USJR – JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS ACADEMICS ARM – QUIZBOWLER’S SOCIETY MANAGEMENT ADVISORY SERVICES REVIEWER FINANCIAL STATEMENT ANALYSIS
RESPONSIBILITY ACCOUNTING
GROSS PROFIT VARIANCE ANALYSIS
TRANSFER PRICING
COST VOLUME PROFIT ANALYSIS
1. If the investment turnover increased by 20% and ROS decreased by 30%, the ROI would (M) a. Increase by 20%. c. Increase by 4%. b. Decrease by 16%. d. None of the above. 2. The management of James Corporation has decided to implement a transfer pricing system.
James’
MIS department
is currently
negotiating a transfer
price for its
services with the four producing divisions of the company as well as the marketing department. Charges will be assessed based on number of reports (assume that all reports require the same amount of time and resources to produce). The cost to operate the MIS department at its full capacity of 1,000 reports per year is budgeted at $45,000. The user subunits expect to request 250 reports each this year. The cost of temporary labor and additional facilities used to produce reports beyond capacity is budgeted at $48.00 per report. James could purchase the same services from an external Information Services firm for $70,000. What amounts should be used as the ceiling and the floor in determining the negotiated transfer price? a. b. c. d. Floor $36.00 $45.60 $48.00 $57.00 Ceiling $56.00 $56.00 $70.00 $82.00 3. Bigole Corp. produces various products used in the construction industry. The Plumbing Division produces and sells 100,000 copper fittings each month. Relevant information for last month follows: Total sales (all external) $250,000 Expenses (all on a unit base): Variable manufacturing $0.50 Fixed manufacturing .25 Variable selling .30 Fixed selling .40 Variable G&A .15 Fixed G&A .50 Total $2.10 Top-level managers are trying to determine how a transfer price can be set on a transfer of 10,000 of the copper fittings from the Plumbing Division to the Bathroom Products Division. A transfer price based on variable cost will be set at ___________ per unit. a. $0.50 c. $0.95 b. $0.80 d. $0.75 4. The net sales of Grand Manufacturing Co. in 2017 is total, P580,600. The cost of goods manufactured is P480,000. The beginning inventories of goods in process and finished goods are P82,000 and P65,000, respectively. The ending inventories are, goods in process, P75,000, finished goods, P55,000. The selling expenses is 5%, general and administrative expenses 2.5% of cost of sales, respectively. The net profit in the year 2017 is a. P90,000 b. P45,725 c. P53,850 d. P83,000 5. North Bank is analyzing Belle Corp.’s financial statements for a possible extension of credit.
Belle’s quick ratio is significantly better than the industry average.
Which of the following factors should North consider as possible limitation of using this ratio when evaluating Belle’s creditworthiness?
a. Fluctuating market prices of short-term investments may adversely affect the ratio. b. Increasing market prices for Belle’s inventory may adversely affect the ratio. c. Belle may need to sell its available-for-sale investments to meet its current obligations. d. Belle may need to liquidate its inventory to meet its long-term obligations.
For numbers 6 to 9 refer to this question: You are requested to reconstruct the accounts following data were made available to you: Gross margin for 2017 Ending balance of merchandise inventory
of Angela
Trading
for analysis.
The
P472,500 P300,000 P750,000 Total stockholders’ equity as of December 31, 19x8 Gross margin ratio 35% Debt to equity ratio 0.8:1 Times interest earned 10 Quick ratio 1.3:1 Ratio of operating expenses to sales 18% Long-term liabilities consisted of bonds payable with interest rate of 20% Based on the above information, 6. What was the operating income for 2017? a. P472,500 b. P243,500 c.
P205,550
d.
P229,500
7. How much was the bonds payable? a. P400,000 b. P200,750
P114,750
d.
P370,500
8. Total current liabilities would amount to a. P600,000 b. P714,750 c. P485,250
d.
P550,00
9. Total current assets would amount to a. P630,825 b. P780,000 c.
d.
P930,825
10.
P580,000
The High Division of Para Company produces a high quality kite. Unit production costs (based on capacity production of 100,000 units per year) follow: Direct materials P 60 Direct labor 25 Overhead (20% variable) 15 Other information Sales price 120 Selling expenses (15% variable) 20 The High Division is producing and selling at capacity. What is the minimum selling price that the division would consider as a “transfer price”
to
the
incurred? (M) a. P120 b. P 88 11.
c.
Recreation
c. d.
Division
on
which
no
variable
period
costs
would
be
P 91 P117
Starr Company has the following data: Variable costs are 70% of the unit selling price. The contribution margin ratio is 30%. The contribution margin per unit is $500. The fixed costs are $400,000. Which of the following does not express the break-even point? a. $400,000 + .70X = X b. $400,000 + .30X = X c. $400,000 ÷ $500 = X d. $400,000 ÷ .30 = X
12. Which is the true statement? a. In a CVP income statement, costs and expenses are classified only by function. b. The CVP income statement is prepared for both internal and external use. c. The CVP income statement shows contribution margin instead of gross profit. d. In a traditional income statement, costs and expenses are classified as either variable or fixed. 13.
Jim Vannon is considering opening a Kwik Oil Change Center. He estimates that the following costs will be incurred during his first year of operations: Rent $6,000, Depreciation on equipment $7,000, Wages $13,700, Motor oil $1.20 per quart. He estimates that each oil change will require 5 quarts of oil. Oil filters will cost $3.00 each. He must also pay The Kwik Corporation a franchise fee of $1.25 per oil change since he will operate the business as a franchise. In addition, utility costs are expected to behave in relation to the number of oil changes as follows: Number of Oil Changes 4,000 6,000 9,000 12,000 16,000
Utility Costs $ 6,000 $ 7,300 $ 9,600 $ 12,600 $ 15,000
Mr. Vannon anticipates that he can provide the oil change service with a filter at $20.00 each.
Using a. b. c. d. 14.
the high-low method, determine variable costs per unit and total fixed costs. P 12/unit ; P 29 800 P 11/unit ; P 29 900 P 11/unit ; P 29 700 P 10/unit ; P 30 000
Refer to oil changes. a. 3 300 oil b. 3 400 oil c. 3 350 oil d. 3 003 oil 15. Refer to dollars. a. P 66 000 b. P 64 000 c. P 60 600 d. P 67 000
the preceding problem, Determine the break-even point in number of changes changes changes changes the preceding
problem,
Determine
the
break-even
point
in
sales
16.
Refer to the preceding problem, Without regard to your answers in #14 and 15, determine the oil changes required to earn net income of $20,000, assuming fixed costs are $28,000 and the contribution margin per unit is $10. a. 4 900 oil changes b. 4 800 oil changes c. 5 000 oil changes d. 5 100 oil changes
17.
Selected data from the year-end financial statements of World Cup Corp. are presented below. The difference between average and ending inventories is immaterial. Current ratio 2.0 Quick ratio 1.5 Current liabilities P600,000 Inventory turnover (based on cost of sales) 8 times Gross profit margin 40% World’s net sales for the year were
a.
P2.4 million
b.
P4.0 million
c.
P1.2 million
d.
P6.0 million
18.
What would be the effect on book value per share and earnings per share if the corporation purchased its own shares in the open market at a price greater than book value per share? A. B. C. D. Book value per share No effect Increase Decrease Decrease Earnings per share Increase Increase Decrease Increase 19.
The following situations are descriptive of SBD 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 stockh olders’ 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. SBD stops paying dividends on its cumulative preferred stock; the priceearnings ratio of common stock is low. d. Equity ratio is low; return on assets exceeds the cost of borrowing.
20.
Statement I: A CVP income statement classifies total costs by functional areas. Statement II: A target net income is calculated by taking actual sales minus the margin of safety. Statement III: The margin of safety is the difference between contribution margin and fixed costs. a. b. c. d.
21.
True, True, True True, False, False False, False, False True, True, True Statement I: The contribution margin ratio is calculated by multiplying the unit contribution margin by the unit sales price. Statement II: Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income. Statement III: Contribution margin is the amount of revenues remaining after deducting cost of goods sold.
a. False, True, False b. True, False, True
c. True, True, False d. False, True, False 22.
Landry Retailers has annual sales of $365 million. The company’s days sales
outstanding (calculated on a 365-day basis) is 50, which is well above the industry average of 35. The company has $200 million in current assets, $150 million in current
liabilities,
and
$75
million
in
inventories.
The
company’s
goal
is
to
reduce its DSO to the industry average without reducing sales. Cash freed up would be used to repurchase common stock. What will be the current ratio if the company accomplishes its goal? a. 1.23 b. 1.33 c. 1.43 d. 0.73
23.
The management of Seymour Corporation asks you to prepare an analysis of the gross profit variance based on their comparative income statements for 2015 and 2016: Sales Cost of goods sold Gross profit
2016
2015
P990,000 760,000 P230,000
P800,000 640,000 P160,000
Variance
P190,000 F 120,000 U P 70,000 F
The only known information given to you is that volume increased from 2015 to 2016 by 10%. The variance in gross profit due to the change in volume is a. P80,000 favorable. c. P16,000 favorable. b. P64,000 unfavorable. d. P70,000 favorable. 24. The format for internal reports in a responsibility accounting system is prescribed by: a. Generally Accepted Accounting Principles b. The Financial Accounting Standards Board c. The Philippine Institute of Certified Public Accountants d. Management 25.
The market value of a firm's outstanding common shares everything else equal, if A. Investors have a lower required return on equity. B. Investors expect lower dividend growth. C. Investors have longer expected holding periods. D. Investors have shorter expected holding periods.
26.
Minix a. b. c. d.
Co. has a high sales-to-working-capital ratio. The firm is undercapitalized. The firm is likely to have liquidity problems. Working capital is not profitably utilized. The firm is not profitable.
will
be
higher,
This could indicate
For questions no. 27 to 29 refer to this question Herbart Company gathered the following information on power costs and factory machine usage for the last six months: Month January February March April May June 27.
Power Cost $24,400 31,300 29,000 22,340 19,900 14,800
Factory Machine Hours 13,900 17,600 16,800 13,200 11,600 6,600
Using the high-low method of analyzing costs, What is the estimated variable portion of power costs per factory machine hour? a. $ 1.60/ hr b. $ 1.50/ hr c. $ 1.52/ hr d. $ 1.56/ hr
28. power a. b. c. d.
Using the high-low method of analyzing costs, What is the estimated fixed cost each month? $ 4 900 $ 4 850 $ 4 950 $ 4 350
29.
Using the high-low method of analyzing costs, If it is estimated that 10,000 factory machine hours will be run in July, what is the expected total power costs for July? a. $ 19 900 b. $ 19 200 c. $ 19 950 d. $ 19 850
For questions 30 to 33, refer to this problem Kelly Hayes operates a bed and breakfast hotel in a resort area in the Smoky Mountains. Depreciation on the hotel is $60,000 per year. Kelly employs a maintenance person at an annual salary of $30,000 per year and a cleaning person at an annual salary of $24,000 per year. Real estate taxes are $10,000 per year. The rooms rent at an average price of $50 per person per night including breakfast. Other costs are laundry service at $4.00 per person per night and the cost of food which is $6.00 per person per night. 30.
Determine the number of rentals and the sales revenue Kelly needs to break even using the contribution margin technique. a. 3 100 rentals b. 3 300 rentals c. 3 150 rentals d. 3 150 rentals
31.
If the current level of rentals is 4,000, by what percentage can rentals decrease before Kelly has to worry about having a net loss? a. 22.3% b. 22.5% c. 22.6% d. 23%
32.
Kelly is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional $5.00 for food costs per person per night. Kelly feels she can increase the room rate to $65 per person per night. Determine the number of rentals Kelly needs to break even if the changes are made. a. 2 480 rentals b. 2 500 rentals c. 2 350 rentals d. 2 600 rentals
33.
Kelly is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional $5.00 for food costs per person per night. Kelly feels she can increase the room rate to $65 per person per night. Determine the sales revenue Kelly needs to break even if the changes are made. a. $ 160 200 b. $ 161 300 c. $ 161 200 d. $ 150 000
34.
If American Airlines cuts its domestic fares by 30%, a. its fixed costs will decrease. b. profit will increase by 30%. c. a profit can only be earned by decreasing the number of flights. d. a profit can be earned either by increasing the number of passengers or by decreasing variable costs.
35.
Overtime conditions and pay were recently set by the personnel department. The production department has just received a request for a rush order from the sales department. The production department protests that additional overtime costs would be incurred as a result of the order. The sales department argues the order is from an important customer. The production department processes the order. In order to control costs, which department should be charged with the overtime costs generated as a result of the rush order? A. Personnel department B. Production department C. Sales department D. Shared by production department and sales department
36.
C company’s return on investment is affected by a change in
Capital turnover Profit margin on sales
A. Yes Yes
B. Yes No
C. No No
D. No Yes
37.
The Valve Division of Industrial Company produces a small valve that is used by various companies as a component part in their products. Industrial Company operates its divisions as autonomous units, giving its divisional manager great discretion in pricing and other decisions. Each division is expected to generate a rate of return of at least 14 percent on its operating assets. The Valve Division has average operating assets of P700,000. The valves are sold for P5 each. Variable costs are P3 per valve, and fixed costs total P462,000 per year. The Division has a capacity of 300,000 units. How many valves must the Valve Division sell each year to generate the desired rate of return on its assets? A. 280,000 C. 355,385 B. 350,000 D. 265,000
38.
Segment A generated sales revenues of P400,000 and variable operating expenses of P180,000. Its controllable fixed expenses were P40,000. It was assigned 20% of P200,000 of fixed costs controlled by others. The common fixed costs were P25,000. What was Segment A's controllable segment profit margin? A. P220,000 C. P140,000 B. P180,000 D. P160,000
39.
Magastos Division of Expenditures Company expects the following results for 2006: Unit sales Unit selling price Unit variable cost Total fixed cost Total fixed costs Total investment
P P
70,000 10 4
P 300,000 P 500,000
The minimum required ROI is 15 percent, and divisions are evaluated on residual income. A foreign customer has approached Magastos’ manager with an offer to buy 10,000 units at P7
each. Magastos Division has capacity of 75,000 units and the foreign customer will not accept fewer than 10,000 units. Accepting the order would increase fixed costs by P10,000 and investment by P40,000. At the price of P7 offered by foreign customer, what is the maximum number of units in regular sales that Magastos Division could sacrifice and still maintain its expected residual income? A. 2,333 C. 3,333 B. 2,667 D. 3,667 40.
Recently the M&M Company has been having problems. As a result, its financial situation has deteriorated. M&M approached the First National Bank for a badly needed loan, but the loan officer insisted that the current ratio (now 0.5) be improved to at least 0.8 before the bank would even consider granting the credit. Which of the following actions would do the most to improve the ratio in the short run? A. Using some cash to pay off some current liabilities. B. Collecting some of the current accounts receivable. C. Paying off some long-term debt. D. Purchasing additional inventory on credit (accounts payable).
