4TH ANNUAL REGIONAL CONVENTION NFJPIA CUP- MASTER IN MAS

MASTER IN MANAGERIAL ADVISORY SERVICES

EASY QUESTIONS
E1. A CPA should reject a MAS engagement if
a) He audits the financial statements of a subsidiary of the prospective client.
b) The proposed engagement is not accounting related.
c) His recommendations are to be subjected to a review by the client
d) It would require him to make management decisions for the prospective client
Answer: D - It would require him to make management decisions for the prospective client
The CPA/MS practitioner should maintain his independence. He should not make management decisions
for the client.

E2. The budget preparation process typically begins with the sales budget and continues through the
preparation of the budgeted financial statements. The last budget schedule prepared before the financial
statements is the
a) Taxes and licenses budget
b) Cash budget
c) Selling and administrative expenses budget
d) Cost of goods sold budget
Answer: B –Cash Budget
The cash budget is a schedule of projected cash receipts and disbursements. The various components of
the operating budget, such as selling and administrative and cost of goods sold budgets, provide inputs to
the cash budgeting process.

E3. The characteristic which is most often used to distinguish a product as either a joint product or a by-
product is the
a) Amount of labor used in processing the product.
b) Amount of separable product costs that are incurred in processing.
c) Amount (i.e., weight, inches, etc.) of the product produced in the manufacturing process.
d) Relative sales value of the products produced in the process.
Answer: D – Relative sales value of the products produced in the process.
 The difference between joint products and by-products lies in their relative sales values. Joint
products have relative sales values that are significant in relation to each other. By-products have
minor sales values compared with the major product(s)
 Answer (a) and (b) are incorrect because neither provides a basis for defining joint/by products or
states a customary basis for allocating joint costs. Answer (c) is incorrect because while it gives a
possible allocation base for joint costs. It does not define the joint/by-product definition.

E4. The primary objective of just-in-time processing is to

a) Identify relevant activity cost drivers.
b) Accumulate overhead in activity cost pools.
c) Identify non-value added activities.
d) Eliminate or reduce inventories.
Answer: D – Eliminate or reduce inventories.
Reduction or, if possible, elimination of inventories is the primary objective of a JIT system.

E5. Which of the following methods is not acceptable for both internal and external reporting?
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a) Activity-Based Costing
b) Variable Costing
c) Absorption Costing
d) Process Costing
Answer: B – Variable Costing
Variable costing is acceptable for internal reporting only.

E6. In two-way variance analysis, materials, labor and variable overhead variances may be broken down
into
a) Price variance and spending variance
b) Quantity or time variance and efficiency variance
c) Spending variance and efficiency variance
d) Spending variance and volume or capacity variance
Answer: C – Spending variance and efficiency variance
In two-way analysis, total variances for materials, labor and variable factory overhead may be broken
down into spending variance (also called price or rate variance) and efficiency variance (also called
quantity or time variance).

E7. In a make or buy decision analysis, the cost to buy is compared with the
a) Total cost to make
b) Relevant cost to make
c) Variable manufacturing costs
d) Cost to purchase
Answer: B- Relevant cost to make
In a make or buy decision analysis, the decision guide is to compare the relevant cost to make
with the relevant cost to buy. The relevant cost to make may include “relevant variable and fixed
costs.

E8. Ferrero Rocher Company has budgeted sales of 90,000 units in January; 120,000 units in February;
and 180,000 units in March. The company has 20,000 units on hand on January 1. If Ferrero Rocher
Company requires an ending inventory if finished goods equal to 20% of the following month’s sales, the
budgeted production during February should be ________.
Answer: 132,000 units

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E9. Budoy Company is preparing a flexible budget for next year and requires a breakdown of the factory
maintenance cost into the fixed and variable elements.
The maintenance costs and machine hours (the selected cost driver) for the past six months are as
follows:
Maintenance Costs Machine Hours
January P 15,500 1,800
February 10,720 1,230
March 15,100 1,740
April 15,840 2,190
May 14,800 1,602
June 10,600 1,590

Under High-low method of analysis, what is the average annual fixed maintenance cost?
Answer: P49,920
Variable rate per hour = (15,840 – 10,720)/ (2,190 – 1,230) = P5.33
The lowest number of hours (1,230) does not correspond to the lowest (10,600). In this case, the cost
driver or activity level prevails.

Average annual fixed maintenance cost (4,160 x 12) = P49,920

E10. A company is making plans for next year, using cost-volume-profit analysis as its planning tool.
Next year’s sales data about its product are as follows:
 Selling price P60
 Variable manufacturing costs per unit 22.50
 Variable selling and administrative costs 4.50
 Fixed operating costs (60% is manufacturing cost) P148,500
 Income tax rate 32%
How much should sales be next year if the company wants to earn profit after tax of P22,440, the same
amount that it earned last year?
Answer: P330,000

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AVERAGE QUESTIONS
A1. Enjoy Na Ba Co.’s records show the following data pertaining to one of its products:
 Actual production 1,800 units
 Standard labor hours allowed per unit 2 hours
 Standard labor rate per hour P6
 Actual hours worked 3,690 hours
 Labor rate variance P740 unfavorable
 Labor Efficiency variance P540 unfavorable
What was the actual labor cost?
Answer: P 22,880

A2. Income under absorption costing may differ from income under variable costing. The difference in
income between the two costing methods is equal to the change in the quantity of all units
a) Produced multiplied by the variable manufacturing cost per unit.
b) Sold multiplied by the fixed factory overhead cost per unit.
c) In inventory multiplied by the fixed factory overhead cost per unit.
d) Sold multiplied by the selling price per unit.
Answer: C - In inventory multiplied by the fixed factory overhead cost per unit.
 The difference in income between the two costing methods is equal to the change in the inventory
of finished goods multiplied by the fixed factory overhead cost per unit.

 Change in inventory is equal to production less sales or beginning inventory less ending inventory.

A3. Suko Na Ba Co. produces cellular phone cases. Each case requires a keypad which it also
manufactures at a cost of P20 per unit, inclusive of fixed overhead cost of P5.

Suko Na Ba Co. needs 50,000 units of this keypad annually. A supplier, Hindi Pa Co. has offered to sell to
Suko Na Ba Corporation its keypad requirements at P24 per unit. If Suko Na Ba decides to buy the
keypads, P2 per unit of the fixed overhead based on the annual estimate could be eliminated, and the
facility previously used to produce the key pad could be rented to another company.

If the keypads were purchased and the facility rented, how much must the annual rent on the facility be if
Suko Na Ba Corporation wishes to realize annual savings of P80,000?
Answer: P430,000

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A4. The Region One Division of Luzonian Company is treated as an investment center for performance
measurement purposes. Selected financial information for such division for the last year is given below:
 Net sales P200,000
 Cost of goods sold 176,250
 General and administrative expenses 3,750
 Average working capital 31,250
 Average plant and equipment 68,750
 Desired rate of return 15%
What was the Region One Division’s return on investment for last year?
Answer: 20%

A5. An artificial profit center

a) Is not responsible for the costs that it incurs.
b) Has no investment
c) Does not provide its goods and services outside the entity.
d) Could not be operated as a cost center.
Answer: C – does not provide its goods and services outside the entity.
An artificial profit centers are organizational segments that deal with outsiders very little. If not at all, but
rather provides goods/services, at a transfer price, to other segments within the organization.

A6. Angganda Co. has the following sales budget for the second quarter of 200B:
 April P 988,000
 May 1,248,000
 June 1,664,000
Other budget estimates are as follows:
 Merchandise is to be sold at its invoice price plus 30% markup.
 Beginning inventory of each month is to be 40% of that month’s projected cost of goods sold.
The budgeted merchandise purchase for the month of May is __________________.
Answer: P1,088,000

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A7. The following information was presented by Angpogi Co.’s financial statements for 2012:
 Net Income 100,000
 Return on asset 24%
 Asset Turnover 1.6 times
 Liabilities 40% of assets
 Banana 1,000 units
What was the company’s profit margin ratio?
Answer: 15%
24%/1.6 = 15%.

A8. The following information pertains to Anggaling Co.’s Material X:

 Annual usage 25,200 units
 Working days per year 360 days
 Normal lead time in working days 30 days
 Safety stock 1,050 units
The maximum lead time in working days and the reorder point for Material X are?
Answer: 45 Days and 3,150 units

A9. The following information relates to the operating activity of Habulin Mo Co. for the year 2013.
Sales ?
Variable cost 200,000
Contribution margin ?
Fixed cost 500,000
EBIT ?
Break even sales in units 15,000
Sales in units for the year 20,000
If sales in units would increase by 30% what would be the increase in net income?
Answer: 120%
DOL=1/Margin of safety ratio
1/.25=4
MSR = (5,000/20,000)
Increase in sales is 120% (4*30%)

A10. Habol Tayo Company produces three products with the following production and cost information:
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Model A Model B Model C

Units Produced 2,000 6,000 12,000
Direct Labor Hours (Total) 4,000 2,000 4,000
Number of set-ups 100 150 250
Number of shipments 200 225 275
Engineering change orders 15 10 5

Overhead costs include setups P45,000; shipping costs P70,000; and engineering costs P90,000. What
would be the per unit overhead cost for Model B if activity-based costing were used?
Answer: P11.00
Model B
 Setups (150/500) 45,000 13,500
 Shipping Costs (225/700) 70,000 22,500
 Engineering Costs (10/30) 90,000 30,000
 Total OH Costs for Model B (13,500 + 22,500 + 30,000) 66,000
 Cost per unit (66,000/6) P11.00

DIFFICULT QUESTIONS
D1. Makakahabol Pa Ba Co. is considering to replaced an old equipment with a new one that will require
net cash outflows, at present value of P720,000.
 The old equipment, which has no terminal disposal price, has a remaining useful life of 10 years
and as being depreciated at P90,000 per year. Its annual cash operating costs is P300,000.
 The company is subject to an income tax rate of 32%. In evaluating capital investment projects, it
uses a hurdle rate of 16%.
 The present value of P1 at the end of 10 years at 16% is 0.227. The present value of an annuity of
P1 for 10 years at 16% is 4.833
What is the net present value difference in favor of replacing the old equipment?

Answer: P126,741.60

D2. Which of the following statements is not correct?

a) Both the payback and accounting rate of return methods do not consider the time value of money.
b) The payback method is often used in practice because of its simplicity and effectiveness in risk
management and cash conservation.
c) The bailout payback period eliminates the disposal value from the payback calculation

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d) The accounting rate of return (ARR) method compares the project’s expected ARR with a hurdle rate
or a desired rate of return.
Answer: C – The bailout payback period eliminates the disposal value from the payback
calculation

 The bailout payback method measures the length of time required for the sum of the cumulative
cash inflow from an investment’s operations and its salvage value to equal the initial or original
investment. This, disposal value is included in the calculation. The bailout payback method
measures the risk if the project is terminated.

D3. Which of the following is false?

a) The cost of inventory itself, as well as any quantity discounts lost on inventory purchases, is directly
reflected in the EOQ Model.
b) A decrease in inventory order costs will decrease the EOQ.
c) An increase in inventory carrying costs will decrease the EOQ.
d) An increase in the variable cost of placing the receiving an order will increase the EOQ.
Answer: A - The cost of inventory itself, as well as any quantity discounts lost on inventory
purchases, is directly reflected in the EOQ Model.

 The cost of inventory itself is not a component of the EOQ model, and neither is any quantity
discounts lost on inventory purchases.

D4. Which of the following statements is incorrect?

a) The ratio of sales to working capital is a measure of liquidity and activity.
b) The number of days’ sales in receivables is a measure of liquidity, as well as of activity.
c) A high sales-to-working capital ratio would indicate that the firm is not susceptible to liquidity
problems.
d) The earnings per share is a profitability ratio.
Answer: C - A high sales-to-working capital ratio would indicate that the firm is not susceptible to
liquidity problems.

 A high sales-to-working capital ratio may indicate insufficient working capital to support the
company’s sales level, which may result in liquidity problems

D5. A budget is a control technique that, among other things, establishes a performance standard.
However, a natural reaction of a manager whose efforts are to be evaluated is to incorporate slack into the
budget. Which of the following about budgetary slack is incorrect?
a) Budgetary slack can best be described as the planned overestimation of budgeted expenses.
b) The use of budgetary slack prohibits the use of the budget to control subordinate performance.
c) From the perspective of corporate management, the use of budgetary slack increases the likelihood of
inefficient resource allocation.
d) Budgetary slack eliminates the likelihood that a manager will receive the personal rewards that follow
from meeting the expectations of superiors.

Answer: D - Budgetary slack eliminates the likelihood that a manager will receive the personal
rewards that follow from meeting the expectations of superiors.

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 Managers whose performance is to be evaluated build a slack into the budget by overstating
expenses. This is a means of avoiding unfavorable variance from expectations, thereby increasing
the likelihood that a manager will receive the personal rewards that follow from meeting the
expectations of superiors.

D6. Panalo Na Co. started 150 units in process on job order #13. The prime costs placed in process
consisted of P30,000 and P18,000 for materials and direct labor, respectively, and a pre-determined rate
was used to charge factory overhead in production at 133-1/3% of the direct labor cost. Upon completion
of the job order, units equal to 20% of the good output were rejected for failing to meet strict quality
control requirements. The company sells rejected units as scrap at only 1/3 of production cost, and bills
customers at 150% of production cost.
If the rejected units were ascribed to company failure, the billing price of job order #13 would be
__________________.
Answer: P90,000

D7. Given for a certain process:

 Beginning work in process, 3/5 incomplete 500 units
 Transferred in 2,000 units
 Normal Spoilage 200 units
 Abnormal Spoilage 300 units
 Goods completed and transferred out 1,700 units
 Ending work in process, 1/3 completed 300 units
 Conversion costs in beginning inventory P610
 Current period conversion costs P3,990
 All spoilage occurs at the end of the process.

Under FIFO Method, what is the conversion cost per equivalent unit?

Answer: P 1.90

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D8. Super Duper Ultra Mega Company uses job order costing. Factory overhead applied to production at a
determined rate of 150% of direct-labor-cost. Any over-or under applied factory overhead is closed to the
cost of goods sold account at the end of each month. Additional information is available as follows:
 Job 101 was the only job in process at January 31, 2011, with accumulated costs as follows:
 Direct materials P4,000
 Direct Labor 2,000
 Applied factory overhead 3,000
 Jobs 102, 103, 104 were started during February.
 Direct materials requisitions for February totaled P26,000.
 Direct-labor cost of P20,000 was incurred for February.
 Actual factory overhead was P32,000 for February.
 The only job still in process at February 28, 2011 was Job 104, with cost of P2,800 for direct
materials and P1,800 for direct labor.
 Finished goods, beg – 1,000 and Finished goods, end – 5,000
The cost of goods manufactured for February 2011 was ________________.
Answer: P77,700

D9. The following data were taken from the records of Ikaw Mahal Co.:
August 31, 2011 September 30, 2011
 Raw Materials ??? P 50,000
 Work in process 80,000 95,000
 Finished goods 60,000 78,000

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1. Raw materials purchases, P46,000

2. Factory overhead, 75% of direct labor cost, P63,000.
3. Selling and administrative expenses, 12.5% of sales, P25,000.
4. Net income for September, 2011, P25,000

What is the cost of raw materials inventory on August 31, 2011?

Answer: P40,000

D10. The following data are obtained from Last Na Co.:

 Cost of goods manufactured is P187,500
 Inventory variations are as follows: raw materials ending inventory is 1/3 based on raw materials
beginning; no initial inventory of work-in-process, but at end of period P12,500 was on hand;
finished goods inventory was 4 times as large at end of period as at the start.
 Net income after taxes amounted to P26,000, income tax rate is 35%.
 Purchase of raw materials amounted to net income before taxes.
 Breakdown of costs incurred in manufacturing cost was as follows:
 Raw materials consumed 50%
 Direct labor 30%
 Overhead 20%

Compute the amount raw materials beginning inventory:

Answer: P90,000

Direct materials, beginning + Purchases – Direct materials, end = Direct materials used.
Direct materials, beginning + (26,000/65%) – 1/3 of Direct materials, end = 100,000
Direct materials, beginning + 40,000 – 1/3 of Direct materials, end = 100,000
2/3 Direct materials, beginning = 100,000 – 40,000
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2/3 Direct materials, beginning = 60,000

Direct materials, beginning = 90,000
CLINCHER QUESTIONS
C1. The appropriate method for the disposition of underapplied or overapplied factory overhead
a) Is to cost of goods sold only.
b) Is to finished goods inventory only.
c) Is apportioned to cost of goods sold and finished goods inventory.
d) Depends on the significance of the amount.
Answer: D – depends on the significant of the amount.
Overapplied or underapplied factory overhead should be disposed of at the end of an accounting period
by transferring the balance either to cost of goods sold (if the amount is not material) or to cost of goods
sold, finished goods inventory, and work-in-process inventory. Theoretically, the allocation is preferred,
but, because the amount is usually immaterial, the entire balance is often transferred directly to cost of
goods sold. Thus, the entry depends upon the significance of the amount.

Answers a, b and c are incorrect because a material amount should be allocated among cost of goods sold,
work-in-process, and finished goods.

C2. From the industries listed below, which one is most likely to use process costing in accounting for
production costs?
a) Road builder
b) Electrical contractor
c) Newspaper publisher
d) Automobile repair shop
Answer: C – Newspaper publisher.
Process costing is used for continuous process manufacturing of relatively homogenous units.
Newspapers are published in long runs of identical items, hence process costing is indicated.

C3. If a company obtains two salable products from the refining of one ore, the refining process should be
accounted for as a (n)
a) Mixed cost process
b) Joint process
c) Extractive process
d) Reduction process
Answer: B - Joint process
When two or more separate products are produced by a common manufacturing process from a common
input, the outputs from the process are called joint products. The common costs of two or more joint
products with significant values are generally allocated to the joint products based upon the products’ net
realizable values at the point they became separate products.

Answer “a” is incorrect because mixed costs are costs that have both fixed and variable components.
Answers c and d are incorrect because extractive and reduction processes are technical manufacturing
terms and have no special meaning in cost accounting.

C4. A company uses a two-way analysis for overhead variances: budget (controllable) and volume. The
volume variance is based on the:
a) Total overhead application rate.

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b) Volume of total expenses at various activity levels.

c) Variable overhead application rate.
d) Fixed overhead application rate.

Answer: D – Fixed overhead application rate.

The volume variance arises from over or under application of budgeted fixed OH. A predetermined
(budgeted) activity level is normally used to calculate the fixed OH rate per unit. A volume variance occurs
when there is a difference between this budgeted capacity and standard hours allowed for good output.

Answers a and b are incorrect because the total OH application rate and total expenses contain both
variable and fixed rates. Volume variance only contains fixed OH. Answer “c” is incorrect because the
volume variance is only applicable to fixed OH not variable OH.

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