TEST BANK
MANAGEMENT ACCTG. – 1
C.
D.
Financial accounting, managerial accounting, cost accounting, inventory
accounting, Payroll accounting, tax accounting, and sales forecasting.
Tax accounting, internal accounting, internal auditing, general accounting.
Mgt. Acctg. Environment
1.
Management Accounting
A. Is governed by generally accepted accounting principles.
B. Draws from disciplines other than accounting
C. Is geared primarily to the past rather than future.
D. Places more emphasis on precision of data compared with financial accounting
which does not place more emphasis on accuracy of information.
2.
Management accounting is an integral part of the management process. As such, it
provides essential information for the following objectives except
A. Maintaining the current level of resources utilization as well as internal and
external communication.
B. Measuring and evaluating performances.
C. Planning strategies and controlling current activities of the organization.
D. Enhancing objectivity in decision-making.
3.
The chief management accountant called “controller” traditionally performs these
functions except
A. The establishment and implementation of the financial planning process.
B. Financial and management reporting and interpretation.
C. Protection of company resources and economic evaluation.
D. Relate to specific problems where expert help is required.
6.
Management accountants help design, develop, install and maintain reporting
systems which are
aligned with the structures of the organization. These systems provide information
that are useful
for decision making. Management decision processes fall into three categories.
A. Repetitive, non programmed and strategic
B. Repetitive, programmed and strategic
C. Repetitive, non programmed and nonstrategic
D. Non repetitive, non programmed and strategic
7.
In this element of internal control, the object is to gauge the efficiency of the
various levels of people in the organization as well as the quality and quantity of
results.
A. Records and reports
B. Standards and performance.
C. Internal audit
D. Policies and procedures.
12.
You are newly appointed as controller of ABC Corporation. Among the jobs your
department would do, include the following:
A. Cash receipts, cash disbursement, general accounting, taxation, financial
statements analysis and internal auditing.
B. Financial reporting, strategic planning, managerial accounting,
taxation, financial statement analysis and internal accounting.
15.
Which of the following characteristics does not relate to management accounting?
A. Accounting reports may include non-monetary information.
B. It is subject to restrictions imposed by GAAP.
C. Reports are often based on estimates and are seldom useful for everything
other than the purpose for which they are prepared.
D. It provides data for external users within the business organizations.
22.
The
1.
2.
3.
4.
activities in a management system’s control process can be grouped into four:
Measurement of actual performance
Deciding and implementing corrective action.
Determining standards of performance.
Comparing actual performance versus standards and analyzing results.
The
A.
B.
C.
D.
above steps must be done in this sequence:
4,3,2,1
3,1,4,2
1,3,4,2
3,4,1,2
23.
The
A.
B.
C.
D.
concept of “management by exception” refers to management’s
Consideration of only those items which vary materially from plans.
Consideration of only rare events.
Consideration of items selected random.
Events that involve material amount.
28.
A type of managerial accounting that refers to the determination of the cost of
products and services regardless of whether they are variable or non-variable is
known as
A. Differential accounting
B. Activity accounting
C. Full cost accounting
D. Responsibility accounting
29.
A type of managerial accounting that refers to the determination of the operating
cost regardless of cost behavior is
A. Differential accounting
B. Full cost accounting
C. Responsibility accounting
D. Profitability accounting
COSTS CONCEPTS, CLASSIFICATION AND SEGREGATION
1.
The
A.
B.
C.
D.
term relevant cost applies to all the following decision situations except the
Acceptance of a special order.
Determination of a product price.
Replacement of equipment.
Addition or deletion of a product line.
2.
A decision-making concept, described as “the contribution to income that is
foregone by not using a limited source for its best alternative use.” is called
A. Marginal Cost
B. Incremental Cost
C. Potential Cost
D. Opportunity Cost
5.The term that refers to costs incurred in the past that are not relevant to a future decision
is
A. Full absorption costing
B. Under-allocated indirect cost
C. Sunk cost
D. Incurred marginal cost
Q 5-7 are based on the following information. Management accountants are frequently asked
to analyze
various decision situations including the following:
I. The cost of a special device that is necessary if a special order is accepted.
II. The cost proposed annually for the plant service for the grounds at corporate
headquarters.
III. Joint production cost incurred to be considered in a sell-at-split versus a
process-further
decision.
IV. The cost of alternative use of plant space to be considered in a make-or-buy
decision.
V. The cost of obsolete inventory acquired several years ago, to be considered in a
keepversus-disposal decision.
The
A.
B.
C.
D.
cost described in situations I and IV are
Prime cost
Discretionary costs
Relevant costs
Differential costs
The
A.
B.
C.
D.
costs described in situations III and V are
Prime costs
Sunk costs
Discretionary costs
Relevant costs
The
A.
B.
C.
D.
cost describe in II is a
Prime costs
Discretionary costs
Relevant costs
Differential costs
B.
C.
D.
The variable cost
The cost to produce an additional unit.
The manufacturing unit cost.
9.
Opportunity costs are
A. Costs irrevocably incurred by past actions.
B. The difference between actual and standard costs.
C. Not recorded in the accounting records.
D. Partly fixed costs and partly variable costs.
10.
Cost of goods sold is a component of the income statement. In a merchandising
establishment, this refers to purchases adjusted for changes in inventory. In a
manufacturing company, what replaced purchases to arrive at cost of goods sold?
A. Finished goods
B. Fixed manufacturing overhead
C. Work in process inventory
D. Cost of goods manufactured
14.
When all manufacturing cost used in production are attached to the products,
whether direct, or
indirect, variable or fixed, this is called
A. Process costing
B. Absorption costing
C. Variable costing
D. Job order costing
15.
Al-kris Company uses a regression equation to analyze the behavior of its
transportation costs (T) as a function of travel time (H). They developed the
following equation using two years’ observation with a related coefficient of
determination of 85: T= 100,000 + P50H
If 500 hours of travel time were logged in one period, the related point estimate of
total
transportation costs would be
A. P110,000
B. P121,250
C. P106,250
D. P125,000
16.
These are among the methods of segregating fixed cost and variable costs except
A. Breakeven method
B. Simple regression analysis
C. Scattergraph method
D. High-low method.
Highest cost – Lowest cost
= Difference in cost
=Variable cost /
unit
8.
Management accountants are concerned with incremental unit costs. These costs
are similar to the following, except
A. The economic marginal cost
Highest hour – Lowest hour =Difference in hour
Highest or lowest Cost
=
xxx
- Variable cost (UVC x highest or lowest hour)
Fixed cost
17.
Cost of Steam
P15,850
13,400
16,370
19,800
17,600
18,500
P101,520
P0.93
xxx
Dongian, Inc. is preparing a flexible budget for the next year and requires a
breakdown of the cost of steam used in its factory into the fixed and variable
elements. The following data on the cost of steam used and direct labor hours
worked are available for the last 6 months of this year.
Month
July
August
September
October
November
December
19.
D.
xxx
Direct Labor Hours
3,000
2,050
2,900
3,650
2,670
2,650
16,920
23.
For the six months of the year, the highest level of activity for MDG Corporation was
18,000 full
units of production with maintenance cost at P114,000 and its lowest level of
activity for the same period was at 14,000 full units of production with maintenance
cost at P94,000. What amount of maintenance cost should MDG expect in a month
in which it was scheduled 16,000 equivalent full units of production.
A. P 24,000
B. P104,000
C. P 80,000
D. P114,000
24.
Assuming that Dongian uses the high-low method of analysis. The estimated
variable cost of steam per direct labor hour is:
A. P4.00
B. P5.42
C. P5.82
D. P6.00
Simple regression analysis provides the means to evaluate a line of regression,
which is fitted to a plot of data and represents
A. The way costs change with respect to the dependent variable.
B. The way costs change with respect to both independent variable and dependent
variables.
C. The variability expense with pesos of production.
D. The way costs change with respect to the independent variable.
25.
What is the amount of fixed cost?
A. P14,600
B. P 8,200
C. P 5,200
D. P
0
The
A.
B.
C.
D.
27.
The segregation of fixed costs and variable costs is key to proper cost analysis.
Regression analysis is a technique used for this purpose. Identify the appropriate
statements below on regression analysis:
1. It assumes that a change in value of a dependent variable is related to the
change in the value of an independent variable.
2. A linear relationship between direct cost and production volume can cause a
problem when using accounting data for regression analysis.
3. It attempts to find an equation for the linear relationship among variable.
4. It establishes a cause and effect relationship.
Mark Company estimates handling costs at two activity levels as follows:
Kilos handled
80,000
60,000
Cost
P160,000
132,000
What is Mark’s estimated cost of handling 75,000 kilos?
A. P150,000
B. P153,000
C. P157,500
D. P132,000
20.
The total production cost for 20,000 units was P21,000 and the total production cost
for making
50,000 units was P34,000. Once production exceeds 25,000 units, additional fixed
costs of P4,000 were incurred. The full production cost per unit for making 30,000
units is:
A. P 0.30
B. P 0.68
C. P 0.84
A.
B.
C.
D.
slope of the line of regression is
The rate at which the independent variable varies.
The rate at which the dependent variable varies.
The level of fixed costs.
The level of the total variable costs.
All four statements are appropriate.
Statements 1, 3 and 4 only.
Statements 1 and 3 only.
Statements 2 and 4 only.
Y = a + bx
Where : Y = Total cost
a = Fixed cost
b = Variable cost / unit or hour
x = number of units or hours
29.
For the month just ended, the cost components to make Product AB was P50 per
unit plus fixed
costs of P250,000. One thousand units were produced. For the month the cost to
make the product will be P55 per unit plus fixed cost of P250,000. Fifteen hundred
units are expected to be produced. The estimates of the underlying but unknown
intercept and slope coefficient for the current month are
A. P250,000 and P50
B. P55 and P250,000
C. PP50 and P250,000
D. P250,000 and P55
33.
Which of the following may be used to estimate how both the number of shipments
and the weight of materials handled affect inventory warehouse costs?
A. Economic order quantity analysis
B. Probability analysis
C. Correlation analysis
D. Multiple regression analysis
34.
A non-linear cost function
A. Does not effectively describe the behavior of costs all the time.
B. Never describes the behavior of costs in relation to the cost driver.
C. Has two constants and single slope.
D. Always describes the behavior of costs in relation to the driver.
35.
39.
letter “x” in the standard regression equation is best described as a (an)
Independent variable
Dependent variable
Constant coefficient
Coefficient of determination
Q = P6,000 + P5.25Z
If 1,000 machine hours are worked in one month, the related point of estimate of
total maintenance costs would be
A. P11,250
B. P10,125
C. P 5,250
D. P 4,725
Y =P575,000 + P8.50x represents the behavior of maintenance costs (Y) as a
function of machine hours (x). Thirty (30) monthly observations wee used to
develop the foregoing regression equation. The related coefficient of determination
was .90. If 2,500 machine hours were worked in one month, the related point
estimate of total variable maintenance costs would be:
A. P23,000
B. P21,250
C. P25,250
D. P19,125
MARGINAL COSTING and COST-VOLUME-PROFIT ANALYSIS
1.
In the standard regression equation Y = a + bx, the letter b is best described as
a(n):
Independent variable
Dependent variable
Constant coefficient
The
A.
B.
C.
D.
Pure Company has developed a regression equation to analyze the behavior of its
maintenance costs (Q) as a function of machine hours (Z). The following equation
was developed by using 30 monthly observations with a related coefficient of
determination of 0.90:
44.
A.
B.
C.
Variable coefficient
Based upon the data described from the regression analysis, 420 maintenance
hours in a month
would mean the maintenance costs (rounded to the nearest peso) would be
budgeted at
A. P3,780
B. P3,600
C. P3,790
D. P3,746
Crescent Company has the data relating total production costs to volume for each
quarter during the past five years. During this period, production volume has varied
substantially. The method of production has been relatively unchanged and the cost
behavior has been complex. What is the most appropriate method for estimating
future production cost?
A. Linear programming
B. Cost-volume-earnings approach
C. Time-series or trend regression analysis
D. Program evaluation review technique
Q. 36-38 are based on the following.
In preparing the annual profit plan for the coming year, Venus Company wants to
determine the cost behavior pattern of the maintenance costs. Venus has decided to
use linear regression by employing the equation Y = a + bx for maintenance costs.
The prior year’s data regarding maintenance hours and costs and the results of the
regression analysis are given below,
Average cost per hour
P 9.00
a
684.65
b
7.2884
Standard error of a
49.515
Standard error of b
.12126
Standard error of the estimate
34.469
r2
.99724
D.
2.
Cost-volume-profit analysis assumes that over the relevant range
A. Variable costs are nonlinear
B. Fixed costs are nonlinear
C. Selling prices are unchanged
D. Total costs are unchanged
Cost-volume-profit analysis assumes that over the relevant range total
A. Revenues are linear
B.
C.
D.
2.
Costs are unchanged
Variable costs are nonlinear
Fixed costs are nonlinear
Break-even analysis assumes that over the relevant range
A. Selling prices are unchanged.
B. Variable costs are nonlinear
C. Total costs are unchanged
D. Fixed costs are nonlinear
5.The amount of variable cost per unit and total fixed cost within a relevant range behave
this way in
relation to production level:
A. Production increases, unit variable cost increases, total fixed cost increases.
B. Production decreases, unit variable cost decreases, total fixed cost decreases.
C. Production increases, unit variable cost remains constant, total fixed
cost remains the same.
D. Production increases, unit variable cost decreases, total fixed cost remains the
same.
6.Assuming that a flexible budget is in use, production levels are expected to increase within
a relevant
ranged, the expected effect on fixed cost per unit per unit (FCU) and variable costs
per unit (VCU)would be
A. FCU to decrease and VCU to decrease
B. FCU to decrease and VCU no change
C. FCU no change and VCU no change
D. FCU no change and VCU to decrease
7.
One of the major assumptions limiting to reliability of break-even analysis is that
A. The cost of productivity will continually increase.
B. The cost of production factors varies with changes in technology.
C. Total variable cost will remain unchanged over the relevant range.
D. Total fixed cost will remain unchanged over the relevant range.
D.
Needed for determining product contribution
Sales (S)
Variable C/S (VC)
Manufacturing margin
Variable expenses(VE)
Contribution Margin (CM)
-Fixe Costs & Expenses(F C&E)
Income Before Income Tax (IBIT)
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Q19-20 are based on the following selected budgeted data of Ritz Company for the coming
year:
Selling price per unit
Budgeted sales
Fixed expenses
Variable cost per unit
P
600,000
150,000
12.00
8.00
What is the breakeven sales in units?
A. 35,000
B. 37,500
C. 40,000
D. 45,000
What is the margin of safety ratio in percent?
A. 15%
B. 20%
C. 30%
D. 25
BEP (Units) = FC / UCM
Ratio)
(OR)
BEP(u) = Actual Sales x (1 – MS
BEP (Peso) = FC /CMR
9.
15.
16.
At breakeven point, fixed cost is always
A. Less than contribution margin
B. Equal to contribution margin
C. More than variable cost
D. More than the contribution margin
The
A.
B.
C.
D.
rate or amount that sales may decline before losses are incurred is called:
Sensitive level of income
Variable sales ratio
Margin of safety
Residual income rates
Total unit costs are
A. Relevant for cost-volume-profit analysis
B. Independent of the cost system used to generate them
C. Irrelevant in marginal analysis
Margin of Safety = Budgeted or Actual Sales – Breakeven Sales (OR) MS=
Sales x MSR
( B or A S )
(BES)
MSR = MS / ACTUAL (or BUDGETED) SALES
MSR = NPR / CMR
MSR = [ 1 – (BE Sales / Actual Sales) ]
AT BEP: PROFIT (LOSS) = 0
Sales = Total Costs
Contribution Margin = Total Fixed Costs
Relevant Formulas
CONTRIBUTION MARGIN = ?
CM = SALES – VARIABLE COST
CM = FIXED COSTS + IBIT
CM = SALES x CMR
A.
B.
C.
D.
CM = Quantity sold
x UCM
CMR = ?
CMR = 100% - VCRatio
CMR = UCM / USP
NPR / MSR
CMR = CM / SALES
CMR =
UCM = ?
UCM = USP – UVC
UCM = FC / BEP (IN UNITS)
UCM = CM / QUANTIRY SOLD
24.
A company produced 500 units of a product and incurred the following costs. Direct
materials,
P8,000; direct labor, P10,000; overhead (20% fixed), P45,000. If the sales value of
500 units is
P102,000, what is the contribution margin percentage?
A. 44%
B. 47%
C. 53%
D. 74%
25.
PROFIT = ?
PROFIT = CM – FIXED COST
PROFIT = SALES x MS Ratio x CM Ratio
PROFIT = SALES x NPRatio
Change in Profit = CM – Inc. in FC
Change in Profit = CM + Dec in FC
23.
Given the selling price at P120 per unit; contribution margin ratio at 25% and fixed
cost at P250,000, the total variable expenses at the break even point would be:
A. P350,000
B. P750,000
C. P450,000
D. P250,000
26.
Which of the following is used to determine the break-even point when using the
contribution
margin method?
A. Revenues less operating income equals variable costs plus fixed costs.
B. Unit contribution margin times the break-even number of units equals
fixed costs.
C. Selling price less unit fixed costs equals contribution margin.
D. Total fixed costs equal total revenues.
FIXED COST = ?
FC = CM (at BEP )
FC = BEP (units) x UCM
VC
VC
VC
VC
VC
P3,750,000
P1,850,000
P1,875,000
P2,500,000
Ratio = VC / SALES
Ratio = UVC / USP
Ratio = 100% - CMR
RATIO = ( CHANGE IN COST – Inc. in FC) / Change in Sales
RATIO = ( CHANGE IN COST +Dec. in FC) / Change in Sales
28.
Ces Co’s operating percentages were as follows:
To reduce the break-even point, the company may
A. Decrease both the fixed costs and contribution margin.
B. Increase both the fixed costs and contribution margin.
C. Decrease the fixed costs and increase the contribution margin.
D. Increase the fixed costs and decrease the contribution margin.
Revenues
100%
Cost of goods sold:
Variable
Fixed
50%
10%
60%
Gross profit
29.
RDG Inc.’s net sales in 2009 were 15% below the 2008 level. RDG’s semi-variable
costs would
A. Increase in total and increase as a percentage of net sales.
B. Decrease in total and decrease as a percentage of net sales.
C. Increase in total but decrease as a percentage of net sales.
D. Decrease in total but increase as a percentage of net sales.
40%
Other operating expenses:
Variable
Fixed
20%
15%
35%
Operating income
Ces’s sales totaled P3 million, at what level is break-even sales?
5%
30.
Cost-volume-profit analysis is a key factor in many decisions, including choice of
product-lines,
pricing of products, marketing strategy, and utilization of productive facilities. A
calculation used in CVP analysis is the break-even point. Once the break-even point
has been reached operating income will increase by the
A. Sales price per unit for each additional unit sold.
B. Contribution margin per unit for each additional unit sold.
C.
D.
Fixed cost per unit for each additional unit sold.
Gross margin per unit for each additional unit sold.
Q40-41 are based on the following information.
Stuff Toys Manufacturing Co. manufactures and sells dolls. The following
information relates to the operating results for the last quarter:
32.
Miles Company sells three chemicals: Simpol, Plutex and Coplex. Simpol is the most
profitable
product while Coplex is the least compatible. Which of the following events will
definitely decrease the firm’s overall BEP for the upcoming account period?
A. An increase in the overall market of Plutex
B. A decrease in Coplex’s selling price
C. An increase in anticipated sales of Simpol relative to the sales of Plutex
and Coplex
D. An increase in Simpol raw materials
34.
P3,000,000
2,100,000
1,800,000
600,000
P 900,000
P2,400,000
P1,200,000
P1,500,000
The
A.
B.
C.
D.
contribution margin ratio always increases when the
Breakeven point increases
Breakeven point decreases
Variable costs as a percentage of net sales decrease.
Variable costs as a percentage of net sales increase.
42.
36.
The following information pertains to Vilma Company’s cost-volume-profit
relationships:
Breakeven point in units sold
Variable costs per unit
Total fixed costs
1,000
P
500
P150,000
For a profitable company, the amount by which sale can decline before losses occur
is known as the
A. Variable sales ratio
B. Margin of safety
C. Sales volume variance
D. Marginal income rate.
43.
Dagupan Silver, Inc. manufactures and sells key rings embossed with college names
and slogans.
Last year, the key rings sold for P75 each, and the variable costs to manufacture
them were P22.50 per unit. The company needed to sell 20,000 key rings to breakeven. The net income last year was P50,400. The company expects the following for
the coming year:




How much will be contributed to profit before income taxes by the 1,001st units
sold?
A.
B.
C.
D.
39.
P65,875
P47,275
What was the margin of safety percentage for the last quarter of the company?
(rounded to the
nearest percent)
A. 20%
B. 25%
C. 28%
D. 72%
Q?
A.
B.
C.
D.
19,375
15,500
What was the company’s variable cost per doll?
A. P4.25
B. P3.05
C. P1.20
D. P0.96
Pia Company reported the following for the year just ended:
Budgeted sales
Break-even sales
Budgeted contribution margin
Cashflow break-even
35.
Stuff toys sold
Breakeven point in number of toys
Breakeven point in peso sales
Total fixed costs
P650
P500
P150
P 0
Which of the following would decrease unit contribution margin the most?
A. A 15% decrease in selling price
B. A 15% increase in variable costs
C. A 15% decrease in variable costs
D. A 15% decrease in fixed costs.
For
A.
B.
C.
D.
The selling price of the key rings will be P90.
Variable manufacturing costs per unit will increase by one-third.
Fixed cost will increase by 10%.
The income tax rate will remain unchanged.
the company to break-even the coming year, the company should sell
21,600
2,600
21,250
19,250
44.
45.
46.
A company has revenues of P500,000, variable costs of P300,000, and pretax profit
of P150,000. If the company increased the sales price per unit by 10%, reduced
fixed costs by 20%, and left
variable cost per unit unchanged, what would be the new breakeven point in pesos?
A. P 88,000
B. P100,000
C. P110,000
D. P125,000
Lilly Corporation has a contribution margin ratio of 0.26. It aims to have a net
income of P320,000 with a sales volume of P2 million. Its total fixed costs amount
to
A. P200,000
B. P 83,200
C. P230,777
D. P520,000
AA Corporation, a manufacturing company, is operating at 90% capacity. Since
there is no use of the 10% idle capacity, an offer for a new order at P8.20 per unit
requiring 15% capacity is being considered. If the order will be accepted, the 5%
additional capacity will be sub-contracted at the cost of P7.80 per unit. The variable
cost per unit of production of AA Corporation follows:
Materials
Labor
Variable overhead
Total
P 4.00
1.75
1.75
7.50
What is the expected contribution margin per unit on the new order?
A. P0.40
B. P0.60
C. P0.50
D. P0.55
47.
Last year, the contribution margin ratio of Mara Company was 30%. This year, fixed
costs are
expected to be P120,000, the same as last year, and revenues are forecasted at
P550,000, a 10%
increase over last year. For the company to increase operating income by P15,000
in the coming
year, the contribution margin ratio must be
A. 20%
B. 30%
C. 40%
D. 70%
48.
A company increased the selling price of its product from P1.00 to P1.10 a unit
when total fixed
costs increased from P400,000 to P480,000 and variable cost per unit remain
unchanged. How will these changes affect the breakeven point?
A. The breakeven point in units will be increased.
B.
C.
D.
The breakeven point in units will be decreased.
The breakeven point in units will remain unchanged.
The effect cannot be determined from the information given.
BESales with profit
Break- Even Sales(U) = FC + IBIT / UCM
50.
In using cost-volume-profit analysis to calculate expected unit sales, which of the
following should be deducted to fixed cost in the numerator?
A. Predicted operating loss.
B. Predicted operating income
C. Unit contribution margin
D. Variable costs
51.
Queen Company would like to market a new product at a selling price of P15 per
unit. Fixed cost
for his product are P1,000,000 for less than 500,000 units of output and P1,500,000
for 500,000 or more units of output. The contribution margin percentage is 20%.
How many units of this product must be sold to earn a target operating income of
P1 million?
A. 754,900
B. 833,334
C. 825,530
D. 785,320
52.
Merchandiser, Inc. sells Product O to retailers for P200. The unit variable cost is P40
with a selling commission of 10%. Fixed manufacturing cost total P1,000,000 per
month wile fixed selling and administrative costs total P420,000. The income tax
rate is 30%. The target sales if after tax income is P123,200 would be
A. 10,950 units
B. 15,640 units
C. 13,750 units
D. 11,400 units
53.
Nice Company has sales of P400,000 with variable costs of P300,000, fixed costs of
P120,000 and an operating loss of P20,000. By how much would Nice need to
increase its sales in order to achieve a target operating income of 10% of sales?
A. P400,000
B. P462,000
C. P500,000
D. P800,000
Q54-55 are based on the following information.
Bohol Marketing Company is expecting an increase of fixed costs by P78,750 upon
moving their
place of business to the downtown area. Likewise it its anticipating that the selling
price per unit and the variable expenses will not change. At the present, the sales
volume necessary to breakeven is P750,000 but with the expected increase in final
sales, the sales volume necessary to breakeven would go up to P975,000. Based on
these projections,
What is the profit-volume ratio of Bohol Marketing?
A. 35%
B. 40%
C. 45%
D. 65%
What would be the total fixed costs of Bohol Marketing after the increase of
P78,750?
A. P 341,250
B. P 262,500
C. P2,183,750
D. P 300,000
56.
64.
Variable cost per unit is P3.50. Contribution margin is 30%. Breakeven sales is P1
million. To sell an additional 50,000 units at the same price and contribution
margin, how much will fixed costs increase to have a gross margin equal to 10% of
the sales value of the additional cost of 50,000 units to be sold?
A. P 67,500
B. P 50,000
C. P 57,500
D. P125,000
Queen Company sells video tapes. The projected after tax net income for the year is
P480,000 based on a sales volume of 200,000 units. It sells the tapes at P64 each.
The variable cost consists of P40 unit purchase price (bulk orders) and a handling
cost of P8 per unit. Annual fixed cost are P2,400,000 and the company’s income tax
rate is 35%. An increase of 10% projected unit sales volume for the year would
result in an increased after tax income for the year of
A. P120,000
B. P 48,000
C. P208,000
D. P 40,000
Multi-product sales
Composite BES (Units) = FC / Ave. UCM*
Fixed cost total P300,000 annually. The expected mix in units is 60% for Product Y
and 40% for
Product Z.
How much is King’s breakeven sales?
A.
857
B. 1,111
C. 2,000
D. 2,459
How much is King’s breakeven sales in pesos?
A. P300,000
B. P420,000
C. P475,000
D. P544,000
68.
Alpha is selling three products: Red, White, and Blue. The company sells three units
of Red for
every unit of Blue, and two units of White for every unit of Red Fixed costs are
P720,000.
Contribution margin are:
P 1.90 per unit of Red
2.00 per unit of White
2.30 per unit of Blue
How many units of White would the company sell at breakeven point?
A. 360,000
B. 108,000
C.
72,000
D. 216,000
69.
Best Laboratory, Inc. formulates and sells three major chemicals: C1, C2, and C3. It
sells to
industrial users who use and buy these chemicals in the following ratio: three (3)
measures of C1 per one (1) measure of C3, two (2) measures of C2 per one (1)
measure of C1. The company makes the following contribution margin per measure:
C1
P 30
C2
45
C3
90
*Ave UCM = Sales mix ratio/Product (x)UCM / Product
Q65-66 are based on the following information.
The data below pertain to two types of products manufactured by King Company:
Unit Sales Price
Unit Variable Cost
Product Y
P120
P 70
Product Z
500
200
Fixed costs amounted to P1.8 million. At break-even point, the volume of C3 to be
sold would be
A. 12,000
B. 36,000
C. 24,000
D.
4,000
75.
76.
In a multi-product company, as the mix of the products being sold changes, the
overall contribution margin ratio will also change. IF the shift in mix is toward the
less profitable products, then the contribution margin ratio will
A. Fall
B. Rise
C. Not change
D. Change in direct proportion to break-even point
Mixnuts Corporation is a multiple-product firm. In their review of operations, they
decided to shift the sales mix from less profitable products to more profitable
products, accounting for 30% of gross sales. This will cause the company’s
breakeven profit to
A. Decrease
B. Change by 15%
C. Increase
D. Not change
80.
When using the graph method, if the unit output exceeds the break-even point,
A. Expenses are extremely high relative to revenues.
B. There is loss because the total cost line exceeds the total revenue line.
C. Total sales exceed total cost.
D. There is profit since the total cost line exceeds the total revenue line.
81.
The
A.
B.
C.
D.
Sensitivity Analysis
85.
77.
Pangasinan Frames Inc. has the following revenue and cost budgets for the two
products it sells
Sales Price
Direct materials
Direct labor
Fixed overhead
Net income per unit
Budgeted unit sales
Plastic Frames
P 50
(10)
Glass Frames
P 75
(15)
(15)
(15)
(25)
(20)
P 10
100,000
most important use of the cost-volume-profit graph is to show
The breakeven point.
The cost/margin ratio at various levels of sale activity.
The relationships among volume, cost, revenues, over-wide ranges of
activity.
The determination of cross over point.
Calculate the overall breakeven point in terms of units if the company believes that
the current price of P40 is too high and the firm faces stiff competition. After all the
sensitivity analysis is done, it was decided by the management committee to lower
the price to P36 without sacrificing the quality of the product. What is the new
breakeven point if fixed costs are P309,750 and unit contribution margin is P6?
A. 51,625
B. 39,125
C. 31,250
D. 43,750
P 15
Q86-87are based on the following information.
300,000
Presented below are the results of operations of Venus Products, Inc. for 2009:
The budgeted unit sales equal the current unit demand, and total fixed overhead for
the year in
budgeted at P4,875,000. Assume that the company plans to maintain the
proportional mix. In
numerical calculations, the company rounds to the nearest centavo and unit. The
total number of
units the company needs to produce and sell to break-even is
A. 300,000
B. 354,545
C. 150,000
D.
75,000
79.
In a profit-volume graph, the cost/volume/profit relationships are represented. The
vertical axis is
the profit in pesos and the horizontal axis is the volume in units. The diagonal line is
the contribution margin line. The point at which the contribution margin line
intersects the zero profit line is the point:
A.
B.
C.
D.
At which the volume level is zero.
At which the total costs equal the total sales.
At which sale increases.
At which total variable costs equal total sales.
Sales (150,000 units)
Cost of goods sold:
Fixed
Variable
Gross profit
Selling and administrative:
Fixed
Variable
Income before taxes
P600,000
P150,000
300,000
450,000
P150,000
39,000
45,000
84,000
P 66,000
The company is concerned about the expected increase in fixed manufacturing costs
by 50% if it will buy a new equipment with a higher production capacity. However,
study shows that with the use of the new equipment sales volume in units are
expected to increase by 40% while variable
manufacturing costs will decrease from P2.00 to P1.50 per unit. The total fixed
selling and
administrative expenses and variable selling and administrative expenses will
remain the same. The company has been operating at full capacity. If the company
will buy the new equipment,
What would be the breakeven point in terms of units?
A.
B.
C.
D.
Based on market study in December 2009, Winner estimated that it could increase
the unit selling price by 15% and increase the unit sales volume by 10% if
P100,000 were spent on advertising. Assuming that Winner incorporates these
changes in its 2010 forecast, what should be the operating income from Product G?
A. P175,000
B. P190,000
C. P205,000
D. P365,000
120,000
66,000
176,000
105,000
What is the maximum expected income before income tax?
A. P198,000
B. P216,000
C. P306,000
D. P288,000
91.
Q.88-89 are based on the following information.
The Handicraft Company manufactures and sells Batik handbags to assorted prints.
Data for the
previous year were as follows:
Selling price per piece
Variable cost per piece
No. of pieces to breakeven
Net income last year
P8.00
P2.00
25,000
P5,850
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 the fixed costs will
increase by 10%. Income tax rate of 35% will not change.
What is the selling price per piece that would give the same contribution margin
rate as previous
year?
A. P10.00
B. P 9.50
C. P 8.00
D. P10.50
Operating Leverage
98.
Willy Corporation is operationally, a highly leveraged company, that is, it has high
fixed costs and low variable cost. As such, small changes in sales volume result in
A. Proportionate change in net income.
B. Large changes in net income.
C. Negligible change in net income.
D. No change in net income.
99.
The percentage change in earning before interest and taxes associated with the
percentage change in revenues is the degree of
A. Operating leverage
B. Financial leverage
C. Breakeven leverage
D. Combined leverage
101.
Yoly Inc. manufactures computers tables. It has an investment of P1,750,000 in
assets and expects a 25% return on investment. Its fixed production cost for 2,000
units is P550,000 plus an additional P150,000 for selling and administrative
expenses. The variable cost to manufacture is P1,500 per table. The selling price
per table should be:
A. P2,068.75
B. P1,850.00
C. P2,531.25
D. P2,725.00
102.
Using absorption costing, the determination of the breakeven point depends on all
of the following, except
A. The budgeted level of production.
B. Achieving targeted production levels.
C. The number of units sold during the period.
D. The level of fixed manufacturing overhead.
104.
State whether the following statements are true or false.
If sales for the coming year are expected to exceed last year’s by 1,800 pieces,
what would be the expected sales volume for the coming year?
A. 28,300
B. 27,775
C. 26,800
D. 26,500
90.
Winner Company prepared the following preliminary forecast concerning Product G
for 2010
assuming no expenditure for advertising:
Selling price per unit
Unit sales
Variable costs
Fixed costs
When used in cost-volume-profit analysis, sensitivity analysis
A. Determines the most profitable mix of product to be sold.
B. Allows the decision maker to introduce probabilities in the evaluation of decision
alternatives.
C. Computes profit per unit of production and determines the optimum production
of the company.
D. Is done through various possible scenarios and computes the impact on
profit of various predictions of future events.
P
10
100,000
P600,000
P300,000
1. The breakeven point is defined as the sum of variable expenses and fixed
expenses.
2. As sales exceed the breakeven point, a low contribution margin percentage
would result in
lower profit than would a high contribution margin percentages.
3. All fixed costs are treated as period costs when variable costing is used.
A.
B.
C.
D.
Statement 1 Statement 2
Statement 3
True
True
True
False
True
True
False
False
True
False
False
False
7.
When all manufacturing costs used in production are attached to the products,
whether direct or
indirect, variable or fixed, this is called:
A. Process costing
B. Absorption costing
C. Variable costing
D. Job order costing
8.
For a multiple-product company, in determining the break-even point, which of the
following
assumptions are commonly used when variable costing is adopted?
I. Sales equal production
II. Unit variable cost is constant
III. Sales mix is constant
VARIABLE COSTING
1.
2.
Under the direct costing, which is classified as product costs?
A. Only variable production costs.
B. Only direct costs.
C. All variable costs
D. All variable and fixed production costs.
In absorption costing, as contrasted with direct costing, the following are absorbed
into inventory.
A. All the elements of fixed and variable manufacturing overhead.
B. Only the fixed manufacturing overhead.
C. Only the variable manufacturing overhead.
D. Neither fixed nor variable manufacturing overhead.
In an income statement prepared as an internal report using the direct (variable)
costing method, fixed selling and administrative expenses would
A. Not be used.
B. Be used in the computation of the contribution margin.
C. Be used in the computation of operating income but not in the
computation of the contribution margin.
D. Be treated the same as variable selling and administrative expense.
5
6
In an income statement prepared as an internal report using the direct (variable)
costing method,
variable selling and administrative expenses would
A. Not be used.
B. Be used in the computation of the contribution margin.
C. Be used in the computation of operating income but not in the
computation of the contribution margin.
D. Be treated the same as fixed selling and administrative expense.
A type of managerial accounting which refers to the determination of the operating
cost regardless of cost behavior, whether variable or non-variable, is
A. Differential accounting
B. Full cost accounting
C. Responsibility accounting
D. Profitability accounting
A.
B.
C.
D.
9.
I and III
I and II
I, II and II
II and III
Carla company’s 2009 fixed manufacturing overhead cost totaled P100,000 and
variable selling costs totaled P80,000. Under the direct costing, how should these
costs be classified?
A.
B.
C.
D.
Period Cost Product Cost
P
0
P 180,000
P 80,000
P 100,000
P100,000
P 80,000
P180,000
P
0
10.
If production is greater than sales (units), then absorption costing net income will
generally be
A. Greater than direct costing net income
B. Less than direct costing net income
C. Equal to direct costing net income
D. Additional data is needed to be able to answer.
11.
Which of the following statements is correct?
A. When production is higher than sales, absorption costing net income is lower
than variable costing net income.
B. If all the products manufactured during the period are sold in that
period, variable costing net income is equal to absorption costing net
income.
C. When production is lower than sales, variable costing net income is lower than
absorption costing net income.
D. When production and sales level are equal, variable costing net income is lower
than absorption costing net income.
12.
higher
Operating income using direct costing as compared to absorption costing would be
Variable OH
A.
B.
C.
D.
When the quantity of beginning inventory equals the quantity of ending
inventory.
When the quantity of beginning inventory more than the quantity of
ending inventory.
When the quantity of beginning inventory less than the quantity of ending
inventory.
Under no circumstances.
17.
19.
Variable OH
Fixed OH
xxx
Total Product Cost (Variable Costing)
xxx
20.
13.
If sales equal production, one would expect net income under the variable costing
method to be
A. The same as net income under absorption costing method.
B. Greater than net income under absorption costing method.
C. Differing in as much as the difference between sales and production.
D. Less than net income under the absorption costing method.
16.
xxx
xxx
Other things being equal, income computed by the direct costing method will
exceed that computed by an absorption costing method if
A. Fixed manufacturing cost increases.
B. Units sold exceed units produced.
C. Variable manufacturing costs increase
D. Units produced exceed units sold.
President X of ABC Corporation requested you to explain the difference in net
income between the variable costing income statement presentation and the
absorption method. You would say that the difference:
A. Is none if there is no change in the fixed costs in the beginning and
ending inventories.
B. Is equal to the fixed cost per unit times the number of units sold.
C. Is attributable to the variable costs in the inventory.
D. Is attributable to the fixed cost in ending inventory.
Identify the following statements as true or false.
1.
In direct costing, fixed factory overhead forms part of the inventory value.
2.
The difference in net income between variable costing and absorption
costing is due entirely to the treatment of fixed manufacturing overhead.
A.
B.
C.
D.
Statement 1 Statement 2
True
True
True
False
False
True
False
False
Mark produces and sell boxes of signing pens for P1,000 per box. Direct materials
are P400 per box and direct manufacturing labor averages P75 per box. Variable
overhead is P25 per box and fixed overhead is P12,500,000 per year. Administrative
expenses, all fixed, run P4,500,000 per year, with sales commissions of P100 per
box. Production is expected to be 100,000 boxes, which is met every year. For the
year just ended, 75,000 boxes were sold.
What is the inventoriable cost per box using variable costing?
A. P770
B. P500
C. P475
D. P625
Same information above, what is the inventoriable costs per box using absorption
costing?
A.
B.
C.
D.
22.
P770
P500
P475
P625
Compute for the inventory value under the direct costing method using the data
given: units unsold at the end of the period, 45,000; raw materials used, P6.00 per
unit; raw materials inventory, beginning, P5.90 per unit; direct labor, P3.00 per
unit; variable overhead per unit, P2.00 per unit; indirect labor for the month,
P33,750. Total fixed costs, P67,500.
A. P16.90
B. P11.00
C. P17.45
D. P19.15
Miles Company produced 100,000 units of Product Z during the month of June.
Costs incurred
during June were as follows:
xxx
Direct Materials
xxx
xxx
Total Product Cost (Absorption Costing)
Q24-25 are based on the following data.
Inventoriable cost
Direct Materials
xxx
Direct labor
xxx
Direct labor
Direct materials
Direct labor
Manufacturing overhead:
Variable
Fixed
Selling and Administrative Expenses:
Variable
P100,000
80,000
40,000
50,000
12,000
Fixed
46,000
P327,000
Total
Less: Actual capacity(in Units)
Difference
(x) UFC
Volume Variance
What was Product Z’s unit cost under absorption costing?
A. P3.27
B. P2.70
C. P2.32
D. P1.80
26.
Matt and Company completed its first year of operations during which time the
following
information were generated:
What was Product Z’s unit cost under variable (direct) costing?
A. P2.82
B. P2.70
C. P2.32
D. P2.20
Operating income
IF
THEN, NET INCOME UNDER
SALES > PRODUCTION
SALES
SALES < PRODUCTION
SALES
SALES = PRODUCTION
SALES
Total units produced
Total units sold
Work in process ending inventory
Cost:
Fixed:
Factory overhead
Selling and Administrative
Variable cost per unit:
Raw materials
Direct labor
Factory overhead
Selling and administrative
IF
VC > AC
PRODUCTION >
VC < AC
PRODUCTION <
VC = AC
PRODUCTION =
Variable Costing
xxx
xxx
(-) Variable Cost & S & A Exp.(no. of units sold x vc/u)
xxx
Contribution margin
xxx
(-) Fix OH & S&A Exp.
xxx
Net income
xxx
xxx
xxx
Sales
Variable & Fx cost
xxx
Gross profit
Var & Fx S&A Exp
xxx
Under VC : Fixed OH = Normal capacity x UFC
Fixed expenses = Normal capacity x UFC
Under AC : Fixed OH = Q S x UFC
Fixed expenses = Normal capacity x UFC
VC
If there is: Variable Prod’n Variance
Volume Variance
computing net income”
Volume Variance = ?
Normal capacity (in units)
(UF) / F
(UF) / F
(UF) / F
xxx
AC
-
100,000
80,000 @ P100/unit
none
P1.2 million
0.7 million
P20.00
12.50
7.50
10.00
If the company used the variable (direct) costing method, the operating income
would be
A. P2,100,000
B. P4,000,000
C. P2,480,000
D. P3,040,000
Absorption
Costing
Sales
xxx
xxx
xx
xxx
“ in
27.
Holmes Company began its operations on January 1, 2009, and produces a single
product that sells for P10 per unit. Holmes uses an actual (historical) cost system.
In 2009, 100,000 units were
produced and 80,000 units were sold. There was no work-in-process inventory at
December 31,
2009. Manufacturing costs and selling and administrative expenses for 2009 were
as follows:
Fixed costs
Variable costs
Raw materials
P2.00/unit produced
Direct labor
P1.25/unit produced
Factory overhead
P120,000
P0.75/unit produced
Selling and administrative P 70,000
P1.00/unit produced
What would be Holmes operating income for 2009 under the variable (direct)
costing method?
A. P114,000
B. P210,000
C. P234,000
D. P330,000
Q29-30 are based on the following information.
32.
Expected to operate at normal capacity, Ruth Corporation plans to manufacture
275,000 units of
products in 2010, and the following estimates with respect to sales:
Sales in units
Unit selling price
250,000
P 35.00
quarter
Fixed selling and administrative overhead
Normal capacity is 20,000 units per quarter. Production in the 1st quarter was
19,000 units and sales volume was 16,000 units. No opening inventory for the
quarter. The absorption costing profit for the quarter was:
A. P920,000
B. P950,000
C. P960,000
D. P970,000
What is the estimated income from manufacturing using the absorption costing
method?
P3,350,000
P3,450,000
P3,550,000
P3,750,000
Q 33-34 are based on the following information.
What is the estimated income from manufacturing using the variable costing
The following operating data are available from the records of Matt Company for the
month of
January 2010:
method?
A.
B.
C.
D.
31.
Sales (70 per unit)
Direct materials
Direct labor
Manufacturing overhead:
Fixed
Variable
Marketing and general expenses;
Fixed
Variable
Production in units – 3,280 units
Beginning inventory – none
P3,150,000
P3,550,000
P3,450,000
P3,750,000
Jane Biscuits manufactures and sells boxed coconut cookies. The biggest market for
these cookies are as gift that college students buy for their business teachers. There
are 100 cookies per box. The following income statement shows the results of the
first year of operations. This statement was the one included in the company’s
annual report to the stockholders.
Sales (400 boxes @ P12.50)
Less: Cost of goods sold (400 boxes @P8.00)
Gross margin
Less: Selling and administrative expenses
Net income
P480,000 /
quarter
Finished goods inventory on December 31, 2009 is estimated at 25,000 units
costing P500,000.
Included in this amount is the fixed manufacturing overhead amounting to
P300,000. No changes in the fixed manufacturing cost and variable cost per unit of
produce are expected in 2010.
A.
B.
C.
D.
Crest Inc., manufactures a single product for which the costs and selling prices are:
Variable production costs
P 50 / unit
Selling price
P150 / unit
Fixed production overhead
P200,000 /
P5,000.00
3,200.00
P1,800.00
800.00
P1,000.00
Variable selling and administrative expenses are P0.90 per box unit. The company
produced 500
boxes during the year. Variable manufacturing costs are P5.25 per box and fixed
manufacturing
overhead costs total P1,375 for the year. What is the company’s direct costing net
income?
A. P2,540
B. P2,265
C. P1,000
D. P 725
P210,000
59,200
48,000
36,080
24,000
11,000
5% of sales
The
A.
B.
C.
D.
ending finished goods inventory under absorption costing method would be
P14,280
P16,968
P12,096
P16,072
The
A.
B.
C.
D.
net income for the month under the variable costing method would be
P32,420
P25,500
P23,320
P22,420
Q35 through 38 are based on the following information:
Sales per unit
15.00
P
Variable production cost
Annual fixed production cost
8.00
35,000.00
Number of units produced
Number of units sold at P15
32,500 units
Costs:
Direct material used
P177,500
Direct labor used
Manufacturing costs:
Fixed
Variable
Fixed administrative expenses
Variable office expense (unit)
3.00
Annual fixed selling expense
15,000.00
Produced 12,500 units during the period.
No inventory at January 1 (beg.)
Sold 10,000 units
The
A.
B.
C.
D.
ending inventory under direct costing is
P25,000
P27,500
P20,000
P32,500
40,000 units
85,000
P110,000
61,500
171,500
30,000
Under variable costing, what would be the finished goods inventory as at December
31, 2009?
A. P81,375.00
B. P60,750.00
C. P87,000.00
D. P49,218.75
Ending inventory under absorption costing is
A. P32,500
B. P20,000
C. P25,000
D. P27,000
Which costing method, variable or absorption costing, would show a higher
operating income for
2009 and by how much?
A. Variable by P20,625
B. Absorption by P20,625
C. Variable by P26,250
D. Absorption by P26,250
Total variable annual cost charged to expense in direct costing
A. P110,000
B. P117,500
C. P 80,000
D. P100,000
Total fixed cost charged against current year’s operations in absorption costing:
A. P35,000
B. P25,000
C. P15,000
D. P43,000
Reconciliation of income
Rule:
Change in Units (Production – Sales)
(x) FC / Unit
xx
Difference in Net income
xxx
and Work in Process
none
xxx
xx
Inventory, End
or
(x) FC / Unit
xxx
xxx
Q39-40 are based on the following information.
The books of Fontana Company pertaining to the year ended December 31, 2009
operations, showed the following figures relating to Product A:
Beginning inventory – Finished Goods
41.
During the year 2009, Mt. Carmel Corporation manufactured 70,000 units of
Product A, a new
product. Only 65,000 units were sold during the year. There was no beginning
inventory.
Manufacturing cost per unit was P20.00 variable and P50.00 fixed. What would be
the effect on net income if absorption costing is used instead of variable costing?
A. Net income is P250,000 lower
B. Net income is P250,000 higher
C. Net income is P100,000 lower
D. Net income is P100,000 higher
42.
At the end of Mt. Everest Company’s first year operations, 1,000 units of inventory
remained on
hand. Variable and fixed manufacturing cost per unit were P90 and P20,
respectively. IF Mt.
Everest uses absorption costing rather direct (variable) costing, the result would be
a higher pretax income of
A. P20,000
B. P70,000
C. P
0
D. P90,000
43.
The production volume variance occurs when using
A. The absorption costing approach because of production exceeding the sales.
B. The absorption costing approach because production differs from that
use in setting the fixed overhead rate used in applying fixed overhead
to production.
C. The variable costing approach because of sales exceeding the production for
the period.
D. The variable costing approach because of production exceeding the sales for
the period.
BUDGETING
Formulas in Flexible Budgeting
A. Budgeted Sales
xxx
+ FG, End
= TGAS
TGAS
TGAS
-FG, Beg.
= FG, End + Sales
Budgeted production
xxx
B.
C.
D.
Basic equations:
xxx
FG, beg + Production
xxx
FG, end + Sales =
xxx
FG, beg + Purchases
P= S
+ FG,end – FG, beg.
Budgeted production
x
X Std Materials /u
x
Budgeted materials needs
x
Mat Inv, Beg + Mat Purchases=Total
mat av for use
+ Materials Invty, End
x
Mat Inv, End + Mat Used
=Total
mat av for use
Materials available for use
x
Mat Inv, Beg + Mat
Purchases=Mat,End+Mat Used
-Materials Invty, Beg.
x
Mat Purchases = Mat Used +
Mat Invty, Beg
Budgeted Materials Purchases
x
X Standard materials cost / unit
Px
Budgeted materials purchases in P Px
Budgeted Production
X Standard DLH per unit
Budgeted DLH
X Standard DL rate per hour
Budgeted DL Cost
x
x hrs
x
Px
Px
Budgeted Variable Overhead (Budgeted Production X Standard VOH rate)
xxx
Budgeted Fixed Overhead (Normal capacity X Std. Fx OH rate)
xxx
Budgeted Factory Overhead
xxx
Standard VOH Rate (Budgeted VOH / Budgeted Capacity)
xxx
Standard FxOH Rate (Budgeted FxOH / Normal capacity)
xxx
Standard OH Rt.
xxx
E.
The following are the content analysis of the following expense and income
accounts:
_
PAID
Ending Balance
Beg.Bal. xx
PAID
Therefore:
Accrued Expenses
xx
Beg.Bal
xx
INCURRED
Prepaid
Expense
INCURREDxxx
Ending Bal.
xx
xx
xx
xx
AE, Beg + Incurred = Paid + AE, End
PE, End
Incurred = AE, End + Purchases – AE, Beg.
End
Paid = AE, Beg +Incurred – Paid
PE, End
_
Beg Bal
EARNED
xx
xx
PE, Beg + Paid = Incurred +
Incurred – PE,Beg + Paid – PE,
Paid = PE, Beg + Incurred –
Accrued Income
RECEIVEDxx
Precollected
EARNED
xx
Ending Bal.
xx
Income
Therefore:
AI, Beg + Earned = Received + AI, End
+ PI End
Earned = AI, Ending + Received – AI, Beg
PI, End
Received + AI, Beg + Earned – AI, End
PI, Beg
F.
Cash Balance
A. Cash , Beg
activities:
PI, Beg + Received = Earned
Earned = PI, Beg +Received –
Received + PI, End + Earned –
xxx
3. Operating
Add: Receipts
xxx
Total cash available for use
(xxx)
xxx
Less: Payments
activities:
Cash balance, End
xxx
xxx
xxx
4
Cash Inflows
Cash outflows
xxx
xxx
Financing
Cash Inflows
Cash
outflows
B.
(xxx)
xxx
Cash inflows
Less: Cash outflows
xxx
xxx
xxx
Investing activities:
Cash Inflows
xxx
Net cash inflows
xxx
Add: Cash balance, beg
xxx
Cash Balance , End
Which of these statements are advantages of profit planning?
1. Develops profit-mindedness, encourages cost consciousness and resource
utilization throughout the company.
2. Provides vehicle to communicate objectives, gain support for the plan, of what
is expected, thereby developing a sense of commitment to achieve established
goals.
3. Provides yardstick to evaluate actual performance, encouraging efficiency
increasing output and reducing cost.
4. Provides a sense of direction for the company and enhances coordination of
business activity.
5. Eliminates or takes over the role of administration by providing detailed
information that allows executives to operate toward achievement of the
organization’s objectives.
Cash
outflows
1.
(xxx)
xx
Net cash inflows (outflows)
(outflows)
xxx
Add: Cash bal, Beg
xxx
Cash balance , End
xxx
A.
B.
C.
D.
The process of creating a formal plan and translating goals into a quantitative
format is
A. Process costing
B. Activity-based costing
C. Budgeting
D. Variance analysis
2.
Which of the following objectives is not a primary purpose of preparing a budget?
A. To provide a basis for comparison of actual performance.
B. To communicate the company’s plans throughout the entire business
organizations.
C. To control income and expenditures in a given period.
D. To make sure the company expands its operations.
3.
The major objectives of any budget system are to
A. Define the responsibility centers, provide a framework for performance
evaluation, and promote communication and coordination among organization
segments.
B. Define responsibility centers, facilitate the fixing of blame for missed budget
predictions, and ensure goal congruence between superiors and subordinates.
C. Foster the planning of operations, provide a framework for
performance evaluation, and promote communication and coordination
among organizational segments.
D. Foster the planning of operations, facilitate the fixing of blame for missed
budget predictions, and ensure goal congruence between superiors and
subordinates.
8.
Statements 3,4 and 5 only.
All five statements.
Statements 1,3 and 4 only
Statements 1, 2, 3 and 4 only.
5
On budgeting, all of the following are not valid, except
A. Responsibility budget identifies revenue and costs with the individual
responsibilities for their incurrence.
B. The best way to establish budget figures is to use last year’s actual cost and
activity data as this year’s budget estimates.
C. A sales budget and a sales forecast are the same thing.
D. The primary purpose of the cash budget is to show the expected cash balance
at the end of the budgeted period.
6
In budgeting which of the following statements is false?
A. Budgeting provides a measuring device to which subsequent performance is
compared and evaluated.
B. Planning and control are essential features of the budgeting process.
C. Budget preparation is not the sole responsibility of any one department and is
prepared by combining the efforts of many individual.
D. Capital expenditure budget shows the availability of idle capital cash
for investment.
7
These statements are proper to the budgeting process except
A. It is a part of management’s responsibility to plan the use of its resources.
B. It is a tool to orchestrate the various functions of operations in a business.
C. The involvement of various levels of individuals in the company is necessary to
gain acceptance and attain its goals.
D. Actual results need not be compared with plan, since the process ends
after the budget is approved.
The starting point in the preparation of an annual as well as monthly master budget
prepared by the Budget Committee is the
A. Cash Budget
B. Investment center
C. Cost center
D. Responsibility center
20.
21.
For the company that does not have resource limitation, in what sequence would
the following
budgets be prepared?
i Cash budget
ii Sales budget
iii Inventory budget
iv Production budget
v Purchases budget
A.
B.
C.
D.
22.
33.
If a company wishes to establish a factory overhead budget system in which
estimated costs can be derived directly from estimates of activity levels, it should
prepare a
A. Flexible budget
B. Discretionary budget
C. Fixed budget
D. Capital budget
34.
Which one of the following may be considered an independent item in the
preparation of the master budget?
A. Ending inventory budget
B. Capital investment budget
C. Pro-forma income statement
D. Pro-forma statement of financial position
36.
This budgeting system places the burden of proof on the manager to justify
authority to spend any money whether or not there was there was spending in the
previous period. Different ways of performing the same activity and different levels
of effort for the activity is evaluated. This system is called
A. Scenario
B. Zero-based budgeting
C. Budgeting by alternatives
D. Budgeting by responsibility and authority
37.
A systematized approach known as zero-based budgeting (ZBB)
A. Classifies the budget by the prior year’s activity and estimates the benefits
arising from each activity.
B. Commences with either the current level of spending or projected whichever is
lower.
C. Presents planned activities for a period of time but does not present a firm
commitment.
D. Divides the activities of individual responsibility centers into a series of
packages that are prioritized.
38.
In zero-based budgeting, which of the following statements are true?
1. All activities in the company are organized into breakup units called packages.
2. All costs have to be justified every budgeting period
3. The process is not time consuming since justification of costs can be done as a
routine matter.
Computer base financial planning models often use the master budget as their
A. Structural base
B. Target budget model
C. Probability source
D. Budget formula
Sequence ii, iii, iv, v and i
Sequence ii, iii, iv, i and v
Sequence ii, iv, iii, v and i
Sequence iv, iii, ii, i and v
In a master budget plan, sales forecast is under
A. Financial budget
B. Operating budget
C. Performance budget
D. Capital budget
26.
The most common method used in sales forecasting which makes use of the cause
and effect
relationship between the company sales and some outside economic factor is the
A. Correlation analysis
B. Industry trend analysis
C. Sales force composite method
D. Executive opinion method
31.
A budget expressed in units of materials, number of employees, or number of manhours or service units rather than in pesos is known as
A. Planning budget
B. Progressive budget
C. Physical budget
D. Traditional budget
32.
A budget that identifies revenues and cost with an individual controlling their
incurrence is
A. Master budget
B. Production budget
C. Responsibility budget
D. None of the above.
A.
B.
C.
D.
All three statements
Statement 1 1nd 2 only
Statement 1 only
Statement 2 and 3 only
41.
The budget that describes the long-term position, goals, and objectives of an entity
within its
environment is the
A. Capital budget
B. Operating budget
C. Cash management budget
D.
Strategic budget
42.
The information contained in a cost of goods manufactured budget most directly
relates to the
A. Materials used, direct labor, overhead applied, and ending work-in-process
budgets.
B. Materials used, direct labor, overhead applied, and work-in-process
inventories budgets.
C. Materials used, direct labor, overhead applied, and work-in-process inventories,
and finished goods inventories budgets.
D. Materials used, direct labor, overhead applied, and finished goods inventories
budgets.
62.
ABC Company had data relating total production costs to volume for each quarter
during the past five years. During this period, production volume has varied
substantially, method of production has been relatively unchanged, and the cost
behavior has been complex. What is the most appropriate method for estimating
future production costs?
A. Linear programming
B. Cost-volume-earnings analysis
C. Time-series or trend-regression analysis
D. Program evaluation review technique (PERT)
63.
2010:
The following is the sales budget of Ruth Company for the period January to June
Months
January
February
March
April
May
June
44.
Budgets that are prepared for various degree of plant operations and are used to
control costs at
different levels of productive capacity is
A. Operating budgets
B. Rolling budgets
C. Flexible budgets
D. Out-of-pocket costs
46.
52.
Considering the budgeting concepts and principles, which of the following
statements is not
applicable?
A. The only difference between a flexible budget and static budget is that
a flexible budget does not contain fixed costs.
B. A flexible budget is geared toward a range of activity rather than toward a
single level of activity.
C. Although it is effective in measuring production control, a static budget is not
effective in measuring cost control.
D. The flexible budget is often used as a basis for preparing the pre-determined
overhead rate.
Production Budget
90,000
80,000
70,000
70,000
The company’s projection is to have inventory on hand at the end of each month
equal to 70% of the sales for the month following. It is assumed that the inventory
at the end of December 2010 will meet this requirement. It is also estimated that
the 80,000 units will be sold in July 2010. What is the total production budget in
units for the six months period ending June 30, 2010?
A. 556,000
B. 486,000
C. 524,000
D. 479,000
In flexible budget, when production levels are expected to decline within a relevant
range, the effects would be
A. Increase in both fixed and variable costs per unit
B. Increase in fixed costs per unit
C. Decrease in fixed costs per unit
D. No effect on both fixed and variable costs per unit
47.
ABC Co. wishes to establish a factory overhead budget system in which estimated
cost can be
derived directly from estimates of activity levels. You should recommend that it
prepares a
A. Fixed budget
B. Discretionary budget
C. Flexible budget
D. Zero-based budget
Units
100,000
90,000
64.
Tin-tin Corporation plans to sell 200,000 units of Product X in July and anticipated a
growth in sales of 5% per month. The target ending inventory in units of the
product is 80% of the next month’s estimated sales. There are 150,000 units in
inventory as of the end of June. The production requirement in units of X for the
quarter ending September 30 would be
A. 670,560
B. 691,525
C. 665,720
D. 675,925
Materials Budget
66.
Mark, Inc. desires to reduce its inventory of a particular raw material by 40%. The
inventory at the beginning of the budget period is 240,000 units, and the company
plans to manufacture 168,000 units of output. Each of these units requires 2.5 units
raw materials. How much of the raw materials should be purchased during the
budget period?
A. 316,000 units
B. 276,000 units
C. 324,000 units
B.
C.
D.
22.
previous period. Different ways of performing the same activity and different levels
of effort for the activity is evaluated. This system is called
A. Scenario
B. Zero-based budgeting
C. Budgeting by alternatives
D. Budgeting by responsibility and authority
Sequence ii, iii, iv, i and v
Sequence ii, iv, iii, v and i
Sequence iv, iii, ii, i and v
In a master budget plan, sales forecast is under
A. Financial budget
B. Operating budget
C. Performance budget
D. Capital budget
37.
A systematized approach known as zero-based budgeting (ZBB)
A. Classifies the budget by the prior year’s activity and estimates the benefits
arising from each activity.
B. Commences with either the current level of spending or projected whichever is
lower.
C. Presents planned activities for a period of time but does not present a firm
commitment.
D. Divides the activities of individual responsibility centers into a series of
packages that are prioritized.
38.
In zero-based budgeting, which of the following statements are true?
1. All activities in the company are organized into breakup units called packages.
2. All costs have to be justified every budgeting period
3. The process is not time consuming since justification of costs can be done as a
routine matter.
26.
The most common method used in sales forecasting which makes use of the cause
and effect
relationship between the company sales and some outside economic factor is the
A. Correlation analysis
B. Industry trend analysis
C. Sales force composite method
D. Executive opinion method
31.
A budget expressed in units of materials, number of employees, or number of manhours or service units rather than in pesos is known as
A. Planning budget
B. Progressive budget
C. Physical budget
D. Traditional budget
32.
A budget that identifies revenues and cost with an individual controlling their
incurrence is
A. Master budget
B. Production budget
C. Responsibility budget
D. None of the above.
D.
Strategic budget
42.
The information contained in a cost of goods manufactured budget most directly
relates to the
A. Materials used, direct labor, overhead applied, and ending work-in-process
budgets.
B. Materials used, direct labor, overhead applied, and work-in-process
inventories budgets.
C. Materials used, direct labor, overhead applied, and work-in-process inventories,
and finished goods inventories budgets.
A.
B.
C.
D.
All three statements
Statement 1 1nd 2 only
Statement 1 only
Statement 2 and 3 only
41.
The budget that describes the long-term position, goals, and objectives of an entity
within its
environment is the
A. Capital budget
B. Operating budget
C. Cash management budget
62.
ABC Company had data relating total production costs to volume for each quarter
during the past five years. During this period, production volume has varied
substantially, method of production has been relatively unchanged, and the cost
behavior has been complex. What is the most appropriate method for estimating
future production costs?
A. Linear programming
B. Cost-volume-earnings analysis
C. Time-series or trend-regression analysis
D. Program evaluation review technique (PERT)
D.
Materials used, direct labor, overhead applied, and finished goods inventories
budgets.
63.
2010:
44.
Budgets that are prepared for various degree of plant operations and are used to
control costs at
different levels of productive capacity is
A. Operating budgets
B. Rolling budgets
C. Flexible budgets
D. Out-of-pocket costs
46.
Months
January
February
March
April
May
June
52.
Considering the budgeting concepts and principles, which of the following
statements is not
applicable?
A. The only difference between a flexible budget and static budget is that
a flexible budget does not contain fixed costs.
B. A flexible budget is geared toward a range of activity rather than toward a
single level of activity.
C. Although it is effective in measuring production control, a static budget is not
effective in measuring cost control.
D. The flexible budget is often used as a basis for preparing the pre-determined
overhead rate.
Production Budget
D.
139,600 units
Units
100,000
90,000
90,000
80,000
70,000
70,000
The company’s projection is to have inventory on hand at the end of each month
equal to 70% of the sales for the month following. It is assumed that the inventory
at the end of December 2010 will meet this requirement. It is also estimated that
the 80,000 units will be sold in July 2010. What is the total production budget in
units for the six months period ending June 30, 2010?
A. 556,000
B. 486,000
C. 524,000
D. 479,000
In flexible budget, when production levels are expected to decline within a relevant
range, the effects would be
A. Increase in both fixed and variable costs per unit
B. Increase in fixed costs per unit
C. Decrease in fixed costs per unit
D. No effect on both fixed and variable costs per unit
47.
ABC Co. wishes to establish a factory overhead budget system in which estimated
cost can be
derived directly from estimates of activity levels. You should recommend that it
prepares a
A. Fixed budget
B. Discretionary budget
C. Flexible budget
D. Zero-based budget
The following is the sales budget of Ruth Company for the period January to June
64.
Tin-tin Corporation plans to sell 200,000 units of Product X in July and anticipated a
growth in sales of 5% per month. The target ending inventory in units of the
product is 80% of the next month’s estimated sales. There are 150,000 units in
inventory as of the end of June. The production requirement in units of X for the
quarter ending September 30 would be
A. 670,560
B. 691,525
C. 665,720
D. 675,925
Materials Budget
66.
Mark, Inc. desires to reduce its inventory of a particular raw material by 40%. The
inventory at the beginning of the budget period is 240,000 units, and the company
plans to manufacture 168,000 units of output. Each of these units requires 2.5 units
raw materials. How much of the raw materials should be purchased during the
budget period?
A. 316,000 units
B. 276,000 units
C. 324,000 units
The sales manager of Rose Trading has budgeted the following sales for the third
quarter of 2009:
67.
Ray Company is budgeting sales of 42,000 units of Product Y for March 2010. To
make one unit of finished product, three pounds of raw material A are required.
Actual beginning and desired ending inventories of raw material A and Product Y are
as follows:
March 1, 2010 March 31, 2010
Raw Material A 100,000 pounds 110,000 pounds
Product Y
22,000 units
24,000 units
July
August
September
Other budget estimates are:
All merchandise are to sell at its invoice cost plus 30% mark up.
Beginning inventories of each month are budgeted at 40% of that month’s
projected cost
of goods sold.
There is no work-in-process inventory for Product Y at the beginning and end of
March. For the
month of March, how many pounds of raw material A is Ray planning to purchase?
A. 126,000
B. 132,000
C. 136,000
D. 142,000
Q68-69are based on the following information.
Matt Corporation has the following budget estimates for its second year of
operations:
Projected sales
Projected income before tax
Estimated selling and administrative expenses
Direct labor and factory overhead are budgeted at
70% of the total manufacturing cost.
The
A.
B.
C.
D.
The
A.
B.
C.
D.
P3,500,000
12% of sales
25% of sales
72.
Opening inventory:
Raw materials
Finished goods
Budgeted sales
Finished goods, ending inventory:
Raw materials
Finished goods
Goods-in-process Finished
Goods
Beginning
P350,000
Ending
420,000
P220,000
P250,000
270,000
300,000
The
A.
B.
C.
D.
estimated cost of goods sold would be:
P2,275,000
P2,205,000
P2,325,000
P1,750,000
The
A.
B.
C.
D.
estimated purchases of raw materials would be
P967,500
P732,500
P697,500
P747,500
Q70-71 are based on the following information.
projected merchandise purchases for the month of July would be
P 995,500
P 850,000
P 950,000
P1,050,000
projected merchandise purchases for the month of August would be:
P1,237,000
P1,040,000
P1,360,000
P1,050,000
Each unit of product O requires 3 kilos of raw material. Next month’s production
budget for Product O is as follows:
Inventories are estimated as follows:
Raw Materials
P1,235,000
1,560,000
2,080,000
The
A.
B.
C.
D.
73.
15,000 kgs.
2,000 units
60,000 units
7,000 kgs.
3,000 units
number of kilograms of raw materials to be purchased next month is?
172,000
175,000
183,000
191,000
Each unit of Product X uses 6 kilograms of raw materials. The production and
inventory budgets for June 2010 are as follows:
Opening inventories:
Raw materials
21,000 kgs.
Finished goods
15,000 units
Closing inventories:
Raw materials
24,400 kgs.
Finished goods
11,400 units
Budgeted sales of Product X for June are 18,000 units. During the production
process, it is usually found that 10% of production units are scrapped as defective
and this loss occurs after the raw materials have been placed in process. What will
the raw materials purchases be in June?
A. 89,800 kgs.
B. 96,000 kgs.
C. 98,440 kgs.
D. 99,400 kgs.
74.
factory overhead rate, based on direct labor-hours, in a flexible budget at normal
capacity?
A. P6.00
B. P6.50
C. P7.50
D. P8.13
90.
A company has the following 2010 budget data:
Beginning Finished Goods Inventory
Sales
Ending Finished Goods Inventory
Direct Materials
Direct Labor
Variable factory overhead
Selling costs
Fixed factory overhead
Joy Corporation uses flexible budgeting for cost control. It produced 5,400 units of
product for the month just ended incurring an indirect materials cost of P26,000. Its
mater budget for the year showed an indirect materials cost of P360,000 at a
production volume of 72,000 units. A flexible budget for the month just ended’s
production would show indirect material cost of
A. P27,000
B. P26,000
C. P27,950
D. P23,400
Direct labor Budget
78.
Each unit of Product Z takes five direct labor hours to make. Quality standards are
high and 8% of units produced are normally rejected due to substandard quality.
Next month budget are as follws:
Beginning inventory of finished goods
Planned ending inventory of finished goods
Budgeted sales of Product Z
3,000 units
7,600 units
36,800 units
All stocks of finished goods must have successfully passed the quality control check.
What is the
direct labor budget for the month?
A. 198,720 hours
B. 200,000 hours
C. 223,560 hours
D. 225,000 hours
40,000 units
70,000 units
30,000 units
P10 per unit
P20 per unit
P5 per unit
P2 per unit
P80,000
What are 2010 total budgeted production costs?
A. P2,100,000
B. P2,180,000
C. P2,240,000
D. P2,320,000
Operating expenses Budget
91.
As you are doing an analysis of the cash flow, you found these data belonging to
the Yellow
Company:
Taxes: Beginning of the year
P 6,000
End of the year
4,000
Interest Expense
50,000
General and Administrative expense
155,765
Tax expense per income statement
20,000
A.
B.
C.
D.
The deferred tax account must have a debit balance
The general and administrative expenses must be understated
Cash used to pay taxes must have been P22,000.
Tax expense must have been inaccurate.
Factory overhead Budget
93
82.
Ronald Company is preparing a flexible budget for 2010 and the following maximum
capacity
estimates for Department M are available:
At Maximum Capacity
Direct labor hours
60,000
Variable factory overhead
P150,000
Fixed factory overhead
P240,000
Assume that Ronald’s normal capacity is 80% of maximum capacity. What would be
the total
Premised on past experience Angelica Corp. adopted the following budgeted formula
for estimating shipping expenses. The company’s shipments averaged 12 kilos per
shipment ( Shipping costs = P8,000 + (P0.25 x standard kgs. shipped). Pertinent
data for the current month are given below
Sales order
Shipments
Units shipped
Sales
Total pounds shipped
Planned Actual
800
780
800
820
8,000 9,000
240,000
288,000
9,600 12,300
70% during the month of sale
15% in the first month after sale
10% in the second month after sale
4% in the third month after sale
1% uncollectible
The actual shipping costs for the month amounted to P10,500. The appropriate
monthly flexible
budget allowance for shipping costs for purposes of performance evaluation would
be
A. P10,250
B. P11,075
C. P10,340
D. P10,460
The sales on account of the last six months of the year were reported as follows:
July
P120,000
October
P180,000
August
140,000
November
Cash budget
200,000
94.
A cash flow statement is an integral part of the company’s financial statements. It is
required
because
A. It is a substitute for the balance sheet and the income statement
B. It is necessary to comply with government regulations.
C. Top management depends on it for critical information in making economic
decisions.
D. It summarizes cash movements during the accounting period, linking the
balance sheet and the income statement.
170,000
September
95. Given the following events, which affect cash flows from operations?
1. Cash sale
2. Cash dividends paid
3. Purchase of a long-term asset
4. Purchase of inventory
5. Paid employees
A.
B.
C.
D.
96.
98.
100.
1 and 5
1, 3, 4, and 5
1, 2 and 5
1, 4 and 5
After generating a sizeable year-end profit, Ruth, Inc. declared and issued a 50%
stock dividend. In the preparation of cash flows, the transaction would be included
as
A. An operating activity
B. An investing activity
C. Would not appear at all in the statement of cash flows.
D. A financing activity.
On January 1, Rachelle Company has a beginning balance of P42,000. During the
year, the company expects cash disbursements of P340,000 and cash receipts of
P290,000. If the company a cash balance of P40,000, Rachelle Company should
borrow by what amount?
A. P32,000
B. P40,000
C. P48,000
D. P92,000
The Rupert Corporation has the following historical pattern on its credit sales:
160,000
December
Cash collection in October amounted to
A. P168,800
B. P 42,800
C. P178,200
D. P126,000
Total cash collections during the fourth calendar quarter from sales made on
account during the fourth calendar quarter would be?
A. P345,000
B. P550,000
C. P502,800
D. P460,000
102.
MDG Inc. prepared the following sales budget:
Month
February
March
April
May
June
Cash Sales
Credit Sales
P 80,000
P340,000
100,000
300,000
90,000
370,000
120,000
460,000
110,000
380,000
Collections are 40% in the month of sale, 45% in the month following the sale, and
10% two months following the sale. The remaining 5% is expected to be
uncollectible. The company’s budgeted collections from April to June amounts to:
A. P1,090,250
B. P1,325,500
C. P1,468,500
D. P1,397,500
109.
In preparing its cash budget for May 2010, LR Company made the following
projection:
Sales
Gross margin (based on sales)
Decrease in inventories
P
Decrease in accounts payable for inventories
P3,000,000
25%
140,000
P 240,000
For
A.
B.
C.
D.
110.
May 2010, the estimated cash disbursements for inventories were:
P2,350,000
P2,110,000
P2,100,000
P1,870,000
C.
D.
115.
Budgeted Purchases
P460,000
380,000
400,000
440,000
420,000
111.
ending
RDG Company expects to sell 150,000 units during the first quarter of 2010 with an
inventory for the quarter of 20,000 units. Variable manufacturing costs are
budgeted at P50 per unit with 70% of total variable manufacturing costs requiring
cash payment during the quarter. Fixed manufacturing costs are budgeted at
P120,000 per quarter, 40% of which are expected to require cash payments during
the quarter will total
A. P8,500,000
B. P5,950,000
C. P5,998,000
D. P5,298,000
114.
The following information were made available for Euro Pacific Co.:

June 30, cash balance, P900,000.

Dividends paid in July, P240,000.

Cash expenditures in July for operating expenses, P736,000.

Depreciation expense in July, P90,000.

Cash collections in July, P1,780,000.

Merchandise purchases paid in cash in July, P1,124,000.

Purchased equipment for cash in July P350,000.
It was the company’s policy to keep a minimum cash balance of P200,000. The
company:
A. Had to borrow P200,000.
B. Need not borrow since its ending balance amounted to P200,000.
P1,500,000
60,000
1,200,000
90,000
400,000
80,000
500,000
100,000
50,000
What is the cash balance at December 31, 2009?
A. P210,000
B. P150,000
C. P280,000
D. P170,000
Purchases are paid for in the following manner:
10% in the month of purchase
50% in the month after purchase
40% two months after purchase
Total disbursements for the period March to May amounts to:
A. P1,825,000
B. P1,352,000
C. P1,285,000
D. P1,232,000
Morris Company had the following transactions in 2009, its first year of operations
Sales (90% collected in 2009)
Bad debts written off
Disbursements for costs and expenses
Disbursements for income taxes
Purchases of fixed assets
Depreciation of fixed assets
Proceeds from issuance of common stock
Proceeds from short-term borrowings
Payments on short-term borrowings
The following purchases budget was prepared by JC Corp.:
Month
January
February
March
April
May
Need not borrow since ending balance amounted to P230,000.
Had to borrow P60,000.
116.
In preparing its budget for July 2010, Louie Company has the following accounts
receivable
information available:
Accounts receivable at June 30, 2010
P 350,000
Estimated credit sales for July
400,000
Estimated collections in July for credit sales in July and prior years
320,000
Estimated write-off in July for uncollectible credit sales
16,000
Estimated provision for uncollectible accounts for credit sales in July
12,000
What is the projected balance of accounts receivable at July 31, 2010?
A. P402,000
B. P414,000
C. P426,000
D. P430,000
117.
Nikka Company has budgeted its operations for February 2010. No change in
inventory level
during the month is planned. Selected data from estimated amounts are as follows:
Net loss
Increase in accounts payable
P100,000
40,000
Depreciation expense
35,000
Decrease in gross amount of trade accounts receivable
60,000
Purchase of office equipment on 45-day credit terms
Provision for estimated warranty liability
15,000
10,000
How much change in cash position is expected for February?
A. P15,000 decrease
B. P25,000 decrease
C. P30,000 increase
D. P45,000 increase
126.
Lorna Trading, which is marketing a single product, has the following preliminary
forecast for
2011:
No. of units
150,000 units
Selling price per unit
P
15
Variable costs
P1,200,000
Fixed costs
P 850,000
118.
Mars Corporation has estimated its activity for January 2010. Selected data from
these estimated
amounts are as follows:
Sales
Gross profit (based on sales)
Increase in trade accounts receivable during month P
Change in accounts payable during month
P
Increase in inventory during the month
P
Variable selling, general and administrative expense
include a charge for uncollectible accounts of
1% of sales.
Total Selling, General & Administrative is P142,000
per month plus 15% of sales.
Depreciation expense of P80,000 per month is
included in Fixed Selling, Administrative, and
General expense.
Advertising expense was not included in the above. Based on a market study in
December 2010, the company estimated that it could increase the unit selling price
by 10% and increase the unit sales volume by 20% if P200,000 would be spent on
advertising. If Lorna will incorporate these changes in its 2011 forecast, what would
be the operating income?
A. P480,000
B. P720,000
C. P680,000
D. P420,000
P1,400,000
30%
40,000
0
20,000
What are the estimated cash disbursements for January 20010?
A. P1,238,000
B. P1,252,000
C. P1,258,000
D. P1,272,000
Income statement
125.
Angelo Company has budgeted its activity for October 2010 based on the following
information:

Sales are budgeted at P300,000. All sales are credit sales and a provision for
doubtful accounts is made monthly at the rate of 3% of sales.

Merchandise inventory was P70,000 at September 30, 2010, and an increase of
P10,000 is planned for month.

All merchandise is marked up to sell at invoice cost plus 50%.

Estimated cash disbursements for selling and administrative expenses for the
month are P40,000.

Depreciation for the month is projected at P5,000.
Angelo is projecting operating income for October 2010 in the amount of
A. P86,000
B. P56,000
C. P55,000
127.
Euro Corp. is preparing its budget for 2011. For 2010, the following were reported:
Sales (100,000 units)
Cost of goods sold
Gross profit
Operating expenses*
Net income
P1,000,000
600,000
p 400,000
240,000
P 160,000
*Including depreciation of P40,000.
Selling prices will increase by 10% and sales volume in units will decrease by 5%.
The cost of
goods sold as a percent of sales will increase to 62%. Other than depreciation, all
operating costs
are variable. Euro will budget a net income for 2011 of
A. P167,100
B. P167,500
C. P167,900
D. P148,100
128.
Leonor Corporation expects to sell 150,000 board games for July. Its master budget
related to the
sale and production of these items is presented below:
Revenue
Less: Cost of goods sold:
Direct materials
Direct labor
Variable overhead
Contribution margin
P480,000
P135,000
60,000
90,000
285,000
P195,000
D.
P46,000
Fixed Selling & Adm. Costs
Operating income
Less: Fixed overhead
100,000
P
150,000
45,000
July’s sales registered at 180,000 board games. Using the flexible budget, the
company expects the operating income for July to be
A. P102,000
B. P270,000
C. P 84,000
D. P 45,000
129.
It is budgeting time for Paul Company. The following assumptions were agreed
upon for the next year after a strategic planning which covered a five-year horizon:

Sales are estimated to be at 70,000 units at its national selling price of
P126.00.

Sales discounts are given to various customers at different rates and net to
gross ratio is at 93%.

Mark-up on merchandise is at 45% of invoice cost. Beginning inventory is
P80,900 and is expected to be reduced by P15,000 at the end of the period.

Selling and administrative expenses are expected to be 15% of gross sales.

Depreciation is computed at P500,000.

Seventy-five percent (75%) of sales are on account. Doubtful accounts expense
is estimated to be 1.5% of credit sales.
The
A.
B.
C.
D.
135.
which
projected operating income for the year is:
P623,409
P590,334
P682,944
P723,775
139.
Nikka was considering to sell flowers in baskets on the eve of All Saint’s Day. He
would buy the
flowers and baskets, organized them and negotiate with a store by the bus stop to
occupy a stall for P250 for that day only. It would cost him P60 per basket
arrangement. He was planning to come up with 500 baskets to be sold at P200 per
basket. He was aware that any unsold inventories would be worthless. If he could
only sell 300 baskets, the forecasting error would cost
A. P28,000
B. P12,000
C. P40,000
D. P28,100
STANDARD COSTING & VARIANCE ANALYSIS
Std. DM : No. of lbs. @ Px / lb = Px / u
Std. DL : No. of hrs. @ x/ hr = x / u
Std VOH:No. of hrs. @ x/ hr = x / u
Std FOH: No. of hrs. @ x/ hr = x / u
Std. Unit Cost
Px/u
FORMULAS;
A. DIRECT MATERIALS
MQV Material Quantity Variance
MPV Material Price Variance
MPPV Material Purchase-Price Variance
MUPV Material Usage-Price Variance
AQ Actual Quantity
SQ Standard Quantity
AP Actual Price
SQ Standard Price
Tiny Company’s total costs of operating five sales offices last year were P500,000 of
P70,000 represented fixed costs. Tiny has determined that the 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 cost for the coming year is Tiny were to operate seven
sales offices?
A. P700,000
B. P672,000
C. P602,000
D. P586,000
137.
P 50,000
Which of the following statements is true?
A. Under zero-based budgeting, a manager is required to start at zero
2-WAY ANALYSIS
MPPV = (AP – SP) x AQ
MQV = (AQ – SQ) x SP
3-WAY ANALYSIS
MPPV = (AP – SP) x SQ
MQV = (AQ – SQ) x SP
Joint material variance = (AP – SP)
x (AP – SP)
B.
DIRECT LABOR
LEV Labor Efficiency Variance
Rate
LRV Labor Rate Variance
Standard Rate
AH Actual Hours
SH Standard Hours
AR Actual
SR
B.
C.
D.
budget levels each period, as if the programs involved were being
initiated for the first time.
The primary purpose of the cash budget is to show the expected cash balance
at the end of the budget period.
Budget data are generally prepared by top management and distributed
downward in an organization.
The budget committee is responsible for preparing detailed budget figures in an
organization.
AFOH Actual Factory Overhead
SFOH Standard Factory Overhead
Standard Hours
FxOHR Fixed Overhead Rate
VOHR Variable Overhead Rate
SR
2-WAY ANALYSIS
LRV = (AR – SR) x AH
LEV = (AH – SH) x SR
3-WAY ANALYSIS
LRV = (AR – SR) x SH
LEV = (AH – SH) x SR
Joint Labor Variance = (AR – SR) x
(AH – SH)
C.
OVERHEAD VARIANCE
Standard rate
BASH Budget Allowed on
Spending var. – UF (F)
xxx
BAAH Budger Allowed on Actual Hours
xxx
Variable Spending Variance:
Capacity
Variance:
C-1. FxOHR (Budgeted Fx. OH / Normal Capacity)
Px/ hr.
VOHR (Budgeted VOH / Budgeted Capacity)
Total Std. OH Rate
BAAH
xxx
-BASH
x/hr
Px/hr
xxx
xxx
BAAH
- AH x SR
xxx
xxx
xxx
AFOH
SFOH (SH x SR)
OH Variance – UF(F)



Fixed
xx
xx
xx
xx
Variable Total
xx
xx
xx
xx
xx
Spending variance (AFOH – BAAH)
AFOH
xxx
-BAAH:
Fx (NC x FxOHR) xxx
Var(AH x VOHR) xxx xxx
Spending var. – UF (F)
xxx
Variable OH Efficiency variance [ (AH – SH) x Std VOH Rate ]
Capacity variance [(NC – AC) x FxOH Rate ]
2-way analysis (Con Vo)
Controllable Variance:
AFOH
xxx
-BASH:
Fx (NC x FxOHR) xxx
Var(SH x VOHR) xxx
xxx
Controllablevar. – UF (F)
xxx
Volume Variance:
Volume Variance:
BASH
xxx
-SOH
xxx
Vol Variance
xxx
xxx
Volume Variance:
AH x SR
xxx
SH x SR
xxx
Summary of FOH Variances
2-WAY
3-WAY(SVV)
3-
WAY(BuCE)
AFOH----------]
----------] Spending
----------]Budget
]
]
BAAH
] Controllable
______]
______]
]
]Variable Spending
BASH______ ]
______]
]Capacity
]
]
AH x SR ]Volume
]Volume
______]
]
]
Efficiency
SH x SR_____]
______]
______]
]
]
]
]
BASH
-SOH
Vol Variance
xxx
xxx
xxx
3-way variance (SVV)
Budget Spending Variance:
Spending Variance:
AFOH
xxx
-BAAH:
Fx (NC x FxOHR) xxx
xxx
Var(AH x VOHR) xxx
xxx
xxx
Which one of the following is true concerning standard costs?
A. Standard costs are estimates of costs attainable only under the most ideal
conditions, but rarely practicable.
B. Standard costs are difficult to use with a process costing system.
C. If properly used, standards can help motivate employees.
D. Unfavorable variance, material in amount, should be investigated, but large
favorable variance need not be investigated.
2.
Which of the following is a purpose of standard costing?
A. Determine breakeven production level.
B. Control costs.
C. Eliminate the need for subjective decisions by management.
D. Allocate cost with more accuracy.
OR:
Budget
xxx
AFOH
-BAAH:
Fx
xxx
Var
3.
A standard cost system may be used in
A. Job-order costing but not process costing.
B. Either job-order costing or process costing.
C. Process costing but not job-order costing.
D. Neither process costing nor job-order costing.
4.
When a manger is concerned with monitoring total cost, total revenue, and net
profit conditioned upon the level of productivity, an accountant should normally
recommend
Flexible Budgeting
Standard Costing
A.
Yes
Yes
B.
Yes
No
C.
No
Yes
D.
No
No
5.
The absolute minimum cost that would be possible under the best operating
conditions is a description of which type of standard cost?
A. Currently attainable (expected)
B. Theoretical
C. Normal
D. Practical
6.
1.
Management scrutinizes variances because
A. Management desires to detect such variances to be able to plan for promotions.
B. Management needs to determine the benefits forgone by such variances.
C. It is desirable under conventional knowledge on good management.
D. Management recognizes the need to know why variances happen to be able to
make corrective actions and fairly reward good performers.
could be quoted for a special order that would utilize the capacity with in a
production area.
A. Job order
B. Standard
C. Variable
D. Process
13.
If the total materials variance (actual cost of materials used compared with the
standard cost of the standard amount of material required) for a given operation is
favorable, why must this variance be further evaluated as to a price and usage?
A. There is no need to further evaluate the total materials variance if it is
favorable.
B. Generally accepted accounting principles require that all variances be analyzed
in three stages.
C. All variances must appear in the annual report to equity owners for proper
disclosure.
D. Determining price and usage variance allows management to evaluate
the efficiency of the purchasing and production functions.
17.
The flexible budget variance in operating income is
A. Actual operating income minus flexible budget operating income.
B. Budgeted unit price times the difference between actual inputs and budgeted
inputs for the actual activity levels achieved.
C. A flexible budget amount minus a static budget amount.
D. Actual unit price minus budgeted unit price times the actual units produced.
18.
An efficiency variance equals
A. A flexible budget amount minus a static budget amount.
B. Actual operating income minus flexible budget operating income.
8
A difference between standard costs used for cost control and the budgeted costs of
the same
manufacturing effort
A. Can exist because standard costs represent what costs should be
whereas budgeted costs are expected actual costs.
B. Can exist because budgeted costs are historical costs, whereas standard costs
are based on engineering studies.
C. Can exist because budgeted costs include some slack, whereas standard costs
do not.
D. Can exist because the amounts should be the same.
9.
The best basis upon which standard cost should be set to measure controllable
production
inefficiencies is
A. Engineering standards based on ideal performance
B. Normal capacity
C. Engineering standards based on attainable performance.
D. Practical capacity.
12.
Which of the following cost allocation methods would be used to determine the
lowest price that
D.
21.
Production
The standard unit cost is used in the calculation of which of the following variances?
Material Price Variance
Materials Usage Variance
A.
No
No
B.
No
Yes
C.
Yes
No
D.
Yes
Yes
C.
D.
19.
20.
Which department is customarily held responsible for an unfavorable materials
usage variance?
A. Quality control
B. Purchasing
C. Engineering
30.
CMP Company had budgeted 50,000 units of output using 50,000 units of raw
materials at a total
material cost of P100,000. Actual output was 50,000 units of product requiring
45,000 units of raw materials at a cost of P2.10 per unit. The direct material price
variance is:
A. P 4,500 unfavorable
B. P 5,000 favorable
C. P 5,000 unfavorable
D. P10,000 favorable
The
A.
B.
C.
D.
31.
An
A.
B.
C.
D.
unfavorable price variance occurs because of
Price increases for raw materials
Price decreases for raw materials
Less-than-anticipated levels of waste in the manufacturing process.
More-than-anticipated levels of waste in the manufacturing process.
The budget for a given cost during a given period was P80,000. The actual cost for
the period was P72,000. Considering these facts, the plant manger has done a
better-than- expected job in
controlling the cost if
A. The cost is variable and actual production was 90% of budgeted production.
B. The cost is variable and actual production equaled budgeted
production.
C. The cost is variable and actual production was 90% of budgeted production.
D. The cost is a discretionary fixed cost and actual production equaled budgeted
production.
Material cost variance
23.
If a company follows a practice of isolating variances as soon as possible, the
appropriate time to
isolate and recognize a direct materials price variance is when
A. Materials are issued
B. Materials are purchased
C. Materials are used in production
D. The purchase order originates.
24.
Actual unit price minus budgeted unit price, times the actual units produced.
Budgeted unit price times the difference between actual inputs and
budgeted inputs for the actual activity level achieved.
usage variance is:
P10,000 favorable
P10,500 unfavorable
P10,500 favorable
P4,500 unfavorable
Information on Good Company’s direct material costs for the month of January 2010
was as follows:
Actual quantity purchased
18,000
Actual unit purchase price
P 3.60
Materials purchase price variance – unfavorable
P3,600
Standard quantity allowed for actual production
16,000
Actual quantity used
25.
26.
the
The Purchasing Manger of AB Company 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 requirements for the period. As to the
material variances, what will be the likely effect?
A. Unfavorable price variance, favorable usage variance.
B. Favorable price variance, unfavorable usage variance.
C. No effect on price variance, unfavorable usage variance.
D. Favorable price variance, favorable usage variance.
For
A.
B.
C.
D.
32.
B.
C.
D.
Standard unit price
Actual quantity purchased
Standard quantity allowed for actual production
Actual price by the difference between actual quantity purchased and standard
quantity used.
Actual quantity purchased by the difference between actual price and
standard quantity used.
Standard price by the difference between standard quantity purchased and
standard quantity used.
Standard quantity purchased by the difference between actual price and
standard price.
A favorable materials price variance coupled with an unfavorable materials usage
variance would most likely result from
A. Machine efficiency problems.
B. Product mix production changes
C. Labor efficiency problems.
D. The purchase of lower-than-standard-quality materials.
P 3.60
1,600
1,450
What was the actual purchase price per unit, rounded to the nearest cent?
A.
P 3.00
B. P 3.11
C. P 3.45
D. P 3.75
33.
29.
January 2010 there was a favorable direct material usage variance of
P3,360
P3,375
P3,400
P3,800
Information on Pretty Company’s direct material costs is as follows:
In a standard cost system, the materials price variance is obtained by multiplying
A.
15,000
Information on Wise Company’s direct material costs for May 1020 is as follows:
Actual quantity of direct materials purchased and used
30,000 lbs.
Actual cost of direct materials
P
84,000
Unfavorable direct materials usage variance
P
3,000
Standard quantity of direct materials allowed for May production
29,000
lbs.
For
A.
B.
C.
D.
the month of May, what was wise direct materials price variance?
P2,800 favorable
P2,800 unfavorable
P6,000 unfavorable
P6,000 favorable
Q 35 through 37 are based on the following information.
Excel Company uses a standard costing system in the manufacture of its single
product. The 35,000 units of raw material in inventory were purchased for
P105,000, and two units of raw materials are required to produce one unit of final
product. In November, the company produced 12,000 units of product. The
standard allowed for material was P60,000. And there was an unfavorable quantity
variance of P2,500.
B.
C.
D.
45.
Quantity
Labor efficiency
Labor rate
A debit balance in the labor efficiency variance indicates that
A. Standard hours exceed actual hours
B. Actual hours exceed standard hours
C. Standard rate and standard hours exceed actual rate and actual hours
D. Actual rate and actual hours exceed standard rate and standard hours
47.
Which of the following unfavorable variances is directly affected by the relative
position of a
production process on a learning curve?
A. Material mix
B. Materials price
Excel’s standard price for one unit of materials is
A. P 2.50
B. P 3.00
C. P 5.00
D. P 6.00
The
A.
B.
C.
D.
units of material used to produce November output totaled
12,000 units
23,000 units
24,000 units
25,000 units
The
A.
B.
C.
D.
materials price variance for the units used in November was
P 2,500 unfavorable
P15,000 unfavorable
P12,500 unfavorable
P 2,500 favorable
C.
D.
49.
How is labor rate variance computed?
A. The difference between standard and actual rates, times standard hours.
B. The difference between standard and actual hours, times actual rate.
C. The difference between standard and actual rates, times actual hours.
D. The difference between standard and actual hours, times the difference
between standard and actual rates.
50.
The
and
A.
B.
C.
D.
51.
Listed below are four names for different kinds of standards associated with a
standard cost system. Which one describes the labor costs that should be incurred
under efficient operating conditions?
A. Ideal
B. Basic
C. Maximum-efficiency
D. Currently attainable
53.
Below are Petite Corporation’s standard costs to produce one concrete table:
Direct raw materials
2 kgs @ P 375 per kg
Direct labor
30 minutes @ P31.25 per hour
Direct labor cost variances
43.
Which of the following is the most probable reason a company would experience an
unfavorable
labor rate variance and a favorable labor efficiency variance?
A. The mix of workers assigned to the particular job was heavily
weighted towards the use of highly paid experienced individual.
B. The mix of workers assigned to the particular job was heavily weighted
towards the use of new relatively low paid unskilled workers.
C. Because of the production schedule workers from other production areas were
assigned to assist this particular process.
D. Defective materials caused more labor to be used in order to produce a
standard unit.
44.
Excess direct labor wages resulting from overtime premium will be disclosed in
which type of
variance?
A. Yield
54.
Remy Company uses a standard cost system. Data relating to direct labor for the
month of August 2010 is as follows:
Direct labor efficiency variance – favorable
P 5,250
Standard labor rate
P 7.00
Actual direct labor rate
P 7.50
Standard hours allowed for actual production
9,000
Labor rate
Labor efficiency
difference between the actual labor rate multiplied by the actual hours worked
the standard labor rate multiplied by the standard labor hours is the
Total labor variance
Labor rate variance
Labor usage variance
Labor efficiency variance
In September, Petite produced 250 concrete tables. Five hundred twenty (520) kgs
of raw materials were used at a total costs of P193,440. A total of 128 direct labor
hours were used at a cost of p4,096. The direct labor variance is:
A. P22.50
B. P93.00
C. P64.75
D. P96.00
For the month of April, actual labor hours amounted to P2,000. In April, Elvie’s
standard direct
labor rate per hour was:
A. P 5.50
B. P 5.00
C. P 4.75
D. P 4.50
What are the actual hours worked for the month of August 2010?
A. 9,750
B. 8,400
C. 8,300
D. 8,250
55.
The information on Ramon Company’s direct labor costs for the month of January
2010 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
P 3,200
What is Ramon’s direct labor rate variance?
A. P17,250 unfavorable
B. P20,700 unfavorable
C. P21,000 unfavorable
D. P21,000 favorable
58.
Aurie Company manufactures one product with a standard direct labor cost of 4
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. P1,220
B. P1,200
C. P 820
D. P 400
59.
Information on Romy’s direct labor costs for the month of January is as follows:
Actual direct labor rate
P
7.50
Standard direct labor hour allowed
11,000
Actual direct labor hours
10,000
Direct labor rate variance – favorable
P
5,500
The
A.
B.
C.
D.
56.
Francine Company’s direct labor costs for the month of January 2010 were as
follows:
Actual direct labor hours
Standard direct labor hours
Direct labor rate variance – unfavorable
Total Payroll
20,000
21,000
P
3,000
P126,000
What was direct labor efficiency variance?
A. P6,000 favorable
B. P6,150 favorable
C. P6,300 favorable
D. P6,450 favorable
57.
For the month of April, Elvie Company’s records disclosed the following data relating
to direct
labor:
Actual cost
P10,000
Rate variance
P 1,000
favorable
Efficiency variance
P 1,500
unfavorable
Standard cost
P 9,500
Worker’s benefits treated as direct labor costs
20% of
standard direct labor rate in January was
P 6.95
P 7.00
P 8.00
P 8.05
60.
Rose Company uses standard cost system. The following information pertains to
direct labor for
Product B for the month of October:
Standard hours allowed for actual production
2,000
Actual rate paid per hour
P 8.40
Standard rate per hour
P
8.00
Labor efficiency variance
P1,600 U
What were the actual hours worked?
A. 1,800
B. 1,810
C. 2,190
D. 2,200
61.
The following direct labor information pertain to the manufacture of Product Z:
Time required to make one unit
2DLH
Number of direct workers
50
Number of productive hours per week, per worker
40
Weekly wages per worker
P500
66.
Under the three-variance method for analyzing factory overhead, the difference
between the actual factory overhead and the factory overhead applied to production
is the
A. Net overhead variance
B. Controllable variance
C. Efficiency variance
D. Spending variance
wages
What is the standard direct labor cost per unit of Product Z?
A. P 30
B. P 24
C. P 15
D. P 12
62.
67.
When using the two-variance method for analyzing factory overhead, the difference
between the
budget allowance based on standard hours allowed and the factory overhead
applied to production is the
A. Net overhead variance
B. Controllable variance
C. Volume variance
D. Efficiency variance
Aida Corporation’s direct labor costs for the month of March were as follows:
Standard direct labor hours
42,000
Actual direct labor hours
40,000
Direct labor rate variance – favorable
P8,400
Standard direct labor rate per hour
P 6.30
68.
What was Aida’s total direct labor payroll for the month of March?
A. P243,600
B. P252,000
C. P264,600
D. P260,400
Overhead cost Variance
63.
70.
Which of the following standard costing variances would be least controllable by a
production
supervisor?
A. Overhead volume
B. Overhead efficiency
C. Labor efficiency
D. Materials usage
Under the two-variance method for analyzing factory overhead and the factory
overhead applied to production is the
A. Controllable variance
B. Net overhead variance
C. Efficiency variance
D. Volume variance
64.
Under the two-variance method for analyzing factory overhead, the budget
allowance based on
standard hours allowed is used in the computation of the
Controllable (budget) variance Volume variance
A.
Yes
Yes
B.
Yes
No
C.
No
No
D.
No
Yes
Under the three-variance method for analyzing factory overhead, which of the
following is used in the computation of the spending variance?
Budget Allowance Based on Standard Hours
Factory overhead applied
production
A.
Yes
B.
Yes
C.
No
D.
No
You used predetermined overhead rates and the resulting variances when compared
with the results using the actual rates were substantial. Production data indicated
that volumes were lower than the plan by a large difference. This situation can be
due to:
A. Overhead being substantially composed of fixed costs.
B. Overhead being substantially composed of variable costs.
C. Overhead cost being recorded as planned.
D. Products being simultaneously manufactured in single runs.
71.
65.
to
Yes
No
Yes
No
Under the three-variance method for analyzing factory overhead, the difference
between the actual factory overhead and the budget allowance based on actual
input is the
A. Efficiency variance
B. Spending variance
C. Volume variance
D. Idle capacity variance
72.
A spending variance for variable factory overhead based on direct labor hours is the
difference
between actual variable factory overhead and the variable factory overhead that
should have been incurred for the actual hours worked. This variance results from
A. Price and quantity differences for factory overhead costs.
B. Price differences for factory overhead costs.
C. Quantity differences for factory overhead costs.
D. Differences caused by variations in production volume.
75.
Under the two-variance method for analyzing factory overhead, which of the
following is used in
the computation of the controllable (budget) variance?
Budget allowance based on actual hours Budget allowance based on standard
hours
A.
Yes
Yes
B.
Yes
No
C.
No
No
D.
No
Yes
76.
Under the three-variance method for analyzing factory overhead, which of the
following is used in the computation of spending variance?
Actual Factory Overhead
Budgeted Allowance Based on Actual Input
A.
No
Yes
B.
No
No
C.
Yes
No
D.
Yes
Yes
77.
Differences in product costs resulting from the application of actual overhead rates
rather than
predetermined overhead rates could be immaterial if
A. Production is not stable.
B. Fixed factory overhead is a significant cost.
C. Several products are produced simultaneously.
D. Overhead is composed only of variable costs.
82.
The fixed factory overhead application rate is a function of a predetermined activity
level. If
standard hours allowed for good output equal this predetermined activity level for a
given period, the volume variance will be
A. Zero
B. Favorable
C. Unfavorable
D. Either favorable or unfavorable, depending on the budgeted overhead.
83.
During the current year, a department’s three- variance factory overhead standard
costing system
reported unfavorable spending and volume variances. The activity level selected for
allocating
factory overhead to the product cost 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 have been affected?
Spending Variance Volume Variance
A.
Increased
Unchanged
B.
Increased
Increased
C.
Unchanged
Increased
D.
Unchanged
Unchanged
84.
The following data are presented:
Production in units
Manufacturing overhead
Sales in units
The
A.
B.
C.
D.
85.
Budgeted
Actual
50,000
55,000
P750,000
P800,000
No data
47,000
underapplied or overapplied overhead is:
P25,000 underapplied
P25,000 overapplied
P75,000 overapplied
P75,000 underapplied
Rose Company uses a standard cost system and prepared the following budgeted
amounts at normal capacity for the month of January 2010:
Direct labor hours
24,000
Variable factory overhead
Fixed factory overhead
Total factory overhead per direct labor hour
Actual data for January 2010 were as follows:
Direct labor hours worked
Total factory overhead
Standard direct labor hours allowed for capacity attained
P 48,000
P108,000
P
6.50
22,000
P147,000
21,000
Using the two-way analysis of overhead variances, what is the budget (controllable)
variance for
January 2010?
A. P 3,000 favorable
B. P 5,000 favorable
C. P 9,000 favorable
D. P10,500 unfavorable
86.
Pilipinas Company uses a standard cost system. For the month of April 2010, total
overhead is
budgeted at P80,000 based on the normal capacity of 20,000 direct labor hours. At
standard each
unit of finished product requires 2 direct labor hours. The following data are
available for the April 2010 production activity:
Equivalent units of production
9,500
Direct labor hours worked
19,500
Actual total overhead incurred
P79,500
What amount should Pilipinas credit to the applied factory overhead account for the
month of April 2010?
A. P76,000
B. P78,000
C. P79,500
D. P80,000
87.
Fountain Company uses a flexible budget system and prepared the following
information for 2010:
Normal Capacity
Maximum Capacity
Percent of capacity
100%
Direct labor hours
80%
32,000
For
A.
B.
C.
D.
March 2010, the unfavorable variable overhead spending variance was
P 6,000
P10,000
P12,000
P22,000
For
A.
B.
C.
D.
March 2010, the fixed overhead volume variance was
P96,000 unfavorable
P96,000 favorable
P80,000 unfavorable
P80,000 favorable
40,000
Variable factory overhead
P 64,000
P
80,000
Fixed factory overhead
P160,000
P160,000
Total factory overhead rate per direct labor hour
P7
6
P
91.
Fountain operated at 90% of capacity during 2010. The actual factory overhead for
2010 was
P252,000. What was the budget (controllable) overhead variance for the year?
A. P36,000 unfavorable
B. P20,000 unfavorable
C. P18,000 unfavorable
D. P
0
88.
The following information is available from the Hospicio Company:
Actual factory overhead
P15,000
Fixed overhead expenses, actual
P 7,200
Fixed overhead expenses, budgeted
P 7,000
Actual hours
3,500
Standard hours
3,800
Variable overhead rate per DLH
P 2.50
Assuming that Hospicio uses a three-way analysis of overhead variances, what is
the spending
variance?
A. P750 favorable
B. P750 unfavorable
C. P950 favorable
D. P200 unfavorable
Standard Company uses a standard cost accounting system. The following overhead
and production data are available for August:
Standard fixed overhead rate per DLH
P 1
Standard variable overhead per DLH
P 4
Budgeted monthly DLH
40,000
Actual DLH worked
39,500
Standard DLH allowed for actual production 39,000
Overall overhead variance – favorable
P2,000
The
A.
B.
C.
D.
92.
applied factory overhead for August should be
P195,000
P197,000
P197,500
P199,500
Camel Company uses flexible budget system and prepared the following information
for the year:
Percent of capacity
80%
90%
Direct labor hours
24,000
27,000
Variable factory overhead
Fixed factory overhead
Total factory overhead rate per DLH
P 48,000
P108,000
P
P 54,000
P108,000
6.50
P
6.00
Q 89 and 90 are based on the following data:
Based on a month’s normal volume of 50,000 units (100,000 direct labor hours),
Ruffa’s standard cost system contains the following overhead costs:
Variable
P 6 per unit
Fixed
P 8 per unit
The following information pertains to the month of March 2010:
Units actually produced
38,000
Actual direct labor hours worked
80,000
Actual overhead incurred:
Variable
P250,000
Fixed
384,000
Camel operated at 80% of capacity during the year but applied factory overhead
was equal to the
budgeted amount for the attained capacity, what is the amount of overhead
variance for the year?
A. P 6,000 overabsorbed
B. P 6,000 underabsorbed
C. P12,000 overabsorbed
D. P12,000 underabsorbed
93.
High Tech Company uses predetermined factory overhead application rate based on
direct labor
cost. For the year ended December 31, the company budgeted factory overhead
was P600,000, based on budgeted volume of 50,00 direct labor hours, at a standard
direct labor rate of P6 per hour. Actual factory overhead amounted to P620,000,
with actual direct labor cost of P325,000. For the year, overapplied factory overhead
was
A. P20,000
B. P25,000
C. P30,000
D. P50,000
Q94 and 95 are based on the following information relates to a given department of
Martomart
Company for the fourth quarter of 2009:
Actual total overhead (fixed plus variable)
P178,500
Budget formula
P110,000 plus P0.50 /
hr.
Total overhead application rate
P1.50 / hr.
Spending variance
P 8,000
unfavorable
Volume variance
P 5,000 favorable
The total overhead variance is divided into three variances – spending, efficiency
and volume
What were the actual hours worked in the department during the quarter?
A. 110,000
B. 121,000
C. 137,000
D. 153,000
108.
At the end of its fiscal year, Sky Company had several substantial variances from
standard variable manufacturing costs. The one that should be allocated between
inventories and cost of sales is the one attributable to
A. Additional cost of raw material acquired under a speculative purchase contract.
B. A breakdown of equipment.
C. Overestimates of production volume for the period resulting from failure to
predict.
D. Increased labor rates won by the union as a result of a strike.
109.
What is the normal year-end treatment of immaterial variances recognized in a cost
accounting
system using standard costs?
A. Reclassified as deferred charges until all related production is sold.
B. Allocated among cost of goods manufactured and ending work-in-process
inventory.
C. Closed to cost of goods sold in the period in which they arose.
D. Capitalized as a cost of ending finished goods inventory.
RESPONSIBILITY ACCOUNTING
1.
Which of these assertions refer to responsibility accounting?
1. Costs and revenues are identified with individuals for better control and
performance appraisal.
2. Performance reports under this concept include variance of actual amounts
versus plan.
3. Third parties who are external users are the main recipients of information.
4. Only expenses which are directly under the control of managers should ideally
be charged to them.
A. Assertions 1, 2 and 4 only
B. Assertions 1 and 4 only
C. Assertions 1 and 2 only
D. All four assertions.
2.
The basic purpose of a responsibility accounting system is
A. Budgeting
C.
B. Motivation
D.
What were the standard hours allowed for good output in this department during
the quarter?
A. 105,000
B. 106,667
C. 110,000
D. 115,000
Variance disposition
106.
How should a usage variance that is significant in amount be treated at the end of
an accounting
period?
A. Reported as a deferred charge or credit.
B. Allocated among work-in-process inventory, finished goods inventory,
and cost of goods sold.
C. Charged or credited to cost of goods manufactured.
D. Allocated among cost of goods manufactured, finished goods inventory, and
cost of goods sold.
107.
Standard costing will produce the same income before extraordinary items as actual
when standard cost variances are assigned to
A. Work-in-process and finished goods inventories.
B. An income or expense account
C. Cost of goods sold and inventories.
D. Cost of goods sold.
3.
4
Authority
Variance analysis
Responsibility accounting
A. Is the most formal communication device within an enterprise
B. Encourages managers and other employees to achieve enterprise goals,
not just their own individual goals.
C. Encourages managers to focus on a single issue of evaluation
D. Deals with the reporting of information to facilitate control of operations and
evaluation of performance.
That kind of accounting concerned with providing information to management in
making decisions about the operations of the business
A. Responsibility accounting
C.
Management
accounting
B. Cost accounting
D.
Full cost accounting
B.
6
7
14.
In responsibility accounting, there are two (2) types of reports distinguished as to
goals or objectives
A. Trend analysis reporting and comparative reporting
B. Responsibility performances reporting and information reporting.
C. Operations reporting and financial condition reporting.
D. Horizontal reporting and vertical reporting.
When used for performance evaluation, the generated reports in a responsibility
accounting system should
A. Not be related to the organization structure.
B. Not include variances between actual results and budgeted amounts of
controlled costs.
C. Not distinguish between controllable and uncontrollable costs.
D. Not include allocated fixed manufacturing overhead.
Costs are accumulated by a responsibility center for control purposes when using
Job-Order Costing Process costing
Job-Order Costing
Process costing
A.
Yes
Yes
C.
No
No
B.
Yes
No
D.
No
Yes
15.
In deciding how or which costs should be assigned to a responsibility center is the
degree of
A. Avoidability
C.
Controllability
B. Variability
D.
Relation to
department
16.
18.
In a responsibility accounting a center’s performance is measured by controllable
costs. Controllable costs are best described as including:
A. Differential costs.
B. Only those costs that the manger can influence in the current time
period.
C. Incremental and fixed costs.
D. Only discretionary cost.
Among the management accounting concepts is controllability which means
A. It is necessary at all times to identify the responsibilities and key result areas of
the individuals within the organization.
B. Management accounting must ensure that flexibility is maintained in
assembling and interpreting information.
C. Management accounting identifies elements or activities which
management can or cannot influence, and seeks to arrest risk and
sensitivity factors.
D. Accounting information must be of such quality that confidence can be placed in
Absorption of indirect cost.
D.
Cost allocation.
Cost centers
22.
What is the name given to a unit or a function of an organization that is headed by
a manger who has direct responsibility for its performance?
A. Responsibility center
C.
Business
entity
B. Cost unit
D.
Budget center
23.
Cost centers are
A. Units of product or service for which costs are ascertained.
B. Amounts of expenditure attributable to various activities.
C. Function or locations for which costs are ascertained for control purposes.
D. A section of an organization for which budgets are prepared and
control exercised.
27.
Which of the following items of cost would be least likely to appear in a
performance report based on responsibility accounting techniques for the supervisor
of an assembly line in a large
manufacturing situation?
A. Materials
C.
Repairs and
maintenance
B. Supervisor’s salary
D.
Direct labor
Profit centers
30.
In what type of center are managers usually evaluated on the basis of their fixed
costs and the
contribution margin they provide to the company?
A. Profit center
C.
Investment
center
B. Cost center
D.
Marketing center
31.
A center that incurs costs and expenses, generates revenue but does not have
control over idle funds used for investment purposes
A. Profit center
C.
Cost center
B. Investment center
D.
Responsibility center
33.
Which of the following types of responsibility centers has accountability for
revenues?
A. Cost centers and investment centers
B. Profit centers and investment centers
C. Cost centers and profit centers
D. Expense and investment centers
34.
Profit centers
A.
B.
C.
D.
it.
19.
The process of attributing proportion of items of costs among cost centers is called
A. Overhead absorption.
C.
Cost apportionment.
40.
Jane Cruz is the manager of Profit Center # 8. His unit reported the following for the
period just
ended:
Contribution margin
P350,000
Period expenses:
Manager’s salary
P100,000
Depreciation expense
40,000
Allocated administrative costs
25,000
165,000
Profit Center #8 income
P185,000
Of the foregoing, in all likelihood, Ms. Cruz controls
A. P165,000
B. P185,000
C.
D.
54.
Information concerning Product Z of Pia Corporation for the year ended 2009 is as
follows:
Sales
Margin
10%
Return on investment
20%
Minimum required rate of return on investment
The residual income of Product Z is
A. P138,750
B. P 46,250
P100,000
P350,000
57.
Investment center
I.
The main difference between a profit center and an investment center is
that the emphasis
is on the rate of return in the investment center rather than an absolute
profit.
II.
Marginal cost is the amount of cost increase caused by a unit increase in the
output of
product.
False; True
False; False
C.
D.
48.
The
A.
B.
C.
D.
invested capital-employed turnover rate would include
Invested capital in the denominator
Net income in the numerator
Invested capital in the numerator
Sales in the denominator
53.
Euro Corporation has these selected data:
C.
D.
P1,850,000
15%
P 92,500
P185,000
Matt, Inc. generated the following results for the period just ended:
Sales
P1.0 million
Net income
.1 million
Capital investment
.5 million
To arrive at the return on investment, the following should be used.
A. ROI = (5/10) X (10/1)
C.
X (1/10)
B. ROI = (10/5) X (10/1)
D.
(10/5) X (1/10)
44.
A.
B.
Have responsibility for controlling costs as well as capital
Control and reports costs only
Are the same as investment centers
Measures income and relate that income to their invested capital
ROI = (5/10)
ROI =
58.
Mark Corporation has two divisions A and B. division A is evaluating a project that
will earn a rate of return which is more than the imputed interest charge for the
invested capital, but less than the division’s historical return on invested capital.
Division A is evaluating a project that will earn a rate of return which is less than
the imputed interest charge for the invested capital, but is more than the division’s
historical return on invested capital. If the corporate objective is to maximize
residual income, the division should decide as follows:
A. B accept and A reject
C.
B reject and A
accept
B. B reject and A reject.
D.
B accept and A
accept.
78.
Transfer pricing schemes can be based on
A. Market price
True; True
True; False
C.
Negotiated price
B.
Units to be sold
Total cost of the units
Fixed capital investment
Variable capital on sales
25,000
P 500,000
1,000,000
20%
88.
Cost-based price
D.
All of the above.
In a decentralized company in which decisions may buy goods from one another,
the transfer- pricing system should be designed primarily to
A. Aid in the appraisal and motivation of managerial performance.
B. Increase the consolidated value of inventory.
C. Allow division managers to buy from outside.
D. Minimize the degree of autonomous of division managers.
What should be the unit selling price to have a 20% return on investment?
A. P28.00
C.
P30.00
B. P29.17
D.
P31.20
Questions 97 and 98 are based on the following information:
Maganda Company operates Division A and Division B. division A manufactures
machine tools on special order for outside market. Division B manufactures metal
lathes which are sold to Division A as well as to outside market. Division A has job
order cost system and applies factory overhead at 75% of direct labor, as of June
30, 2010, Division A has only Job Order 1 in process and has been charged with
factory overhead of P25,200 and work-in-process account consisted of the
following:
Balance, June 1
P 58,500
Direct materials, including transferred-in cost
170,000
Direct labor
125,000
Factory overhead
95,000
Transferred to finished goods
(350,000)
Division B has a process cost system and the cost to manufacture its product is
P12.00 per unit
which is sold to Division A at 15% less than the selling price to outside market.
Sales price to
outside market is P20.00.
How much direct materials were charged to Job Order 1?
A. P33,600
C.
B. P39,700
D.
P73,300
P64,900
How much is the transfer price for the machine lathes?
A. P17.00
B. P18.00
C.
D.
Make or Buy
14.
General Electronics is operating at 70% capacity. The plant manager is considering
making
component 201 now being purchased for P110 each, a price that is projected to
increase in the near future. The plant has the equipment and labor force required to
manufacture the component. The design engineer estimates that each component
requires P40 of direct materials and P30 of direct labor. The plant overhead is 200%
of direct labor peso cost, and 40% of the overhead is fixed cost. A decision to
manufacture component 201 will result in a gain or (loss) for each component of
A. P28
C.
P(20)
B. P16
D.
P4
16.
Sunshine manufactures a particular computer component. Manufacturing cost per
unit are as
follows:
Direct materials
P
50
Direct labor
500
Variable overhead
250
Fixed overhead
400
Total manufacturing costs
P1,200
P20.00
P12.00
A.
B.
C.
D.
Rainbow, Inc. has contracted Sunshine with an offer to sell 10,000 of the
component for P1,100 per unit. If Sunshine accepts the proposals, P2,500,000 of
the fixed overhead will be eliminated. Should Sunshine make or buy the component
and why?
Buy due to savings of P1,000,000
Make due to savings of P500,000
Buy due to savings of P2,500,000.
Make due to savings of P3,000,000
SHORT-TERM NON-ROUTINE DECISIONS
19.
Green Company makes hoses for its sprayers. Unit costs applicable to these hoses
1.
7.
9.
The
A.
B.
C.
D.
term relevant cost applies to all of the following decision situations except the
Acceptance of special product order.
Determination of product price
Manufacture of purchase of a component part.
Replacement of equipment.
are:
Direct materials
Direct labor
General and administrative cost
Fixed manufacturing overhead
Variable manufacturing overhead
Among the costs relevant to a make-or-buy decision, include variable manufacturing
costs as well as
A. Unavoidable costs
C.
Avoidable fixed
cost
B. Plant depreciation
D.
Real estate taxes
What is the opportunity cost of making a component part in factory given no
alternative use of the capacity?
A. The total cost of the component.
B. Zero
C. The fixed manufacturing cost of the component.
D. The variable manufacturing cost of the component.
in the coming year, the company plans to utilize 75% of capacity. Part of the
manufacturing process is hand-painting which has a variable cost of material at
P4.50 and labor at P5.50 per plate. This painting process has variable overhead at
P1.00 which is 40% of total variable factory overhead. Total factory overhead is set
at P500 per 100 plates. No increase in fixed factory overhead is expected even with
the substantial increase in production. An offer to sub-contract the incremental
hand painting job was given at P10.50 per plate but the company will have to lease
an equipment at P10,000 annual rental. The plate sell for P50.00 a piece at a
contribution margin rate of 45%. Should White Plain Company sub-contract? Why?
A. No because the company will lose P135,000
B. Yes, because the company will save P165,000.
C. Yes, because the company will earn P15,000 more.
D. No, because there is no benefit for the company.
21.
Part A is a component that Motors Company uses in the assembly of motors. The
cost to produce
one Part A is presented below:
Direct materials
P 4,000
Materials handling (20% of direct materials)
800
Direct labor
32,000
Overhead (150% of direct labor)
48,000
Total manufacturing costs
P84,400
Materials handling which is not included in manufacturing overhead, represents the
direct variable costs of the receiving department that are applied to direct materials
and purchased components on the basis of their cost. The company’s annual
P35.00
20.00
16.00
21.00
9.00
Five thousand units (5,000) are required for the year. The space that is used for the
hoses production can be used as warehouse and will save rental cost of P48,000 per
year. The hoses can be bought for P70.00 a piece. Should Green Co. buy or make
the hoses? Why?
A. Buy because there will be savings of P3.60 per hose.
B. Make, there will be a savings of P6.00 per hose.
C. Make, because there will be savings of P31.00 per hose
D. Buy, because there will be savings of P31.00 per hose.
20.
The White Plain Company is operating at 50% capacity producing 100,000 units
ceramic plates a year. With the economic boom that the country is expected to have
C.
D.
Buy from Mild Oils, Inc. at P1,260,000 against cost to produce of P1,650,000 or
savings of P390,000.
Produce 7,500 units from Mild Oil save P240,000.
23.
Pacific Company manufactures plugs used in its electrical gadgets at a cost of P108
per unit that
includes P24 of fixed overhead. It needs 30,000 of these plugs yearly, and Euro
Corp. offers to sell these items to Pacific at P99 per unit. If Pacific decides to
purchase the plugs, P180,000 of the annual fixed overhead applied will be
eliminated, and the company may be able to rent the facility previously used for
manufacturing the plugs. If Pacific purchases the plugs but does not rent the
unused facility, the company would
A. Save P6.00 per unit
C.
Save P9.00 per unit
B. Lose P18.00 per unit
D.
Lose P9.00 per unit
24.
Joy Inc. has excess production capacity. At times, it buys the same product from
third party. Below are pertinent information:
Selling price per unit
P70.00
Fixed cost per unit*
20.00
Variable cost per unit
35.00
*At present value
The most it should pay for buying this product it currently makes would be the
A. Selling price of P70.00
B. Total variable cost of producing the product of P35.00 per unit.
overhead budget is one-third variable, and two-thirds fixed. Motors Company offers
to supply Part A at a unit price of P60,000. Should the company buy or manufacture
Part A?
A. Buy, due to advantage of P24,800 per unit.
B. Manufacture, due to advantage of P7,200.
C. Buy, due to advantage of P12,800 per unit.
D. Manufacture, due to advantage of P19,200 per unit.
22.
Botanical Producers, Inc., manufactures various scents out of Philippine flowers and
plants. It also manufactures exotic oils that it subsequently uses in the scents
production. The cost per unit of measure for 15,000 units of exotic oils are as
follows:
Direct materials
P 20
Direct labor
34
Variable factory overhead
24
Unavoidable fixed factory overhead
32
Total
P 110
Mild Oils, Inc. offered Botanical to supply 15,000 units of measure of the exotic oil
for P1,260,000. Assuming the facilities for exotic oils have no alternative use,
Botanical Producers, Inc., should
A. Continue to produce exotic oils at P1,170,000 relevant costs against
purchase cost of P1,260,000.
B. Produce 7,500 units and buy 7,500 units from Mild Oils to save P300,000.
37.
Idle capacity in the interim (normally temporary) will generate short-term benefit in
accepting sales at price that
A. Positively motivate employees.
B. Result in less than normal contribution margin.
C. Increase total fixed costs.
D. Reduce the overall operating income to sales ratio.
39.
When only differential manufacturing costs are taken into account for special-order
pricing, an
essential assumption is that
A. Manufacturing fixed and variable costs are linear.
B. Selling and administrative fixed and variable costs are linear.
C. Acceptance of the order will not affect regular sales.
D. Acceptance of the order will not cause unit selling and administrative variable
costs to increase.
40.
Production of a special order will increase gross profit when the additional revenue
from the special order is greater than
A. The direct material and labor cost in producing the order.
B. The fixed costs incurred in producing the order.
C.
D.
Total variable cost per unit of P35.00 plus the reduced fixed cost per unit after
accounting for the effects of the added volume.
Total cost of production or P55.00 per unit.
25.
Plastic Items, Inc. manufactures coolers of 10,000 units that contain a freezable ice
bag. For an
annual volume of 10,000 units, fixed manufacturing costs of P500,000 are incurred.
Variable costs per unit are:
Direct materials
P80
Direct labor
15
Variable overhead
20
Igloo Corp. offered to supply the assembled ice bag for P40 with a minimum order
of 5,000 units. If Plastic accepts the offer, it will be able to reduce variable labor
and overhead by 50%. The direct materials for the freezable bag will cost Plastic
P20 if it will produce it. Considering Igloo Corp. offer, Plastic should
A. Buy the freezable ice bag due to P150,000 advantage.
B. Produce the freezable ice bag due to P225,000 advantage.
C. Produce the freezable ice bag due to P50,000 advantage.
D. Buy the freezable ice bag due to P50,000 advantage.
Accept or reject a special sales order
sufficient existing capacity to manufacture the additional units. Wil should consider
that the
minimum selling price per unit should be
A. P14
B. P15
C.
D.
P16
P18
45.
The manufacturing capacity of Yoly Company’s facilities is 30,000 units of product a
year. A
summary of operating results for the year ended December 31, 2009, is as follows:
Sales (18,000 units @P100)
P1,800,000
Variable manufacturing and selling costs
990,000
Contribution margin
810,000
Fixed costs
495,000
Operating income
P 315,000
A foreign distributor has offered to buy 15,000 units at P90 per unit during 2010.
Assume that all of Yoly’s costs would be at the same levels and rates in 2010 as in
2009. If Yoly accepted this offer and rejected some business from regular customers
so as not to exceed capacity, what would be the total operating income for 2010?
C.
D.
A.
B.
The indirect costs of producing the order.
The marginal cost of producing the order.
42.
Which of the following cost allocation methods is used to determine the lowest price
that can be
quoted for special order that will use idle capacity within a production area?
A. Job order
C.
Variable
B. Process
D.
Standard
43.
Joy has a stall which specializes in hand-crafted fruit baskets that sell for P60 each.
Daily fixed costs are P15,000 and variable costs are P30 per basket. An average of
750 baskets are sold each day. Joy has a capacity of 800 baskets per day. By
closing day time yesterday, a bus load of teachers whoattended a seminar stopped
by Joy’s stall. Collectively, they offered Joy P1,500 for 40 baskets. Joy should have
A. Rejected the offer since she could have lost P500.
B. Rejected the offer since she could have lost P900.
C. Accepted the offer since she could have lost P300 contribution margin.
D. Accepted the offer since she could have lost P700 contribution margin.
44.
Wil Company sells product A at a selling price of P21 per unit. Wil’s cost per unit on
the full
capacity of 200,000 units are as follows:
Direct materials
P 4
Direct labor
5
Overhead (2/3 of which is fixed)
6
Total
P15
A special order offering to buy 20,000 units was received from a foreign distributor.
The only
selling costs that would be incurred on this order would be P3 per unit for shipping.
Wil has
7.
Additional lease cost for additional equipment required for the special order,
P10,000.
The accountant estimated that the order will result as follows:
Revenue
Differential cost of goods sold:
Direct materials
Direct labor
Variable factory overhead
Fixed factory overhead
P600,000
P180,000
140,000
50,000
250,000
620,000
( 20,000)
46.
P390,000
P705,000
C.
D.
P840,000
P855,000
M&R Inc., has an annual capacity of 2,800 units of output. Its predicted operations
for the year as follows:
Sales (2,000 units @ P760 each)
P1,520,000
Manufacturing costs:
Variable
P500 per unit
Fixed
P360,000
Marketing and administrative costs:
Variable (sales and commissions) P120 per unit
Fixed
P40,000
Assume there would be no effect on regular sales at regular prices and that the
usual sales
commissions will be reduced to half. Should the company accept at one-time only
special order for 600 units at a selling price of P640 each?
A. Yes, due to incremental income of P48,000.
B. Either would do as the net effect would be the same.
C. Yes, due to incremental income of P30,000.
D. No, due to resulting los of P37,714.
47.
P6.00
Red and White Co. has an offer for a special order of 100,000 units at a unit price of
presented below:
1. Present production at 85% capacity, 450,000 units.
2. Fixed factory overhead is P1,250,000 at 100% capacity.
3. Variable direct costs per unit are : Materials, P1.80; direct labor P1.40.
4. Variable factory overhead per unit, P0.50.
5. Variable marketing expense per unit, P0.50.
6. Fixed general and administrative expenses, P800,000.
60% mark-up
Selling price
36
P96
Assuming that this special offer will not affect the market for the product, should
the company
accept this special offer?
A. Yes, since it will contribute P2.8 million margin.
B. Yes, since it will contribute P1.8 million margin.
C. No, it will mean a loss of P1.8 million.
D. No, it will mean a loss of P1.16 million.
Variable marketing expenses
Loss on this order
48.
are:
50,000
P(70,000)
Drop or continue a business segment
The calculation has these problems:
A. Fixed factory overhead has been overapplied.
B. Fixed general and administrative expenses and incremental lease cost have
been ignored.
C. Lease cost has been ignored and fixed factory overhead has been overapplied.
D. Fixed factory overhead has been allocated and additional lease cost has
been ignored.
57.
Division A of Division Mix Corporation is being evaluated for elimination. It has
contribution to
overhead of P400,000. It receives an allocated overhead of P1 million, 10% of which
cannot be
eliminated. The elimination of Division A would affect a pre-tax income by
A. P400,000 decrease
C.
P500,000 decrease
B. P400,000 increase
D.
P500,000 increase
Rice Milling Co. has a plant capacity of 40,000 units per month. Unit cost capacity
58.
Kate Company plans to discontinue a department with P48,000 contribution to
overhead, and
allocated overhead of P96,000, of which P42,000 cannot be eliminated. What would
be the effect of this discontinuance of Kate’s pretax profit?
A. Increase of P48,000
C.
Increase of P6,000
B. Decrease of P48,000
D.
Decrease of P6,000
Direct materials
Direct labor
Variable overhead
Fixed overhead
Marketing fixed cost
Marketing variable cost
P100
150
75
75
175
61.
90
Present monthly sales are 39,000 units at P630 each. Jack Corporation contacted
Rice about
purchasing 1,000 units at P600 each. The present sales would not be affected by
the special order. Rice should
A. Accept the special order due to P185,000 incremental income
B. Accept the special order due to P110,000 incremental income
C. Accept the special order due to P215,000 incremental income
D. Accept the special order due to P10,000 incremental income
49.
The Maganda Corp. which has experienced excess production capacity received a
special offer for its product B at P78 per unit for 100,000 units. It has been using
the variable costing method and has been pricing its product at P96 per unit based
on a mark-up of 60% as follows:
Overhead materials
Direct labor
Variable overhead
Variable selling and administrative
4
Total variable expenses
P60
Less: Variable expenses
Contribution margin
Less: Fixed expenses:
Salaries and wages
Insurance on inventories
P30
20
6
The Top-notch Corp. produces three products, “Me”, “Mi” and “Mo”. The owner
desires t reduce production load to only one product line due to prolonged absence
of the production manger. Depreciation expense amounts to P600,000 annually.
Other fixed operating expenses amount to P660,000 per year. The sales and
variable cost data of the three products are (000’s omitted):
Sales
Variable costs
Mo
P10,800
8,900
Pia Corporation’s Outlet No. 5 reported the following results or operations for the
period just ended:
Sales
P750,000
50,000
Mi
P5,300
1,700
Which product must be retained and what is the opportunity cost of selecting such
product line?
A. Retained product “Mi”; opportunity cost is P4.6 million.
B. Retained product “Mi”; opportunity cost is P3.14 million.
C. Retained product “Me”; opportunity cost is P4.04 million.
D. Retained product “Mo”; opportunity cost is P4.48 million.
62.
1,000,000
P1,500,000
Me
P6,600
3,900
A.
B.
C.
D.
P2,500,000
Product B since it has the higher contribution margin per unit.
Product A since it requires fewer machine hours per unit than does Product B.
Product B since it has the higher contribution margin per machine hours.
Product a since it has the higher contribution margin per machine hour.
Depreciation on equipment
Advertising
Net income (Loss)
325,000
500,000
1,625,000
(P 125,000)
The management is contemplating the dropping of Outlet No. 5 due to the
unfavorable operational results. If this would happen, one employee will have to be
retained with an annual salary of P150,000. The equipment has no resale value.
Outlet No. 5 should
A. Not be dropped due to foregone overall income of P850,000.
B. Be dropped due to foregone overall income of P325,000.
C. Not be dropped due to foregone overall income of P25,000.
D. Be dropped due to overall operational loss of P25,000.
Optimization of scarce resources
67.
When a multi-product plant operates at full capacity, quite often decisions must be
made as to which products to emphasize. These decisions are frequently made with
a short-run focus. In making such decisions, manager should select products with
the
A. Highest sales price per unit.
B. Highest individual unit contribution margin.
C. Highest volume potential.
D. Highest contribution margin per unit of the constraining resource.
68.
Joy Company temporarily has excess production capacity. The idle plant capacity
facilities can be used to manufacture a low-margin item. The low-margin item
should be produced if it can be sold for more than its
A. Variable costs plus any opportunity costs of idle facilities.
B. Indirect costs of the idle facilities.
C. Fixed costs
D. Variable costs
69.
Matt Co. has a limited number of machine hours that it can use for manufacturing
two products, A and B. each product has a selling price of P160 per unit but
product A has 40% contribution margin and product B has a 70% contribution
margin. One unit of B takes twice as many machine hours to make as a unit of A.
Assume either product can be sold in whatever quantity is produced, which product
or products should the limited number of machine hours be used for?
A. A
C.
Either A or B
B. Both A and B
D.
B
70.
Product A has a contribution margin of P80 per unit, a contribution margin ratio of
50 percent, and requires 4 machine hours to produce. Product B has a contribution
margin of P120 per unit, a
contribution margin ratio of 40 percent, and requires 5 machine hours to produce. If
the company has limited machine hours available, then it should produce and sell
Retain or replace an old asset
74.
At December 31, 2010, Francis had a machine with an original cost of P84,000,
accumulated
depreciation of P60,000, and an estimated salvage value of zero. On December 31,
2010, Francis
was considering the purchase of a new machine having a five-year life, costing
P120,000, and
having an estimated salvage value of P20,000 at the end of five years in its decision
concerning the possible purchase of the new machine, how much should Francis
consider as sunk cost at December 31, 2010?
A. P120,000
C.
P24,000
B. P100,000
D.
P 4,000
75.
John Industries, Inc. has an opportunity to acquire a new equipment to replace one
of its existing
equipment. The new equipment would cost P900,000 and has a five-year useful life,
with a zero
terminal disposal price. Variable operating cost would be P1 million per year. The
present equipment has a book value of P500,000 and a remaining life of five years.
Its disposal price now is P50,000 but would be zero after five years. Variable
operating costs would be P1,250,000 per year. Considering the five years in total,
but ignoring the time value of money and income taxes, John should
A. Replace due to P400,000 advantage.
B. Not replace due to P150,000 disadvantage.
C. Replace due to P350,000 advantage.
D. Not replace due to P100,000 disadvantage.
76.
Cherry Foods operates a cafeteria for its employees. The operations of the cafeteria
require fixed
cost of P470,000 per month and variable costs of 40% of sales. Cafeteria sales are
currently
averaging P1,200,000 per month. The company has the opportunity to replace the
cafeteria with
vending machines. Gross customer spending at the vending machine is estimated to
be 40% greater than the current sales because the vending machines are available
a all hours. By replacing the cafeteria with vending machines the company would
receive 165 of the gross customer spending and avoid cafeteria costs. A decision to
replace the cafeteria with vending machines will result in a monthly increase
(decrease) in operating income of
A. P182,000
C.
P(588,000)
B. P258,800
D.
P 18,800
77.
is now
Dennis Corp. produces motherboard at a special economic zone in Central Luzon. It
considering to shift to new automated equipment instead of its present facility.
Management was
given the mandate to shift it. Its break even point will materially be improved with a
minimum of
10% reduction in volume. Below are the pertinent information:
Sales in units
Selling price
Variable cost per unit
Fixed cost
Existing With automation
800,000
900,000
P
30
P
15
P
13
P775,000
P892,500
78.
n the manufacturing process of Ryan Company, an output called substance “pooz” is
disposed of as waste. Recently, the research Department has discovered a process
to convert this waste to detergent. The following data are available:
1. Cost of disposal is P20.00 per liter.
2. Additional processing cost will be P6.00 per liter.
3. Selling price of the new detergent is P14.00 per liter.
4. Joint costs to manufacture all products is P1.5 billion, of which P250,000 can be
allocated to “pooz”.
Which of the amounts are relevant in the decision to dispose or sell “pooz” as
detergent?
A. P20, P6, P14, P250,000
C.
P1.5 billion, P250,000
B. P20, P6, P14
D.
P20, P14, P1.5 billion,
P250,000
To maximize Beverly’s manufacturing contribution margin, the total separate
variable costs of
further processing that should be incurred each week are
P100,000
P190,000
P400,000
300,000
40,000
30,000
24,000
22,000
P816,000
If the production of the engine were discontinued the production capacity would be
idle, and the
supervisor will be laid off. Should there be a next contract for this engine, the
company should bid a minimum price of
A. P816,000
C.
P730,000
B. P700,000
D.
P770,000
86.
Romulo, Inc., has its own cafeteria with the following annual costs:
Food
P 400,000
Labor
300,000
Overhead
440,000
Total
P1,140,000
The overhead is 405 fixed. Of the fixed overhead, P100,000 is the salary of the
cafeteria supervisor.The remainder of the fixed overhead has been allocated from
total company overhead. Assuming the cafeteria supervisor will remain and that
Romulo will continue to pay said salary, the maximum cost Romulo will be willing to
pay an outsider firm to service the cafeteria is:
A. P1,140,000
C.
P700,000
B. P1,040,000
D.
P964,000
Temporarily shut down the operations or continue it
JI
P24
P30
P100,000
C.
D.
Romulo engines company manufactures engines for the military equipment on a
cost-plus basis. The cost of a particular machine the company manufactures is
shown below:
Direct materials
Direct labor
Overhead:
Supervisor’s salary
Fringe benefits on direct labor
Depreciation
Rent
Total
Beverly International produces weekly 15,000 units of Product JI and 30,000 units
of product JII for which P800,000 common variable costs are incurred. These two
products can be sold as is or
processed further. Further processing of either product does not delay the
production of subsequent batches of the joint products. Below are information:
JII
Unit selling price without further processing
Unit selling price with further processing
Total separate weekly variable costs of further processing
P90,000
P95,000
P90,000
Bid price
84.
The company should
A. Not shift since the break even volume will not change.
B. Shift since the break even volume will even increase by 1% with the
automation.
C. Shift to automation since the 10% reduction in break even volume could be
achieved.
D. Shift to automation since the reduction in break even volume will be more than
10%.
80.
A.
B.
P18
P22
88.
Dennis Corp. contemplates the temporary shutdown of its plant facilities in a
provincial area which are economically depressed due to natural disasters. Below
are certain manufacturing and selling expenses:
1. Depreciation
5. Sales commissions
2. Property tax
6. Delivery expenses
3. Interest expense
7. Security of premises
4. Insurance of facilities
C.
Which of the following expenses will continue during the shut down period?
A. All expense in the list
C.
Items 1,2 and 3 only
B. All except items 5 & 6
D.
Items 1, 2, 3, 4, 6
and 7 only
D.
116.
Cola’s contribution margin is higher than that of Orange hence more profitable
to produce.
It is more profitable to produce Cola.
Pia Computers Inc. has unutilized plant capacity which it could use to produce a
low-margin item. It should produce the low-margin item if the same can be sold for
more than its
A. Indirect costs plus fixed cost.
B. Variable costs plus any opportunity cost of the unutilized plant
capacity.
C. Fixed costs plus variable cost.
D. Variable cost.
Scrap or rework defective units
92.
Marjorie Corporation is considering to keep or dispose P1 million obsolete inventory
acquired
several years ago, this cost is
A. Discretionary cost
C.
Relevant cost
B. Sunk cost
D.
Prime cost
Gross Profit Variation Analysis
Misc. topics
3
109.
113.
Marc Corporation sells product T at a unit price of P5 deriving annual gross sales of
P50,000. The variable cost to produce T is P4.50 per unit and total fixed costs is
P10,000. If Marc increases T’s unit price to P8 a decrease of sales to only 4,000
units would result. The effect of the price increase on Marc’s net income from the
sales of product T will be a:
A. P9,000 increase
C.
P4,000 increase
B. P18,000 decrease
D.
No effect.
Data covering John Corporation’s two product lines are as follows:
Sales
Income before income tax
Sales price per unit
Variable cost per unit
Product “W”
P36,000
15,936
30
8.50
Product “Z”
P25,200
(8,388)
14
15
The total units sold of “W” was 2,400 and that “Z” was 3,600 units. If product “Z” is
discontinued and this results in a 400 units decrease in sales of Product “W”, the
total effect on income will be:
A. P13,600 decrease
C.
P8,600 decrease
B. No effect
D.
P5,000 decrease
114.
Kim Bottling Corporation makes and sells two softdrinks COLA and ORANGE. The
comparative data for the two shows:
COLA
ORANGE
Selling price per bottle
P9.50
P9.80
Variable cost
6.50
7.20
Production capacity per hour
250 bottles
300 bottles
There are 500 available production hours per month. Based on the above
information
A. Orange and Cola unit contribution margin is the same hence, it is equally
profitable to produce either
B. It is more profitable to produce Orange.
From the records of Dennis Co. the following were taken:
Quantity
Sales
Cost of Sales
Product Budget
Actual
Budget
Actual
Budget
Actual
Green
45,000
45,800
450,000 458,000 270,000
274,800
Red
30,000
26,700
180,000 186,900 108,000
96,120
White
5,000
9,300
25,000 55,800 15,000
27,900
80,000
81,800
655,000 700,700 393,000
398,820
The Sales Price variance:
A. P9,700 favorable
unfavorable
B. P5,820 favorable
C.
P36,000
D.
P36,700 favorable
The Sales Volume variance:
A. P36,000 favorable
B. P
0
C.
D.
P9,700 unfavorable
P5,820 favorable
The Cost Price variance:
A. P5,820 favorable
B. P36,700 favorable
C.
D.
P
P
The Cost Volume variance:
A. P
0 unfavorable
B. P9,000 favorable
C.
D.
P5,820 unfavorable
P9,000 unfavorable
FINANCIAL STATEMENTS ANALYSIS
0 favorable
0 unfavorable
1.
2.
Which of the following does not belong to the list?
A. Common-size financial statements
B. Peso and percentage changes on financial statements.
C. Financial ratios.
D. Long-form report.
When a balance sheet amount is related to an income statement amount in
computing a ratio:
A. The income statement amount should be converted to an average for the year.
B. Comparison with industry ratios is not meaningful.
C. The balance sheet amount should be converted to an average for the
year.
D. The ratio loses its historical perspective because a beginning of the year
amount is combined with an end of the year amount.
In 2009, MDG Corporation’s net income was P800,000 and in 2010 it was
P200,000. What
percentage increase in net income must MDG achieve in 2011 to offset the 2010
decline in net
income?
A.
60%
C.
400%
B. 600%
D.
300%
10.
Horizontal, vertical, and common-size analyses are techniques that are used by
analysts in
understanding the financial statements of companies. Which of the following is an
example of
vertical, common-size analysis?
A. Commission expense in 2010 is 10% greater than it was in 2009.
B. A comparison in financial ratio between two or more firms in the same industry.
C. A comparison in financial form between two or more firms in different industry.
D. Commission expense in 2010 is 55 of sales.
14.
When compared to a debt-to-equity ratio would
A. Be lower than the debt-to-asset ratio.
B. Be higher than the debt-to-asset ratio.
C. Be about the same as the debt –to-asset ratio.
D. Have no relationship at all to the debt-to-asset ratio.
15.
If the ratio of total liabilities to stockholders equity increases, a ratio that must
would also increase is
A. Time interest ratio
C.
Total liabilities to
total assets.
B. The current ratio.
D.
Return on
stockholders equity
16.
A measure of the company’s long-term debt paying ability is
A. Return on assets
C.
B. Times interest earned.
operating cycle.
4
11.
It refers to the practice of financing assets with borrowed capital. Its extensive use
may impact on the return on common stockholders’ equity to be above or below the
rate or return on total assets.
A. Discounting
C.
Leverage
B. Mortgage
D.
Arbitrage
12.
Securing of funds for investment at a fixed rate of return to fund suppliers to
enhances the well being of the common stockholders is known as:
A. Financial leverage
C.
Prudent borrowing
B. Fund management
D.
Financial arbitrage
13.
to
In the process of investing of surplus cash, the term “riding the yield curve” refers
A.
B.
C.
D.
Diversifying securities portfolio so that the firm has an equal balance of longterm versus short-term securities.
Swapping different maturities of similar quality debt securities in order
to obtain higher yield.
Purchasing only the longest maturities for given rates of return.
Adherence to the liquidity preference theory of securities investment.
17.
Dividend payout.
D.
Length of the
All of the following statements are correct except:
A. The matching of asset and liability maturities is considered desirable because
this strategy minimizes interest rate risk.
B. Default risk refers to the inability of the firm to pay off its maturing obligations.
C. The matching of assets and liability maturities lowers default risk.
D. An increase in the payables deferral period will lead to reduction in the
need to non-spontaneous funding.
18.
The following situations are descriptive of Euro Corporation. Which would be
considered as the
most favorable for the common stockholders?
A. Book value per share of common stock is substantially higher than market
value per share; return on common stockholders’ equity is less than the rate of
interest paid to creditors.
B. Equity ratio is high; return on assets exceeds the cost of borrowing.
C. Euro stops paying dividends on its cumulative preferred stock, the price
earnings ratio of common stock is low.
D. Equity ratio is low, return on assets exceeds the cost of borrowing.
21.
Which of this ratios are measures of a company’s profitability:
1. Earnings per share
5. Return on assets
2. Current ratio
6. Inventory turnover
3. Return on sales
7. Receivables turnover
4. Debt-equity ratio
8. Price earnings ratio
A.
B.
C.
D.
All eight ratios.
1, 3, 5 and 8 only.
1, 3, 5, 6, 7 and 8 only.
1, 3 and 5 only.
27.
If the return on total assets is 10% and if the return on common stockholders’
equity is 12% then
A.
B.
C.
D.
30.
31.
32.
The after-tax cost of long-term debt is probably greater than 10%.
The after-tax cost of long-term debt is 12%.
Leverage is negative.
The after-tax cost of long-term debt is probably less than 10%.
will not change. What new debt ratio, along with the 14% profit margin, is required
to double the return on equity?
A. 0.75
C. 0.65
B. 0.70
D. 0.55
Mayo Corporation has stockholders’ equity equal to 60% of total assets and
stockholders’ equity of P120 million. If the return on total assets invested registers
at 9% what is the return on stockholders’ equity?
A. 10.00%
C. 15.00%
B.
6.00%
D. 12.00%
Financial ratios, which assess the profitability of a company, include all of the
following except the
A. Dividend yield ratio
C. Earnings per share ratio
B. Gross profit percentage.
D. Return on sale ratio.
Which of the following statements is incorrect?
A. Profitability evaluation ratios have a higher power than solvency determination
ratios predicting for performance for both income and solvency.
B. Gross profit percentages do not vary a great deal among industries.
C. It is appropriate to compare a company’s current financial ratio with same
financial ratio for (1) that company is prior years and/or (2) the ratio for the
industry in which the company is affiliated.
D. Companies where product costs present a high percentage of total costs could
be expected to have a low gross profit percentage.
Q 38-41 are based on the following information: The management of Lanie
Corporaion is preparing its plans for the year 2011. The average assets to be
employed for the year are estimated at P2,600,000 with 20% of this amount
borrowed at no interest cost. Materials and labor cost for the year is budgeted at
P4,000,000, while operating costs is estimated at P1,500,000. All sales are to be
billed at 162.5% of materials and labor cost. Income taxes are at an average of
35% of income before income tax.
38.
The estimated rate of return on sales for 2011 is:
A. 10.00%
B. 12.50%
C. 14.29%
D. 27.86%
39.
The estimated rate of return on average total assets for 2011 is
A. 20.00%
C. 31.25%
B. 25.00%
D. 40.50%
40.
The expected asset turnover for 2011 is
A. 1.5 times
B. 2.5 times
C. 3.36 times
D. 3.75 times
33.
This ratio of analytical measurement measures the productivity of assets regardless
of capital
structures.
A. Return on total assets
C. Current ratio.
B. Quick ratio
D. Debt ratio
Growth ratio
41.
The rate of return on stockholders’ equity for 2011 is
A. 20.00%
C. 31.25%
B. 25.00%
D. 40.50%
34.
43.
Data pertaining to Daz Corp.’s common stock are presented for the fiscal year
ending May 31, 2010:
35.
36.
MG Goods, Inc. has a total asset turnover of 0.30 and a profit margin of 10 percent.
The president is unhappy with the current return on assets, and he thinks it could
be doubled. This could be accomplished (1) by increasing the profit margin to 15 %
and (2) by increasing the total assets turnover. What new asset turnover ratio,
along with the 15% profit margin, is required to double the return on assets?
A. 35%
C. 40%
B. 45%
D. 50%
Common stock outstanding
Stated value per share
Market price per share
2009 dividends paid per share
2010 dividends paid per share
Primary earnings per share
Fully diluted earnings per share
A fire has destroyed many of the financial records of M Company. You are assigned
to put together a financial report. You have found the return on equity to be 12%
and the debt ratio was 0.40. What was the return on assets?
A. 5.35%
C. 6.60%
B. 8.4%
D. 7.20%
G and Company has a debt ratio of 0.50, a total assets turnover of 0.25, and a
profit margin of 10%. The president is unhappy with the current return on equity,
and he thinks it could be doubled. This could be accomplished (1) by increasing the
profit margin to 14% and (2) by increasing debt utilization. Total assets turnover
P750,000
15.00
45.00
4.50
7.50
11.25
9.00
The price earnings ratio of common stock of Daz Corp. is:
A. 3.0 times
C. 6.0 times
B. 7.0 times
D. 5.0 times
44.
Ashley Company paid out one-half of its 2010 earnings by dividends. Its earnings
increased by 20% and the amounts of its dividends increased by 15% in 2009.
Ashley dividend payout ratio for 2010 was
A. 51.5 %
C. 75.00%
B.
53.
52.3%
D. 47.90%
Given a year’s end net income of 1.5 million and 50,000 common shares
outstanding throughout the year with market price per share at year’s being p10,
the price-earning ratio is:
A. 2 times
C. 4 times
B. 3 times
D. 5 times
May’s inventory turnover for 2010 is
A. 3.57 times
B. 3.85 times
C. 5.36 times
D. 5.77 times
72.
During 2010, Lou Company purchased P960,000 of inventory. The cost of goods
sold for 2010 was P900,000, and the ending inventory at December 31, 2010 was
P180,000. What was the inventory turnover for 2010?
A. 6.4
C. 5.3
B. 6.0
D. 5.0
58.
Mr. Co, the owner of Galaxy Company is arguing with his accountant as to the best
measure of
liquidity. He was considering the following and you are to advise him which one is
the best. Which one will you choose?
A. Current assets minus inventories to current liabilities.
B. Total assets minus goodwill to total liabilities.
C. Net income minus dividends to interest expense.
D. Sales minus returns to total debt.
74.
The following computations were made from Bay Company’s 2010 books
59.
Zip Corporation has an acid test ratio 1.5 to 1.0. Which of the following will cause
this ratio to
deteriorate?
A. Payment of cash dividends previously declared.
B. Borrowing short-term loan from a bank.
C. Sale of inventory on account.
D. Sale of equipment at a loss.
77.
Which of the following ratios should be used in evaluating the effectiveness with
which the
company uses its assets?
Receivable turnover ratio
Dividend payout ratio
A.
No
No
B.
Yes
No
C.
Yes
Yes
D.
No
Yes
Liquidity ratio
63.
64.
67.
Che, Inc. has a current ratio of 4:1. Which of the following transactions would
normally increase its current ratio?
A. Purchasing inventory on account.
B. Purchasing machinery for cash.
C. Selling inventory on account.
D. Collecting on account receivable.
Wil Corporation has current assets totaling P15 million and a current ratio of 2.5 to
1. What is Wil’s current ratio immediately after it has paid P2 million of its accounts
payable?
A. 3.75 to 1
C. 3.25 to 1
B. 2.75 to 1
D. 4.75 to 1
On December 31, 2009, Ilocos Company collected a receivable due from a major
customer. Which of the following ratios would be increased by this transaction?
A. Inventory turnover ratio.
C. Receivable turnover ratio.
B. Quick ratio.
D. Current ratio.
Number of days sales in inventory
Number of days sales in trade accounts receivable
61
33
What was the number of days in Bay’s 2010 operating cycle?
A. 33
C. 61
B. 94
D. 47
82.
Dennis Company has a high sales-to-working-capital ratio. This could indicate
A. The firm is undercapitalized.
B. The firm is likely to have liquidity problems.
C. Working capital is not profitably utilized.
D. The firm is not profitable.
83.
For the year ending August 31, 2010, Charles Inc. reported the following statistics:
In thousand Pesos
2010
2009
Net credit sales 2,482
Gross receivables 140
Inventory
Cost of goods sold
128
384
1,752
312
For the current year, using a 365-day year, the average number of days to convert
inventory to sales is
70.
Selected information from the operating records of May Company is as follows:
Net sales
P1,800,000
Cost of goods sold for 2010
1,200,000
Inventory at 12/31/09
360,000
Inventory at 12/31/10
312,000
A.
B.
95 days
125 days
C. 215 days
D. 85 days
85.
It is the policy of Marc Corporation that the current ratio cannot fall below 1.5 to
1.0. its current
liabilities are P400,000 and the present current ratio is 2 to 1. How much is the
maximum level of new short-term loans it can secure without violating the policy?
A. P400,000
C. P266,667
B. P300,000
D. P800,000
86.
Selected data from the year-end financial statements of Vina Cup Corporation are
presented below. The difference between average and ending inventories is
immaterial.
Current ratio
2.0
Quick ratio
1.5
Current liabilities
P6,000,000
Inventory turnover (based on cost of sales)
8 times
Gross profit margin
40%
Vina’s net sales for the year were
A. P2.4 million
B. P4.0 million
Romulo Corporation made a substantial one time sale to a provincial based
customer which was on credit and had been outstanding for six months. Before the
company could refer the account to a lawyer for collection, the customer paid in
full. Which of the following ratios would be increased by the unexpected receipt?
A. Acid-test ratio
C. Current ratio
B. Receivable turnover ratio.
D. inventory turnover ratio.
88.
The ratio of sales to working capital is a measure of
A. Collectability
B. Operational leverage.
C. Liquidity
D. Financial leverage.
John Corporation has a 2 to 1 current ratio. This ratio would increase more than 2
A.
The company wrote off an uncollectible receivable.
65.00 days
51.18 days
C. 72.56 days
D. 71.51 days
84.
If the average age of the inventory is 90 days, the average age of accounts payable
is 60 days, and the average age of accounts receivables is 65 days, the number of
days in the cash flow cycle is
91.
On December 31, 2010, Vic Company collected a receivable due from a major
customer. Which of the following ratios would be increased by this transaction?
A. Inventory turnover ratio
C. Receivable turnover
ratio
B. Quick ratio
D. Current ratio
92.
Euro Inc.’s financial statements as the year ended December 31, 2010 show
accounts receivables, net of P750,000 and sales at P15 million. Accounts receivable
remained relatively constant during the year. Euro’s accounts receivable turnover in
days is:
A. 18.25
C. 15.25
B. 20.25
D. 16.25
93.
Inventory turnover indicates:
A. How many times in the course of a year the company is able to sell the
amount of its average inventory.
B. The flow assumption, which provides the most current valuation in the balance
sheet.
C. The average time period between the purchase of inventory and conversion of
this inventory back to cash.
D. A pattern of transferring unit cost from the inventory account to the cost of
goods sold.
95.
All of the following statements are valid except.
A. The short-term creditor is more interested in cash flow and in working capital
management than he is in how much accounting net income is reported.
B. 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.
C. The results of financial statements analysis are of value only when viewed in
comparison with the results of other periods or other firms.
D. The inventory turnover is computed by dividing sales by average
inventory.
96.
Which of the following statements is correct?
A. 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.
B. A high quick ratio is always a good indication of a well-managed liquidity
C. P1.2 million
D. P6.0 million
87.
89.
to1 if
A.
B.
B.
C.
D.
90.
The company purchased inventory on open account.
The company sold merchandise on open account that earned a normal
gross margin.
Previously declared stock dividends were distributed.
Dennis & Sons, Inc. has a 2 to 1 acid test (quick) ratio. This ratio would decrease to
less than 2 to 1 if
A. The company purchased inventory on open account.
B. The company sold merchandise on open account that earned a normal gross
margin.
C. The company collected an account receivable.
D. The company paid an account payable.
A.
B.
C.
D.
98.
During 2009, Marjo officers exercised stock options for 1,000 shares of stock at an
option price of P8 per share. What was the effect of exercising the stock option?
A. No ratios were affected.
B. Assets turnover increased to 5.4%.
C. Debt to equity ratio decreased to 12%.
D. Earnings per share increased by P0.33.
CAPITAL BUDGETING
4.
D.
In capital expenditures decisions, the following are relevant in estimating operating
costs except
A. Future costs.
C. Differential costs.
B. Cash costs.
D. Differential costs
In capital budgeting decisions, the following items are considered among others:
1. Cash outflow for the investment.
2. Increase in working capital requirement.
3. Profit on sale of old asset.
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.
97.
The company issued a new common shares in a three-for-one stock split. Identify
the statements
that indicate the correct effect(s) of this transaction.
1. It reduces equity per share of common stock.
2. Share of each common stockholder is reduced.
3. The peso amount of capital stock is increased.
4. Working capital and current ratio are increased.
C.
D.
Statements 1 and 4 only are correct.
Statement 1 only is correct.
All four statements are correct.
Statements 3 and 4 only are correct.
The following information pertains to Marjo Corporation as of the year ended
December 31, 2010:
Liabilities
P 60,000
Stockholders’ equity
500,000
Shares of common stock issued and outstanding
10,000 shares
Net income
P 30,000
3.
C.
7
CVOS, relevant and SVNS, irrelevant
CVOS, relevant and SVNS, relevant
As a capital budgeting technique, the payback period considers depreciation
expense (DE) and time value money (TVM) as follows:
A. DE, relevant and TVM, relevant.
B. DE, irrelevant and TVM, irrelevant.
C. DE, irrelevant and TVM, relevant.
D. DE, relevant and TVM, irrelevant.
8
John Movers, Inc. is planning to purchase equipment to make its operations more
efficient. This
equipment has an estimated useful life of six years. As part of this acquisition, a
P150,000
investment in working capital is required. In a discounted cash flow analysis, this
investment in
working capital
A. Should be amortized over the useful life of the equipment.
B. Should be disregarded because no cash is involved.
C. Should be treated as a recurring annual cash flow that is recovered at the end
of six years.
D. Should be treated as an immediate cash outflow that is recovered at
the end of six years.
9
10.
Depreciation tax shield
A. The expense caused by depreciation.
B. The cash provided by recording depreciation.
C. A reduction in income tax.
D. As after-tax cash flow.
If income tax consideration are ignored, how is depreciation used in the following
4.
Loss on write-off of old asset.
capital budgeting techniques?
A. Internal Rate of Return, Included; Acctg. Rate of Return, Excluded.
B. Internal Rate of Return, Excluded; Acctg. Rate of Return, Included.
C. Internal Rate of Return, Excluded; Acctg. Rate of Return, Excluded.
D. Internal Rate of Return, Included; Acctg. Rate of Return, Included.
For which of the above items would taxes be relevant?
A. Items 1 and 3 only.
C. All items.
B. Items 3 and 4 only.
D. Items 1, 3 and 4 only.
5
6
All of the following are methods that aid management in analyzing the expected
result of capital
budgeting decisions, except
A. Accrual accounting rate of return
B. Payback method.
C. Future value cash flow.
D. Discounted cash flow rate of return.
The consulting firm of Francis Corporation is considering the replacement of their
computer system. Taking into account the income tax effect and considering the
carrying value of the old system (CVOS) and the salvage value of the new system
(SVNS), which combination below applies to the decision making process?
A. CVOS, irrelevant and SVNS, irrelevant.
B. CVOS, irrelevant and SVNS, relevant.
considered is worth P800,000 and the supplier is willing to accept the old machine
at a trade-in value of P60,000. Should the company decide not to acquire the new
machine, it needs to repair the old one at a cost of P200,000. Tax wise, the tradein transaction will not have any implication but the cost to repair is tax-deductible.
The effective corporate tax rate is 35% of net income subject to tax. For purposes
of capital budgeting, the net investment in the new machine is
A. P540,000
C. P660,000
B. P610,000
D. P800,000
Net Cost of Investment
11.
Dagupan Publishers, Inc. is considering replacing an old press that cost P800,000
six years ago with a new one that would cost P2,250,000. Shipping and installation
would cost an additional P200,000. The old press has a book value of P150,000 and
could be sold currently for P50,000. The increased production of the new press
would increase inventories by P40,000, accounts receivable by P160,000 and
accounts payable by P140,000. Dagupan’s net initial investment for analyzing the
acquisition of the new press assuming a 35% income tax rate would be
A. P2,450,000
C. P2,600,000
B. P2,425,000
D. P2,250,000
12.
Francis Corp. plans to replace a production machine that was acquired several years
ago. Acquisition cost is P450,000 with salvage value of P50,000. The machine being


Determine the payback period for this investment:
A. 2.5 years.
C. 3.00 years.
B. 2.17 years.
D. 3.17 years.
11.
The payback reciprocal is an estimate of the internal rate of return. The Cherry, Inc.
is considering the acquisition of a merchandise picking system to improve customer
service. Annual cash returns on investment cost of P1.2 million is P220,000. Useful
life is estimated at 8 years. The company’s cost of capital is 14% and income tax
rate is 35%. Calculate Cherry, Inc’s payback reciprocal for this investment:
A. 20.5%
C. 11.9%
B. 18.3%
D. 22,2%
15.
The following statements refer to the accounting rate of return (ARR):
1. The ARR is based on the actual basis, not cash basis.
2. The ARR does not consider the time value of money.
3. The profitability of the project is not considered.
Net returns
19.
Romulo Inc. currently has annual cash revenues of P2,400,000 and annual
operating costs of
P1,850,000 (all cash items except depreciation of P350,000). The company is
considering the
purchase of a new machine costing P1,200,000 that would increase cash revenues
to P2,900,000 and operating costs (including depreciation) to P2,050,000. The new
machine would increase
depreciation to P500,000 per year. Revenues are expected to increase to
P2,900,000 and assuming a 35% income tax rate, Romulo’s incremental after tax
cash flows from the machine would be:
A. P330,000
C. P295,000
B. P345,000
D. P300,000
Initial investment outlay is P60,000.
Cost of capital is 18%.
From the above statements, which are considered limitations of the ARR concept?
A. Statements 2 and 3 only.
C. All the 3 statements.
B. Statements 3 and 1 only.
D. Statements 1 and 2
only.
Traditional evaluation models
6
Rain, Inc. plans to undertake a capital expenditure requiring P2 million cash outlay.
Below are the projected after-tax cash inflows for the five-year period covering the
useful life. The company’s tax rate is 35%
Year
P000
1
600
2
700
3
480
4
400
5
400
The founder and president of the company believes that the best gauge for capital
expenditures is
cash payback period and that the recovery period should not be more than 755 of
the useful life of the project or the asset. Should the company undertake the
project?
A. No, since the payback period is 4 years or 80% of the useful life of the project.
B. Yes, since the payback period is 3.55 years or 71% of the useful life of
the project.
C. No, since the payback period extends beyond the life of the project.
D. Yes, since the payback period is 4 years and still shorter than the useful life of
the project.
9
Given these data:

Net after tax infows are: P24,000 for year1 P30,000 for year 2, P36,000 for
year 3, and P30,000 for year 4.
B.
C.
D.
Payback period
Accounting rate of return on average investment.
Discounted cash flow.
24.
When using one of the discounted cash flow methods to evaluate the desirability of
a capital
budgeting project, which of the following factors generally is not important?
A. The method of financing the project under consideration.
B. The impact of the project on income taxes to be paid.
C. The timing of the cash flows relating to the project.
D. The amount of cash flows relating to the project.
28.
Your company is purchasing a transport equipment as part of its territorial
expansion strategy. The technical services department indicated that this equipment
needs overhauling in year 4 and 5 of its useful life. The overhauling cost will be
expected during the year the overhauling is done. The Finance Officer insist that the
overhauling be done in year 4, not in year 5. The most likely reason is:
16.
A capital budgeting method that provides a rough approximation of an investment’s
profitability as measured with net income from the income statement is known as:
A. Average rate of return method
C. Payback period method
B. Net present value method
D. Internal rate of return
method
17.
Mel Inc. is planning to spend P600,000 for a machine that it will depreciate on a
straight-line basis over a ten-year period with no terminal disposal price. The
machine will generate cash flow from operations of P120,000 a year. Ignoring
income taxes, what is the accounting rate of return on the net initial investment?
A. 5%
C. 10%
B. 12%
D. 15%
Discounted cash flows model – general concepts
20.
Which of the following methods measures the cash inflows and outflows of a project
as if they
occurred at a single point in time?
A. Cash flow based payback method
B. Capital budgeting
C. Payback method
D. Discounted cash flow.
21.
The method of project selection which considers the time value of money in a
capital budgeting
decision is accomplished by computing the
A. Accounting rate of return on initial investment.
32.
You are the treasurer of the Elite Corporation. The company is considering a
proposed project,
which has an economic life of seven years. Net present value is the capital
budgeting technique the president wants you to use. Salvage value of the project
would be:
A. Treated as cash inflow at estimated salvage value.
B. Treated as cash inflow at its present value.
C. Irrelevant cash flow item.
D. Treated as cash inflow at the future value.
33.
Depreciation tax shield is
A. The expense caused by depreciation.
B. The cash provided by recording depreciation.
C. A reduction in income tax.
D. An after- tax cash flow.
34.
Sensitivity analysis, if applied in capital budgeting evaluation,
A.
B.
C.
D.
29.
30.
31.
except
C.
Several proposed capital projects, which are economically acceptable, may have to
be ranked due to constraints in financial resources. In ranking those projects, the
least pertinent in this statement
A. If the internal rate of return is used in the capital rationing problem the higher
the rate the better the project.
B. In selecting the required rate of return, one may either calculate the
organization’s cost of capital or use a rate generally acceptable in the industry.
C. A ranking procedure on the basis of quantitative criteria may be established by
specifying a minimum desired rate of return, which rate is used in calculating
the net present value of each project.
D. In the net present value method is used, the profitability index is
calculated to rank the projects. The lower the index, the better the
project.
The “inflation element” refers to the
A. Impact that future prices increases will have on the original cost of capital
expenditure.
B. Fact that real purchasing power of a monetary unit usually increases over time.
C. Future deterioration of the general purchasing power of the monetary
unit.
D. Future increases in the general purchasing power of the monetary unit.
All of the following refer to the discount rate used by a firm in capital budgeting
A.
B.
37.
A.
B.
There is lower tax rate in year 5.
There is higher tax rate in year 5.
The time value of money is considered.
Due to statements A and C above.
Hurdle rate.
Required rate of return.
capital.
C.
Opportunity cost.
D. Opportunity cost of
You have determined the profitability of a planned project by finding the present
value of all cash flows from that project. Which of the following would cause the
project to look less appealing, that is, have lower present value?
A. The discount rate increases.
B. The cash flows are extended over a longer period of time.
C. The investment cost decreases without affecting the expected income and life
of the project.
D. The cash flows are accelerated and the project life is correspondingly
shortened.
D.
Is used extensively when cash flows are known with certainty.
Is “what if” techniques that ask how a given outcome will change if the
original estimates of the capital budgeting model are changed.
Measures the amount of time it will take for a project to recover its initial
capital outflow.
Is a technique used to rank capital expenditures request.
35.
You just passed the CPA licensure examination and took your oath. As you started
your practice,
Faith Inc. came to you for help in establishing a minimum desired rate of return to
be used in the
evaluation of a capital project with a five-year life. The following data were
provided:
Inflation rate for the past 5 years
13%
Expected inflation rate for the next 5 years
9%
“Risk-free” element
5%
“Risk” premium demanded for the project
7%
You will advice the client to consider a minimum desired rate of return of
A. 20%
C. 16%
B. 21%
D. 25%
36.
The common assumption in capital budgeting analysis that cash inflows occur in
lump sums at the end of individuals years during the life of an investment project
when in fact they flow more or less continuously during those years
A. Results in understated estimate of NPV.
B. Is done because present value tables for continuous flows can not be
constructed.
C. Will result in inconsistent errors being made on estimating NPV’s such that
project cannot be evaluated reliably.
D. Results in higher estimates for the IRR on the investment.
60.
The
must be
A.
B.
C.
D.
net present value of a proposed project is negative therefore, the discount rate
Less than the project’s internal rate of return.
Less than the risk free rate.
Greater than the firm’s cost of equity.
Greater than the project’s internal rate of return.
45.
Daz Company plans to invest P2,000 at the end of the next ten years. Assume that
Daz will earn
interest at an annual rate of 6% compounded annually. The future amount of an
ordinary annuity of P1 for 10 periods at 6% is 13.181. The present value of P1 for
ten periods at 6% is 0.558. the present value of an ordinary annuity of P1 for ten
periods at 6% is 7.360. the investment after the end of ten years would be
A. P26,362
C. P14,720
B. P21,200
D. P27,478
Net present value
52.
53.
that it
Vida & Company is considering an investment proposal for P10 million yielding a net
present value of P450,000. The project has a life of 7 years with salvage value of
P200,000. The company uses a discount rate of 12%. Which of the following would
decrease the net present value?
A. Extend the project life and associated cash inflows.
B. Increase the discount rate to 15%.
C. Decrease the initial investment amount to P9.0 million.
D. Increase the salvage value.
63.
Assuming that the cash flow is generated evenly during the year, your advice is
A. To invest due to net present value of P94,000.
B. To invest due to net present value of P541,280.
C. To invest due to net present value of P635,000.
D. To invest due to net advantage of P500,000.
A disadvantage of the net present value method of capital expenditure evaluation is
A.
B.
C.
D.
59.
61.
You have been consulted to advice Cynth Corporation on the projected acquisition of
another
production line costing P1 million. The line has an expected useful life of 5 years
without any
salvage value. The company’s hurdle rate is 20% and the following additional
information were
made available to you.
Year
Estimated Annual Cashflow
Present value of P1 at
20%
1
P 600,000
0.91
2
300,000
.76
3
200,000
.63
4
200,000
.53
5
200,000
.44
P1,500,000
3.27
It is difficult to apply because it uses a trial and error approach.
Does not provide the true rate of return on investment.
Is calculated using sensitivity analysis.
Computes the true rate of return.
It is the start of the year and Dennis Company plans to replace its old sing-along
equipment. These information are available:
Old
New
Equipment cost
P70,000 P120,000
Current salvage value
10,000
Salvage value, end of useful life
2,000
16,000
Annual operating costs
56,000
38,000
Accumulated depreciation
55,300
Estimated useful life
10 years 10 years
62.
Cherry Corporation is considering the purchase of a new machine that will cost
P320,000. It has an estimated useful life of 305 in the first year, 40 % in the second
year, and 30% in the third year. It has a resale value of P20,000 at the end of its
economic life. Savings are expected from the use of machine estimated at P170,000
annually. The company has an effective tax rate of 40%. It uses 16% as hurdle rate
in evaluating capital projects. Should the company proceed with the P320,000
capital investment?
Discount factors at 16%
Year
annuity of P1
1
2
3
Present value of 1
Present value of an ordinary
.862
.743
.641
The company’s income tax rate is 35% and its cost of capital is 12%. What is the
present value of all the relevant cash flows at time zero?
A. (P54,000)
C. (P120,000)
B. (P110,000)
D. (P124,000)
A.
B.
C.
D.
Yes, due to NPV of P6,556.
Yes, due to NPV of P11,684.
Yes, due to NPV of P61,820.
No , due to negative NPV of P1,136.
Annie has P750,000 in a bank account as of the end of the last year. If she deposits
P10,000 in the account at the end of each of the next three years, and all amounts
A.
B.
P3,651,200
P3,524,000
.862
1.605
2.246
C. P2,404,000
D P3,778,400
in the account can earn 8% per annum, will she become a millionaire by the end of
the said period? (disregard income tax
implications).
Below are the factors that may be used:
8% Interest rate factors
Period
Future value of Future value on annuity of P1
1
1.08
1.00
2
1.17
2.08
3
1.26
3.25
4
1.36
4.51
A.
B.
Yes, with P1,075,000.
No, with only P870,000.
67.
The General Manager of John Mill Inc. is considering the purchase of some new
machines. The
machine would cost P4,000,000 with an economic life of 8 years without any
salvage value. Once set up, they would generate P12,500,000 additional revenues
but yearly expenses for additional labor and materials would also increase by
P11,500,000.assume the company uses straight-line depreciation for taxes and that
the appropriate tax rate is 35%. The required after-tax rate on return is 14%.
The following data are an interest rate of 15% and 8 periods:
Present value of P1
0.3506
Future value of P1
2.8526
Present value of an annuity of P1
4.6389
Future value of annuity of P1
13.2328
C. Yes, with P1,200,000.
D. No, with only P880,000.
The
A.
B.
C.
D.
64.
The net present value method of investment analysis assumes that the projects
cash flows are
invested at the
A. Computed internal rate of return.
B. Discounted rate in the NPV calculation.
C. Firm’s average rate of return.
D. Risk free interest rate.
65.
Ina Foundation, Inc., a non stock, nonprofit and tax exempt foundation, invested P1
million in a
five-year project at the beginning of the year. The foundation estimates that the
annual savings from the project will amount to P325,000. The P1 million asset is
depreciable over five (5) years on a straight-line basis. The foundation’s hurdle rate
is 12%. To facilitate computations, below are present value factors:
12%
14%
16%
Present value of P1 for 5 periods
0.57
0.52
0.48
Present value of an annuity of P1 for 5 period
3.6
3.4
3.3
The net present value of the project is
A. P170,000
B. P625,000
66.
C.
D.
P182,000
P450,000
Dennis Corporation bought a major equipment which is depreciable over 7 years on
a straight line basis without any salvage value. It is estimated that it will generate
cash flow from operations, net of income taxes, of P800,000 in each of the seven
years. The company’s expected rate of return is 12%. Based on estimates, the
project has a net present value of P127,200. What is the cost of the equipment? To
facilitate the computation, below are present value factors:
Present value of P1 and 12% for seven periods is
0.452
Present value of an ordinary annuity of P1 for seven periods is4.564
company should
Purchase the machines due to positive NPV of P638,900.
Not purchase the machines due to negative NPV of P984,715.
Not purchase the machines due to negative NVP of P172,907.50.
Be indifferent as the option does not bring about any advantage nor
disadvantage.
68.
Marc Assembly Inc. is considering the purchase automatic wirebonder which costs
P750,000. It has ten-year life without any salvage value. Marc would save P200,000
in labor cost annually as a result of the use of the new machine. Power cost would
however increase by P25,000 annually. The cost of capital is 16%. The present
value factor for 10 years at 16% is 4.8332. the present value of the net annual cost
savings is:
A. P845,810
C. P745,810
B. P575,000
D. P966,640
74.
Cherry and Company is considering an investment proposal for P10 million yielding
a net present value of P450,000. The project has a life of 7 years with salvage value
of P200,000. The company uses a discount rate of 12%. Which of the following
would decrease the net present value?
A. Extend the project life and associated cash inflows.
B. Increase the discount rate to 15%.
C. Decrease the initial investment amount to P9.0 million.
D. Increase the salvage value.
Internal rate of return
79.
MDG Corporation is evaluating the purchase of P500,000 die attach machine. The
cash inflows
expected from the investment is P145,000 per year for five years with no
equipment salvage value. The cost of capital is 12%. The net present value factor
for five (5) years at 12% is 3.4331. The internal rate of return for this investment
is:
A.
B.
3.45%
2.04%
C.
D.
13.80%
15.48%
80.
A number of techniques are commonly used in the analysis of capital budgeting
decisions. Each
method involves the measurement of cash flows, except the:
A. Internal rate of return
C. Average rate of return method.
B. Payback period method
D. Net present value method.
81.
Marjorie, Inc. is considering an investment that has a positive net present value
based on its 16%
hurdle rate. The internal rate of return would be
A. More than 16%.
C. 16%.
B. Less than 16%.
D. Zero.
84.
The following data pertain to Romulo Corporation whose management is planning to
purchase
automated tanning equipment:
1. Economic life of equipment: 8 years.
2. Disposal value after 8 years: nil.
3. Estimated net annual cash inflows for each of the 8 years: P81,000.
4. Time-adjusted internal rate of return: 14%.
5. Cost of capital of Romulo Corporation: 16%.
6. The table of present values of P1 received annually for 8 years has these
factors: at 14%= 4.639, at 16%= 4.344.
7. Depreciation is approximately P46,970 annually.
Find the required increase in annual cash inflows in order to have the time-adjusted
rate of return approximately equal the cost of capital.
A. P5,501
C. P4,344.
B. P6,501
D. P5,871
86.
The
A.
B.
C.
D.
internal rate of return (IRR) is the
Rate of return for which the net present value is greater than 1.0.
Rate of return for which the net present value is equal to 0.
Rate of return generated from the operational cash flows.
Hurdle rate.
87.
A tax-exempt foundation, Kapuso Foundation, Inc. intends to invest P1 million in a
five-year
project. The foundation estimates that the annual savings from the project will
amount to P325,000. The P1 million asset is depreciable over five (5) years of
straight-line basis. The foundation’s hurdle rate is 12% and as a consultant of the
foundation, you are asked to determine the internal rate of return and advise if the
project should be pursued. To facilitate computations, below are the present value
factors:
12%
15%
Present value of p1 for 5 periods
0.57
0.52
Present value of an annuity of P1 for 5 periods
3.6
3.4
Your advice is
A. To proceed due to an estimated IRR of less than 14% but not more than 12%.
B. To proceed due to an estimated IRR of less than 16% but not more than 14%.
C. Not to proceed due to an estimated IRR of less than 12%.
D. To proceed due to an estimated IRR of not more than 16%.
88.
Which of the following statements is false?
A. The net present value (NPV) of a project with cash flows that comes in
relatively slowly is more sensitive to changes in the discount rate than is the
NPV of a project with cash flows that come in rapidly.
B. Other things held constant, a decrease in the cost of capital (discount
rate) will cause an increase in a project’s internal rate of return (IRR).
C. The IRR method can be used in place of the NPV method for all independent
projects because the two methods then result in identical decisions.
D. The NPV method is preferred over the IRR method because the NPV method’s
reinvestment ate assumption is the correct assumption.
89.
You are engaged by the Jon Company to evaluate the introduction of a new product
line with an
innovative packaging. You computed the net present value (NPV) and internal rate
of return (IRR). If you client would reduce the estimate for its sales of the new
product and increase the projected cost of capital, what would be the impact of
these revisions in the estimates on NPV and IRR?
A. NPV will increase, IRR will increase.
B. NPV will decrease, IRR will increase.
C. NPV will increase, IRR will decrease.
D. NPV will decrease, IRR will decrease.
96.
Euro Corporation is reviewing a capital budgeting decision regarding the acquisition
of a capital
equipment. Below are the relevant information:
Investment
P300,000
Excess PV of net cash inflows
200,000
Cash-flow tax shield from depreciation
100,000
The company is used to have as benchmark for similar projects an excess present
value index of
0.50, that is, the project’s index should be no less than 0.50. Should this project be
pursued?
A. No, since the excess present value index is 0.33.
B. Yes, since the excess present value index is 0.67.
C. No, since the excess present value index is less than 0.50.
D. Yes, since the excess present value index is 1.50.
102.
Payback period (PP) profitability (present value) index (PI), and simple accounting
rate of return
(SARR) are some of the capital budgeting techniques. What is the effect of an
increase in the cost of capital on these techniques?
A. PP will increase, PI will decrease, and SARR will increase.
B. PP will have no change, PI will decrease, and SARR will have no
change.
C.
D.
103.
PP will have no change, PI will increase, and SARR will decrease.
PP will decrease, PI will have no change, and SARR will have no change.
5
UFO Corporation’s Project Sky has a net investment of P1.2 million. The present
value of all future net cash inflows is P2.4 million. The company’s tax rate is
40%the profitability index is
A. 0.50
C. 0.83
B. 1.20
D. 2.00
104.
MJ Company uses a 12% hurdle rate for all capital expenditures. It has lined up four
projects and
below is the summary thereof.
Projects in thousand pesos
1
2
3
4
Initial cash inflows
400
596
496
544
Annual cash inflows:
Year 1
130
200
160
190
2
140
270
190
250
3
180
180
180
4
130
160
120
113
100
150
150
Net present value
P7,540
Internal rate of return
12.7%
10.6%
Excess present value index
1.02
0.96
The company will choose
A. Projects M, N, and O
B. Projects M and N
106.
P59,654 P54,666 P(15,708)
17.6%
17.2%
1.13
1.14
C. Projects L and N
D. Projects L and M
A capital budgeting decision model has provided the following information:
Proposal A
Proposal B
Investment
P1,000,000
Investment
P1,800,000
Profitability index
1.2
Profitability index
2.1
Net present valueP 600,000
Net present valueP
300,000
Net present value
Profitability index
Internal rate of return
(7.5)
98%
8.552
101%
11%
28.128
29.324
106%
105%
13%
14%
15%
The
A.
B.
C.
D.
If the company has no budgetary limitations, which projects should be pursued?
A. Project 1.
C. Project 2, 3 and 4.
B. Project 3 and 4.
D. All of the four projects.
105.
for the
Television Corporation is contemplating four projects: L, M, N and O. the capital cost
107.
initiation of each mutually exclusive project and its estimated after-tax net cash
flow are listed
below. The company’s desired after-tax opportunity costs is 12%. It has P900,000
capital budget
for the year. Idle funds cannot reinvest at greater than 12%.
In Thousand pesos
L
M
N
470
380
400
180
90
113
170
110
113
150
130
113
110
140
Investment
P150,000
100,000
60,000
Rank the projects in terms of preference:
A. 1st W, 2nd C, 3rd X
B. 1st C, 2nd W, 3rd X
same.
111.
113
Information on three (3) investment projects is given below:
Project
X
C
W
O
420
Annual cash flows:
Year 1
80
2
100
3
120
4
130
better project is
Proposal A because it has the higher net present value.
Proposal B because it has the higher profitability index.
Proposal B because its profitability index is over 2.0..
Proposal A because it has the higher net present value even though its
investment base is smaller.
NPV
P34,005
22,670
13,602
C. 1st X, 2nd C, 3rd W
D. The ranking is the
The profitability index approach to investment analysis
A. Considers only the project’s contribution to net income and does not consider
cash flow effect.
B. Always yield the same accept/reject decision for mutually-exclusive project as
the net present value method.
C. Always yield the same accept/reject decision for independent project
as the net present value method
D. Always yield the same accept/reject decision for dependent project as the net
present value method
112.
The capital budgeting technique known as internal rate of return uses:
A. Cash flow over entire life of project – No
Time value of money – Yes
B. Cash flow over entire life of project – Yes
Time value of money – Yes
C. Cash flow over entire life of project – No
Time value of money – No
D. Cash flow over entire life of project – Yes
Time value of money – No
D.
6
Which of the following is not a use of working capital?
A. Repurchase of common stock.
B. Purchase of inventory on account.
C. Purchase of equipment on account.
D. Repayment of long-term debt.
7
Determining the appropriate level of working capital of the firm requires
A. Evaluating the risk associated with various levels of fixed assets and the types
of debt used to finance those assets.
B. Changing the capital structure and dividend policy of the firm.
C. Maintaining a high proportion of liquid assets to total assets in order to
maximize the return on total investment.
D. Offsetting the profitability of technical insolvency.
8
The
A.
B.
C.
D.
9
Compared to other firms in the industry, a company that maintains a conservative
working capital policy will tend to have a
A. Greater percentage of short-term financing.
B. Greater risk of needing to sell current assets to repay debt.
C. Higher ratio of current assets to fixed assets.
D. Higher total assets turnover.
10.
Which of the following account changes would be classified as a use of funds?
A. An increase in accounts payable.
B. An increase in retained earnings.
C. A decrease in bonds payable.
D. A decrease in accounts receivable.
NPV Index
113.
What is the effect of changes in cash flows, investment cost and cash outflows on
profitability
(present value) index (PI).
A. PI will increase with an increase in cash flows, a decrease in
investment costs, or a
decrease in cash outflows
B. PI will increase with an increase in cash inflows, a increase in investment costs,
or a increase in cash outflows
C. PI will decrease with an increase in cash flows, a decrease in investment costs,
or a decrease in cash outflows
D. PI will decrease with an increase in cash outflows, an increase in investment
costs, or an increase in cash inflows
124.
131.
Which of the following statements is correct?
A. One key shortcoming of discounted cash flow method is that they ignore the
recovery of original investment.
B. Although a cash outlay for non-current assets such as a machine would be
considered, in a capital budgeting analysis, a cash outlay for working capital
item such as inventory would not be considered.
C. To be acceptable, a project’s time adjusted rate of return cannot be
less than the company’s cost of capital.
D. If the net present value of an investment is zero, then the project should be
rejected since it is not providing any return on the investment.
In the capital budgeting, these techniques are applied: payback (PB) , net present
value (NPV), and time adjusted rate of return (TARR) method. PB has this in
common with NPV and TARR methods:
A. Use of cash flows.
B. Consideration of time value of money.
C. Use of discounting.
D. Use of accrual method of accounting.
GENERAL WORKING CAPITAL CONCEPTS
5.
The fundamental analysis of cash flow generated from operations may be
determined using any of the following except
A. After tax income plus depreciation.
B. Net income less depreciation plus taxes
C. Net income plus depreciation.
Cash sales less cash operating costs less taxes paid.
amortization of goodwill appearing in the income statement is
Deducted from net income to obtain “Funds provided by operations”.
Added to net income to obtain “Funds provided by operations”.
A source of working capital separate from net income.
A use of working capital.
11.
Which of the following would reduce the additional funds required if all other things
are held
constant?
A. A decrease in the company’s tax rate.
B. An increase in the expected sales growth rate.
C. An increase in the dividend payout ratio.
D. A decrease in the profit margin.
14.
Dennis Company used the working capital basis of preparing its Fund Flow
Statement. The
following data are presented for the year just ended:
Depreciation expense
P48,500
Amortization of patents
12,000
Cash dividends declared
27,000
Cash dividends paid
34,000
Bonds payable issued
Sale of common stock
Amortization of bonds discount
Gain on sale of equipment
Working capital provided by operations
Purchase of land
Decrease in deferred income taxes
90,000
175,000
C.
1,500
9,500
121,000
310,000
18,000
D.
4.
Calculate the net income or loss for the period from the above data.
A. P68,500
C. P113,500
B. P86,500
D. P351,500
15.
The working capital of Cherry Company at December 31, 2009 was P10,000,000.
Selected
information for the year 2010 for Cherry Company is as follows:
Working capital provided from operations
P1,700,000
Capital expenditure
3,000,000
Proceeds from short-term borrowings
1,000,000
Proceeds from long-term borrowings
2,000,000
Payments on short-term borrowings
500,000
Payments on long-term borrowings
600,000
Proceeds from issuance of common stock
1,400,000
Dividends paid on common stock
800,000
1.
2.
10.
3.
A precautionary motive for holding excess cash is
A. To enable a company to meet the cash demands from the normal flow of
business activity.
B. To enable a company to avail itself of a special inventory purchase before prices
Given the following events, which affect cash flows from operations?
1. Cash sale
2. Cash dividend paid
3. Purchase of a long-term asset
4. Paid employees
A.
B.
12.
Which of the following actions would not be consistent with good management?
A. Increased synchronization of cash flows.
B. Minimize the use of float.
C. Maintaining an average cash balance equal to that required as a compensating
balance or that which minimizes total cost.
D. Use of checks and drafts in disbursing funds.
Which of the following investments is not likely to be a proper investment for
temporary idle cash?
A. Initial public offering of an established profitable conglomerate.
B. Commercial paper.
C. Treasury bills.
D. Treasury bonds due within one year.
The following practices will impact the cash flow of the company:
1. Sales personnel are unequivocally responsible for collecting their credit
sales.
2. Sales commissions are based on collected invoices.
3. Statements of accounts receivable are reconciled with customers and
regularly sent for confirmation.
4. Automatic transfer of funds is arranged with banks regarding deposits of
branches.
Of the above, which will result to better cash flow?
A. All statements
C. Statements 3 and 4
only.
B. Statements a, 3, and 4 only.
D. Statement 4 only.
What is Cherry’s working capital at December 31, 2010?
A. P11,200,000
C. P10,700,000
B. P11,500,000
D. P12,000,000
Cash and marketable securities management
To enable a company to have cash to meet emergencies that may arise
periodically.
To avoid having to use the various types of lending arrangements available to
cover projected cash deficits.
1 and 5
1, 3, 4, and 5.
C.
1, 2, and 5
D. 1, 4, and 5
Marc and John’s Store is on the cash basis of preparing its funds statement. These
data are available:
Decrease in working capital
Depreciation
Increase in cash
Repairs and maintenance
Total uses of cash
P50,000
13,000
25,000
19,500
454,000
Calculate the total sources of cash of Marc and John’s Store.
A. P472,500
C. P479,500
B. P492,000
D. P467,000
28.
Resto-bar Inc. has been very successful. It is the newest fast food outlet at the
Greenbelt of Makati featuring ordinary Filipino food packed with banana leaves.
After six months of operations, it needs to expand. The owner, Mr. Pert Garcia
estimates that 2.4 million will be required to put up another outlet in the Ortigas
area.
Financing was offered by a friendly banker at 10 percent discounted interest.
rise to higher levels.
company purchases under terms of 2/10, net 40 but Mr. Garcia believes that he
could delay
payments by another 30 days without any problem. This means of payment could
be made in 70
delays. Assuming 360days a year, Rest-bar Inc. should opt for
A. Bank loan since its cost of 11.11 % is cheaper than the cost of delaying
payments of 12.24%.
B. Delaying payments since it has no cost compared to the 10% discounted bank
interest.
C.
Bank loan since its cost of 10% is cheaper than the cost of delaying payments
of 12%.
D. Delaying payments since it cost 2% compared to the 10% discounted bank
interest.
Alternatively, Mr.
Garcia is thinking of just delaying payment to its suppliers. All his sales are on cash
basis. The
B.
C.
D.
3.
In a set of comparative financial statements, you observed a gradual decline in the
net to gross ratio, (i.e., between net sales and gross sales). This indicates that:
A. There is stiffening in the grant of discounts to the customers.
B. The discount period is being lengthened.
C. There is adherence to the collection policies of the company.
D. Sales volume is decreasing.
4
The level of accounts receivable will most likely increase as:
A. Cash sales increase and number of days sales.
B. Credit limits are expanded, credit sales increase, and credit terms
remain the same.
C. Credit limits are expanded, cash sales increase and aging of the receivables
improved.
D. Cash sales increase, current receivables ratio to past due increase, credit limits
remain the same.
5
A strict credit and collection policy is in place in Sun Company. As Finance Director
you are asked to advise on the propriety of relaxing the credit standards in view of
stiff competition in the market. Your advise will be favorable if:
A. The competitor will do the same thing to prevent lost sales
B.
There is a decrease in the distribution level of your product and a more
aggressive stance is necessary to retain market share.
C. The projected margin from increased sales will exceed the cost of
carrying the incremental receivables.
D. The account receivable level is improving so the company can afford the
carrying cost of receivables.
6
A change in credit policy has caused an increase in sales, an increase in discounts
taken, a reduction in the investment in accounts receivables, and a reduction in the
number of doubtful accounts. Based on this information we know that
A. The net profit has increased.
B. The bad debt percentage has increased.
C. The size of the discount offered has decreased.
D. The average collection period has decreased.
7
If a firm had been extending trade credit on a 2/10, net/30 basis, what change
would be expected on the balance sheet of its customer if the firm went to a net
29.
Bohol Company recently received a commercial bank loan of 16% discounted rate
with a 20%
Compensating balance. The term of the loan in one year. The effective cost of
borrowing is:
A. 19.05%
C. 22.85%
B. 20.00 %
D. 25.00%
30.
Euro obtained a short-term bank loan for P1 million at an annual interest of 12%.
As a condition of the loan, the company is required to maintain a compensating
balance of p200,000 in its savings account which earns interest at an annual rate of
6%. The company would otherwise maintain only P100,000 on the savings account
for transactional purposes. The effective cost of the loan is
A. 13.20%
C. 12%
B. 12.67%
D. 13.5%
31.
Dennis, Inc. signed a loan agreement subject to the following terms:
1. Stated interest rate of 18% on a one-year discounted loan; and
2. 15% compensating non-interest bearing checking account balance to be
maintained by Dennis Inc., with Manila Commercial Bank.
The net proceeds of the loan was P1 million. The principal amount of the loan was
A. P1,176,471
C. P1,492,537
B. P1,000,000
D. P1,219,512
The extent (in terms of money) to which a firm will go to collect an
account.
The length of time for which credit is extended.
The size of the discount that will be offered.
Receivables Management
Credit and collection policy
1.
The goal of credit policy is to
A.
B.
C.
D.
2.
It is held that the level of accounts receivable that the firm has or holds reflects
both the volume of the firm’s sales on account and a firm’s credit policies. Which
one of the following items is not considered as part of the firms’ credit policies?
A. The minimum risk group to which credit should be extended.
manager has waived the credit block policy in a number of instances involving big
volume accounts. The likely effect of this move is
A. Deterioration of aging of receivables only.
B. Increase in the level of receivables only.
C. Deterioration of aging of receivables and increase in the level of
receivables.
D. Decrease in collections during the month the move was done.
12.
cash 30 policy?
A. Increased payables and increased bank loan.
B. Increased receivables.
C. Decreased receivables.
D. Decreased in cash.
Extend credit to the point where marginal profits equal marginal costs.
Minimize bad debt losses.
Minimize collection expenses.
Maximize sales.
8
customers. It has been estimated that uncollectible expenses would be 15% and
collection costs, 5%. The manufacturing and selling costs are 70% of sales and
corporate tax is 35%. If they pursue this opportunity, the after-tax profit will:
A. Increase by P35,000
C. Increase by P65,000
B. Increase by P97,500
D. Remain the same.
21.
The sales director of Red Company suggests that certain credit terms be modified.
He estimates the following effects:

Sales will increase by at least 20%.

Accounts receivable turnover will be reduced to 8 times from the present
turnover of 10 times.

Bad debts, now at 1% of sales will increase to 1.5%. Sales before the
proposed changes is at P900,000. Variable cost ratio is 55% and desired
rate of return is 20%. Fixed expenses amount to P150,000.
Should the company allow the revision of its credit terms?
A. Yes, because income will increase by P64,800.
B. Yes, because losses will be reduced by P78,800.
C. No, because income will be reduced by P13,000.
D. No, because losses will be reduce by P28,000.
14.
Cherry Inc. sells on terms 3/10, net 30 days. Gross sales for the year are
P2,400,000 and the
collections department estimates that 30 percent of the customers pay on the tenth
day and take
discounts; 40 percent pay on the thirtieth day; and the remaining 30 percent pay,
on the average, 40 days after the purchase. Assuming 360 days per year, what is
the average collection period?
A. 40 days
C. 20 days
B. 15 days
D. 27 days
16.
Dennis, Inc. has an inventory conversion period of 60 days, a receivable conversion
period of 35
The credit and collection policy of Green Company provides for the imposition of
credit block when the credit line is exceeded and/or the account is past due. During
the month, because of the campaign to achieve volume targets, the general
May Corporation plans to tighten it credit policy. Below is the summary of changes
Average number of days collection
Ratio of credit to total sales
75
Old
50
70%
New
60%
Projected sales for the coming year is P100 million and it was estimated that the
new policy will be a 5% less if the new policy is implemented. Assuming a 360-day
year, what is the effect of the new policy on accounts receivable?
A. Decrease of P13 million.
C. Decrease of P5 million.
B. No change.
D. Decrease of P6,666,667
22.
The Green sales Company’s budgeted sales for the coming year are P30 million of
which 80% are expected to be made on credit. The company wants to change its
credit terms from n/30 to 2/10, n/30. If the new credit terms are adopted, the
company estimates that cash discounts would be taken on 40 % of the credit sales
and the uncollectible amount would be unchanged. The adoption of the new credit
terms would result in expected discount availed of in the coming year of
A. P600,000
C. P480,000
B. P288,000
D. P192,000
23.
Mr. R. Sim assumed the presidency of Green Corp. he instituted new policies with
respect to credit policy. Below is a summary of relevant information:
Credit policy
Old
New
Sales
P1,800,000
P1,980,000
Average collection period
30 days
36 days
days, and a payment cycle to 26 days. If its sales for the period just ended
amounted to P972,000,
what is the investment in accounts receivable? (Assume 360 days in a year).
A. P85,200
C. P94,500
B. P72,450
D. P79,600
17.
Mar & Company buys on terms 2/10, net 30, but generally does not pay until 40
days after the
invoice date. Its purchases total P2,160,000 per year. Assuming 360 days a year,
the amount of
“non-free” trade credit used by the company on the average
A. P180,000
C. P 60,000
B. P240,000
D. P120,000
The company requires a rate of return of 10% and a variable cost ratio of 60%.
Using a 360-day
year, the pre-tax cost of carrying the additional investment in receivables under the
new policy
would be
A. P4,800,000
C. P3,000,000
B. P2,880,000
D. P4,080,000
24.
20.
Pert Company has the opportunity to increase annual sales by P1 million by selling
to new riskier
A.
B.
C.
D.
Zero as the positive and negative effects offset each other.
A reduction in net income by P70,000.
A reduction in net income by P38,350.
A reduction in net income by P35,400.
Effective discount rate
34.
Three suppliers of Joy Corporation offer different credit term. A Co. offers term of 1
½ /15, net 30. B Co. offers terms of 1/10, net 30. C Co. offers terms of 2/10, net
60. Joy Corporation would have to borrow from a bank at an annual rate of 12% in
order to take any cash discounts. Which of the following would be the most
attractive for Joy Corp.? (Assume 360 days a year).
A. Purchase from A Co., pay in 15 days and borrow any money needed
from the bank.
B. Purchase from A Co., pay in 30 days and borrow any money needed from the
bank.
C. Purchase from C Co., pay in 60 days and borrow any money needed from the
bank.
D. Purchase from B Co., pay in 30 days.
The company uses a 360-day year. Assumes that all of the suppliers can supply any
and all of the
requirements of software and can provide unlimited credit line to the company and
that the company can have only one supplier. With a cost of bank borrowing of 18%
per annum, which supplier should Matt will choose?
A. EF Co. due to the longest credit term of 120 days.
B. CD Co. due to cost to trade credit of 36.7%.
C. EF Co. due to the highest trade discount at 5%.
D. AB Co. due to no discount policy.
39.
Pia Corporation purchased an item on credit with terms 3/10, n/45. Using 360-day
year, the
company’s annual interest cost of foregoing the cash discount and making payment
on the last day of the credit period is
A. 30.93%
C. 24.74%
B. 31.81%
D. 30.86%
40.
On cash discounts, all of the following statements do not apply except
A. If a firm buys P10,000 of goods on terms of 1/10, net 30 and pays within the
discount period, the amount paid would be P9,000.
B. The cost of not taking the cash discount is always higher than the cost of a
bank loan.
C. With trade terms of 2/15, net 60, if the discount is taken the buyer
receives 45 days of free credit.
D. The cost of not taking the discount is higher for terms of 2/10, net 60 than for
2/10, net 30.
43.
Mark Corporation intends to acquire a new equipment to increase its capacity. It is
35.
Dennis, Inc. purchased an item on credit with terns of 3/10, net 45. Based on a
360-day year, the
company’s interest cost of foregoing the cash discounts and making payment on the
last day of the credit period is:
A. 24.00%
C. 24.74%
B. 31.81%
D. 30.86%
36.
The official terms of purchases of Z Company are 2/10, net/30 but generally the
Cherry Resource Company has annual credit sales of P4 million. Its average
collection period is 40 days, and bad debts are 5% of sales. The credit and
collection manager is considering instituting a stricter collection policy, whereby bad
debts would be reduced to 2% of total sales, and the average collection period
would fall to 30 days. However, sales would also fall by an estimated P500,000
annually. Variable cost is 60% of sales and the cost of carrying receivables is 12%.
Assuming a tax rate of 35% and 360 days a year, the incremental change in the
profitability of the company if stricter policy would be implemented would be
estimated to cost P2.4 million. A bank loan can finance the acquisition at ten
percent (10%) discounted interest. Alternatively, the company may adjust delay
payment to its suppliers. Presently, the company buys under terms 2/10, net 40,
but management believes payment could be delayed 30 additional days, without
penalty, that is, payment could be made in 70 days.
company does not pay until 40 days after the invoice date. The purchases total
P3,600,000 per year. Assuming 360 days a year, the approximate cost of the nonfree trade credit amounts to
A. 18.36%
C. 21.90%
B. 24.50%
D. 19.40%
37.
If a firm purchases raw materials form its suppliers on a 2/10, n/60 cash discount
basis, the
equivalent annual interest rate (using a 36-day year) of foregoing the cash discount
and making
payment on the 60th days is
A. 36.7%
C. 73.5%
B. 14.7%
D. 12.2%
38.
Matt Center, Inc.’s new controller is reviewing the company’s cash management.
Below are relevant information regarding trade credits from the suppliers of the
company:
Suppliers
Average Monthly Purchases
Credit Terms
AB Co.
P 100,000
net /30
CD Co.
300,000
2/10, n/30
EF Co.
1,000,000
5/10, net 120
GH Co.
600,000
3/10, net 45
Allowance for uncollectible accounts, January 1
Allowance for uncollectible accounts, December 31
Sales (all sales were made on credit)
Assuming 360 days a year, the company should
A. Borrow since it is cheaper by 1.13% than delaying payment to
suppliers.
B. Borrow since it is cheaper by 2.5% than delaying payment to suppliers.
C. Delay payments to suppliers since it would cost 12% as against bank loan of
10%.
D. Delay payments to suppliers since it does not cost anything.
Accounts receivable portfolio analysis
Questions 46 and 47 are based on the following information:
To improve the credit and collection policies of Mine Corporation, the following data
for 2010 were gathered for study:
Accounts receivable, January 1
Accounts receivable, December 31
Bad debts losses
A.
B.
10,500
7,000
P
975
P20,000
P112,000
140,000
6,300
C. P5,000
D. P4,025
630,000
Inventory management
46.
What was the total cash collected from customers during 2010?
A. P592,200
C. P599,200
B. P598,500
D. P605,500
47.
What was the accounts receivable turnover (rounded to the nearest centavo)?
A. 5.37
C. 4.70
B. 5.00
D. 4.68
48.
By the end of this you expect to have a cash balance of P500,000. Which of these
transactions/indicators (not considered in your estimate) will reduce this balance.
A. A modification on credit terms to customers will reduce credit sales.
B. A dialogue with key suppliers will allow discounts on extended
payment terms.
C. A new machine will be bought with proceeds from a bank loan that will carry a
17% interest per annum and monthly payments over 2 years.
D. The ratio of current trade receivables to total receivables will decrease.
3.
Marc & Francis Company’s financial plan for next year shows sales of P72 million
and cost of sales of P45 million. It expects short-term interest rate to average 10%
for the coming year. It aims to increase inventory turnover from the present level of
9 times to 12 times next year. If its plans and objectives are carried out, how much
is the cost savings for the coming year?
A. P125,000
C. P375,000
B. P300,000
D. P500,000
14.
The production department of a manufacturing company has been plagued with
excessive number of defective units of standards machine parts that are purchased
from vendors on a regular basis. The most relevant quantitative management
technique for designing a formal inspection system for incoming parts is:
A. Economic order quantity methods
C. Statistical quality control
B. Regression analysis
D. Standard cost variance analysis
15.
Jona Company sells 20,000 radios evenly throughout the year. The cost of carrying
49.
Francis Corp.’s account balance at June 30, 2010 for accounts receivable and
related allowances for doubtful accounts were P600,000 and P3,000, respectively.
Aging of accounts receivable indicated that P48,000 of the June 30, 2010 receivable
may be uncollectible. Net realizable value of accounts receivable were
A. P597,000
C. P539,000
B. P552,000
D. P540,000
50.
In preparing its budget for July 2010, Marc Company has the following accounts
receivable
information available:
Accounts receivable at June 30, 2010
P350,000
Estimated credit sales for July
400,000
Estimated collection in July for credit sales in July and prior months
320,000
Estimated write-offs in July for uncollectible credit sales
16,000
Estimated provision for doubtful accounts for credit sales in July
12,000
What is the projected balance of accounts receivable at July 31, 2010?
A. P402,000
C. P414,000
B. P430,000
D. P426,000
one unit of
inventory for one year is P8.00 and the purchase order cost per order is P32. What
is the economic order quantity?
A. 200
C. 283
B. 400
D. 625
16.
Alma company sells 10,000 RTW pants evenly throughout the year. The cost of
carrying one unit in inventory for one year is P6.00 and the purchase cost is
P108.00 per order. What is the economic order quantity?
A. 468
C. 1,208
B. 600
D. 1,000
17.
The following data relate to inventories for a given year of May Company:
Economic order quantity
7,500 units
Cost to place one purchase order
P
75
Total cost to place purchase orders for the year
P15,000
Cost to carry one unit for one year
P
6
The estimated annual usage in units would be
A. 2,250,000
B. 2,000,000
18.
C. 1,250,000
D. 5,625,000
State whether the following statements are true or false.
I – The two main types of inventory cost relevant to inventory decision-making are
carrying
51.
On September 15, 2010, Cherry Corp. accepted from a customer a P100,000, 90day 20% interest bearing note dated on the same day. On October 15, 2010,
Cherry discounted the note at the Chinabank at a 23% discount rate. The customer
paid the note at maturity. Based on the 360-day, what amount should Cherry report
as net interest revenue from the note transaction?
A.
B.
C.
D.
False; True
True; False
False; False
True; True
19.
In inventory management, the problem of avoiding excessive investment in
inventories and at the
same time avoiding inventory shortages can be solved by applying a quantitative
technique known as
A. Payback analysis
C. Economic order
quantity model.
B. Probability analysis.
D. High-low point method.
20.
costs and ordering costs.
II – The optimal ordering quantity in the EOQ model occurs at the point where the
sum of the
carrying costs and ordering costs are minimized.
The carrying cost pertaining to inventory include:
order quantity of 600 units compare to the respective amounts for an order quantity
of 500 units?
A. Lower purchase-order cost and lower carrying cost.
B. Higher purchase-order cost and higher carrying cost.
C. Lower purchase-order cost and higher carrying cost.
D. Higher purchase-order cost and lower carrying cost.
25.
Economic order quantity models and two-bin system are commonly used controls
for a company’s materials function. Those controls primarily relate to what part of
the cycle?
A. Materials requirements
C. Physical storage.
B. Raw materials acceptance.
D. Production distribution.
26.
The selling price of the product is relatively high and the purchase cost of the
A.
B.
C.
D.
21.
The order size determined by the economic order quantity formula minimizes the
annual inventory cost which is comprised of ordering costs and
A. Safety stock cost
C. Stock out cost
B. Carrying cost
D. No answer.
22.
You computed the economic order quantity of the main raw material of Sun
Company at 10,000
units. However, the chief purchasing officer decided to order in quantities of 12,000
units. What is the probable effect of this decision on the company’s annual purchase
order cost compared with those amounts had the order been made at the economic
order quantity?
A. Lower purchase order cost and higher carrying cost.
B. Lower purchase order cost and lower carrying cost.
C. Higher purchase order cost and lower carrying cost.
D. Higher purchase order cost and higher carrying cost.
23.
are:
product is relatively low. In this situation:
A. Management must increase the price to cover the cost of carrying higher
inventory.
B. The EOQ model will indicate frequent larger orders.
C. The EOQ of the product is affected by the selling price.
D. The selling price has nothing to do with the EOQ of the product.
Insurance costs, incoming freight costs and storage costs.
Insurance costs, incoming freight costs and setup costs.
Setup costs and opportunity cost of capital invested in inventory.
Storage costs and opportunity cost of capital invested in inventory.
28.
A decrease in inventory cost will
A. Increase the reorder point.
B. Decrease the economic order quantity.
C. Have no effect on the economic order quantity.
D. Decrease the holding cost percentage.
29.
An
A.
B.
C.
D.
30.
If one optimizes the inventory turnover ratio, which costs will not increase?
A. Total reorder costs.
C. Unit reorder costs.
B. Stockout costs.
D. Carrying costs.
31.
In computing the economic order quantity (EOQ), which of the following costs
should be included?
A. The shipping cost to deliver the products to the customer.
B. Capital cost.
C. Purchasing staff’s salaries.
D. Expected value analysis.
32.
GG Distributors, which buys in a pre-sell basis, is discussing with the route
salesmen on the proper cases to be ordered and the frequency of call. From the
route book and other records, the following are available: prior year’s purchases,
50,000 cases; carrying cost per case of inventory, P1.20; distributor’s discount, 1
case for every 10 cases bought; cost of placing an order, P3.00; weekly demand is
approx. 952 cases. Safety stock required is 140 cases. No change in demand is
expected this year. (Use a 365-day, 52-week year).
increase in inventory holding costs will
Have no effect on the economic order quantity.
Increase the economic order quantity.
Decrease the number of orders issued per year.
Decrease the economic order quantity.
In the Economic Order Quantity (EOQ) model, some of the underlying assumptions
A.
B.
C.
D.
Unlimited production capacity, declining demand, decreasing ordering cost,
decreasing carrying cost, and unlimited inventory capacity.
Constant demand, constant ordering cost constant carrying cost,
unlimited production and inventory capacity.
Limited production capacity, declining demand, constant ordering cost, constant
carrying cost, and unlimited inventory capacity.
Increasing demand, limited production capacity, increasing ordering cost,
increasing carrying cost, and limited inventory capacity.
24.
Minnie Company has correctly computed its economic order quantity at 500 units.
However,
management feels it would rather order in quantities of 600 units. How should
Minnie’s total annual purchase-order costs and total annual carrying cost for an
Determine the economic order quantity (EOQ)
A. EOQ is 482 cases
B. EOQ is 500 cases
C. EOQ is 962 cases
D. EOQ is 250 cases
Determine the reorder point assuming a two-day lead-time.
A. Reorder point is 500 cases
C. Reorder point is 275 cases.
55.
Dong Company sells 200 units of discs per week purchase order lead-time is 3
weeks and the
economic order quantity is 450 units. What is the reorder point?
A.
425 units
C.
600 units
B. 1,750 units
D. 2,250 units
56.
M & R Company has the following information on inventory:
B.
33.
34.
Reorder point 414 cases
Sales
Order quantity
Safety stock
Lead-time
D. Reorder point is 280 cases
One of the products Health-s-Wealth Products sells is a magnetic back support. The
ordering costs related to this product is P12.50 per order. The cost of carrying one
item of inventory for one year is P16.00. The business sells 40,000 of this type of
product evenly throughout the year. How much is the total ordering costs per year
and total carrying costs per year at the economic order quantity?
Total Ordering costs
A. P1,562.50
B. P2,000.00
C. P1,500.50
D. P4,000.00
Total Carrying costs
A. P1,562.50
B. P2,000.00
C. P2,560.00
D. P4,000.00
Marta works for a local ceramic company. She just completed her accountancy
degree and learned the EOQ model in one of her subjects. She suggested to her
employer to adopt it. The company sells 20,000 pieces of specialty ceramic items
each year. Traditionally they have produced these items four times a year, making
5,000 pieces at a time. They carry no safety, as customers do not mind waiting for
orders. The average piece of ceramic items cost P400 to make and cost the
company P20 to carry in inventory for a year. The setup costs for each production
run total P80. The company should
A. Adopt EOQ due to savings of P35,675.
B. Continue the existing system due to P38,950 advantage.
C. Adopt EOQ due to savings of P42,320.
D. Continue the existing system due to P41,820 advantage.
35.
Euro, Inc., currently places orders for a particular stock item at quarterly intervals.
Information
concerning these items is as follows:
Cost of placing an order
P10
Annual demand
20,000 units
Purchasing price per unit
P1.00
Carrying cost rate
10%
What is the re-order point? (For calculation purposes, use 50-week year)
A. P4,200 units.
C. 2,600 units
B. 5,600 units
D. 1,600 units
57.
Assorted Discs sells 200 discs per week. Purchase order lead-time averages three
weeks. Based on most updated calculation, the economic order quantity is 450
units. The reorder point is
A. 600 discs
C. 1,750 discs
B. 425 discs
D. 2,250 discs
59.
below:
The Chinese Store sells 100,000 tea bags a year. Additional data are presented
1.
2.
3.
4.
5.
6.
Selling price per bag
P2.50
Purchase cost per bag
P1.50
Ordering cost:
P5.40 an order
Carrying cost:
20% of unit cost
Number of days the comp[any operates in a year : 250
Average lead time on purchases: 6 days
What is the reorder point if the company will keep a 10-day safety stock of
inventory?
A. 2,400 bags
C. 6,400 bags
B. 5,400 bags
D. 8,800 bags.
Safety stock
62.
The costs of stock-out do not include
A. Depreciation and obsolescence.
B. Loss of customer goodwill.
C. Loss of sales.
D. Disruption of production schedules.
63.
When a specific level of stock is carried for an item in inventory, the average
inventory level for that item
A. Is not affected by the safety stock.
B. Increase by the amount of the safety stock.
C. Increase by the one-half the amount of the safety stock.
D. Decrease by the amount of the safety stock.
64.
For a 300-day year Wilvina corp. consumes 420,000 units of an inventory item. The
usual lead-time for the inventory item is six (6) days; however, at times, the leas-
What annual cost saving would result if Euro used the economic order quantity for
order sizes instead of their current policy?
A. P80
C. P150
B. P90
D. P240
Reorder point
20,000 units per year
4,000 units
2,600 units
4 weeks
time has gone high as eight (8) days. Wilvina now desires to adjust its safety stock
policy. The likely effect on stockout costs and carrying costs, respectively, would be
A. Increase and decrease
C. Increase and increase
B. Decrease and decrease
D. Decrease and increase
65.
Each stockout of product T sold by XTM Inc. costs P8,750 per occurrence. The
carrying cost per
unit of inventory is P250 per year, and the company orders 1,500 units of product
24 times a year at a cost of P5,000 per order. The probability of stockout at various
levels of safety stock is
Units of safety stock
1
100
200
300
400
Probability of stockout
.50
.30
.14
.05
.01
The optimal safety stock level for the company is
A.
0 units
B. 100 units
C.
D.
200 units
300 units
66.
Miles Company uses 840,000 units of component M in manufacturing Product Z over
a 300-day
work year. The usual lead-time for the part is six days, however at times, the lead
time has gone high as eight days. Miles now desires to adjust its safety stock policy.
The increase in safety stock size is:
A. 6,800 units.
C. 7,200 units.
B. 2,800 units.
D. 5,600 units.
67.
Francis Corporation consumes 300,000 units of spare part X per year. The average
purchase lead-time is 20 working days while maximum is 27 working days. The
company’s annual operations cover 240 days allowing for shutdowns for plant
maintenance, holidays and Sundays. The company would like to keep safety stock
or extra stock to guard against stockouts. How much is the safety stock?
A. 25,000 units.
C. 33,750 units.
B.
1,250 units.
D. 8,750 units.
Indicate whether the following statements are true or false.
I - The cost of warehousing and storage, property taxes, insurance of inventory,
losses from
spoilage are examples of ordering costs.
II – One of the relevant costs in inventory management is “ carrying cost” which
refers to the
total effect of the failure of a company to service customers or conduct
manufacturing
operations smoothly because goods, raw material and/or suppliers are out of
stock.
C.
D.
86.
In inventory control system which employs mathematical models as an aid in
making inventory
decisions is known as
A. Order cycling system.
C. Statistical inventory control
systems.
B. Two-bin system.
D. Mini-max system.
Quantitative techniques in business
20.
A quantitative technique used to discover and evaluate possible cause-and-effect
relationship is
A. Correlation analysis
C. Program evaluation review
techniques(PERT)
B. Linear programming
D. Poisson distribution models.
28.
True; True
False ; False
Regression analysis is superior to other cost behavior analysis techniques because it
A. Examines only one variable.
B. Produces measures of probable error.
C. Proves a cause and effect of relationships.
D. Is not a sampling technique.
55.
In evaluating projects, a popular approach to recognize uncertainty about individual
items and to
obtain an immediate financial estimate of the consequences of possible predicting
errors is?
A. Exponential analysis
C. Learning curve analysis.
B. Sensitivity analysis.
D. Expected value analysis.
63.
A quantitative technique used for selecting the combination of resources that
maximized profits or minimized costs is
A. Curvilinear analysis
C. Linear programming
B. Queuing theory
D. Dynamic programming
64.
A transportation Model is a special case of
A. Dynamic programming model
B. PERT/CPM.
85.
A.
B.
True ; False
False ; True
65.
what
C. Linear programming model.
D. Economic order quantity.
Given the basic equations for maximization of profits in linear programming model,
quantitative techniques would generally be employed to arrive at an optimal
solution?
A. Markov analysis.
C. Monte-Carlo analysis.
B. Regression analysis.
D. Simplex-method analysis.
68.
Dagupan Company manufactures two types of electronic components, both of which
must pass
through the Assembly and Finishing departments. The following constraints apply:
Product Sales price / unit Contribution per Unit
Finishing
A
4
B
6
P120
180
P30
45
3
4
Demand for Prod A far exceeds the company’s capacity, but the company can only
sell 60 units of Prod. B each week. Workers in the Assembly department work a
total of 200 hours per week, and workers in the Finishing department work a total
of 250 hours per week. The company wants to know how many units of each of
each products to produce to maximize profit. If X represents the number of units of
Prod A and Y represents the Prod. B, the objective function would be
A. Maximize 120X + 180 Y
C. Minimize 90X + 135Y.
B. Maximize 30X + 45Y.
D. Minimize 30X +45Y.
69.
Quantitative technique used for selecting the combination of resources that
maximizes profits or
minimizes profits or minimizes cost is:
A. Linear programming
C. Economic order quantity.
B. PERT/CPM.
D. Correlation analysis.
70.
71.
Linear programming is used most commonly to determine
A. The fastest timing.
B. The best use of scarce resources.
C. The most advantageous prices.
D. The mix of variable that will result in the largest quantity.
In a linear programming maximization problem for business problem solving, the
coefficient of the objective function usually are
A. Usage rates for scarce resources.
B. Profit based on allocations of overhead and all indirect costs.
Variable costs.
Marginal contributions per unit.
81.
The “LR” Company manufactures lacquered jewelry boxes (L) and lacquered mirrors
(R). These
data are presented to you as financial consultant:
1. The L’s need 3 kilos of material and 3 hours of labor; the R’s need 1.5 kilos
of material and 1 hour of labor.
2. Materials costs P4.00 a kilo and labor costs P20.00 an hour.
3. P20,000 in fixed factory overhead is expected for the month’s population.
4. To be available is 400 kilos of material and 240 hours of labor.
5. Contribution margin ration for L is 40% and 20% for R.
The
A.
B.
C.
D.
objective function for “LR” Company will be:
Maximize: Contribution Margin = P.4L + P.2R.
Maximize: Contribution Margin = P48L + P6.5R – P20,000.
Maximize: Contribution Margin = P48L + P6.5R.
Maximize: Contribution Margin = P2.8L + P5.2R.
Network models (Project scheduling)
93.
When using the PERT method for network analysis, the critical path through the
network is
A. The longest path through the network.
B. The shortest path through the network.
C. The path with most slack.
D. The least cost path.
94.
Which of the following statements is the least to the Project Evaluation Review
Technique (PERT).
A. It is a system, which uses network analysis and critical path method.
B. It is more useful for analyzing the relationships of time and activities to
discover potential bottlenecks.
C. It involves measuring progress in relation to schedule, evaluating changes to
schedule, forecasting future progress and predicting and controlling costs.
D. Time, is the primary consideration and this technique is particularly
suited for problems, which involve the combination of resources that
maximize profits or minimize costs.
98.
Of these statements, which is the least pertinent to the concept of “slack” in relation
to the Project Evaluation and Review Technique (PERT)?
A. The least the amount of slack time, the more critical an activity or path.
B. Slack time information is useful for planning and continuous monitoring.
C. It is computed by subtracting the earliest expected time from the earliest
allowable time.
D. If not exceeded, non-critical activities can be delayed without delaying the
project’s completion time.
99.
Which of the following statements best describes a difference between basic PERT
and the Critical Path Method (CPM) of network analysis?
A mechanized system of handling parts from one assembly line to another is being
contemplated by the Sunshine Co. the technical evaluation indicated that the
system will reduce labor and waiting time costs substantially. An assessment has to
be made of cost/benefit relationships including the effects of interest. The most
relevant quantitative technique to evaluate the project is:
A. Regression analysis.
C. Time adjusted rate of return
analysis.
B. PERT/CPM.
D. Payback period analysis.
72.
Linear programming models are mathematical techniques in which an objective
function is
maximized or minimized subject to constraints. These constraints must be fully
specified before a linear programming problem can be solved, and generally
describe:
A. Costs
C. Inefficiencies.
B. Resources.
D. Dependent variables.
73.
C.
D.
Hours required / unit
Assembly