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<;.0@ d. P%%.@0 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
P@00,000 %=,000 ;9,000 &ctual
?nits produced verhead Prime costs #achine hours irect labor hours
100,000 P@0,900 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. P19.0@
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
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<;.0@ d. P%%.@0 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
P@00,000 %=,000 ;9,000 &ctual
?nits produced verhead Prime costs #achine hours irect labor hours
100,000 P@0,900 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. P19.0@
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
Page
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
?sing &+3, the cost per unit of coats is approimately2 a. P%.=0 c. P @.@0 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,$** $,*** P # .# *
!otal 900 1,000 ,<00
Page )
6' *lai%e Hospital Hospital pla%s pla%s to &se the activit+-ased costi%g to assig% hospital hospital i%direct i%direct costs to the care o. patie%ts' !he hospital has ide%ti.ied the .olloi%g .olloi%g activities a%d activit+ activit+ rates .or the hospital i%direct costs Activity Activity Rate 1oom a%d meals 1adiolog+ Pharmac+ 3hemistr+ la4perati%g room
P"50 per da+ P95 per image P2 per ph+sicia% order P5 per test P550 per operati%g room ho&r
!he records o. to represe%tati represe%tative ve patie%ts ere a%al+ed, a%al+ed, &si%g the activit+ activit+ rates' !he activit+ activit+ i%.ormatio% associated ith the to patie%ts are as .ollos Patient 1
Patient 2
7 ) 5 6 )'5
2 " 2 "
&m-er o. da+s &m-er o. images &m-er o. ph+sicia% orders &m-er o. tests &m-er o. operati%g room ho&rs Determi%e the activit+ cost associated ith Patie%t 2' a' P", c' -' P 90 d'
P","6 P),555
ANSWER A Actiit6 costs, costs, P+tint 28 Roo +n& +-s (! P15*" R+&io-o96 (2 P35" P'+)+c6 (1 P2$" C'ist)6 -+ (2 P$5" O/)+tin9 )oo (1 P55*" Tot+-
P 45* 13* 2$ 1 * 55* P1,!$$
Page 5
;. +alat /eather or8s, 7hich manufactures saddles and other leather goods, has three departments. !he &ssembly epartment manufactures various leather products, such as belts, purses, and saddle bags, using automated production process. !he $addle epartment produces handmade saddles and uses very little machinery. !he !anning epartment produces leather. !he tanning process requires little in the 7ay of labor or machinery, but it does require space and process time. ue to the different production processes in the three departments, the company uses three different cost drivers for the application of manufacturing overhead. !he cost drivers and overhead rates are as follo7s2 3ost (river Predetermined ,verhead *ate !anning epartment &ssembly epartment $addle epartment
$quareCfeet of leather #achine time irectClabor time
P per squareCfoot P> per machine hour P= per direct labor hour
!he company5s delue saddle and accessory set consists of handmade saddle, t7o saddlebags, a belt, and a vest, all coordinated to match. !he entire set uses 100 squareC feet of leather from the !anning epartment, machine hours in the &ssembly epartment, and =0 directClabor hours in the $addle epartment. !he 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. P@,000 b. P 9=0 d. P,000
ANSWER
B
Assem-l+ departme%t P9/machi%e ho&r x machi%e ho&rs x 20 sets P5)0
<. If activityCbased costing is implemented in an organiAation 7ithout any other changes
being effected, total overhead costs 7ill a. be reduced because of the elimination of nonCvalueCadded activities. b. be reduced because organiAational costs 7ill not be assigned to products or services. c. be increased because of the need for additional people to gather information on cost drivers and cost pools. d. remain constant and simply be spread over products differently. ANSWER D
Page 6
CVP AND BREAKEVEN ANALYSIS >. -arry #anufacturing incurs annual fied costs of P%90,000 in producing and selling a single product. "stimated unit sales are 1%9,000. &n afterCta income of P;9,000 is desired by management. !he company pro6ects its income ta rate at =0 percent. hat is 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 P@B 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 fo) t+ (5,***7*.#*" A&& fi& cost V+)i+- costs % n) of nits V+)i+- cost /) nit
P5*,*** P125,*** 25*,***
!5,*** P!5,*** 125,*** P !.**
10. or its most recent fiscal year, a firm reported that its contribution margin 7as equal to =0 percent of sales and that its net income amounted to 10 percent of sales. If its fied costs for the year 7ere P@0,000, ho7 much 7as the margin of safetyB a. P190,000 c. P@00,000 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 S+-s (P#*,*** % *.!*" 0ss )+=n s+-s (P#*,*** % *.4*" M+)9in of s+ft6
P2**,*** 15*,*** P 5*,***
11. $am 3ompany manufactures a single product. In the prior year, the 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 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*,*** $*>
Page 7
1%. "dil 3ompany produces and sells a single product. !he costs and selling prices on a perCunit basis are as follo7s2 $elling Price #aterials /abor 4ariable overhead ied overhead 4ariable selling and administrative 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, Inc. sells three products, &, +, and 3. !he company sells three () units of 3 for each unit of & and t7o (%) units of + for each unit of 3. !otal fied costs amount to P;@0,000. Product &5s contribution margin per unit is P%, Product +5s is 190D of &5s, and Product 35s is t7ice as much as +5s. -o7 many units of each product must be sold to brea8CevenB Product & Product + Product 3 a. b. c. d.
%,000 %0,000 %>,%1 @>,0>1
1%,000 1%0,000 9<,=@% =1=,9=@
@,000 @0,000 <;,@>% %0;,%;
ANSWER B
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#
+rea8do7n2 Product &
D).+=&oFn8
P)o&ct A P)o&ct P)o&ct C
; ; ;
P)o&ct A P)o&ct D P2 (2 15*>" P ! 1 (2 !" # P2 P1$
;
P#*,*** P.<
P)o&ct C (P! 2" P # ! P1$
Tot+-
P!$ 1* P!.$ P!.$
; 2**,*** co/osit nits
E%00,000 1F10
2**,*** 171* ; 2*,*** nits 2**,*** #71* ; 12*,*** 2**,*** !71* ; #*,*** 2**,*** co/osit nits
E%0,000 units
Page
I!"#$ 1= to 1@ &*" +&$"( ,' !-" .,//,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 and administrative costs ied operating costs (@0D is manufacturing cost) Income ta rate
[email protected] %%.90 =.90 P1=<,900 %D
1=. -o7 much should sales be net year if the company 7ants to earn profit after ta of P%%,==0, the same amount that it earned last yearB a. P10,<00 c. P0,000 b. P>;,900 d. 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 that the company5s management learned that a ne7 technology that 7ill increase the quality of its product is available. If implemented, its pro6ections for net year 7ill be changed2 1. !he selling price of the product 7ill increase to P;9 per unit. %. ied manufacturing costs 7ill increase by %0D. . &dditional advertising costs 7ill be incurred to promote the higherCquality product. !his 7ill increase fied nonCmanufacturing cost by 10D. =. !he improved product 7ill require a ne7 material that 7ill increase 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@@,10 c. P%9,%= b. P9<,<;9 d. P9,<>; ANSWER B
Page 9
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
1@. If the sales required in Item G19 is realiAed, the company 7ill have an operating leverage factor of a. <.9. c. 1;.%=D. b. 9.<0. d. 9.90. ANSWER B
O/)+tin9 -)+9 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 net income increases the a. degree of operating leverage declines. b. margin of safety stays constant.
c. brea8Ceven point goes do7n. d. contribution margin ratio goes up.
ANSWER A 1<. Hamyam 3ompany is considering introducing a ne7 product that 7ill require a P%90,000 investment of capital. !he necessary funds 7ould be raised through a ban8 loan at an interest rate of
" $*,*** Tot+P2*2,5** % CM /) nit @P15 (1**> ? 5$>"B #.!* RHi)& s+-s in nits !2,14!
Page "0
STANDARD COSTS AND VARIANCE ANALYSIS 1>. !he materials mi variance for a product is P=90 unfavorable and the materials yield variance is P190 unfavorable. !his means that a. the materials price variance is P@00 unfavorable. b. the materials quantity variance is P@00 unfavorable c. the total materials cost variance is definitely P@00 unfavorable. d. the materials price variance is also unfavorable, but the amount cannot 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 measure performance in a. profit centers c. cost centers b. investment centers d. all of the above ANSWER D %1. $amson 3ompany uses a standard costing system in the production of its only product. !he <=,000 units of ra7 materials inventory 7ere purchased for P1%@,000 and = units of ra7 materials are required to produce one unit of final product. In ctober, the company produced 1=,=00 units of product. !he standard cost allo7ed for materials 7as P;%,000, and there 7as an unfavorable usage variance of P,000. !he materials price variance for the units used in ctober 7as a. P19,000 unfavorable. c. P,000 unfavorable. b. P19,000 favorable. d. P,000 favorable. &$"* & Tot+- st+n&+)& cost % St& Ht6 fo) +ct+- /)o&ction (14,4** 4" St+n&+)& /)ic /) nit of +t)i+-s
P2,*** 5,#** P1.25
T' s+9 +)i+nc is P!,*** nf+o)+-. T' st+n&+)& /)ic is P1.25. sin9 t' fo)-+ fo) s+9 +)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 in H+ntit6 Act+- H+ntit6 s&
5,#** 2,4** #*,*** nits
P)ic V+)i+nc ; (AP – SP" A ; (@P12#,*** % $4,***B – P1.25" #*,*** ; P15,*** nf+o)+-
Page ""
%%. !he standard direct materials cost to produce a unit of a product is four meters of materials at P%.90 per meter. uring :une, %019, =,%00 meters of materials costing P10,0<0 7ere purchased and used to produce 1,000 units of the product. hat 7as the materials price variance for :une, %019B a. P=<0 unfavorable c. P=00 favorable b. P <0 unfavorable d. P=%0 favorable ANSWER D Act+- /)ic (P1*,*$* % 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 42*
%. +uchoy 3ompany manufactures one product 7ith a 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 0ss st+n&+)& ti (1,*** 4" Diff)nc in ti – nf+o)+- J st+n&+)& )+t /) 'o) Efficinc6 +)i+nc – nf+o)+-
4,1** 4,*** 1** P 12 P1,2**
I!"#$ %= ! %< &*" +&$" !-" //I2 4hong, Inc. evaluates manufacturing overhead in its factory by using variance analysis. !he follo7ing information applies to the month of :uly2 &3!?&/ +?"!" umber of units produced 1>,000 %0,000 4ariable overhead costs P=,100 P% per direct labor hour ied overhead costs P%%,000 P%0,000 irect labor hours %,100 0.1 hour per unit %=. !he controllable variance amounts to a. P%,900 unfavorable b. P1,000 unfavorable
c. P%,00 unfavorable d. P%,000 unfavorable
ANSWER C %9. ?sing the threeC7ay variance analysis, the spending variance amounts to a. P100 favorable c. P%,000 unfavorable b. P1,>00 unfavorable d. P%,100 unfavorable ANSWER B %@. !he efficiency variance amounts to a. P=00 unfavorable b. P1,>00 unfavorable ANSWER A
c. P=00 favorable d. P1,000 unfavorable
Page "2
%;. !he nonCcontrollable variance is a. P%,00 unfavorable b. P=00 unfavorable
c. P%,000 unfavorable d. P1,000 unfavorable
ANSWER D %<. !he fied overhead efficiency variance is2 a. P=00 unfavorable b. PP%,000 unfavorable
c. P=00 favorable d. 0
ANSWER D 24 TO 28
Act+- +)i+- o)'+& Act+- ti st&. +). )+t (2,1** P2" S/n&in9 +)i+nc – f+o)+-
P4,1** 4,2** P 1**
Act+- ti st&. +). )+t (2,1** P2" St&. +)i+- o)'+& @(13,*** *.1" P2B Efficinc6 +)i+nc – nf+o)+-
P4,2** !,$** P 4**
Act+- fi& o)'+& 0ss &9t& fi& o)'+& i& s/n&in9 +)i+nc – nf+o)+-
P22,*** 2*,*** P 2,***
&9t& fi& o)'+& 0ss st+n&+)& fi& o)'+& @1,3** (P2*,***7K2*,*** *.1L"B Vo- +)i+nc – nf+o)+-
P2*,*** 13,*** P 1,***
24.
Cont)o--+- +)i+nc (P1** P4** P2,*** " ; 2,!**
25.
S/n&in9 +)i+nc (P1** P2,*** " ; P1,3**
Page "
PRODUCT COSTING %>. & basic tenet of variable costing is that period costs should be currently epensed. hat is the rationale behind this procedureB a. Period costs are uncontrollable and should not be charged to a specific product. b. Period costs are generally immaterial in amount and the cost of assigning the amounts to specific products 7ould out7eigh the benefits. c. &llocation of period costs is arbitrary at best and could lead to erroneous decision by management. d. +ecause period costs 7ill occur 7hether production occurs, it is improper to allocate these costs to production and defer a current cost of doing business. ANSWER D 0. !he follo7ing information regarding fied production costs from a manufacturing firm is available for the current year2 ied costs in the beginning inventory P1@,000 ied costs incurred this period 100,000
hich of the follo7ing statements is not trueB a. !he maimum amount of fied production costs that this firm could deduct using absorption costs in the current year is P11@,000. b. !he maimum difference bet7een this firm's the current year income based on absorption costing and its income based on variable costing is P1@,000. c. ?sing variable costing, this firm 7ill deduct no more than P1@,000 for fied production costs. d. If this firm produced substantially more units than it sold in the current year, variable costing 7ill probably yield a lo7er income than absorption costing. ANSWER C 1. &bsorption costing differs from variable costing in all of the follo7ing except a. treatment of fied manufacturing overhead. b. treatment of variable production costs. c. acceptability for eternal reporting. d. arrangement of the income statement &$"* + %. If a firm produces more units than it sells, absorption costing, relative to variable costing, 7ill result in a. higher income and assets. c. lo7er income but higher assets. b. higher income but lo7er assets. d. lo7er income and assets. ANSWER A . -o7 7ill a favorable volume variance affect net income under each of the follo7ing methodsB &bsorption 4ariable a. reduce no effect b. reduce increase c. increase no effect d. increase reduce
Page ")
ANSWER C I!"#$ = ! @ &*" +&$" !-" //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 $ales price per unit P=0 =. hat 7ould 3o. have reported as its income before income taes if it had used variable costingB a. P0,000 c. P@;,900 b. (P;,900) d. can5t be determined from the given information ANSWER B Aso)/tion inco Diff. in inco ($,***?5,***" (P1**=7$=" V+)i+- costin9 inco
P!*,*** !,5** (P ,5**"
9. hat 7as the total amount of $J& epense incurred by 3o.B a. P0,000 c. P@,000 b. P@%,900 d. can5t be determined from the given information ANSWER B S+-s (5,*** P4*" 0ss cost of 9oo&s so-& (5,*** P21.5*" G)oss /)ofit 0ss /)ofit S--in9, 9n. +&in. /nss
P2**,*** 1*,5** P 32,5** !*,*** P #2,5**
@. +ased on variable costing, 7hat 7ould 3o. sho7 as the value of its ending inventoryB a. P1%0,000 c. P%;,000 b. P @=,900 d. P%=,000 ANSWER C En&in9 innto)6 – nits ($,*** – 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 costingB a. 4ariable costing complies 7ith enerally &ccepted &ccounting Principles. b. 4ariable costing complies 7ith the ational Internal *evenue 3ode. c. 4ariable costing is most relevant to longCrun pricing strategies. d. 4ariable costing ma8es costCvolumeCprofit relationships more easily apparent. ANSWER D
Page "5
<. In its first year of operations, asty 3ompany had the follo7ing costs 7hen it produced 100,000 units and sold <0,000 units of its only product2 #anufacturing costs2 ied P1<0,000 4ariable 1@0,000 $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. P@<,000 d. P9=,000 ANSWER C C'+n9 in innto)6 (1**= – $*=" fi& o)'+& cost /) nit (P1$*= % 1** Diff)nc in inco
2*,*** 1.$* P!#,***
Page "6
DIFFERENTIAL COSTS ANALYSIS >. $iomitos ma8es biteCsiAe siomai. hich of the follo7ing could be a constraint at $iomitosB a. !he siomai steamer b. !he 7or8ers 7ho mi the ingredients c. !he 7or8ers 7ho prepare the siomai for steaming d. &ny of the above could be the constraint ANSWER D =0. ing 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 P@=. 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%90,000. c. P%10,000. b. P%=0,000. d. 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 3ompany is currently operating at a loss of P19,000. !he sales manager has received a special order for 9,000 units of product, 7hich normally sells for P9 per unit. 3osts associated 7ith the product are2 direct material, P@K direct labor, P10K variable 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 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*
Page "7
=%. olly 3ompany has divisions2 *, $, and !. ivision *'s income statement sho7s the follo7ing for the year ended ecember 12 $ales P1,000,000 3ost of goods sold (<00,000) ross profit P %00,000 $elling epenses P100,000 &dministrative epenses %90,000 (90,000) et loss P (190,000) 3ost of goods sold is ;9 percent variable and %9 percent fied. f the fied costs, @0 percent are avoidable if the division is closed. &ll of the selling epenses relate to the division and 7ould be eliminated if ivision * 7ere eliminated. f the administrative epenses, >0 percent are applied from corporate costs. If ivision * 7ere eliminated, olly5s income 7ould a. increase by P190,000. c. decrease by P199,000. b. decrease by P ;9,000. d. decrease by P%19,000. ANSWER C Aoi&+- s+-s Aoi&+- costs8 V+). CGS (P$**,*** 5>" i& CGS (P$**,*** – P#**,***" #*> S--in9 /nss A&in. /s. (P25*,*** 1*>" Dc)+s in inco
P1,***,*** P#**,*** 12*,*** 1**,*** 25,***
$45,*** P155,***
=. !he opportunity cost of ma8ing a component part in a factory 7ith ecess capacity for 7hich there is no alternative use is a. the total manufacturing cost of the component. b. the total variable cost of the component. c. the fied manufacturing cost of the component. d. Aero. ANSWER D
Page " I!"#$ == !, =; &*" +&$"( ,' !-" .,//,I'2
$chundel -air 3are 3ompany produces shampoo 7ith conditioner. !his is the company5s only product, 7hich it sells under the name L$hamcon.M !he manufacturing cost data for $hamcon are as follo7s2 +ntit6 ).Hi).& #aterials2 /.) 1,***?5- ott-. 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 overhead O =.00 per direct labor hour 3lever 3ompany, o7ner and operator of a chain of hotels, as8ed $chundel -air 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. &ccording to $chundel 3ompany5s production manager, 3lever5s specifications can be met if an additional chemical, 3hem = 7ould be used. $chundel 3ompany has @0,000 ml of this chemical. 3hem = 7as used by the company in one of its brands that it decided to eliminate. !he remaining inventory of 3hem = 7as not sold or discarded 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 P0.10Fml selling and handling costs. 3lever5s order 7ould require 9 ml of 3hem = per bottle. !he company has a stoc8 of 3hem 9. !his 7as used by $chundel -air 3are for its manufacture of another product that is no longer being produced. 3hem. 9, 7hich cannot be used in $hamcon, can be substituted for 3hem 1 on a oneCforCone basis 7ithout affecting the quality of the 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 P@,000. !he production of the 3lever5s order 7ould require the same direct labor hours per bottle as in the regular $hamcon. -o7ever, at present, the company has only %0,000 direct labor hours available. !he 3lever order can be produced if the 7or8ers 7ould 7or8 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.
Page "9
==. If $chundel 3ompany bids this month for the special oneCtime order of 900 boes of the product, the special order5s total direct materials cost 7ill be a. P;,>==. c. P@<,<<0. b. P@1,@<0. d. P9@,<<0. ANSWER D T' s/ci+- o)&) is fo) 5** os of 24 ott-s +c' o) + tot+- of 12,*** ott-s. M+t)i+-s costs Fi-- 8 C' 18 Tot+- )Hi)& – 12,*** ott-s 4 4$,*** A+i-+- C' 5 t'+t c+n sstitt& fo) C' 1, 2*,*** -, s+-+9 +- +-+nc of C' 1 )Hi)& (4$,*** - – 2*,*** -" P*.54 C' 28 12,*** ott-s ! - P*.!# C' ! 12,*** ott-s 2 - P*.2* C' 4 12,*** ott-s 5 - (P*.4* – P*.1*"
P #,*** 15,12* 12,3#* 4,$** 1$,***
Tot+- +t)i+-s cost
P5#,$$*
T' )-+nt cost of istin9 stoc=s is H+- to t'i) s+-+9 +- t'+t Fi-- not )+-i& if t' stoc=s +) s& in t' C-) o)&).
=9. If $chundel -air 3are 3ompany bids this month for the special oneCtime order of 900 boes of the product, the special order5s total relevant conversion cost 7ill be a. P1%,@00. c. P1%0,000. b. P%1>,@00. d. P%1@,000. ANSWER A 0+o)8 Tot+- )Hi)& ti – 12,*** ott-s 2 'o)s 0+o) cost +t )9-+) )+t (24,*** 'o)s P!" O)ti /)i (24,*** – 2*,***" P! !*> Tot+- -+o) cost +cto)6 o)'+& – +)i+- (24,*** 'o)s P2" Tot+- )-+nt con)sion cost
24,*** 'o)s P2,*** !,#** P5,#** 4$,*** P12!,#**
T' o)ti /)i is /+)t of -+o) cost, not of o)'+& cost, c+s t' o)ti Fo)= is +tt)it+- to + /+)tic-+) :o. T' tot+- fi& f+cto)6 o)'+& is +ss& to )+in const+nt F't') o) not t' s/ci+- o)&) is +cc/t&, 'nc, i))-+nt.
=@. If the company5s policy is to price ne7 products at 10D of full manufacturing cost, 7hat is the bid price per unit for this oneCtime special order of 3lever 3ompanyB a. P1>.99 c. P%>.>9 b. P @.>1 d. P%.<0 ANSWER C M+t)i+-s cost (f)o It Q44" V+)i+- con)sion cost (f)o It Q45" i& f+cto)6 o)'+& (24,*** 'o)s P4" -- +nf+ct)in9 cost % N) of ott-s o)&)& ( 5** os 24" -- cost /) ott- i& /)ic /) nit
P 5#,$$* 12!,#** 3#,*** P2#,4$* 12,*** P 2!.*4 1!*> P 23.35
Page 20
=;. hat 7ill be the total variable manufacturing costs for the subsequent, recurring 900Cbo ordersB a. P1<0,=<0 c. P%<;,%<0 b. P;,=@= d. P1>1,%<0 ANSWER D M+t)i+-s8 C' 1 C' 2 C' ! C' 4
12,*** ott-s 4 - P*.54 12,*** ott-s ! - P*.!# 12,*** ott-s 2 - P*.2* 12,*** ott-s 5 - P*.4*
V+)i+- con)sion cost ( f)o It Q45" Tot+- +)i+- +nf+ct)in9 costs
P25,32* 12,3#* 4,$** 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 3orporation produces 7ood glue that is used by furniture manufacturers. !he company normally produces and sells 10,000 gallons of the glue each month. hite lue is sold for P%<0 per gallon, variable costs is P1@< per gallon, fied factory overhead cost totals P=@0,000 per month, and the fied selling costs totals P@%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 volume. :ane 3orporation5s management epects that the stri8es 7ill last for about % months, 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 overhead costs can be reduced to P=0,000 per month and that the fied selling costs can be reduced by P@%,000 per month. $tartCup costs at the end of the shutCdo7n period 7ould total P9@,000. :ane 3orporation uses the :I! system, so no inventories are on hand. =<. !he shut do7n point in units is a. %,;90.00. b. >,@=%.<@.
c. ,%90.00. d. 1,100.00.
ANSWER A i& costs n&) contin& o/)+tions (fo) 2 ont's"8 +cto)6 o)'+& (P4#*,*** 2 ont's" S--in9 costs (P#2*,*** 2 ont's" Tot+0ss s't&oFn costs8 +cto)6 o)'+& (P!4*,*** 2 ont's" S--in9 costs (@P#2*,*** – P#2,***B 2 ont's" St+)t?/ costs Diff)nc Dii& 6 CM /) nit (P2$* – P1#$" S't&oFn /oint in nits
P 32*,*** 1,24*,*** P2,1#*,*** P #$*,*** 1,11#,*** 5#,***
1,$52,*** P !*$,*** % P112 2,5* nits
Page 2"
=>. &t the sales level of only 0D of the normal volume, should the company continue operating or shut do7n temporarily for t7o monthsB a. 3ontinue, because the epected sales is above the shutdo7n point. b. $hut do7n, because the epected sales is above the shutdo7n point. c. 3ontinue, so that the shutdo7n costs may be avoided. d. $hut do7n, because the shutdo7n costs is less than the contribution margin under continued operations. ANSWER A 90. !he process of choosing among competing alternatives is called a. controlling c. decision ma8ing b. planning d. performance evaluation ANSWER C 91. $pi8ey 3ompany produces t7o products2 Pat and 3hin. !he pro6ected 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 company can increase the sales of Pat 7ith increased advertising. !he 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. increase $pi8ey5s total sales by P;90,000. b. decrease $pi8ey5s total contribution margin by P00,000. c. increase $pi8ey5s total income by P99,000. d. not affect $pi8ey5s total fied costs. ANSWER C PAT CIN Cont. +)9in P2**,*** P2,***,*** % nits (P!**= % P!*" 1*,*** 5*,*** CM /) nit P 2* P 4* J c'+n9 in nits 25,*** (5,***" C'+n9 in CM P5**,*** (P2**,***" Inc)+s in CM (P5**= – P2**" 0ss inc)nt+- fi& cost Inc)+s in /)ofit
P!**,*** 245,*** P 55,***
Page 22
CAPITAL BUDGETING I!"#$ 9% &'( 9) &*" +&$"( ,' !-" .,//,I'
*ic8y Iron7or8s is considering a proposal to sell an eisting lathe and purchase a ne7 computerCoperated lathe. Information on the eisting lathe and the computerCoperated 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 $alvage value in = years 0 @0,000 &nnual depreciation 10,000 ;9,000 &nnual cash operating costs %00,000 90,000 *emaining useful life = years = years 9%. hat is the paybac8 period for the computerCoperated latheB a. 1.<; years c. .9 years b. %.00 years d. .%> years An$%er A AcHisition cost, nF -+t' 0ss s+-+9 +- of o-& -+t' Nt cost of instnt % s+in9s in c+s' o/)+tin9 costs (P5*,*** – P2**,***" P+6+c= /)io&
P!**,*** 2*,*** P2$*,*** 15*,*** 1.$ 6+)s
9. If the company uses 10 percent as its discount rate, 7hat is the net present value of the proposed ne7 lathe purchaseB (*ound present value factors to four decimal places) a. P%@,=@9 c. P1>9,=<9 b. P%9@,=@9 d. P0,=%% An$%er A P)snt +- of cost s+in9s (P15*,*** !.1#33" P)snt +- of s+-+9 +- (P#*,*** *.#$!*" 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
Page 2
9=. *PI 3orporation bought a piece of machinery. $elected data is presented belo72 ?seful life Hearly net cash inflo7 $alvage value Internal rate of return 3ost of capital
@ years P=9,000 C0C 1
!he initial cost of the machinery 7as (round present value factor to four decimal places) a. P19;,>%. c. P1@9,<1%. b. P1;=,>>%. d. impossible to determine from the information given. ANSWER A Y+)-6 nt c+s' inf-oF PV, 1$> fo) # 6+)s Initi+- cost of t' +c'in
P 45,*** !.43# P15,!32
99. &ll other factors equal, a large number is preferred to a smaller number for all capital pro6ect evaluation measures except a. net present value. c. internal rate of return. b. paybac8 period. d. profitability inde. ANSWER B 9@. !anya 3orporation issued preferred stoc8s for P1%0 per share. !he issue price is P%0 more than the stoc85s par value. !he company incurred under7riting fees of P10 per share. !he stoc8s 7ill earn annual dividends of P1% per share. If the ta rate is 0D, the cost of capital (preferred stoc8s) is a. 10D c. ;.=%D b. 1%D d. 10.>1D &$"* Cost of P)f))& ; Stoc=s
DPS Nt iss+nc /)ic
P12 P12* – P1*
; 1*.31>
Page 2) 9;.
&t the beginning of the year, 6orn 3orporation purchased a ne7 equipment for P@0,000. !he machine has an estimated useful life of four (=) years 7ith no salvage value. It is epected to produce cash flo7s from operations, net of income taes of %D, as follo7s2 Hear 1 % = 9
P1%<,000 11%,000 1==,000 >@,000 <0,000
6orn 3orporation uses the sumCofCtheCyearsCdigits method ($H) in computing depreciation of its depreciable assets. ?sing $H, the ne7 equipment 7ill be depreciated as follo7s2 Hear 1 % =
(P@0,000 =F10) (P@0,000 F10) (P@0,000 %F10) (P@0,000 1F10)
P1==,000 10<,000 ;%,000 @,000
!he company5s cost of capital is 10D. !he present value factors at 10D are as follo7s2 "nd of Hear 1 % = !otal, = years
0.>0> 0.<%@ 0.;91 0.@< .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,=@= c. (P=,0<.=<) b. (P1,=@=) 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 P=@,0<0 0.>0> P=1,<<@.;% % 10<,000 %D E =,9@0 0.<%@ %<,[email protected]@ ;%,000 %D E %,0=0 0.;91 1;,0.0= = @,000 %D E 11,9%0 0.@< ;,<@<.1@ !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)
ecrease in net present value
P>9,@0=.=< >1,%>@.00
P =,0<.=<
Page 25
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. &n alternate proposal, Proposal P%, involves an investment of P%,000 and afterCta cash flo7s of P10,000 for each of the net @ years. !he present value factors for an annuity of P1 for 1 to @ years are as follo7s2 n
10D
1%D
1=D
1@D
1
%0D
1
0.>0>
0.<>
0.<;;
0.<@%
0.<=;
0.<
%
1.;@
1.@>0
1.@=;
1.@09
1.9@@
1.9%<
%.=<;
%.=0%
%.%%
%.%=@
%.1;=
%.10@
=
.1;0
.0;
%.>1=
%.;><
%.@>0
%.9<>
9
.;>1
.@09
.=
.%;=
.1%;
%.>>1
@
=.99
=.111
.<<>
.@<9
.=><
.%@
!he cost of capital that 7ould ma8e -arry indifferent bet7een these t7o proposals lies bet7een a. 10D and 1%D c. 1@D and 1
In&iff)nc /oint is F'n t' NPVs of t' tFo /)o/os+-s +) H+-. 0t ;/)snt +- f+cto) fo) + cost of c+/it+- fo) # 6+)s $5,*** – 25,*** ;!2,*** – 1*,*** ;!.5!!, F'ic' is tFn 1#> +n& 1$>
9>. -arold 3o. is considering an investment in a capital pro6ect. !he sole outlay 7ill be P;1@,=1;.>0 at the outset of the pro6ect and the annual net afterCta cash inflo7 7ill be P%1@,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 0.@<1 0.@0
c. 9.00 years d. @.00 years
ANSWER B )+=?n ti8 t' c-+ti /)snt +- of C+s' Inf-oFs 2 1 21#,!*3.5 2 21#,!*3.5 ! 21#,!*3.5 4 21#,!*3.5 5 21#,!*3.5
c+s' inf-oFs H+-s t' cost of instnt PV4 ; PV *.32# P2**,!*2.$! *.$5 1$5,!.4# *.34 11,43.34 *.!5 15$,3$.# *.#$1 14,!*#.34
Tot+- PV of c+s' inf-oFs, fi)st 4 6+)s ; P1#,41.3* )+= n ti ; 4 6+)s
Page 26
@0' !he i%vestme%t -a%8i%g .irm o. a%d Associates ill &se a divide%d val&atio% model to appraise the shares o. the L:L 3orporatio%' Divide%ds (D at the e%d o. the c&rre%t +ear ill -e P"'20' !he groth rate (g is 9; a%d the disco&%t rate (< is ";= >hat sho&ld -e the price o. the stoc8 to the p&-lic= a' P2'75 c'
b. P1.90
P0'00
d. P%>.00
ANSWER C Price
D "'20 <B " 9
P0
@1. +$* 3o, has an opportunity to purchase a ne7 conveyor line for P%90,000. !hey can borro7 P%00,000, paying P90,000 do7n 7ith annual payments for five years and an interest of 19D. !hey also have an opportunity to lease the line for P@9,000 a year. !he present value of an annuity of P1 for five years at >D and 19D are .<<>; and .9%%, respectively. &t the end of five years, the estimated salvage value is P=0,000. If o7ned, the cost of maintenance is epected to be P10,000 per year. &ssume straightCline 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. P191,@>< c. P1==,000 b. P ><,@>< d. P1@9,<00 ANSWER A A%%&al lease expe%se, %et o. tax (P65,000 x 60; x P?@, 9;, 5 +ears
Prese%t val&e o. the a.tertax cost o. leasi%g
P 9,000 '97
P"5",69
Page 27
OPERATING & FINANCIAL BUDGETING @%. &fter careful planning, 3hange $tyle, Inc. has decided to s7itch to a 6ustCinCtime inventory system effective on :uly 1 of the current year. &s of :uly 1, the corporation has ;0 units of product in inventory. It has 1,000 labor hours available 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 $tyle Inc. plan to produce in :ulyB a. %00 c. 1<0 b. 10 d. %90 ANSWER B D+n& 0ss 9innin9 innto)6 P)o&ction
2** * 1!*
@. Ideally, the number of units that should be produced in a 6ustCinCtime manufacturing system is equal to a. the maimum productive capacity for the current period. b. actual customer demand for the current period. c. budgeted customer demand for the current period. d. budgeted customer demand for the follo7ing period ANSWER B @=. !he pro6ected sales price for a ne7 product (7hich is still in the development stage of the product life cycle) is P90. !he company has estimated the lifeCcycle cost to be P0 and the firstCyear cost to be P@0. n this type of product, the company requires a P1% per unit profit. hat is the target cost of the ne7 productB a. P@0 c. P< b. P0 d. P= ANSWER C P)o:ct& s+-s /)ic 0ss )Hi)& /)ofit T+)9t cost
P5* 12 P!$
@9. !he preparation of an organiAation's budget a. forces management to loo8 ahead and try to see the future of the organiAation. b. requires that the entire management team 7or8 together to ma8e and carry out the yearly plan. c. ma8es performance revie7 possible at all levels of management. d. all of the above. ANSWER D
Page 2
@@. Ivory 3ompany has the follo7ing epected pattern of collections on credit sales2 ;0 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 collected. &t the end of #ay, Ivory 3ompany has the follo7ing accounts receivable 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 an inventory of finished 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 sales are budgeted at 10,000 units less than #arch sales. b. #arch sales are budgeted at 10,000 units less than &pril sales. c. ebruary sales are budgeted at ,000 units less than #arch sales. d. #arch sales are budgeted at ,000 units less than &pril sales. ANSWER B Inc)+s in innto)6 S+-s inc)+s fo) A/)i- o) M+)c'
!,*** % !*> 1*,***
Page 29
I!"#$ @< to ;1 &*" +&$"( ,' !-" .,//,I' I'.,*#&!I,'2 !he cost of goods sold section of ale 3orporation5s operating budget for %019 is presented belo72
#aterials2 Inventory, :anuary 1 (1@,000 units) P >@0,000 Purchases >,1%0,000 &vailable for use P10,0<0,000 Inventory, ecember 1 (1<,900 units) 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 quarter, the company has already produced %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 7ill not be revised anymore. !he ending inventory 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. !he ne7 la7 7ill ta8e effect beginning the last quarter of the budget year, including a provision for an increase of months of the budget year. "ffective :uly 1, %019, the beginning of the third quarter, direct materials cost is epected to increase by 9D. !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 amounting to P<<>,@00. It is computed at 10D of the cost of materials used. !he balance of the variable factory overhead varies directly 7ith production. !here 7ill be no change in the budgeted fied factory overhead cost.
3onsidering the given actual data for the first quarter, as 7ell as the changes in assumptions and estimates in the budgeted data for the year, the company5s accountant prepared a revised budgeted cost of goods sold statement. !his revised statement should sho72
Page 0
@<. budgeted materials purchases of a. P>,@>@,000. b. P>,1%0,000.
c. P>,%<0,000. d. P>,==0,000.
ANSWER A It is +ss& t'+t +c' nit of /)o&ct )Hi)s on nit of +t)i+-s. So, /)o&ction is H+- to )+F +t)i+-s to s&. &9t& )+F +t)i+-s to s& (o) /)o&ction" – 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,*** 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& H+)t) (12*,***7! o) 4*,*** @P1,#*,***%2,5**B o) P#47nit" 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 cost of materials inventory at ecember 1, %019 of a. P1,0%=,000. b. P1,%=,%00.
c. P1,1<=,000. d. P1,%1@,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. T's, t' n&in9 innto)6 s'o-& +-& +t t' nF /)c'+s /)ic of P#.2*.
;0. the budgeted direct labor cost of a. P<=@,;%0. b. P;<=,000.
c. P<;@,>@0. d. P<%>,>%0.
ANSWER D
O)i9in+- -+o) cost /) nit (P$4,*** % 14*,*** nits"
P 5.#*
0+o) cost /) nit ffcti on t' 9innin9 of t' 4 t' H+)t) (P5.#* 1*$>"
P#.*4$
&9t& -+o) cost8 i)st to t'i)& H+)t)s (25,*** 4*,*** 4*,***" P5.#*" o)t' H+)t) (4*,*** P#.*4$" Tot+- &9t& -+o) cost
P5$$,*** 241,32* P $23,32*
Page "
;1. the budgeted cost of goods manufactured of a. P1%,<0>,@00. b. P1,=@=,000.
c. P1=,%0<,000. d. P1%,==,000.
ANSWER B
M+t)i+-s8 Innto)6, +n+)6 1 A&& /)c'+ss A+i-+- fo) s 0ss innto)6, Dc) !1 0+o) +cto)6 o)'+&8 V+)i+-8 In&i)ct +t)i+-s (P3,412,$** 1*>" P2,**3,#** – P$$3,#** Ot') +)i+- ( 14*,*** o)'+& Tot+- +)i+- o)'+& i& &9t& cost of 9oo&s +nf+ct)&
P 3#*,*** 3,#3#,*** P1*,#5#,*** 1,24!,2**
P 3,412,$** $23,32*
P 341,2$* " 145,***
. 1,1#*,*** P2,1*1,2$* 1,12*,***
!,221,2$* P1!,4#4,***
;%. the budgeted cost of goods sold of a.
P1,>01,9;<.
b. P1,%9%,000.
c.
P1,99,@00.
d. P1=,%0<,000.
ANSWER A 3ost of goods manufactured (from Item G;=) &dd finished goods inventory, :anuary 1 !otal cost of goods available for sale /ess finished goods inventory, ecember 1 (,00 units QP1,=@=,000 1=9,000R) +udgeted cost of goods sold
P1,=@=,000 ;==,000 P1=,%0<,000 0@,=%% P1,>01,9;<
Page 2
WORKING CAPITAL MANAGEMENT & FS ANALYSIS ;. &t the end of %019, abbuat 3ompany5s total assets 7as P900,000. In %01@, it earned net income of P0,000 and paid 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 of /oc8man 3orporation reported a return on 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 of P;9,000 and equity of P%0@,%90. or %01@, its budget for capital investment pro6ects is P@%,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 %01@5s 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. P@%,900 d. P91,1< ANSWER A Tot+- +ssts 0ss Hit6 Dt
P!5,*** 2*#,25* P1#$,5*
Dt?to?EHit6 R+tio (P1#$,5* % P2*#,25*"
$1.$2>
Tot+- fin+ncin9 )Hi)& fo) t' c+/it+- &9t
P#2,5** %1$1.$2> Aont to fin+nc& 6 Hit6
Aont to fin+nc& 6 &t Fit'ot c'+n9in9 t' &t?to?Hit6 )+tio (P#2,5** – P!4,!5"
P2$,125
P!4,!5
Page
;@. !he management of $eymour 3orporation as8s you to prepare an analysis of the gross profit variance based on their comparative income statements for %019 and %01@2 %01@ %019 4ariance $ales P>>0,000 P<00,000 P1>0,000 3ost of goods sold ;@0,000 @=0,000 1%0,000 ? ross profit P%0,000 P1@0,000 P ;0,000 !he only 8no7n information given to you is that volume increased from %019 to %01@ by 10D. !he variance in gross profit due to the change in volume is a. P<0,000 favorable. c. P1@,000 favorable. b. P@=,000 unfavorable. d. P;0,000 favorable. ANSWER C S+-s o- +)i+nc Cost o- +)i+nc G)oss /)ofit o- +)i+nc
P$*,*** #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#,***
;;. /ast year5s asset turnover of :ohvic 3ompany 7as .0. !his year, the company5s sales increased by %9D and average total assets decreased by 9D. hat is this year5s asset turnoverB a. .> c. .= b. .@ d. .1 ANSWER A
Asst T)no) -+st 6+) Asst T)no) t'is 6+)
S+-s ; A)+9 Tot+ Assts ! 1.25 !.5 ; ; 1 *.35 *.35
;! ; !.3
;<. uring the year, !indugan 3ompany earned net income of P@0,000. or net year, it has a capital budget of P<0,000. If the company5s plo7bac8 ratio is 0D, ho7 much eternal funding is needed for the capital investment pro6ectB a. P<0,000 c. P9@,000 b. P@%,000 d. P><,000 ANSWER B C+/it+- &9t n& f)o nt inco (P#*,*** !*>" Et)n+- fn&in9 n&&
P$*,*** 1$,*** P#2,***
Page ) ;>. !he follo7ing data are ta8en from the records of +elle 3orporation for the year ended ec. 1, %0192
A.)+9. A9. (!#* &+6s % T)no.)"
T)no. ) 1.
RM s& R M Innto)6 ; T)no) A. RM 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 Nt C)&it S+-s A. A7R
;
Nt C)&it P)c'+ss P12*,*** ; A. A7P P5,*** A)+9 n) of &+6s in t' o/)+tin9 c+s' con)sion c6c-
4. A7P T)no) ;
et credit sales &verage materials inventory &verage finished goods 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.
109 days
d.
=9 days
1* &+6s
!#
hat is the average number of days in the company5s operating cash conversion cycleB a.
!* &+6s
Page 5
0' $si%g the data prese%ted -elo, calc&late the cost o. sales .or the Alpha 3orporatio% .or the +ear C&st e%ded' 3&rre%t ratio '5 Acid test ratio '0 3&rre%t lia-ilities at +eare%d P600,000 egi%%i%g i%ve%tor+ P500,000 E%ve%tor+ t&r%over '0 a'
P",600,000
c'
b. P%,=00,000
P,200,000
d. P@,=00,000
ANSWER C
3ost o. sales Average i%ve%tor+ x E%ve%tor+ t&r%over P500,000 G P00,000 2 P,200,000 F
3&rre%t ratio '50 Acidtest ratio '00 E%ve%tor+, e%di%g
x
3&rre%t assets 3&rre%t lia-ilities 3&rre%t assets 600,000
3&rre%t assets
2,"00,000
I&ic8 assets
",00,000
I&ic8 assets 3&rre%t lia-ilities I&ic8 assets 600,000
00,000
Page 6
DECENTRALI'ATION & PERFORMANCE EVALUATION <1. hich of the follo7ing is necessary for any valid performance measurementB a. It must be part of the financial accounting system in use. b. It must be quantifiable. c. oal congruence must be promoted by its use. d. It must be financial in nature. ANSWER C <%. & balanced scorecard a. records the variances bet7een budgeted and actual revenues and epenses. b. can be used at multiple organiAational levels by redefining the categories and measurements. c. is most concerned 7ith organiAational financial solvency and business processes. d. all of the above. ANSWER B <. Productivity is measured by the a. total quantity of output generated from a limited amount of input during a time period. b. quantity of good output generated from a specific amount of input during a time period. c. quantity of good output generated from the quantity of good input used during a time period. d. total quantity of input used to generate total quantity of output for a time period. ANSWER B <=. ailure 3orporation is a manufacturer of a versatile statistical calculator. !he follo7ing 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 P10 3ost of a returned unit P19 !otal prevention cost P10,000 !otal appraisal cost P9,000 !he total quality cost is
Page 7
a. P19,000. b. P19,;90.
c. P%<,900. d. 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 P@0,000 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 prices (for =,000 units) are under consideration by the t7o divisions2 P9 and P=0. 3orporate profits 7ould be TTTTTTTTTTT if P9 is selected as the transfer price rather than P=0, and the 3omputer ivision purchases from the 3omputer 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 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, for this question only, that the 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.)
Page
a. no effect b. P%0,000 increase
c. P%0,000 decrease 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 for the &lpha ivision of $orority 3orporation. $ales P@00,000 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. =1.@;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& s--in9 (P5*,*** $*>" 4*,*** i& +&in (P2*,*** 5*>" 1*,*** Cont)o--+- inco % Assts ROI
P#**,*** 25*,*** P!5*,***
$*,*** P2*,*** $**,*** !!.5>
<>. !he follo7ing yearCend data pertain to &dan 3orporation2 "arning before interest and taes P <00,000 3urrent assets <00,000 onCcurrent assets ,%00,000 3urrent liabilities =00,000 onCcurrent liabilities 1,000,000 &dan 3orporation pays an income ta rate of %D. Its 7eightedCaverage cost of capital is 10D. hat is &dan 3orporation5s "conomic 4alue &dded ("4&)B a. P1<=,000 c. P==0,000 b. P1==,000 d. P=00,000 ANSWER A Aft)?t+ o/)+tin9 inco (P$**,*** @1 – *.!2B" 0ss &si)& )t)n on instnt8 Tot+- +ssts (P$**,*** P!,2**,***" P4,***,*** 0ss c))nt -i+i-itis 4**,*** Instnt +s P!,#**,***
P544,***
Page 9 i9't&?+)+9 cost of c+/it+Econoic +- +&&&
1*>
!#*,*** P1$4,***
>0. !he format for internal reports in a responsibility accounting system is prescribed by2 a. enerally &ccepted &ccounting Principles b. !he inancial &ccounting $tandards +oard c. !he Philippine Institute of 3ertified Public &ccountants d. #anagement ANSWER D
(UANTITATIVE MET)ODS >1. & company annually consumes 10,000 units of Part 3. !he carrying cost of this part is P% per year and the ordering costs are P100. !he company uses an order quantity of 900 units. +y ho7 much could the company reduce its total costs if it purchased the economic order quantity instead of 900 unitsB a. P 900 c. P%,900 b. P%,000 d. P 0 ANSWER A EO ;
C+))6in9 cost (5**72"2< (1,***72"2 O)&)in9 cost (1*,***75**" P1** (1*,***71,***" P1** Tot+- cost
5** nits P 5** 2,***
; 1,*** nits 1,*** nits P1,*** 1,*** P2,***
P2,5**
S+in9s (P2,5** – P2,***"
P5**
>%. In the t7o follo7ing constraint equations, and H represent t7o products (in units) produced by the ?ncommon Products 3orporation. 3onstraint 12 U 9H V =,%00 3onstraint %2 9 U %H W ,000 hat is the maimum number of units of Product that can be producedB a. =,%00 c. @00 b. ,000 d. 1,=00 ANSWER D 1,4** nits is t' on-6 +ont t'+t Fi-- not c+s Const)+int 1 to io-+t&. >. Xing 3orporation operates its factory 00 days per year. Its annual consumption of #aterial H is 1,%00,000 gallons. It carries a 10,000 gallon safety stoc8 of #aterial H and its lead time is 1% business days. hat is the order point for #aterial HB a. 10,000 gallons c. =<,000 gallons b. <,000 gallons d. 9<,000 gallons
ANSWER D A)+9 &+i-6 s+9 (1,2**,*** % !**" -+& ti 0+& ti s+9
4,*** 12 4$,***
Page )0 +&& s+ft6 stoc= O)&) /oint
1*,*** 5$,***
>=. !he school canteen can sell either haloChalo or mami (hot noodle soup) on any given day. !he contribution margin that the canteen could earn from haloChalo and mami 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 mami , so the canteen could maimiAe contribution margin. d. @0D haloChalo and =0D mami . ANSWER B +s& on t' 9in &+t+, t' /ct& /+6offs +)8 S-- '+-o?'+-o (15,*** #*>" (#,*** 4*>" S-- 5+5i (11,4** #*>" (12,*** 4*>"
P11,4** 11,#4*
T')fo), &s/it t' f+ct t'+t t' F+t') is 'ot, t' c+ntn s'o-& s-- 5+5i c+s it '+s t' 'i9') /ct& +- o) /ct& /+6off.
>9. #r. :avee o7ns a piece of land that is ad6acent to a big area of a vacant lot o7ned by the city government. *ecently, #r. :avee heard that the city government has plans about the vacant lot. -e inquired about such plans and he 7as given the follo7ing, including each plan5s probability of occurrence2 Probability Plan & O /ease the lot to a businessman 7ho 7ill construct a mall on the lot @0D + O 3onstruct a theme par8 on the vacant lot 0D 3 O 3onstruct a building that 7ill house some of the city government5s offices 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, 7ill increase depending on 7hich plan 7ould materialiAe. -is estimates are as follo7s2 Plan & O P9,000 per square meter + 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 ANSWER D
Page )"
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 3ompany produces and sells Product Y. "ach unit of Product Y contributes 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%90,000 d. P%>9,000 ANSWER A E/ct& +- of s+-s o-8 $*,*** *> 5#,*** 1*,*** !*> !,*** J CM /) nit Tot+- CM 0ss fi& costs E/ct& /)ofit
53,*** 5 P235,*** 2**,*** P 35,***
Page )2
BASIC MAS CONCEPTS >;. & person 7ho is qualified by education, eperience, technical ability, and temperament to advise or assist businessmen on a professional basis in identifying, defining, and solving specific management problems involving the organiAation, planning, direction, control, and operation of a firm is called a a. #anagement 3onsultant. c. &ccounting !echnician. b. 3ertified Public &ccountant. d. #anagement &ccountant. An$%er* A ><. 3onsulting services differ fundamentally from 3P&5s function of attesting to the assertions of other parties. In a consulting service, a. the practitioner epresses a conclusion about the reliability of a 7ritten assertion that is the responsibility of the assertor. b. the 7or8 is generally performed only for the use and benefit of the client. c. the client develops findings, conclusions, and recommendations. d. the nature and scope of 7or8 is determined solely by the consulting services practitioner. ANSWER B >>. hich of the follo7ing statements is correctB a. #&$ is confined only to such areas as financial accounting, auditing, and ta services. b. +ecause the #&$ practitioner must be independent, he must not allo7 the client to participate in any phase of his engagement. c. <hough #&$ etends beyond the traditional accounting services, 3P&s in the #$ practice are still bound by the rules of professional ethics in the practice of accounting in general. d. 3P&s provide management services to go around the ethical constraints as mandated by the &ccountancy &ct. ANSWER C 100. "ngagements should be adequately planned, supervised, and controlled. 3ontrolling involves the measurement of progress in attaining the engagement plan and ob6ectives. &t significant engagement points, progress should be measured in terms of a. time schedule, accomplishments, and quality of 7or8. b. accomplishments, time schedule, and epenses incurred. c. quality of 7or8, number of reports prepared, and time schedule. d. accomplishments, number of personnel 7ho played a role in the engagement, and attendance of the participants in the engagement. ANSWER A "0"' hich of the follo7ing is a characteristic of management advisory servicesB a. $ervices rendered are for third parties.
Page )
b. "ngagements are usually recurring. c. -uman relations do not play a vital role in each engagement. d. It involves problem solving. ANSWER D
INFORMATION SYSTEMS+EDP 10%. !he basic principles of accounting information system include all the follo7ing, ecept a. fleible structure. c. implementation. b. cost a7areness. d. useful output. ANSWER B 10. hich of the follo7ing statements is falseB a. #anagement accounting is an integral part of the controller5s function in an organiAation. b. !he $tandard of "thical 3onduct for #anagement &ccountants include concepts related to competence, confidentiality, integrity, and ob6ectivity. c. #odern cost accounting plays a role in planning ne7 products, evaluating operational procedures, and controlling costs. d. !he 3 (3hief perating fficer) is primarily responsible for management accounting and financial accounting. ANSWER D 10=. #anagement accounting is considered successful 7hen it a. helps managers improve their decisions. c. is relevant. b. is in accordance 7ith &&P. d. is accurate. ANSWER A 109. "lectronic und !ransfer ("!) is a service provided by financial institutions 7orld7ide that is based on "I !echnology. "! transaction costs are lo7er than 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. unauthoriAed access and activity. b. inadequate disaster recovery procedures. c. insufficient online edit chec8s. d. improper change control procedures. ANSWER A 10@. hich of the follo7ing descriptions refers to management accounting informationB a. It is prepared for shareholders. b. It is reliable and verifiable. c. It is prepared in accordance 7ith &&P. d. It provides reasonable and timely estimates ANSWER D 10;. hich of the follo7ing is a not a characteristic of management accountingB a. Internal focus c. $ub6ective information may be used b. +roadCbased and multidisciplinary d. -istorical orientation
Page ))
ANSWER D
10<. hich of the follo7ing characteristics distinguishes computer processing from manual processingB a. 3omputer processing virtually eliminates the occurrence of computational error normally associated 7ith manual processing. b. "rrors or fraud in computer processing 7ill be detected soon after their occurrences. c. !he potential for systematic error is ordinarily greater in manual processing than in computeriAed processing. d. #ost computer systems are designed so that transaction trails useful for audit purposes do not eist. ANSWER A
10>. hat type of computer system is characteriAed by data that are assembled 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 contribution to the managerial decisionCma8ing process in evaluating possible courses of action is to a. decide 7hich actions the management should consider. b. determine the amount of money that should be spent on a pro6ect. c. assign responsibility for the decision. d. provide relevant revenue and cost data about each course of action. ANSWER D
111. hich of the follo7ing refers to Lsystems designMB a. It is the process of monitoring, evaluating, and modifying a system. b. It is the process of learning ho7 the current system functions, determining the needs of users, and developing the logical requirements of a proposed system. c. It is the process of developing specifications for hard7are, soft7are, manpo7er, data resources, and information products required to develop a system. d. It determines the technical, operational, and economic feasibility of a system. ANSWER C
Page )5
ECONOMICS 11%. ross domestic product (P) is the a. total amount of ependitures for consumer goods and investment for a period of time. b. total purchases by consumers, businesses, government, and foreign entities c. value of all final goods and services produced by the country by both domestic and foreignCo7ned sources. d. value of all goods and services produced by the country by domestic firms, ecluding those produced by foreignCo7ned companies. ANSWER C 11. &s the economy becomes more and more depressed, a company's management 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 this period and lo7er in future periods. b. higher this period and higher in future periods. c. lo7er this period and higher in future periods. d. lo7er this period and lo7er in future periods. ANSWER A 11=. Inflation can have positive and negative effects on an economy. Positive effects of inflation include a. loss in stability in the real value of money and other monetary items over time. b. uncertainty about future inflation may discourage investment and saving. c. shortages of goods if consumers begin hoarding in anticipation of price increases in the future. d. mitigation of economic recessions and debt relief by reducing the real level of debt. ANSWER D 119. !he local video store5s business increased by 1%D after the movie theater raised its prices from P00 to P=00. !hus, relative to movie theater admissions, videos are a. substitute goods c. complementary goods b. superior goods d. public goods ANSWER A 11@. In national income terms, aggregate demand is the a. demand for money by a community in a period of full employment. b. total ependiture on capital goods by entrepreneurs during a period of full employment. c. demand that is needed if the country5s economy is to operate at optimum level and the level of investment is to be raised. d. total ependitures on consumer goods and investment, including government and foreign ependitures, during a given period.
