COSTS AND COST CONCEPTS 1. If a firm firm's 's net net inco income me doe doess not change not change as its volume changes, the firm('s) a. must be in the service industry. c. sales price must equal P0. b. must have no fied costs. d. sales price must equal its variable costs. ANSWER D I!"#$ % & &*" +&$" !-" //I2 3astelo, 4illasin and +arrera is a large, local accounting firm located in 3ebu. +elle 3astelo, one of the irm5s founders, appreciates the success her firm has en6oyed and 7ants to give something bac8 to her community. $he believes that an inepensive accounting services clinic clinic could provide basic accounting accounting services services for small small businesses businesses located in the province. $he 7ants to price the services at cost. $ince the clinic is brand ne7, it has no eperience to go on. +elle decided to operate the clinic for t7o months before determining ho7 much to charge per hour on an ongoing basis. &s a temporary measure, the clinic adopted an hourly charge of P90, half the amount charged by 3astelo, 4illasin and +arrera for professional services. !he accounting services clinic opened on :anuary 1. uring :anuary, the clinic had 1%0 hours of professional service. uring ebruary, the activity 7as 190 hours. 3osts for these t7o level of activity usage are as follo7s2 Professional hours $alaries2 $enior accountant ffice assistant Internet and soft7are subscriptions 3onsulting by senior partner epreciation (equipment) $upplies &dministration *ent (offices) ?tilities
%. !he clini clinic5s c5s month monthly ly fied fied costs costs amount amount to2 to2 a. P<,@00 b. P>,0%9
1%0 hours P%,900 1,%00 ;00 1,%00 %,=00 >09 900 %,000 %
c. P =%9 d. P1%,1<>
ANSWER B Diff iff. in costs osts (P12 (P12,,415 415 – P11,!" !" % &iff. in 'o)s (15* – 12*" V+)i+- )+t /) 'o) Tot+- cost 0ss +)i+- cost (22.#*15*" i& costs
P #$ #$ !* P22.#*
P12,415 !,!3* (22.#*12*" P 3,*25
P11,! 2,12 P 3,*25
190 hours P%,900 1,%00 <90 1,900 %,=00 1,100 900 %,000 @9
Page 2
. &ppl &pple e +aby +aby,, the the chief chief para parapr prof ofes essi sion onal al of the the clin clinic ic,, has has esti estima mate ted d that that the the clin clinic ic 7ill 7ill average 1=0 professional hours per month. If the clinic is to be operated as a nonprofit organiAation, ho7 much 7ill it need to charge per professional hourB a. P>;.<1 c. P<%.;; b. P<;
[email protected] d. P%%
[email protected] ANSWER B V+)i+- cost (14* P22.#*" i& cost Tot+- cost % n) of 'o)s Cost /) 'o)
P !,1#4 3,*25 P12,1$3 14* P $.*#
=. -$* 3omputer 3omputer $ystem $ystem designs designs and develops develops specialiA specialiAed ed soft7are soft7are for companies companies and and use a normal costing system. !he follo7ing data are available available for %0192 +udgeted verhead #achine hours irect labor hours
[email protected],000 %=,000 ;9,000 &ctual
?nits produced verhead Prime costs #achine hours irect labor hours
100,000
[email protected],900 P>00,000 %9,090 ;9,;00
verhead is applied on the basis of direct labor hours. hat is the unit cost for the yearB a. P19.0 b.
[email protected]
c. P19.0> d. P19.00
ANSWER B Prime costs Applied overhead (P600,000/75,000 DLH x 75,700 !otal cost # $%its prod&ced
P 900,000 605,600 P",505,600 "00,000
$%it cost
P
"5'06
ABC SYSTEM 9. -aAeln -aAelnut ut 3ompany 3ompany uses uses activi activityC tyCba based sed costin costing. g. !he compan company y produce producess t7o products products22 coats and hats. !he annual production and sales volume of coats is <,000 units and of hats is @,000 units. !here are three activity activity cost pools 7ith 7ith the follo7ing epected epected activities and estimated total costs2 &ctivity 3ost Pool &ctivity 1 &ctivity % &ctivity
"stimated 3ost P%0,000 P;,000 P>1,%00
"pected &ctivity 3oats 100 <00 <00
"pected &ctivity -ats =00 %00 ,000
!otal 900 1,000 ,<00
Page
?sing &+3, the cost per unit of coats is approimately2 a. P%.=0 c. P @
[email protected] b. P.>0 d. P10.9> ANSWER C
Actiit6 1 (P2*,*** (P2*,*** 1**75**" Actiit6 2 (P!,*** (P!,*** $**71,***" Actiit6 ! (P31,2** (P31,2** $**7!,$**" Tot+- +--oc+t& cost % n) of nits Cost /) nit
P 4,*** 23,#** 13,2** P52,$** $,*** P # .# *
6' )lai%e Hospital Hospital pla%s pla%s to &se the activit*+ased costi%g to assig% hospital hospital i%direct i%direct costs to the care o- patie%ts' !he hospital has ide%ti-ied the -ollo.i%g -ollo.i%g activities a%d activit* activit* rates -or the hospital i%direct costs Activity Activity Rate oom a%d meals adiolog* Pharmac* hemistr* la 3perati%g room
P"50 per da* P95 per image P21 per ph*sicia% order P15 per test P550 per operati%g room ho&r
!he records o- t.o represe%tati represe%tative ve patie%ts .ere a%al*4ed, a%al*4ed, &si%g the activit* activit* rates' !he activit* activit* i%-ormatio% associated .ith the t.o patie%ts are as -ollo.s Patient 1
Patient 2
7 5 6 '5
2 " 2 "
&mer o- da*s &mer o- images &mer o- ph*sicia% orders &mer o- tests &mer o- operati%g room ho&rs Determi%e the activit* cost associated .ith Patie%t 2' a' P",11 c' ' P 901 d'
P",1"6 P,555
ANSWER A Actiit6 costs, costs, P+tint 28 Roo +n& +-s (! P15*" R+&io-o96 (2 P35" P'+)+c6 (1 P2$" C'ist)6 -+ (2 P$5" O/)+tin9 )oo (1 P55*" Tot+-
P 45* 13* 2$ 1 * 55* P1,!$$
;. +alat +alat /eather /eather or8s, or8s, 7hich manufac manufactur tures es saddles saddles and other leather leather goods, goods, has three departments. !he &ssembly &ssembly epartment epartment manufactures manufactures various various leather leather products, such as belts, belts, purses, purses, and saddle saddle bags, bags, using using automated automated producti production on process. process. !he $addle $addle epartment epartment produces produces handmade handmade saddles saddles and uses very little machinery. machinery. !he !anning !anning epartment epartment produces produces leather. leather. !he tanning process process requires little little in the 7ay of labor or machinery, machinery, but it does require require space and process time. time. ue to the different different production production processes in the three departments, the company uses three different cost drivers for the applic applicati ation on of manufactu manufacturin ring g overhe overhead. ad. !he cost drive drivers rs and overhea overhead d rates rates are as follo7s2 3ost (river Predetermined ,verhead *ate !anning epartment &ssembly epartment
$quareCfeet of leather #achine time
P per squareCfoot P> per machine hour
Page
$addle epartment
irectClabor time
P= per direct labor hour
!he compan company5s y5s delue delue saddle saddle and access accessory ory set consist consistss of handma handmade de saddle saddle,, t7o saddlebags, a belt, belt, and a vest, all coordinated to match. !he entire set uses 100 squareC feet feet of leat leathe herr from from the the !ann !annin ing g e epa partm rtmen ent, t, ma machi chine ne hours hours in the the &sse &ssemb mbly ly epart epartmen ment, t, and =0 directCla directClabor bor hours in the $addle $addle epartme epartment. nt. !he company company is processing :ob o. %0 consisting of %0 delue saddle and accessory sets. -o7 much is the applied manufacturing overhead in the &ssembly epartment for :ob o. %0B a. P,%00 c.
[email protected],000 b. P 9=0 d. P,000
ANSWER
B
Asseml* departme%t departme%t P9/machi%e ho&r x machi%e ho&rs x 20 20 sets P50
activityCbased based costing costing is impleme implemented nted in an organiAat organiAation ion 7ithout 7ithout any other changes changes <. If activityC being effected, total overhead costs 7ill a. be reduced reduced because because of the elimi eliminatio nation n of nonCvalueC nonCvalueCadde added d activities activities.. b. be reduced reduced because organiA organiAation ational al costs 7ill 7ill not be assigned assigned to products products or services. services. c. be increased increased because because of the the need for for additional additional people people to gather gather information information on cost cost drivers and cost pools. d. remain remain constant constant and simply simply be be spread spread over product productss differentl differently. y. ANSWER D CVP AND BREAKEVEN ANALYSIS >. -arry #anufact #anufacturing uring incurs incurs annual fied fied costs of P%90,000 P%90,000 in producing producing and selling selling a single single product. "stimated unit sales are 1%9,000. &n afterCta income of P;9,000 is desired by mana ma nage geme ment. nt. !he !he compa company ny pro6 pro6ec ects ts its its incom income e ta ta rate rate at =0 perce percent nt.. hat hat is the the maimum amount that -arry can epend for variable costs per unit and still meet its profit ob6ective if the sales price per unit is estimated at
[email protected] a. P.; c. P.00 b. P.9> d. P.;0 ANSWER C P)o:ct& s+-s (125,*** P#" 0ss cont)ition +)9in8 Inco Inco fo fo) ) t+ t+ (5, (5,** ***7 *7*. *.#* #*"" A&& fi& cost V+)i+- costs % n) of nits V+)i+- cost /) nit
P5*,*** P125 P125,* ,*** ** 25*,***
!5,*** P!5,*** 125,*** P !.**
10. or its most recent fiscal year, a firm reported reported that its contributio contribution n margin 7as equal to =0 percent percent of sales and that its net income amounted amounted to 10 percent percent of sales. sales. If its fied costs for the year 7ere
[email protected],000, ho7 much 7as the margin of safetyB a. P1 P190,000 c.
[email protected] [email protected],000 b. P%00,000 d. P 90,000 ANSWER D 0t S ; S+-s< CM ; *.4*S< NY ; *.1*S i& Cost ; (*.4*S – *.1*S" ; *.!*S
Page 5 S+-s (P#*,*** % *.!*" 0ss 0ss )+ )+= = nn s+- s+-ss (P#* (P#*,* ,*** ** % *.4* *.4*"" M+)9in of s+ft6
P2**,*** 15*, 15*,** **** P 5*,***
11. $am 3ompany manufacture manufacturess a single single product. In the prior year, the company company had sales of P>0,000, variable costs of P90,000, and fied costs of P0,000. $am epects its cost structure and sales price per unit to remain the same in the current year, ho7ever total sales are epected to increase by %0 percent. If the current year pro6ections are realiAed, net income should eceed the prior pr ior year5s net income by2 a. 100 percent. c. %0 percent. b. <0 percent. d. 90 percent. ANSWER B Inc)+s in /)ofit (P4*,*** 2*>" % P)snt /)ofit8 Cont)ition +)9in 0ss fi& costs > c'+n9 in /)ofit
P $,*** P4*,*** !*,***
1*,*** $*>
1%. "dil "dil 3ompany 3ompany produc produces es and sell sellss a single single product product.. !he costs costs and selli selling ng prices prices on a perCu perCunit nit basis are as follo7s2 $elling Price #aterials /abor 4ariable 4ariable overhe overhead ad ied overhead 4ariable 4ariable sellin selling g and administr administrativ ative e ied selling and administrative
P1%0 9 19 10 10 %0 9
!he above perCunit figures are computed based on the company5s normal capacity of %0,000 units. !he company5s epected margin of safety is a. ;,900 units. b. P%,=00,000. ANSWER C E/ct& s+-s ? nits 0ss )+=?n s+-s8 i& costs (2*,*** @1* 5B" % nit cont)ition +)9in (12* – @!5 15 1* 2*B" M+)9in of s+ft6
c. @%.9D. d. P1%,900.
2*,*** P!**,*** P4*
M+)9in of s+ft6 in /sos (12,5** P12*"
,5** 12,5** nits P1,5**,***
M+)9in of s+ft6 )+tio (12,5** % 2*,***"
#2.5>
1. &ntiporda, &ntiporda, Inc. sells sells three three products products,, &, +, +, and 3. !he company company sells sells three () units units of 3 for each unit unit of & and t7o (%) units of + for each unit unit of 3. !otal fied fied costs amount amount to P;@0,000. Product &5s contribution margin per unit is P%, Product +5s is 190D of &5s, &5s, and Product Product 35s is t7ice as much much as +5s. -o7 many units units of each product product must be sold sold to brea8CevenB Product & Product + Product 3 a. b. c. d.
%,000 %0,000 %>,%1 @>,0>1
1%,000 1%0,000 9<,
[email protected]% =1=,
[email protected]
@,000 @0,000 <;,@>% %0;,%;
Page 6
ANSWER B
P)o&ct A CM /) nit S+-s i )+tio Co/osit CM % N) of nits /) i (1 # !" i9't& +)+9 CM /) nit i9't&?+)+9 CM i& costs )+=?n /oint ; a?3#
P2 1 P2
;
+rea8do7n2 Product &
D).+=&oFn8
P)o&ct A P)o&ct P)o&ct C
; ; ;
P)o&ct D (2 15*>" P ! (2 !" # P1$
P#*,***
P)o&ct C (P! 2" P # ! P1$
Tot+-
P!$ 1* P!.$ P!.$
; 2**,*** co/osit nits
P.<
E%00,000 1F10
E%0,000 units
2**,*** 171* ; 2*,*** nits 2**,*** #71* ; 12*,*** 2**,*** !71* ; #*,*** 2**,*** co/osit nits
I!"#$ 1= to
[email protected] &*" +&$"( ,' !-" .,//,I' I'.,*#&!I,'2 & company is ma8ing plans for net year, using costCvolumeCprofit analysis as its planning tool. et year5s sales data about its product are as follo7s2 $elling price 4ariable manufacturing costs per unit 4ariable selling selling and administrative costs ied ied operat operating ing costs costs (@0D (@0D is is manu manufac facturi turing ng cost) cost) Income ta rate
[email protected] %%.90 =.90 P1=<,9 P1=<,900 00 %D
1=. -o7 much much should should sales be net net year if the company company 7ants 7ants to earn profit profit after after ta of P%%,==0, the same amount that it earned last yearB a. P P10,<00 c. P P 0,000 b. P P>;,900 d. P% P%%%,000 ANSWER C i& costs A&& &si)& /)ofit
P14$,5** (
P22,44* " 1 – *.!2
!!,*** P1$1,5**
Tot+#* – @22.5* 4.5*B #* RHi)& s+-s to +)n &si)& /)ofit
% CMR
(
"
55> P!!*,***
19. &ssume &ssume that the company5 company5ss management management learned learned that that a ne7 technolog technology y that 7ill 7ill increase increase the quality of its its product is available. available. If implemented, its pro6ections for net year 7ill 7ill be changed2 1. !he sellin selling g price price of the the product product 7ill 7ill increase increase to P;9 per unit. unit. %. ied ied manufa manufactur cturing ing costs costs 7ill 7ill incre increase ase by by %0D. . &ddi &dditi tion onal al adve adverti rtisi sing ng costs costs 7ill 7ill be incur incurre red d to promo promote te the the high higher erCq Cqua uali lity ty product. !his 7ill increase fied nonCmanufacturing cost by 10D. =. !he improv improved ed product product 7ill 7ill requ require ire a ne7 ne7 ma mate teri rial al that 7ill increa increase se direct direct materials cost by P=.90 If the ne7 technology is adapted, ho7 much sales should the company ma8e to earn a preC ta profit of 10D on salesB a. P P@@,10 c. P% P%9,%=
Page 7
b. P P9<,<;9
d. P9,<>;
ANSWER B i& costs8 M+nf+ct)in9 (14$,5** #*> 12*>" Non?+nf+ct)in9 (14$,5** 4*> 11*>" Tot+- fi& costs
P1*#,32* #5,!4* P12,2#*
Cont)ition +)9in )+tio8 S--in9 /)ic 0ss +)i+- costs8 M+nf+ct)in9 (P22.5* P4.5*" S--in9 +n& +&inist)+ti Cont)ition +)9in /) nit % S--in9 /)ic Cont)ition +)9in )+tio
P5.** P2.** 4.5*
!1.5* P4!.5* 5.** P 5$>
RHi)& /so?s+-s to +)n + &si)& /)ofit )+tio8 RS ;
i& Cost CMR – PR
P12,2#* 5$> – 1*>
;
; P!5$,$5
[email protected] If the sales sales required required in Item G19 is realiAed, realiAed, the the company 7ill 7ill have an operati operating ng leverage leverage factor of a. <.9. c. 1;.%=D. b. 9.<0. d. 9.90. ANSWER B
O/)+tin9 -)+9 f+cto) f+cto) ; ; ;
Cont)ition +)9in P)ofit fo) t+ P!5$,$5 5$> P!5$,$5 1*> P2*$,14.5* ; 5.$ P!5,$$.5*
1;. &s pro6ected pro6ected net income increases increases the a. degr degree ee of oper operat atin ing g leve levera rage ge decl declin ines es.. b. margin of safety stays constant.
c. brea brea8C 8Cev even en poin pointt goes goes do7n. do7n. d. contribution margin ratio goes up.
ANSWER A 1<. Hamyam Hamyam 3ompany 3ompany is considering considering introducing introducing a ne7 product that 7ill require require a P%90,000 P%90,000 investment of capital. !he necessary funds 7ould be raised through a ban8 loan at an intere interest st rate of
" $*,***
Page 1 Tot+P2*2,5** % CM /) nit nit @P15 @P15 (1**> (1**> ? 5$>"B 5$>"B #.!* #.!* RHi)& s+-s in nits !2,14!
STANDARD COSTS AND VARIANCE ANALYSIS 1>. !he materi materials als mi varian variance ce for a product product is P=90 P=90 unfavo unfavorab rable le and the material materialss yield yield variance is P190 unfavorable. !his means that that a. the materi materials als price price variance variance is is [email protected] unfavorabl unfavorable. e. b. the materia materials ls quantity quantity variance variance is [email protected] unfavo unfavorable rable c. the total total material materialss cost variance variance is definite definitely ly [email protected] unfav unfavorable orable.. d. the the ma mate teri rial alss pric price e vari varian ance ce is also also unfa unfavo vora rabl ble, e, but but the the am amou ount nt cann cannot ot be determined from the given information. ANSWER B Mi +)i+nc Yi-& +)i+nc +ntit6 +)i+nc
P45* 15* P#**
%0. 4ariance analysis 7ould be appropriate to mea measure sure performance in a. profit centers c. cost centers b. investment centers d. all of the above ANSWER D %1. $amson 3ompany uses uses a standard standard costing system in the production of its only only product. !he <=,000 units of ra7 materials inventory 7ere purchased for P1%@,000 and = units of ra7 materi materials als are required required to produce produce one unit of final final product. product. In ctober, ctober, the compan company y produced produced 1=,=00 units of product. !he standard standard cost allo7ed for material materialss 7as P;%,000, and there 7as an unfavorable usage variance of P,000. !he materials price variance for the units used in ctober 7as a. P19,000 unfavorable. c. P,000 unfavorable. b. P19,000 favorable. d. P,000 favorable. &$"* & Tot+- st+n&+)& cost % St& St& Ht6 fo) +ct++ct+- /)o&c /)o&ctio tionn (14,4 (14,4** ** 4" 4" St+n&+)& /)ic /) nit of +t)i+-s
P2,*** 5,#** 5,#** P1.25
T' s+9 +)i+nc is P!,*** nf+o)+-. T' st+n&+)& /)ic is P1.25. sin9 t' fo)-+ fo)-+ fo) s+9 +)i+nc, +)i+nc, t' &iff)nc in H+ntit6 +6 co/t& +s fo--oFs8 s+9 +)i+nc ;Diff)nc in H+ntit6 St&. /)ic !,*** ; Diff)nc in H+ntit6 P1.25 Diff)nc in H+ntit6 ; !,*** % P1.25 ; 2,4** nf+o)+- If t' &iff)nc in H+ntit6 is nf+o)+-, t' +ct+- H+ntit6 is 9)+t) t'+n t' st+n&+)& H+ntit68 St+n&+)& H+ntit6 (14,4** 4" A&& nf+o)+- &iff)nc &iff)nc in H+ntit6 Act+- H+ntit6 s& s& P)ic V+)i+nc ; (AP – SP" A
5,#** 2,4** #*,*** nits
Page 9 ; (@P12#,*** % $4,***B – P1.25" #*,*** ; P15,*** nf+o)+-
%%. !he standard direct materials cost to produce a unit of a product is four meters of materials at P%.90 per meter. uring :une, %019, =,%00 meters of materials costing P10,0<0 7ere purchased and used to produce 1,000 units of the product. hat 7as the materials price variance for :une, %019B a. P=<0 unfavorable c. P=00 favorable b. P <0 unfavorable d. P=%0 favorable ANSWER D Act+- /)ic (P1*,*$* (P1*,*$* % 4,2**" St+n&+)& /)ic Diff)nc in /)ics ? f+o)+- J +ct+- H+ntit6 /)c'+s& P)ic +)i+nc – f+o)+-
P2.4* 2 .5 * P * .1 * 4,2** P 4 2*
%. +uchoy 3ompany manufactures one product 7ith a standard standard direct manufacturing labor cost of four hours at P1%.00 per hour. uring :une, 1,000 units 7ere produced using =,100 hours at P1%.%0 per hour. !he unfavorable direct labor efficiency variance 7as2 a. P<%0 c. P1,%00 b. P=00 d. P1,%%0 ANSWER C Act+- ti – 'o)s 'o)s 0ss st+n&+)& ti (1,*** 4" Diff)nc in ti – nf+o)+- J st+n&+)& )+t /) 'o) Efficinc6 + +)i+nc – n nf+o)+-
4,1** 4,*** 1** P 12 P1,2**
I!"#$ %= ! %< &*" +&$" !-" //I2 4hong, Inc. evaluates manufacturing overhead in its factory by using variance analysis. !he follo7ing information applies to the month of :uly2 &3!?&/ +?"!" umber of units produced 1>,000 %0,000 4ariable overhead costs P=,100 P% per direct labor hour ied overhead costs P%%,000 P%0,000 irect labor hours %,100 0.1 hour per unit %=. !he controllable variance amounts to a. P%,900 unfavorable b. P1,000 unfavorable
c. P%,00 unfavorable d. P%,000 unfavorable
ANSWER C %9. ?sing the threeC7ay variance variance analysis, the spendi spending ng variance amounts to a. P100 favorable c. P%,000 unfavorable b. P1,>00 unfavorable d. P%,100 unfavorable ANSWER B %@. !he efficiency variance amounts amounts to
Page "0
a. P=00 unfavorable b. P1,>00 unfavorable
c. P=00 favorable d. P1,000 unfavorable
ANSWER A %;. !he nonCcontrollable variance is a. P%,00 unfavorable b. P=00 unfavorable
c. P%,000 unfavorable d. P1,000 unfavorable
ANSWER D %<. !he fied overhead efficiency variance variance is2 a. P=00 unfavorable b. PP%,000 unfavorable
c. P=00 favorable d. 0
ANSWER D 24 TO 28
Act+- +)i+- o)'+& o)'+& Act+- ti st&. +). +). )+t (2,1** P2" S/n&in9 +)i+nc – f+o)+-
P4,1** 4,2** P 1**
Act+- ti st&. +). +). )+t (2,1** P2" St&. St&. +)i+ +)i+- - o)' o)'+& +& @(13,* @(13,*** ** *.1" *.1" P2B Efficinc6 +)i+nc – nf+o)+-
P4,2** !,$** !,$** P 4**
Act+- fi& o)'+& o)'+& 0ss &9t& fi& o)'+& i& i& s/n& /n&iin9 +)i+ +)i+nc nc – nf nf+o) +o)+ +- -
P22,*** 2*,*** P 2,** 2,****
&9t& fi& o)'+& 0ss st+n&+)& fi& o)'+& @1,3 1,3** (P2* (P2*,,***7 ***7K2 K2*, *,** **** *.1L *.1L"B "B Vo- +)i+nc – nf+o)+-
P2*,*** 13, 13,*** *** P 1, 1,***
24.
Cont)o Cont)o--+ --+- - +)i+n +)i+nc c (P1* (P1*** P4** P4** P2,*** P2,*** " ; 2,!** 2,!**
25.
S/n&in9 +)i+nc (P1** P2,*** " ; P1,3**
PRODUCT COSTING %>. & basic tenet of variable variable costing costing is that period period costs should be currently currently epensed. epensed. hat is the rationale behind this procedureB a. Period Period costs are uncontrollab uncontrollable le and should should not be be charged charged to a specific specific product. product. b. Peri Period od costs costs are are gene genera rall lly y imma immate teri rial al in am amou ount nt and and the the cost cost of assi assign gnin ing g the the amounts to specific products 7ould out7eigh the benefits. c. &llocation &llocation of of period costs costs is arbitrary arbitrary at best best and could could lead to to erroneous erroneous decision decision by management. d. +ecause +ecause period period costs 7ill occur 7hether 7hether production production occurs, occurs, it is improper improper to allocate allocate these costs to production and defer a current cost of doing business. ANSWER D 0. !he follo7ing follo7ing information information regarding regarding fied production production costs from a manufacturing manufacturing firm is available for the current year2 ied costs in the beginning inventory [email protected],000
Page ""
ied costs incurred this period
100,000
hich of the follo7ing statements is not trueB trueB a. !he maimu maimum m amount amount of fied fied productio production n costs that this this firm could deduct deduct using using absorption costs in the current year is [email protected],000. b. !he !he ma mai imu mum m diff differ eren ence ce bet7 bet7ee een n this this firm firm's 's the curren currentt year year inco income me base based d on absorption costing and its income based on variable costing is [email protected],000. c. ?sin ?sing g vari variab able le cost costin ing, g, this this firm firm 7ill 7ill dedu deduct ct no more more than than [email protected], [email protected],00 000 0 for for fie fied d production costs. d. If this this firm firm prod produce uced d subs substa tant ntia iall lly y more more unit unitss than than it sold sold in the the curre current nt year year,, variable costing 7ill probably yield a lo7er income than absorption costing. ANSWER C 1. &bsorption costing differs from variable variable costing in all of the follo7ing except a. treatm treatment ent of fied fied manuf manufact acturi uring ng overhe overhead. ad. b. treatm treatment ent of vari variabl able e producti production on costs. costs. c. accept acceptabi abilit lity y for ete eterna rnall report reporting ing.. d. arr arrang angeme ement nt of the the incom income e statem statement ent &$"* + %. If a firm produces produces more units than it sells, absorption absorption costing, relative relative to variable variable costing, 7ill result in a. higher income and assets. c. lo7er income but higher assets. b. higher in income but lo7er as assets. d. lo7er in income an and assets. ANSWER A . -o7 7ill a favora favorable ble volume volume varian variance ce aff affect ect net income income under each of the follo7 follo7ing ing methodsB &bsorption 4ariable a. reduce no effect b. reduce increase c. increase no effect d. increase reduce ANSWER C I!"#$ = ! @ &*" +&$" !-" //I2 !he follo7ing information is available for 3o. for its first year of operations2 $ales in units 9,000 Production in units <,000 #anufacturing costs2 irect labor P per unit irect material 9 per unit 4ariable overhead 1 per unit ied overhead P100,000 et income (absorption method) P0,000 $ales price per unit P=0 =. hat 7ould 3o. have reported reported as its income before before income taes if it had used variable variable costingB a. P0,000 c. [email protected];,900 b. (P (P;,900) d. can5t be determined from the given information
Page "2
ANSWER B Aso)/tion inco Diff iff. in inc inco o ($, ($,***? ***?5, 5,** ***" *" (P1 (P1**= **=7$= 7$=" V+)i+- costin9 inco
P!*,*** !, !,5** 5** (P ,5**"
9. hat 7as the total amount of $J& $J& epense incurred by 3o.B 3o.B a. P0,000 c. [email protected],000 b. [email protected]%,900 d. can5t be determined from the given information ANSWER B S+-s (5,*** P4*" 0ss cost of 9oo&s so-& (5,*** P21.5*" G)oss /)ofit 0ss /)ofit S--in9, 9n. +&in. /nss
P2**,*** 1*,5** P 32,5** !*,*** P #2 #2,5**
@. +ased on variable costing, 7hat 7ould 3o. sho7 as the value of its ending inventoryB inventoryB a. P1%0,000 c. P% P%;,000 b. P @=,900 d. P%=,000 ANSWER C En&in9 innto)6 – nits ($,*** – 5,***" J /)o&ct cost /) nit (! 5 1" Cost of n&in9 innto)6
!,*** P 3 P 2,***
;. hich of the follo7ing is an advantage of using variable variable costingB a. 4ariable 4ariable costing costing complies complies 7ith enerall enerally y &ccepted &ccepted &ccounting &ccounting Principle Principles. s. b. 4ariable 4ariable costing costing complies complies 7ith 7ith the ational ational Internal Internal *evenue *evenue 3ode. c. 4ariable 4ariable costing costing is most relevan relevantt to longCrun longCrun pricing pricing strate strategies. gies. d. 4ariable 4ariable costing costing ma8es costCvolu costCvolumeCpro meCprofit fit relationsh relationships ips more easily easily apparent. apparent. ANSWER D <. In its first year of operations, operations, asty 3ompany 3ompany had the follo7ing follo7ing costs 7hen it produced 100,000 units and sold <0,000 units of its only product2 #anufacturing costs2 ied P1<0,000 4ariable [email protected],000 $elling and administrative costs2 ied >0,000 4ariable =0,000 -o7 much higher 7ould asty5s net income be if it used full absorption costing instead of variable costingB a. P>=,000 c. P@,000 b. [email protected]<,000 d. P9=,000 ANSWER C C'+n9 in innto)6 (1**= – $*=" fi& i& o) o)' '+& +& cost ost /) /) nit nit (P1$ (P1$**= % 1** 1** Diff)nc in inco
DIFFERENTIAL COSTS ANALYSIS
2*,*** 1.$* 1.$* P!#,***
Page "
>. $iomitos ma8es biteCsiAe siomai. hich of the follo7ing follo7ing could be a constraint at at $iomitosB a. !he !he siom siomai ai stea steame merr b. !he 7or8ers 7or8ers 7ho mi mi the the ingre ingredie dients nts c. !he 7or8e 7or8ers rs 7ho 7ho prepare prepare the the sioma siomaii for stea steamin ming g d. &ny of the the above above could could be the cons constra traint int ANSWER D =0. ing 3ompany 3ompany has only %9,000 hours of machine time each month to manufacture its t7o products. Product has a contribution margin of P90, and Product H has a contribution margin of [email protected]=. Product requires 9 hours of machine time, and Product H requires < hours of machine time. If ing 3ompany 7ants to dedicate <0 percent of its machine time to the product that 7ill provide the most income, the company 7ill have a total contribution margin of a. P% P %90,000. c. P%10,000. b. P% P%=0,000. d. P% P%00,000. ANSWER B P)o&ct J P 5* 5 P 1*
CM /) nit % 'o)s /) nit CM /) 'o)
P)o&ct Y P #4 $ P $
$*> of c+/+cit6 st +//-i& to P)o&ct J, t' /)o&ct Fit' t' 'i9') CM /) 'o). P)o&ct J (25,*** $*>" % 5 ; 4,*** nits P5* P)o&ct Y (25,*** 2*>" % $ ; #25 nits P#4 Tot+- cont)ition +)9in
P 2**,*** 4*,*** P24*,***
=1. #angit #angit 3ompany 3ompany is current currently ly operat operating ing at a loss loss of P19,00 P19,000. 0. !he sales manager manager has received a special order for 9,000 units of product, 7hich normally sells for P9 per unit. 3osts 3osts associ associate ated d 7ith 7ith the produc productt are are22 direct direct materi material, al, [email protected] direct direct labor labor,, P10K P10K variab variable le overhead, PK applied fied overhead, P=K and variable selling epenses, P%. !he special order 7ould allo7 the use of a slightly lo7er grade of direct material, thereby lo7ering the price per unit by P1.90 and selling epenses 7ould be decreased by P1. If #angit 7ants this special order to increase the total net income for the firm to P10,000, 7hat sales price must be quoted for each of the 9,000 unitsB a. P%.90 c. P%;.90 b. P%=.90 d. P=.00 ANSWER A 0oss Dsi)& /)ofit RHi)& inc)+s in /)ofit % n) of nits P)ofit /) nit A&& /)o&ction costs8 costs8 M+t)i+-s (P#.** – P1.5*" 0+o) V+)i+- o)'+& V+)i+- s--in9 / (P2 – P1" S+-s /)ic /) nit
P15,*** 1*,*** P25,*** 5,*** P 5.** P 4.5* 1*.** !.** 1.**
1$.5* P2!.5*
=%. olly olly 3ompany 3ompany has divisi divisions ons22 *, $, and !. ivisi ivision on *'s income income statem statement ent sho7s the follo7ing for the year ended ecember 12 $ales P1,000,000
Page "
3ost of goods sold ross profit $elling epenses &dministrative epenses et loss
(<00,000) P %00,000 P100,000 %90,000
(90,000) P (190,000)
3ost of goods sold is ;9 percent variable and %9 percent fied. f the fied costs, @0 percent are avoidable if the division is closed. &ll of the selling epenses relate to the divisi division on and 7ould 7ould be elimin eliminate ated d if ivisi ivision on * 7ere 7ere elimin eliminate ated. d. f the admin administ istrat rative ive epenses, >0 percent are applied from corporate costs. If ivision * 7ere eliminated, olly5s income 7ould a. increase by P190,000. c. decrease by P199,000. b. decrease by P ;9,000. d. decrease by P%19,000. ANSWER C Aoi&+- s+-s Aoi&+- costs8 costs8 V+). CGS (P$**,*** 5>" i& CGS (P$**,*** – P#**,***" #*> S--in9 /nss A&in. /s. (P25*,*** (P25*,*** 1*>" Dc)+s in inco
P1,***,*** P#**,*** 12*,*** 1**,*** 25,***
$45,*** P155,***
=. !he opportuni opportunity ty cost cost of ma8ing ma8ing a compon component ent part in a factor factory y 7ith 7ith ecess ecess capacity capacity for 7hich there is no alternative use is a. the total total manu manufac factur turing ing cost cost of the comp compone onent. nt. b. the tota totall variab variable le cost cost of the the compon component ent.. c. the fied fied manu manufac facturi turing ng cost cost of the comp compone onent. nt. d. Aero. ANSWER D I!"#$ == !, =; &*" +&$"( ,' !-" .,//,I'2
$chundel $chundel -air 3are 3ompany 3ompany produces shampoo shampoo 7ith conditioner. conditioner. !his is the company5s company5s only product, 7hich it sells under the name L$hamcon.M !he manufacturing cost data for $hamcon are as follo7s2 +ntit6 ).Hi).& /.) 1,***?5- ott-. #aterials2 3hem 1 = ml 3hem % ml 3hem % ml
C)).nt 5+)=.t /)ic. /.) 5- P0.9= 0.@ 0.%0
irect labor2 % hours per bottle N P per hour actory overhead2 4ariable overhead O P%.00 per direct labor hour ied ov overhead O =.00 pe per direct labor hour 3lever 3lever 3ompany, 3ompany, o7ner and operat operator or of a chain chain of hotels hotels,, as8ed as8ed $chunde $chundell -air -air 3are 3are 3ompany to submit a bid for 900 boes of $hamcon. "ach bo 7ill contain %= bottles. Per 3lever5s specifications, its order should be different in chemical composition from the regular $hamcon. $hamcon. &ccording &ccording to $chundel $chundel 3ompany5s production production manager, manager, 3lever5s specificati specifications ons can be met if an additi additiona onall chemical chemical,, 3hem = 7ould 7ould be used. used. $chunde $chundell 3ompany 3ompany has @0,000 ml of this chemical. chemical. 3hem = 7as used by the company company in one of its brands that it decided decided to elimina eliminate. te. !he remaini remaining ng inventor inventory y of 3he 3hem m = 7as not sold or discar discarded ded because it does not deteriorate and the company has adequate space for its storage. $chundel 3ompany can sell 3hem = at the prevailing mar8et price of P0.=0 per ml less
Page "5
P0.10Fml P0.10Fml selling selling and handling handling costs. bottle.
3lever5s 3lever5s order order 7ould require require 9 ml of 3hem = per
!he compa company ny has a stoc stoc8 8 of 3hem 3hem 9. !his !his 7as 7as used used by $chu $chund ndel el -air -air 3are 3are for its manufacture of another product that is no longer being being produced. 3hem. 9, 7hich cannot be used used in $hamcon, $hamcon, can be substi substitut tuted ed for 3he 3hem m 1 on a oneCfo oneCforCo rCone ne basis 7ithout 7ithout affecting the quality of the 3lever 3lever order. !here is no problem about the supply of 3hem 1. &t present, the company has %0,000 ml of 3hem 9 in its inventory, 7hich has a salvage value of [email protected],000. !he production of the 3lever5s order 7ould require the same direct labor hours per bottle as in the regular $hamcon. $hamcon. -o7ever, -o7ever, at present, present, the company has only %0,000 direct direct labor hours availabl available. e. !he 3lever 3lever order can be produced if the 7or8ers 7ould 7ould 7or8 overtime, overtime, although an overtime premium of 0D of the regular rate should be paid. $chundel -air 3are 3ompany5s policy is to price ne7 products at 10D of full manufacturing cost. ==. If $chundel 3ompany 3ompany bids this month for the special oneCtime oneCtime order of 900 boes of the product, the special order5s total direct materials cost 7ill be a. P; P;,>==. c. [email protected] P @<,<<0. b. [email protected] [email protected],@<0. d. P9 [email protected],<<0. ANSWER D T' s/ci+- o)&) is fo) 5** os of 24 ott-s +c' o) + tot+- of 12,*** ott-s. ott-s. M+t)i+-s costs Fi-Fi-- 8 C' 18 To Tot+- )Hi)& – 12,*** ott-s 4 4$,*** A+i-+- C' 5 t'+t c+n sstitt& sstitt& fo) C' 1, 2*,*** -, s+-+9 +- +-+nc of C' 1 )Hi)& (4$,*** - – 2*,*** -" P*.54 C' 28 12,*** ott-s ! - P*.!# C' ! 12,*** ott-s 2 - P*.2* C' 4 12,*** ott-s 5 - (P*.4* – P*.1*" Tot+- +t)i+-s cost
P #,*** 15,12* 12,3#* 4,$** 1$,*** P5#,$$*
T' )-+nt cost of istin9 stoc=s is H+- to t'i) s+-+9 +- t'+t Fi-- not )+-i& if t' stoc=s +) s& in t' C-) o)&).
=9. If $chundel -air 3are 3ompany bids this month for for the special oneCtime order of 900 boes of the product, the special order5s total relevant conversion cost 7ill be a. P1%,@00. c. P1%0,000. b. P% P %1>,@00. d. P% P %[email protected],000. ANSWER A 0+o)8 Tot+- )Hi)& ti – 12,*** ott-s 2 'o)s 0+o) cost +t )9-+) )+t (2 (24,*** 'o)s P!" O)ti /)i (24,*** – 2*,***" P! !*> Tot+- -+o) cost +cto)6 o)'+& – +)i+- (24,*** 'o)s P2" Tot+- )-+nt con)sion cost
24,*** 'o)s P2,*** !,#** P5,#** 4$,*** P12!,#**
T' o)ti /)i is /+)t of -+o) cost, not of o)'+& cost, c+s t' o)ti Fo)= is +tt)it+- to + /+)tic-+) :o. T' tot+- fi& fi& f+cto)6 f+cto)6 o)'+& is +ss& +ss& to )+in )+in const+nt const+nt F't') o) not t' s/ci+s/ci+- o)&) is +cc/t&, +cc/t&, 'nc, i))-+nt.
Page "6
[email protected] If the company5s policy is to price ne7 products at 10D of full full manufacturing cost, 7hat is the bid price per unit for this oneCtime special order of 3lever 3ompanyB a. P1>.99 c. P%>.>9 b. P @.>1 d. P%.<0 ANSWER C M+t)i+-s cost (f)o It Q44" V+)i+- con)sion cost (f ( f)o It Q45" i& f+cto)6 o)'+& (24,*** 'o)s P4" -- +nf+ct)in9 cost % N) of ott-s o)&)& ( 5* 5** os 24" -- cost /) ott- i& /)ic /) nit
P 5#,$$* 12!,#** 3#,*** P2#,4$* 12,*** P 2!.*4 1!*> P 23.35
=;. hat 7ill be the total variable variable manufacturing manufacturing costs for the subsequent, subsequent, recurring 900Cbo 900Cbo ordersB a. P1 P1<0,=<0 c. P% P %<;,%<0 b. P P;,[email protected]= d. P1 P1>1,%<0 ANSWER D M+t)i+-s8 C' 1 C' 2 C' ! C' 4
12,*** ott-s 4 - P*.54 12,*** ott-s ! - P*.!# 12,*** ott-s 2 - P*.2* 12,*** ott-s 5 - P*.4*
V+)i+- con)sion cost ( f)f)o It Q45" Tot+- +)i+- +nf+ct)in9 costs
P25,32* 12,3#* 4,$** 24,*** P#,#$* 12!,#** P131,2$*
o) ssHnt o)&)s, t' co/+n6 Fi-- '+ to 6 +-- t' )Hi)& +t)i+-s c+s 6 t'is ti, t' innto)6 of C' 4 +n& C' 5 Fo-& '+ n f--6 ti-i& in t' fi)st o)&).
I!"#$ =< and => &*" +&$"( ,' !-" .,//,I' I'.,*#&!I,'2 :ane :ane 3orpor 3orporati ation on produc produces es 7ood 7ood glue glue that that is used by furniture furniture manufact manufacture urers. rs. !he company company normally normally produces produces and sells 10,000 gallons of the glue each month. month. hite lue is sold for P%<0 per gallon, variable costs is [email protected]< per gallon, fied factory overhead cost totals [email protected],000 per month, and the fied selling costs totals [email protected]%0,000 per month.
/abor stri8es in the furniture manufacturers that buy the bul8 of hite lue have caused the monthly sales of :ane 3orporation to temporarily decrease to only 19D of its normal monthly monthly volume. :ane 3orporatio 3orporation5s n5s management management epects epects that the stri8es 7ill last for about % months, after after 7hich, sales of hite lue should return to normal. -o7ever, due to the dramatic drop in the sales level, :ane 3orporation5s management is considering to close do7n its plant during the t7oCmoth period that the stri8es are on. If :ane 3orporation 7ill temporarily shut do7n its operations, it is epected that the fied factory factory overhead costs can be reduced to P=0,000 P=0,000 per month and that the fied selling costs can be reduced reduced by [email protected]%,000 per per month. $tartCup costs at the end of the shutCdo7n period 7ould total [email protected],000. :ane 3orporation uses the :I! system, so no inventories are on hand. =<. !he shut shut do7n do7n poin pointt in units units is is a. %, % ,;90.00.
c. ,%90.00.
Page "7
b. >, > ,@=%.<@.
d. 1, 1 ,100.00.
ANSWER A i& costs n&) contin& o/)+tions (fo) 2 ont's"8 +cto)6 o)'+& (P4#*,*** 2 ont's" S--in9 costs (P#2*,*** 2 ont's" Tot+0ss s't&oFn costs8 +cto)6 o)'+& (P!4*,*** 2 ont's" S--i --in9 n9 costs osts (@P# (@P#22*,** *,**** – P#2, #2,***B ***B 2 ont ont's" 's" St+)t?/ costs Diff)nc Dii& 6 CM /) nit (P2$* – P1#$" S't&oFn /oint in nits
P 32 3 2*,*** 1,24*,*** P2,1#*,*** P #$*,*** 1,1 1,11#,** #,**** 5#,***
1,$52,*** P !*$,*** % P112 2,5* nits
=>. =>. &t the sale saless leve levell of only 0D of the norm normal al volum volume, e, should should the comp compan any y cont contin inue ue operating or shut do7n temporarily for t7o monthsB a. 3ontinue, 3ontinue, because because the the epected epected sales sales is above above the shutdo7n shutdo7n point. point. b. $hut do7n, do7n, because because the epected epected sales sales is above above the the shutdo7n shutdo7n point. point. c. 3ontinue, 3ontinue, so that that the the shutdo7n shutdo7n costs may be avoid avoided. ed. d. $hut $hut do7n, do7n, because because the shutdo7n shutdo7n costs costs is less less than than the contrib contributi ution on margin margin under continued operations. ANSWER A 90. !he process of choosing among competing alte alternatives rnatives is called called a. controlling c. decision ma8ing b. planning d. performance evaluation ANSWER C 91. $pi8ey $pi8ey 3ompany 3ompany produces produces t7o produc products2 ts2 Pat and 3hin. !he pro6ec pro6ected ted income for the coming year, segmented by product line, follo72 Pt C!"n Tot# $ales /ess variable epenses 3ontribution margin /ess direct fied epenses Product margin /ess common fied cost perating income
P00,000 100,000 P%00,000 %<,000 P1;%,000
P%,900,000 900,000 P%,000,000 1,900,000 P 900,000
P%,<00,000 @00,000 P%,%00,000 1,9%<,000 P @;%,000 100,000 P 9;%,000
!he selling prices are P0 for Pat and P90 for 3hin. $pi8ey $pi8ey company company can increa increase se the sales sales of Pat 7ith 7ith increa increased sed advert advertisi ising. ng. !he etra etra advertising 7ould cost an additional P%=9,000, and some of the potential purchasers of 3hin 7ould s7itch to Pat. In total, sales of Pat 7ould increase by %9,000 units, and sales of 3hin 7ould decrease by 9,000 units. !his strategy 7ould a. increa increase se $pi8ey $pi8ey5s 5s total total sales sales by P;90,0 P;90,000. 00. b. decrease decrease $pi8ey5 $pi8ey5ss total total contributi contribution on margin margin by P00,000. P00,000. c. increa increase se $pi8e $pi8ey5s y5s tota totall income income by by P99,00 P99,000. 0. d. not affe affect ct $pi8e $pi8ey5s y5s tota totall fied fied costs. costs. ANSWER C PAT
CIN
Page "1 Cont. + +)9in P2**,*** P2,***,*** % nit nitss (P!* (P!**= *= % P!*" P!*" 1*,* 1*,*** ** 5*,* 5*,*** ** CM /) nit P 2* P 4* J c'+n9 in nits 25,*** (5,***" C'+n9 in CM P5**,*** (P2**,***" Inc) Inc)+ +s s in CM (P5**= (P5**= – P2** P2**" " 0ss inc)nt+- fi& cost Inc)+s in /)ofit
P!** P!**,* ,*** ** 245,*** P 55,***
CAPITAL BUDGETING I!"#$ 9% &'( 9) &*" +&$"( ,' !-" .,//,I'
*ic8y Iron7or8s is considering a proposal to sell an eisting lathe and purchase a ne7 computerCope computerCoperated rated lathe. Information Information on the eisting eisting lathe and the computerCop computerCoperate erated d lathe follo72 Co/t)?o/)+t& Eistin9 0+t' 0+t' 3ost P100,000 P00,000 &ccumulated depreciation @0,000 0 $alvage value no7 %0,000 $alvage value in = years 0 @0,000 &nnual depreciation 1 10 0,000 ;9,000 &nnual cash operating costs %00,000 90,000 *emaining useful life = years = years 9%. hat is the paybac8 period period for the computerCoperated latheB latheB a. 1. 1 .<; years c. .9 years b. %. %.00 years d. . .%> years An$%er A AcHisition cost, cost, nF -+t' 0ss s+-+9 +- of o-& -+t' Nt cost of instnt % s+i s+in9 n9ss in c+s' c+s' o/) o/)+t +tin in99 cos costs ts (P5* (P5*,* ,*** ** – P2** P2**,* ,*** **"" P+6+c= /)io&
P!**,*** 2*,*** P2$*,*** 15*, 15*,** **** 1.$ 6+)s
9. If the company uses 10 percent percent as its discount rate, 7hat is the net present value value of the proposed ne7 lathe purchaseB (*ound present value factors to four decimal places) a. P% P%@,[email protected] c. P1 P1>9,=<9 b. P%[email protected],[email protected] d. P0,=%% An$%er A P)snt +- of cost s+in9s (P15*,*** !.1#33" P)snt +- of s+-+9 +- (P# (P#*,*** *.#$!*" Tot+- PV of c+s' inf-oFs 0ss nt cost of instnt Nt /)snt +-
P45,4$5 4*,3$* P51#,4#5 2$*,*** P2!#,4#5
9=. *PI 3orporation bought a piece of machinery. $elected data is is presented belo72 ?seful life Hearly net cash inflo7
@ years P=9,000
Page "9
$alvage value Internal rate of return 3ost of capital
C0C 1
!he initial cost of the machinery 7as 7 as (round present value factor to four decimal places) a. P19;,>%. c. [email protected],<1%. b. P1;=,>>%. d. impossible to determine from the information given. ANSWER A Y+)-6 nt c+s' inf-oF PV, 1$> fo) # 6+)s Initi+- cost of t' +c'in
P 45,*** !.43# P15,!32
99. &ll other other factor factorss equal, equal, a large large number number is preferre preferred d to a smalle smallerr number number for all capital capital pro6ect evaluation measures except a. net present value. c. internal rate of return. b. paybac8 period. d. profitability inde. ANSWER B [email protected] !anya 3orporation issued preferred stoc8s for P1%0 P1%0 per share. !he issue price price is P%0 more than the stoc85s par value. !he company incurred under7riting fees of P10 per share. !he stoc8s stoc8s 7ill earn earn annual annual dividend dividendss of P1% per share. share. If the ta rate is 0D, the cost of capital (preferred stoc8s) is a. 10D c. ;.=%D b. 1%D d. 10.>1D &$"* Cost of P)f))& ; Stoc=s
DP DPS Nt iss+nc /)ic
P12 P12* – P1*
; 1*.31>
9;. &t the beginning of the year, year, 6orn 3orporat 3orporation ion purchased purchased a ne7 ne7 equipment equipment for P@0,000. P@0,000. !he machine has an estimated estimated useful life of four (=) years 7ith 7ith no salvage value. It is epected to to produce cash flo7s from operations, net of income taes of %D, as follo7s2 Hear 1 % = 9
P1%<,000 P1%<,000 11%,000 1==,000 >@,000 <0,000
6orn 3orporation uses the sumCofCtheCyearsCdigits method ($H) in computing depreciation of its depreciable assets. assets. ?sing $H, the ne7 equipment equipment 7ill be depreciated depreciated as follo7s2 Hear 1 % =
(P@0,000 (P@0,000 =F10) (P@0,000 F10) (P@0,000 %F10) (P@0,000 1F10)
P1==,000 P1==,000 10<,000 ;%,000 @,000
!he company5s cost of capital capital is 10D. !he present value factors factors at 10D are as follo7s2 follo7s2 "nd of Hear 1 % = !otal, = years
0.>0> 0.<%@ 0.;91 [email protected]< .1;0
If 6orn 3orporation used the straightCline method of depreciation instead of the $H method, the net present value provided by the equipment 7ould increase (decrease) by2 a. P1,[email protected]= c. (P=,0<.=<)
Page 20 b. (P1,[email protected]=)
d.
P=,0<.=<
ANSWER C epreciation epense, as a ta shield, provides ta savings. !he difference in the present values of the ta savings under the t7o depreciation methods 7ill represent the difference in the net present values of the equipment. Hear 1 P1==,000 %D E [email protected],0<0 0.>0> P=1,<<@.;% % 10<,000 %D E =,[email protected] 0.<%@ %<,[email protected]@ ;%,000 %D E %,0=0 0.;91 1;,0.0= = @,000 %D E 11,9%0 [email protected]< ;,<@<[email protected] !otal present value of ta savings, $H method P4 of ta savings, straightCline method (P@0,000 = years E P>0,000 %D .1;0)
P>9,@0=.=< >1,%>@.00
ecrease in net present value
P =,0<.=<
9<. -arry o7ns a computer reselling business and is epanding his business. -arry is presented 7ith one proposal, Proposal P1, such that the estimated investment for the epansion pro6ect is P<9,000 and it is epected to produce cash flo7s after taes of P%9,000 for each of the net @ years. years. &n alternate alternate proposal, proposal, Proposal Proposal P%, involves involves an investment investment of P%,000 P%,000 and afterCta cash flo7s of P10,000 for each each of the net @ years. years. !he present value factors factors for an annuity of P1 for 1 to @ years are as follo7s2 n
10D
1%D
1=D
[email protected]
1
%0D
1
0.>0>
0.<>
0.<;;
0.<@%
0.<=;
0.<
%
1.;@
[email protected]>0
[email protected]=;
[email protected]
[email protected]@
1.9%<
%.=<;
%.=0%
%.%%
%.%[email protected]
%.1;=
%[email protected]
=
.1;0
.0;
%.>1=
%.;><
%[email protected]>0
%.9<>
9
.;>1
[email protected]
.=
.%;=
.1%;
%.>>1
@
=.99
=.111
.<<>
[email protected]<9
.=><
.%@
!he cost of capital that 7ould ma8e -arry indifferent bet7een these t7o proposals lies bet7een a. 10D and 1%D c. [email protected] and 1
In&iff)nc /oint is F'n t' NPVs of t' tFo /)o/os+-s +) H+-. 0t ;/)snt ; /)snt +- f+cto) fo) + cost of c+/it+- fo) # 6+)s $5,*** – 25,*** ;!2,*** – 1*,*** ;!.5!!, ;!.5!!, F'ic' is tFn 1#> +n& 1$>
9>. 9>. -arol -arold d 3o. 3o. is consid consider erin ing g an inves investm tmen entt in a capit capital al pro6e pro6ect. ct. !he !he sole sole outla outlay y 7ill be P;[email protected],=1;.>0 at the outset of the pro6ect and the annual net afterCta cash inflo7 7ill be P%[email protected],0>.;9 for @ years. !he present value factors at -arold5s
hat is the brea8Ceven time (+"!)B a. .1 years b. =. = .00 years
P4 .actors 0.>%@ 0.<9; 0.;>= 0.;9 [email protected]<1 [email protected]0
c. 9.00 years d. @. @ .00 years
Page 2"
ANSWER B )+=?n ti8 t' c-+ti /)snt +- of c+s' inf-oFs H+-s t' cost of instnt 1 2 ! 4 5
C+s' Inf-oFs 21#,!*3.5 21#,!*3.5 21#,!*3.5 21#,!*3.5 21#,!*3.5
2
PV4 *.32# *.$5 *.34 *.!5 *.#$1
;
PV P2**,!*2.$! 1$5,!.4# 11,43.34 15$,3$.# 14,!*#.34
Tot+Tot+- PV of c+s' inf-oFs, fi)st 4 6+)s ; P1#,41.3* )+= n ti ; 4 6+)s
@0' !he i%vestme i%vestme%t %t a%8i%g a%8i%g -irm o- a%d Associat Associates es .ill &se a divide%d divide%d val&atio% val&atio% model model to appraise appraise the shares o- the L:L L:L orporatio%' orporatio%' Divide%ds (D at the e%d o- the c&rre%t c&rre%t *ear .ill e P"'20' !he gro.th rate (g is 9; a%d the disco&%t rate (< is ";= >hat sho&ld e the price o- the stoc8 to the p&lic= a' P21'75 c'
b. P1.90
P0'00
d. P%>.00
ANSWER C Price
D "'20 <B " 9
P0
@1. +$* 3o, has an opportun opportunity ity to purchase purchase a ne7 conveyor conveyor line line for P%90,000. P%90,000. !hey !hey can borro7 P%00,000, paying P90,000 do7n 7ith annual payments for five years and an interest of 19D. !hey also also have an opportun opportunity ity to lease lease the line line for [email protected],000 [email protected],000 a year. !he present present valu value e of an annu annuit ity y of P1 for for five five year yearss at >D and and 19D 19D are are .<< .<<>; >; and and .9 .9%% %%,, respectivel respectively. y. &t the end of five five years, years, the estimate estimated d salvage salvage value value is P=0,000. P=0,000. If o7ned, the cost of mainte maintenan nance ce is epecte epected d to be P10,00 P10,000 0 per year. year. &ssume &ssume straigh straightCl tCline ine depreciation, a =0D ta rate, a cost of debt of 19D, and a cost of capital of >D. hat is the present value of the afterCta cost of leasing for the fiveCyear periodB a. P1 P191,@>< c. P1 P1==,000 b. P ><,@>< d. [email protected],<00 ANSWER A A%%&al lease expe%se, %et o- tax (P65,000 (P65,000 x 60; x [email protected], 9;, 5 *ears
Prese%t val&e o- the a-ter+tax cost o- leasi%g
P 9,000 '1197
P"5",691
OPERATING & FINANCIAL BUDGETING @%. &fter careful careful planning, planning, 3hange $tyle, Inc. has decided to s7itch to a 6ustCinCtime 6ustCinCtime inventory inventory system effective on :uly 1 of the current year. year. &s of :uly 1, the corporation has ;0 units of product in inventory. inventory. It has 1,000 labor hours available available for for the month of :uly. !hese hours could produce %90 units of product. 3ustomer demand for :uly is %00 units. If 6ustCinCtime principles are correctly follo7ed, ho7 many units should 3hange $tyle Inc. plan to produce in :ulyB a. %00 c. 1<0 b. 10 d. %90 ANSWER B D+n&
2**
Page 22 0ss 9innin9 innto)6 P)o&ction
* 1!*
@. Ideally, the number of units that should be produced in a 6ustCinCtime 6ustCinCtime manufacturing system is equal to a. the maimum maimum productive productive capacity capacity for for the current current period. period. b. actual customer customer demand demand for the current period. period. c. budget budgeted ed custom customer er demand demand for for the curre current nt perio period. d. d. budgeted budgeted custome customerr demand demand for for the follo7ing follo7ing period period ANSWER B @=. !he pro6ected pro6ected sales price for a ne7 product (7hich is still in the development development stage of the product life cycle) is P90. !he company has estimated the lifeCcycle cost to be P0 and the firstCyear cost to be [email protected] n this type of product, the company requires a P1% per unit profit. hat is the target cost of the ne7 productB a. [email protected] c. P< b. P 0 d. P= ANSWER C P)o:ct& s+-s /)ic 0ss )Hi)& /)ofit T+)9t cost
P5* 12 P!$
@9. !he preparation of an organiAation's budget budget a. forces manage management ment to loo8 loo8 ahead ahead and try to see see the future future of the organiA organiAation ation.. b. requires requires that the the entire managem management ent team 7or8 7or8 together together to ma8e and and carry out out the yearly plan. c. ma8es ma8es performance performance revie7 revie7 possible possible at all levels levels of managemen management. t. d. all all of of the the abov above. e. ANSWER D @@. Ivory 3ompany has the follo7ing epected epected pattern of collections on credit sales2 ;0 percent percent collected in the month of sale, 19 percent in the month after the month of sale, and 1= percent in the second month after the month of sale. !he remaining 1 percent is never collect collected. ed. &t the end of #ay, #ay, Ivory Ivory 3ompan 3ompany y has the follo7 follo7ing ing accoun accounts ts receiv receivabl able e balances2 rom &pril sales P%1,000 rom #ay sales =<,000 Ivory's epected sales for :une are P190,000. hat 7ere total sales for &prilB a. P190,000 c. P ;0,000 b. P ;%,=1= d. P1=0,000 ANSWER D A7R +-+nc f)o A/)i- s+-s % nco--ct& /o)tion (1**> ? *> ? 15>" A/)i- s+-
P 21,*** 15> P14*,***
@;. +ali 3ompany has a policy of maintaining maintaining an inventory of finished goods goods equal to 0 percent of the follo7ing month's sales. or the forthcoming month of #arch, +ali has budgeted the beginning inventory at 0,000 units and the ending inventory at ,000 units. !his suggests that a. ebruary ebruary sales sales are budget budgeted ed at 10,000 10,000 units units less than than #arch #arch sales. sales. b. #arch sales sales are are budgeted budgeted at at 10,000 units units less less than &pril sales. sales. c. ebruary ebruary sales sales are budgeted budgeted at at ,000 units less than than #arch #arch sales. sales.
Page 2
d. #arch sales sales are are budgeted budgeted at at ,000 units units less less than &pril sales. sales. ANSWER B Inc)+s in innto)6 S+-s inc)+s fo) A/)i- o) M+)c'
!,*** % !*> 1*,***
I!"#$ @< to ;1 &*" +&$"( ,' !-" .,//,I' I'.,*#&!I,'2 !he cost of goods sold section of ale 3orporation5s operating budget for %019 is presented belo72
#ater terials2 Inv Inventory, :anuary 1 ([email protected],000 units) ts) P >@0 >@0,000 Purchases >,1%0,000 &vailable for use P10,0<0,000 Inv Inventory, ecem cember 1 (1<, 1<,900 units) ts) 1,1 1,1<=,000 /abor actory overhead2 4ariable P %,00>,@00 ied 1,1%0,000 3ost of goods manufactured (1=0,000 units) &dd finished goods inventory, :anuary 1 (>,00 units) 3ost of goods available for sale /ess finished goods inventory, ecember 1 (,00 units) +udgeted cost of goods sold
P <, <,<>@, >@,000 ;<=,000 ,1%>,@00 P1%,<0>,@00 ;==,000 P1,99,@00 01,@00 P1,%99,000
!he actual results for the first quarter of %019 require the follo7ing changes in the budget assumptions2
!he budgeted production for the year is epected to increase by 9,000 units. uring the first first quarter, quarter, the company has already already produced produced %9,000 %9,000 units. !he balance of production 7ill be scheduled in equal segments over the last quarters of the budget year. !he epected finished goods inventory on :anuary 1 dropped to only >,000 units, but its total value value 7ill not be revised anymore. anymore. !he ending inventor inventory y value is computed using the average manufacturing cost for the year. & ne7 /abor +ill passed by 3ongress is epected to be signed into a la7 by the President. President. !he ne7 la7 7ill ta8e effect effect beginning beginning the last quarter quarter of the budget year, including a provision for an increase of months of the budget year. year. "ffective "ffective :uly 1, %019, the beginning beginning of the third third quarte quarter, r, direct direct materi material alss cost cost is epecte epected d to increa increase se by 9D. !he !he assumptions regarding the quantity of materials inventories at the beginning and end of the year 7ill remain unchanged. !he variable factory overhead of P%,00>,@00 includes indirect materials and factory supplies supplies amounting amounting to P<<>,@00. P<<>,@00. It is computed at 10D of the cost of materials materials used. !he balance of the variable variable factory overhead overhead varies directly 7ith production. !here 7ill be no change in the t he budgeted fied factory overhead cost.
3ons 3onsid ider erin ing g the the give given n actu actual al data data for for the the firs firstt quar quarte ter, r, as 7ell 7ell as the the chang changes es in assumptions and estimates in the budgeted data for the year, the company5s accountant prepared a revised budgeted cost of goods sold statement. statement. !his revised statement should sho72 @<. budget budgeted ed mate materia rials ls purchas purchases es of a.
P>,@>@,000.
c.
P>,%<0,000.
Page 2 b. P>,1%0,000.
d. P>,==0,000.
ANSWER A It is +ss& t'+t +c' +c' nit of /)o&ct )Hi)s on nit of +t)i+-s. +t)i+-s. So, /)o&ction is H+- to )+F +t)i+-s +t)i+-s to s&. &9t& &9t& )+F )+F +t)i+ +t)i+-s -s to to s& (o) /)o&ct /)o&ction" ion" – 14*,*** 14*,*** 5,*** A&& )+F +t)i+-s n&in9 innto)6 Tot+0ss )+F +t)i+-s 9innin9 innto)6 &9t& /)c'+ss 0ss +ct+- /)c'+ss, 1st H+)t) RHi)& /)c'+ss in t' )+inin9 ! H+)t)s
145,*** 145,*** nits nits 1$,5** 1#!,5** 1#,*** 14,5** 2,5** 12*,*** nits
Cost co/t+tion8 i)st H+)t) /)c'+ss (2,5** nits" P1,#*,*** Scon& Scon& H+)t) H+)t) (12*,***7! (12*,***7! o) 4*,*** 4*,*** @P1,#* @P1,#*,***% ,***%2,5* 2,5**B *B o) P#47nit" P#47nit" 2,5#*,*** 2,5#*,*** T'i)& +n& fo)t' H+)t)s (@4*,***7Ht). 2B @P#4 1*5>B" 5,!#,*** Tot+- cost of &9t& /)c'+ss P3,#3#,***
@>. budgeted budgeted cost cost of materia materials ls inventor inventory y at ecember ecember 1, %019 of a. P1,0%=,000. b. P1,%=,%00.
c. P1,1<=,000. d. P1,%[email protected],100.
ANSWER B
M+t)i+-s innto)6, Dc) !1, 2*15 P)c'+s /)ic (P#4 1.*5" Cost of +t)i+-s innto)6, Dc) !1, 2*15
1$,5** P#.2* P1,24!,2**
T' co/+n6 ss t' IO t'o& of costin9 innto)6. innto)6. T's, t' n&in9 innto)6 s'o-& s'o-& +-& +t t' nF /)c'+s /)ic of P#.2*.
;0. the budget budgeted ed dire direct ct labo laborr cost cost of of a. P<[email protected],;%0. b. P;<=,000.
c. P<;@,>@0. d. P<%>,>%0.
ANSWER D
O)i9in+- -+o) cost /) nit (P$4,*** % 14*,*** nits"
P 5.#*
0+o) cost /) nit ffcti on t' 9innin9 of t' 4 t' H H+)t) (P5.#* 1*$>"
P#.*4$
&9t& -+o) cost8 i)st to t'i)& H+)t)s (25,*** 4*,*** 4*,***" P5.#*" o)t' H+)t) (4*,*** P#.*4$"
P5$$,*** 241,32*
Tot+- &9t& -+o) cost
;1.
P $23,32*
the budgeted cost of of goods ma manufactured of of a. P1%,<0>,@00. b. P1,[email protected]=,000.
c. P1=,%0<,000. d. P1%,==,000.
ANSWER B
M+t)i+-s8 Innto)6, +n+)6 1 A&& /)c'+ss A+i-+- fo) s 0ss innto)6, Dc) !1 0+o) +cto)6 o)'+&8
P 3#*,*** 3,#3#,*** P1*,#5#,*** 1,24!,2**
P 3,412,$** $23,32*
Page 25 V+)i+-8 In&i)ct +t)i+-s (P3,412,$** 1*>" P2,**3,#** – P$$3,#** Ot') +)i+- ( 14*,*** o)'+& Tot+- +)i+- o)'+& i& &9t& cost of 9oo&s +nf+ct)&
P 34 341,2$* " 145,***
. 1,1#*,*** P2,1*1,2$* 1,12*,***
!,221,2$* P1!,4#4,***
;%. the budget budgeted ed cost cost of of goods goods sold sold of a.
P1,>01,9;<.
b. P1,%9%,000.
c.
P1,99,@00.
d. P1=,%0<,000.
ANSWER A 3ost of of go goods ma manufactured (f (from It Item G; G;=) &dd finished goods inventory, :anuary 1 !otal cost of goods available for sale /ess finished goods inventory, ecember 1 (,00 units QP1,[email protected]=,000 1=9,000R) +udgeted cost of goods sold
P1,[email protected]=,000 ;==,000 P1=,%0<,000 [email protected],=%% P1,>01,9;<
WORKING CAPITAL MANAGEMENT & FS ANALYSIS ;. &t the end of %019, abbuat abbuat 3ompany5s 3ompany5s total assets assets 7as P900,000. P900,000. In %[email protected], it earned earned net income of P0,000 and and paid dividends dividends of P10,000. hat is the company5s internal gro7th rateB a. 1D c. 9D b. =D d. >D ANSWER B Int)n+- 9)oFt' )+t is t' /)cnt+9 inc)+s in +ssts =/t in sinss. Inc)+s in +ssts (P!*,*** – P1*,***" % Tot+- +ssts, 9innin9 of 2** Int)n+- 9)oFt' )+t
P 2*,*** % 5**,*** 4>
;=. & division division of /oc8man /oc8man 3orporation 3orporation reported a return on investment investment of %0D for a recent period. If the division's asset turnover 7as 9, its profit margin must have been a. 100D c. =D b. %9D d. %D ANSWER C ROS ATO ; ROA ROS 5 ; 2*> ROS ; 2*> % 5 ; 4>
;9. &s of the end of %019, Ice 3ompany had total assets assets of P;9,000 and equity equity of P%[email protected],%90. or %[email protected], its budget for for capital investment investment pro6ects is [email protected]%,900. !o finance a portion of the capital budget, the company may borro7 from a ban8 7hich set a condition that the loan 7ould be approved, provided that the %[email protected] debtCtoCequity ratio should be the same as the debtCtoCequity ratio in %019. -o7 much debt should be incurred to satisfy the ban85s conditionB a. P%<,1%9 c. P=,;9 b. [email protected]%,900 d. P91,1< ANSWER A
Page 26
Tot+- +ssts 0ss Hit6 Dt
P!5,*** 2*#,25* P1#$,5*
Dt?to?EHit6 R+tio (P1#$,5* % P2*#,25*"
$1.$2>
To Tot+t+- fifin+nc n+ncin in99 )H )Hi i) )&& fo fo) t' t' c+/it +/it++- &9 &9t t
P#2, #2,5** 5** %1$1.$2> Aont to fin+nc& fin+nc& 6 Hit6
Aont to fin+nc& fin+nc& 6 &t Fit'ot c'+n9in9 c'+n9in9 t' &t?to?Hit6 )+tio (P#2,5** – P!4,!5"
P!4,!5
P2$,125
;@. !he manageme management nt of $eymou $eymourr 3orpor 3orporati ation on as8s as8s you to pre prepar pare e an analy analysis sis of the gross profit variance based on their comparative income statements for %019 and %[email protected] %[email protected] %019 4ariance $ales P>>0,000 P<00,000 P1>0,000 3ost of goods sold ;@0,000 @=0,000 1%0,000 ? ross profit P%0,000 [email protected],000 P ;0,000 !he only 8no7n information given to you is that volume increased from %019 to %[email protected] by 10D. !he variance in gross profit due to the change in volume is a. P<0,000 favorable. c. [email protected],000 favorable. b. [email protected]=,000 unfavorable. d. P;0,000 favorable. ANSWER C S+-s o- +)i+nc Cost o- +)i+nc G)oss /)ofit o- +)i+nc
P$*,*** #4,*** P1#,*** – OR –
2** nits U 2**A 9)oss /)ofit /) nit (P1#*,*** 11*>" 0ss 2**A 9)oss /)ofit G)oss /)ofit o- +)i+nc
P1#,*** 1#*,*** P 1# 1#,***
;;. /ast year5s year5s asset turnove turnoverr of :ohvic 3ompany 3ompany 7as 7as .0. !his year, year, the company5s company5s sales sales increased increased by %9D and average average total assets assets decreased decreased by 9D. hat is this year5s year5s asset turnoverB a. .> c. .= b. [email protected] d. .1 ANSWER A
Asst T)no) T)no) -+st 6+) Asst T)no) T)no) t'is 6+)
S+-s ; A)+9 Tot+Tot+ Assts ! 1.25 !.5 ; ; 1 *.35 *.35
;! ; !.3
;<. uring the year, year, !indugan 3ompany 3ompany earned net income of [email protected],000. or net year, year, it has has a capital capital budget of P<0,000. P<0,000. If the company5s company5s plo7bac8 plo7bac8 ratio is 0D, ho7 much eternal eternal funding is needed for the capital investment pro6ectB
Page 27
a. P<0,000 b. [email protected]%,000
c. [email protected],000 d. P><,000
ANSWER B C+/it+- &9t n& f)o nt inco (P#*,*** !*>" Et)n+- fn&in9 n&&
P$*,*** 1$,*** P#2,***
;>. !he follo7 follo7ing ing data data are ta8en from from the records records of +elle 3orpor 3orporati ation on for the year ended ended ec. 1, %0192
A.)+9. A9. A9. (!#* &+6s % T)no.)"
T)no. ) 1.
RM s& R M Innto)6 ; T)no) A. RM Innto)6 Innto)6
G Innto)6 2. ; T)no)
!. A7R T)no) ;
Cost of Goo&s So-&
;
P3#,*** P$,***
12 tis
;
P5#,*** 5> P12,***
!# tis
P5#,*** P$*,***
.2 tis
!#* .2
5* &+6s
24 tis
!#* 24
(15" &+6s
A. G Innto)6 Innto)6 Nt C)&it S+-s A. A7R
;
Nt C)&it P)c'+ss P12*,*** ; A. A7P A7P P5,*** A)+9 n) of &+6s in t' o/)+tin9 c+s' c+s' con)sion c6c-
4. A7P T)no) ;
et credit sales &verage materials inventory inventory &verage finished goods inventory inventory &verage accounts receivable &verage accounts payable et credit purchases *a7 materials used ross profit rate umber of days in a year
!#* 12 !#*
90 days
5 &+6s P9;@,000 <,000 1%,000 <0,000 9,000 1%0,000 >@,000 %9D @0 days
b. ;9 days ANSWER B
c.
10 109 days
d.
=9 days
1* &+6s
!#
hat is the average number of days in the company5s operating cash conversion cycleB a.
!* &+6s
Page 21
10' $si%g $si%g the data prese%ted prese%ted elo. elo.,, calc&lat calc&late e the cost o- sales sales -or -or the the Alpha Alpha orporati orporatio% o% -or the *ear *ear C&st e%ded' &rre%t ratio '5 Acid test ratio ratio '0 &rre%t liailities at *ear+e%d P600,000 egi%%i%g i%ve%tor* P500,000 E%ve%tor* t&r%over 1'0 a'
P",600,000
c'
b. P%,=00,000
P,200,000
d. [email protected],=00,000
ANSWER C
ost o- sales Average i%ve%tor* x E%ve%tor* t&r%over P500,000 G P00,000 2 P,2 P,200, 00,00 000 0 F
&rre%t ratio '50 Acid+test ratio ratio '00
x1
&rre%t assets &rre%t liailities &rre%t assets 600,000
&rre%t assets
2,"00,000
I&ic8 assets
",100,000
I&ic8 assets &rre%t liailities I&ic8 assets 600,000
E%ve%tor*, e%di%g
00,000
DECENTRALI'ATION DECENTRALI'ATION & PERFORMANCE EVALUATION <1. hich of the follo7ing is necessary necessary for any valid valid performance measurementB a. It must be part part of the financi financial al accountin accounting g system system in use. b. It mus mustt be qua quant ntif ifia iabl ble. e. c. oal oal congru congruence ence must must be prom promote oted d by its its use. use. d. It must must be fina financi ncial al in in nature nature.. ANSWER C <%. & balanced balanced scorecard scorecard a. records records the variances variances bet7een bet7een budgete budgeted d and actual actual revenues revenues and epenses. epenses. b. can can be used used at mult multip iple le orga organi niAa Aati tion onal al leve levels ls by rede redefi fini ning ng the the cate catego gori ries es and and measurements. c. is most concerned concerned 7ith 7ith organiAat organiAational ional financi financial al solvency solvency and and business business processes. processes. d. all all of of the the abov above. e. ANSWER B <. Productivit Productivity y is measured by the a. total total quanti quantity ty of output output generate generated d from a limit limited ed amount amount of input during during a time time period. b. quanti quantity ty of good output output generate generated d from a specif specific ic amount amount of input input during during a time time period. c. quanti quantity ty of good output output generat generated ed from the quanti quantity ty of good input input used during during a time period. d. total quanti quantity ty of input input used to generate generate total total quantity quantity of output output for for a time period. period. ANSWER B
Page 29
<=. ailur ailure e 3orpor 3orporati ation on is a manufa manufactur cturer er of a versa versatil tile e statis statistic tical al calcul calculato ator. r. !he follo7 follo7ing ing information is a summary of defective and returned units for the previous year. !otal defective units 1,000 umber of units re7or8ed ;90 umber of customer units returned 190 Profit for a good unit P= 0 Profit for a defective unit P% 9 3ost to re7or8 a defective unit P1 0 3ost of a returned unit P1 9 !otal prevention cost P10,000 !otal appraisal cost P9,000 !he total quality cost is a. P1 P19,000. b. P1 P19,;90.
c. P% P %<,900. d. P1 P11,%90.
ANSWER C +i-) costs8 RFo)= cost (5* nits P1*" Rt)n& nits (15* P15" Not )Fo)=& (25* nits P15" P)ntion costs A//)+is+- cost Tot+- H+-it6 costs
P,5** 2,25* !,5*
P1!,5** 1*,*** 5,*** P2$,5**
<9. & small manufacturing company recently stated its sales goal for a period 7as P100,000. &t this level of activity, its budgeted epenses 7ere P<0,000. Its actual sales 7ere P100,000, but its actual epenses 7ere P<9,000. !his company operated a. effectively and efficiently. c. effectively but not efficiently. b. neither effectively nor efficiently. d. efficiently but not effectively. ANSWER C I!"#$ <@ &'( <; &*" +&$"( ,' !-" .,//,I'
3omputer $olutions 3orporation manufactures and sells various highCtech office automation products. !7o divisions of 3omputer $olutions 3orporation are the 3omputer 3hip ivision and the 3omputer ivision. !he 3omputer 3hip ivision manufactures one product, a Ssuper chip,S that can be used by both the 3omputer ivision and other eternal customers. !he follo7ing information is available on this month's operations in the 3omputer 3hip ivision2 $elling price per chip P90 4ariable costs per chip P%0 ied production costs [email protected],000 ied $J& costs P>0,000 #onthly capacity 10,000 chips "ternal sales @,000 chips Internal sales 0 chips Presently, the 3omputer ivision purchases no chips from the 3omputer 3hips ivision, but instead pays P=9 to an eternal supplier for the =,000 chips it needs each month. <@. !7o possible transfer transfer prices (for =,000 units) are under consideration consideration by the t7o divisions2 divisions2 P9 and P=0. 3orporate profits 7ould be TTTTTTTTTTT if P9 is selected as the transfer price price rather rather than than P=0, P=0, and the 3omput 3omputer er ivisi ivision on purcha purchases ses from from the 3omputer 3omputer 3hip 3hip ivision instead of from the eternal supplier. a. P %0,000 larger c. P%0,000 smaller b. P100,000 larger d. the same
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ANSWER B P)c'+s /)ic 0ss +)i+- cost S+in9s if +cHi)& f)o Fit'in n) of nits Inc)+s in /)ofit
P45 2* P25 4,*** P1**,***
<;. &ssume, &ssume, for this question question only, that the 3omputer 3omputer 3hip ivision is selling all that it can produce to eternal buyers for P90 per unit. -o7 7ould overall corporate profits be affected if it sells =,000 units to the 3omputer ivision at P=9B (&ssume that the 3omputer ivision can purchase the super chip from an outside supplier for P=9.) a. no effect c. P%0,000 decrease b. P%0,000 increase d. P>0,000 increase ANSWER C P)c'+s /)ic Cost if /)c'+s& f)o Fit'in8 V+)i+- cost O//o)tnit6 cost 0oss /) nit n) of nits Dc)+s in /)ofit
P45 P2* !*
5* P 5 4,*** P2*,***
<<. !he follo7ing information is given given for the &lpha ivision ivision of $orority 3orporation. 3orporation. $ales [email protected],000 [email protected],000 4ar. cost of goods sold %00,000 ied manufacturing costs 90,000 4ariable selling 0,000 ied admin. (90D allocated) %0,000 ied selling (%0D allocated) 90,000 &ssets at cost <00,000 &ccumulated depreciation %00,000 If $orority 3orporation uses *I to evaluate division managers and uses historical cost as the investment base, the *I for &lpha ivision is2 a. 1.%9D c. [email protected];D b. .;9D d. =9.00D ANSWER B S+-s 0ss cost of 9oo&s so-& G)oss +)9in V+)i+- s--in9 P!*,*** i i&& ss--i-in9 n9 (P5* (P5*,* ,*** ** $*>" $*>" 4*,* 4*,*** ** i& +&in (P2*,*** 5*>" 1*,*** Cont)o--+- inco % Assts ROI
P#**,*** 25*,*** P!5*,***
$*,*** P2*,*** $**,*** !!.5>
<>. !he follo7ing yearCend data data pertain to &dan 3orporation2 3orporation2 "arning before interest and taes P <00,000 3urrent assets <00,000 onCcurrent assets ,%00,000 3urrent liabilities =00,000 onCcurrent liabilities 1,000,000
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&dan 3orporation pays an income ta rate of %D. %D. Its 7eightedCaverage cost of capital is 10D. hat is &dan 3orporation5s "conomic 4alue 4alue &dded ("4&)B ("4&)B a. P1 P1<=,000 c. P= P ==0,000 b. P1 P1==,000 d. P= P=00,000 ANSWER A Aft)?t+ o/)+tin9 inco inco (P$**,*** @1 – *.!2B" 0ss &si)& )t)n on instnt8 Tot+Tot+- +sst +sstss (P$**,* (P$**,*** ** P!,2**,** P!,2**,***" *" P4,***,*** P4,***,*** 0ss c))nt -i+i-itis 4**,*** Instnt +s P!,#**,*** i9't 9't&? &?+ +) )+9 +9 cost ost of c+/it +/it++1*> 1*> Econoic +- +&&&
P544,***
!#*, !#*,** **** P1$4,***
>0. !he format for internal reports in a responsibility accounting system is prescribed by2 a. enera eneralllly y &ccepted &ccepted &ccoun &ccountin ting g Principl Principles es b. !he inan inancia ciall &ccounti &ccounting ng $tanda $tandards rds +oard +oard c. !he Philip Philippine pine Institute Institute of of 3ertifie 3ertified d Public Public &ccountants &ccountants d. #ana #anage geme ment nt ANSWER D (UANTITATIVE (UANTITATIVE MET)ODS >1. & company annually annually consumes consumes 10,000 units of Part 3. !he carrying cost of this part is P% per year and the ordering costs are P100. !he company uses an order quantity of 900 units. +y ho7 much could the company reduce its total costs if it purchased the economic order quantity instead of 900 unitsB a. P 900 c. P%,900 b. P%,000 d. P 0 ANSWER A EO ;
C+))6in9 cost (5**72"2< (1,***72"2 O)&)in9 cost (1*,***75**" P1** (1*,** (1*,***71 *71,** ,***" *" P1** P1** Tot+- cost
5** nits P 5** 2,*** P2,5**
S+in9s (P2,5** – P2,***"
; 1,*** nits 1,*** nits P1,*** 1,*** 1,*** P2,*** P5**
>%. In the t7o follo7 follo7ing ing constrai constraint nt equati equations ons,, and H rep repres resent ent t7o product productss (in units) units) produced by the ?ncommon Products 3orporation. 3onstraint 12 U 9H V =,%00 3onstraint %2 9 U %H W ,000 hat is the maimum number of units of Product that can be producedB a. =,%00 c. @00 b. ,000 d. 1,=00 ANSWER D 1,4** nits is t' on-6 +ont t'+t Fi-- not c+s Const)+int 1 to io-+t&.
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>. Xing 3orporation operates its factory 00 days per year. Its annual consumption consumption of #aterial H is 1,%00,000 gallons. It carries a 10,000 gallon safety stoc8 of #aterial H and its lead time is 1% business days. hat is the order point for #aterial HB a. 10,000 gallons c. =<,000 gallons b. <,000 gallons d. 9<,000 gallons ANSWER D A)+9 &+i-6 s+9 s+9 (1,2**,*** % !**" -+& ti 0+& ti s+9 +&& s+ft6 stoc= O)&) /oint
4,*** 12 4$,*** 1*,*** 5$,***
>=. !he school cantee canteen n can sell either either haloChalo or mami (hot (hot noodle soup) on any given day. !he contribution margin that the canteen could earn from haloChalo and mami is is affected by the 7eather, as follo7s2 Item sold -aloC-alo #ami
3,'!*I+?!I,' #&*I' -ot eather 3old eather P19,000 P @,000 11,=00 1%,000
If the probability of hot 7eather on a given day at this time is @0D, 7hich item(s) should the company sellB a. -aloC-alo , because this item is salable 7hen 7eather is hot. b. #ami , because it has the higher epected payoff. c. -aloC-alo and and mami , so the canteen could maimiAe contribution contr ibution margin. d. @0D haloChalo and and =0D mami . ANSWER B +s& on t' 9in &+t+, t' /ct& /+6offs +)8 S-- '+-o?'+-o (1 (15,*** #*>" (#,*** 4*>" S-- 5+5i (1 (11,4** #*>" (12,*** 4*>"
P11,4** 11,#4*
T')fo), T')fo), &s/it &s/it t' f+ct t'+t t' F+t') is 'ot, t' c+ntn s'o-& s-- 5+5i c+s c+s it '+s t' 'i9') /ct& +- o) /ct& /+6off.
>9. #r. :avee :avee o7ns a piece piece of land that that is ad6acent ad6acent to a big big area of a vacant vacant lot lot o7ned by the the city government. *ecently, #r. :avee :avee heard that the city city government has plans about the vacant lot. -e inquired about such plans and he 7as given the follo7ing, follo7ing, including each plan5s probability of occurrence2 Probability Plan & O /ea /ease the lot to a businessman 7ho 7il 7ill constru truct a mall on the lot @0D + O 3onstruct a theme par8 on the vacant lot 0D 3 O 3onstruct 3onstruct a building building that 7ill house some of the city government5 government5ss office officess 10D #r. :avee 8no7s that the value of his land, 7hich he acquired ten years ago at a cost of only P900 per square meter, meter, 7ill increase depending on 7hich plan plan 7ould materialiAe. -is estimates are as follo7s2 Plan Plan & O P9,0 P9,000 00 per per squ squar are em met eter er + O %,000 3 O 1,000 hat is the epected value of the landB a. P9,000 c. P%,@@; b. P,000 d. P,;00
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ANSWER D Plan & P9,000 @0D + %,000 0D 3 1,000 10D "pected value
E E E
P,000 @00 100 P,;00 per square meter
>@. +ahalana +ahalana 3ompany 3ompany produces produces and and sells sells Product Product Y. "ach unit unit of Product Product Y contribute contributess P9 to
the recovery of fied costs and generation of profit.!otal fied costs amounts to P%00,000 per period. $elling price of Product Y is P%0 per unit. or the coming period, the company believes that there is a ;0D chance that the sales of Product Y 7ill be <0,000 units, and a 0D chance that sales 7ill equal 10,000 units. !he epected profit from Product Y for the coming period is2 a. P >9,000 c. P <0,000 b. P% P%90,000 d. P% P%>9,000 ANSWER A E/ct& +- of s+-s o-8 $*,*** *> 5#,*** 1*,*** !*> !,*** J CM /) nit Tot+- CM 0ss fi& costs E/ct& /)ofit
53,*** 5 P235,*** 2**,*** P 35,***
BASIC MAS CONCEPTS >;. & person person 7ho is qualified qualified by education, eperience, eperience, technical technical ability, ability, and temperament temperament to advise or assist businessmen on a professional basis in identifying, defining, and solving specific management problems involving the organiAation, planning, direction, control, and operation of a firm is called a a. #anagement 3onsultant. c. &ccounting !echnician. b. 3ertified Public &ccountant. d. #anagement &ccountant. An$%er* A ><. 3onsulting services differ fundamentally fundamentally from 3P&5s function of attesting to the assertions of other parties. parties. In a consulting service, service, a. the practiti practitione onerr epres epresses ses a conclus conclusion ion about about the reliabi reliabilit lity y of a 7ritte 7ritten n assert assertion ion that is the responsibility of the assertor. b. the 7or8 is is generally generally performe performed d only for for the use and benefi benefitt of the client. client. c. the client client develops develops finding findings, s, conclusio conclusions, ns, and recommendat recommendations. ions. d. the the natu nature re and and scope scope of 7or8 7or8 is determ determin ined ed solel solely y by the consu consult ltin ing g serv servic ices es practitioner. ANSWER B >>. hich of the follo7ing statements is correctB a. #&$ #&$ is confi confine ned d only to such area areass as fina financi ncial al accou account ntin ing, g, audit auditin ing, g, and ta ta services. b. +ecause +ecause the #&$ practiti practitioner oner must be indepe independent, ndent, he he must not allo7 allo7 the client client to participate in any phase of his engagement. c. <hou <hough gh #&$ etends etends beyond beyond the tradit tradition ional al account accounting ing service services, s, 3P&s in the #$ prac practi tice ce are are still still boun bound d by the the rule ruless of prof profes essi sion onal al ethi ethics cs in the the prac practi tice ce of accounting in general.
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d. 3P&s 3P&s prov provid ide e ma mana nage geme ment nt serv servic ices es to go arou around nd the the ethi ethica call cons constr trai aint ntss as mandated by the &ccountancy &ct. ANSWER C 100. 100. "ngage "ngagemen ments ts should should be adequate adequately ly planned, planned, supervis supervised, ed, and control controlled led.. 3ontro 3ontrolli lling ng involves involves the measurement measurement of progress progress in attaining attaining the engagement engagement plan and ob6ectives. ob6ectives. &t significant engagement points, progress should be measured in terms of a. time schedule, schedule, accomplish accomplishments, ments, and quali quality ty of 7or8. b. accomplish accomplishments, ments, time schedule, schedule, and and epenses epenses incurred. incurred. c. quality quality of 7or8, number of reports reports prepar prepared, ed, and and time time schedule. schedule. d. accomp accomplilishm shment ents, s, number number of personn personnel el 7ho played played a role role in the engage engagemen ment, t, and attendance of the participants in the engagement. ANSWER A c haracteristic of management advisory servicesB "0"' hich of the follo7ing is a characteristic a. $er $ervic vices es rende rendered red a are re for for third third parti parties. es. b. "ngage "ngagemen ments ts are are usuall usually y recurri recurring. ng. c. -uman relations relations do do not play play a vital role in in each engagement engagement.. d. It invol involves ves proble problem m solv solving ing.. ANSWER D INFORMATION SYSTEMS+EDP 10%. !he basic principles of accounting information system include all the follo7ing, ecept ecept a. fleible structure. c. implementation. b. cost a7areness. d. useful output. ANSWER B 10. hich of the the follo7ing follo7ing stateme statements nts is falseB falseB a. #ana #anage geme ment nt acco accoun unti ting ng is an inte integr gral al part part of the the cont contro roll ller er5s 5s func functi tion on in an organiAation. b. !he $tandard $tandard of "thica "thicall 3onduct 3onduct for #anageme #anagement nt &ccountan &ccountants ts includ include e concep concepts ts related to competence, confidentiality, integrity, and ob6ectivity. c. #ode #odern rn cost cost acco accoun unti ting ng play playss a role role in plan planni ning ng ne7 ne7 prod produc ucts ts,, eval evalua uati ting ng operational procedures, and controlling costs. d. !he !he 3 3 (3hi (3hief ef per perat atin ing g ffi ffice cer) r) is prim primar aril ily y resp respon onsi sibl ble e for for ma mana nage geme ment nt accounting and financial accounting. ANSWER D 10=. #anagement #anagement accounti accounting ng is considered considered successful successful 7hen 7hen it a. helps managers improve their decisions. c. is relevant. b. is in accordance 7ith &&P. d. is accurate. ANSWER A 109. "lectronic "lectronic und !ransfer !ransfer ("!) is a service service provided provided by financial instituti institutions ons 7orld7ide 7orld7ide that is based on "I !echnology. "! transaction costs are lo7er than for for manual systems because documents and human intervention are eliminated from the transaction process. -o7ever, the "! system has inherent and unique ris8s, one of 7hich is a. unautho unauthoriA riAed ed acce access ss and and activ activity ity.. b. inadequate inadequate disaster disaster recovery recovery procedures. procedures. c. insuff insuffici icient ent online online edit edit chec chec8s. 8s. d. improp improper er chang change e contro controll proced procedure ures. s.
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ANSWER A [email protected] hich of the follo7ing follo7ing descriptions refers to management accounting accounting informationB a. It is is prepa prepared red for shareh sharehold olders ers.. b. It is is relia reliable ble and verifi verifiabl able. e. c. It is is prepar prepared ed in in accor accordan dance ce 7ith 7ith &&P &&P.. d. It provid provides es reasonab reasonable le and and timel timely y estimate estimatess ANSWER D 10;. hich of the follo7ing follo7ing is a not a characteristic characteristic of management management accounting accountingBB a. Internal focus c. $ub6ective information may be used b. +roadCbased an and mu multidisciplinary d. -istorical or orientation ANSWER D
10<. 10<. hich hich of the follo7 follo7ing ing charac character terist istics ics distin distingui guishe shess comput computer er proces processin sing g from from manual manual processingB a. 3omput 3omputer er proces processin sing g virtua virtually lly elimina eliminates tes the occurrenc occurrence e of comput computati ationa onall err error or normally associated 7ith manual processing. b. "rrors or or fraud in computer computer processi processing ng 7ill be be detected detected soon after after their their occurrences. occurrences. c. !he potential potential for for systematic systematic error error is ordinaril ordinarily y greater greater in manual manual processing processing than than in computeriAed processing. d. #ost #ost compu compute terr syst system emss are are desi design gned ed so that that tran transa sacti ction on trai trails ls usef useful ul for for audi auditt purposes do not eist. ANSWER A 10>. 10>. hat hat type type of computer computer system system is character characteriAe iAed d by data that are assembl assembled ed from more than one location and records that are updated immediatelyB a. #icrocomputer system c. +atch processing system b. #inicomputer system d. nline realCtime system ANSWER D 110. & ma6or accounting accounting contribution contribution to the managerial managerial decisionCm decisionCma8ing a8ing process process in evaluatin evaluating g possible courses of action is to a. decide decide 7hich 7hich actions actions the manage management ment should consider. consider. b. determine determine the the amount amount of money money that should should be spent spent on a pro6ect. pro6ect. c. assign assign resp respons onsibi ibilit lity y for the the decis decision ion.. d. provide provide relevant relevant revenue revenue and cost cost data data about each course course of action. action. ANSWER D 111. 111. hich hich of the follo7ing follo7ing refers refers to Lsystems Lsystems designM designMBB a. It is the process process of monito monitoring ring,, evaluatin evaluating, g, and modify modifying ing a system. system. b. It is the process process of learning learning ho7 the the current current system system functions functions,, determinin determining g the needs of users, and developing the logical requirements of a proposed system. c. It is the process process of developi developing ng specific specification ationss for hard7are, hard7are, soft7are soft7are,, manpo7er, manpo7er, data data resources, and information products required to develop a system. d. It determines determines the technic technical, al, operationa operational, l, and economic economic feasibili feasibility ty of a system. system. ANSWER C
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ECONOMICS 11%. ross domestic domestic product product (P) is the the a. total total amount amount of epend ependitu itures res for consume consumerr goods and investm investment ent for a per period iod of time. b. total purchase purchasess by consumers, consumers, businesses businesses,, government, government, and foreign foreign entitie entitiess c. value value of all final final goods goods and and services services produced produced by the country country by both both domestic domestic and and foreignCo7ned sources. d. value value of all goods goods and services services produced produced by by the country country by domestic domestic firms, firms, ecluding ecluding those produced by foreignCo7ned companies. ANSWER C 11. &s the economy becomes becomes more and more depressed depressed,, a company's manageme management nt decides to slash spending on research and development. hat is the li8ely effect of this action on net incomeB et income 7ill be a. higher higher this this perio period d and lo7er lo7er in futu future re period periods. s. b. higher higher this this period period and and higher higher in in future future periods. periods. c. lo7er lo7er this this perio period d and high higher er in futu future re perio periods. ds. d. lo7er this period period and and lo7er lo7er in future future periods. periods. ANSWER A 11=. 11=. Inflat Inflation ion can have have positiv positive e and negativ negative e effects effects on an econom economy. y. Positiv Positive e effects effects of inflation include a. loss in stabil stability ity in the real real value value of money money and other other monetary monetary items items over over time. b. uncertainty uncertainty about about future future inflation inflation may discourag discourage e investment investment and saving. saving. c. shortages shortages of goods goods if consumers consumers begin begin hoarding hoarding in antici anticipatio pation n of price increas increases es in the future. d. mitigation mitigation of economic economic recessio recessions ns and debt relief relief by reducing reducing the real real level of debt. debt. ANSWER D 119. !he local video video store5s business business increased increased by 1%D after the movie theater theater raised raised its prices from P00 to P=00. !hus, relative to movie theater admissions, videos are a. su substitute goods c. complementary goods b. superior goods d. public goods ANSWER A [email protected] In national national income terms, terms, aggrega aggregate te demand demand is the a. demand demand for money money by a community community in a period period of full full employme employment. nt. b. tota totall epe epend ndit itur ure e on capi capita tall good goodss by entr entrep epre rene neur urss duri during ng a peri period od of full full employment. c. demand demand that is is needed needed if the country country5s 5s economy economy is to operat operate e at optimum optimum level level and the level of investment is to be raised. d. total total ependit ependiture uress on consumer consumer goods goods and investm investment ent,, includ including ing governme government nt and foreign ependitures, during a given period. ANSWER D
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