to relative size.
d. Ascertain the relative potential of companies of similar size in different industries.
59.
Last year, a business had no long-term investments; this year long term
investments amount to P100,000. In a horizontal analysis the change in long-term
investments should be expressed as
a. An absolute value of P100,000, and an increase of 100%
b. An absolute value of P100,000 and an increase of 1,000%
c. An absolute value of P100,000 and no value for a percentage change
d. No change in any terms because there was no investment in the previous year.
60.
a.
b.
c.
d.
Which of the following actions will increase a company’s quick ratio?
Reduce inventories and use the proceeds to reduce long-term debt.
Reduce inventories and use the proceeds to reduce current liabilities.
Issue short-term debt and use the proceeds to purchase inventory.
Issue long-term debt and use the proceeds to purchase fixed assets.
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