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MAS CPAR COMPILATION

Bs accountancy (Rizal Technological University)

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Overview 1. Which of the following characteristics is inherent to management

Management advisory services accounting?
1. The primary purpose of management advisory services is to A. Reporting of historical information
A. conduct special studies, preparation of recommendations, B. Compliance to generally accepted accounting principles
development of plans and programs, and provision of advice and C. Contribution approach income statement
assistance in their implementation. D. External users of financial report
B. provide services or to fulfill some social need.
C. improve the client's use of its capabilities and resources to 3. The following are characteristics of financial accounting, except?
achieve the objectives of the organization. A. Reporting of historical information
D. earn the best rate of return on resources entrusted to its care B. Compliance to generally accepted accounting principles
with safety of investment being taken into account and C. Contribution approach income statement
consistent with the firm's social and legal responsibilities. D. External users of financial report

1. The following characterize management advisory services except 4 The following are inherent to either management accounting or
A. involve decision for the future financial accounting:
B. broader in scope and varied in nature 1. External report
C. utilize more junior staff than senior members of the firm 2. Historical information
D. relate to specific problems where expert help is required 3. Contribution approach income statement
4. Generally accepted accounting principles
2. Which of the following is not classifiable as a management advisory 5. Prospective financial statements
service by CPA? Which of the foregoing are related to management accounting and
A. Systems design. C. Make or buy analysis. financial accounting respectively?
B. Project feasibility study. D. Assistance in budget A. B. C. D.
preparation. Management 1, 2, 5 3, 5 2, 3 3
Accounting
2. Which of the following statement is false? Financial 3, 4 1, 2, 4 1, 4, 5 1, 2, 4, 5
A. CPA’s provide management services to go around the ethical Accounting
constraints as mandated by the Accountancy Act.
B. Businesses hire management consultants to help define specific 5. The costing method that is properly classified for both external and
problems and develop solutions internal repotting purposes is
C. Included in the practice of consulting is the provision of External reporting Internal reporting
confidential service in which the identity of the client is
. Activity-based Yes Yes
concealed
costing
D. CPA’s performing management services may be considered to
B. Variable costing Yes No
be in the practice of management consulting
C. Process costing No Yes
D. Standard costing Yes No
Management accounting & financial accounting

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Quality Costs 10. Examples of unit level activities are

6. The cost of statistical quality control in a product quality cost A. scheduling, setting up, and receiving C. heating, lighting,
system is and security
A. training cost C. appraisal cost B. designing, changing, and advertising D. cutting, painting,
B. internal failure cost D. prevention cost and packaging

Activity-based Costing 3. An example of a nonvolume-related overhead base would be:

7. The last step in activity-based costing is to A. Direct materials cost C. Direct Labor cost
A. identity the major activities that pertain to the manufacture of B. Machine hours D. Number of inspections
specific products
B. allocate manufacturing overhead costs to activity cost pools 11.Classify the following as volume (unit) base or non-volume (activity)
C. Identify the cost drivers that accurately measure each activity’s base:
contribution to the finished product 1. Number of purchase orders issued
D. Assign manufacturing overhead costs for each activity cost pool 2. Direct labor hours
to products 3. Number of machine hours
4. Number of set ups
8. Designing and redesigning are activities that are classified as 5. Number of receiving reports issued
A. Facility level C. Unit level 6. Direct material cost
B. Batch level D. Product level A. B. C. D.
Volume (Unit) Base 1, 4, 5, 6 1, 4, 5 1, 2, 3, 4, 5 2, 3, 6
9. The examples of activities at the product level include Non-volume 2, 3 2, 3, 6 6 1, 4, 5
A. scheduling, setting up, and moving C. heating, lighting, (Activity) Base
and security
B. designing, changing, and advertising D. cutting, painting, 12.McMd's standard cost card indicates that it takes three hours of
and packaging direct labor to produce one unit of product. A recently conducted
time and motion study revealed that it should take one hour to
1. Examples of activities at the batch level of costs include produce the same unit. Labor cost is P150 per hour.
A. scheduling, setting up, and McMd's value-added, and non value-added costs would be
moving C. heating, lighting, and security A. P150 and P0 C. P150 and P300
B. designing, changing, and B. P0 and P150 D. P450 and P0
advertising D. cutting, painting, and
packaging 13.Moon Company makes two products, Alpha and Beta. Alpha is
being introduced this period, whereas Beta has been in production
2. Scheduling, setting up, and moving are examples of activities that for 2 years. For the period about to begin, 1,000 units of each
are classified as product are to be manufactured. The only relevant overhead item
A. Batch level C. Unit level is the cost of engineering change orders. Alpha and Beta are
B. Product level D. Facility level expected to require eight and two change orders, respectively.

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Alpha and Beta are expected to require 2 and 3 machine hours, budgeted output. Because of the need for additional facilities,
respectively. The cost of a change order is P600. budgeted fixed costs for 60,000 units are 25% more than budgeted
If Moon is using direct tracing, the amount of overhead per unit that fixed costs for 50,000 units. How much is Laguna’s total budgeted
will be assigned to Alpha and Beta, respectively, are variable cost at 60,000 units?
A. P2.40 and P3.60, respectively C. P4.80 and P1.20, A. P96,000 C. P180,000
respectively B. P100,200 D. P100,000
B. P3.60 and P2.40, respectively D. P1.20 and P4.80,
respectively 16.Mulvey Company derived the following cost relationship from a
regression analysis of its monthly manufacturing overhead cost:
Just-in-Time Manufacturing System C = P80,000 + P12M
14. Which of the following is not a typical characteristic of a just-in- Where C = monthly manufacturing overhead cost
time (JIT) production environment? M = machine hours
A. Lot sizes equal to one C. Push-through system The standard error of the estimate of the regression is P6,000.
B. Insignificant set up times and costs D. Balanced and level The standard time required to manufacture one six-unit case of
workloads Mulvey's angle product is 4 machine hours. Mulvey applies
manufacturing overhead to production on the basis of machine
Cost Behavior hours and its normal annual production is 50,000 cases
Variable Costs Mulvey's estimated variable manufacturing overhead cost for a
6. Total production costs for Jordan, Inc. are budgeted at P2,300,000 month in which scheduled production is 5,000 cases would be
for 50,000 units of budgeted output and P2,800,000 for 60,000 A. P80,000 C. P240,000
units of budgeted output. Because of the need for additional B. P320,000 D. P360,000
facilities, budgeted fixed costs for 60,000 units are 25 percent more
than budgeted fixed costs for 50,000 units. How much is Jordan’s 1. Which of the following graphs illustrates the behavior of a total
budgeted variable cost per unit of output? variable cost? (E)
A. P 7.50 C. P30.00 Graph 1 Graph 2
B. P16.00 D. P62.50

15.Total production costs for Carera, Inc. are budgeted at P230,000 for
50,000 units of budgeted output and P280,000 for 60,000 units of
budgeted output. Because of the need for additional facilities, Total units produced Total units produced
budgeted fixed costs for 60,000 units are 25% more than budgeted
fixed costs for P50,000 units. How much is Carera’s budgeted Graph 3 Graph 4
variable cost per unit of output?
A. P1.60 C. P3.00
B. P1.67 D. P5.00

3. Total production costs for Laguna, Inc. are budgeted at P230,000 for Total units produces Total units produced
50,000 units of budgeted output and P280,000 for 60,000 units of
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A. Graph 2 C. Graph 4 Operating budgets for the current month are based upon 18,000
B. Graph 3 D. Graph 1 machine hours of planned machine time.
Indirect labor costs included in this planning budget are:
Fixed Costs A. P300,000 C. P 90,000
9. Parts Company wishes to determine the fixed portion of its maintenance B. P390,000 D. P115,000
expense (a semi-variable expense), as measured against direct labor hours for
the first three months of the year. The inspection costs are fixed; the 8. Arens Corporation has developed the following flexible budget
adjustments necessitated by errors found during inspection account for the formula for annual indirect labor costs:
variable portion of the maintenance costs. Information for the first quarter is Total Cost = P480,000 + P5.00 per machine hour
Operating budgets for the current month are based upon 20,000
as follows:
machine hours of planned machine time. Indirect labor costs
Direct Labor Hours Maintenance Costs included in this planning budget are:
January 34,000 P61,000 A. P 48,333 C. P100,000
February 31,000 58,500 B. P580,000 D. P140,000
March 34,000 61,000
What is the fixed portion of Parts Company’s maintenance expense, 2. Boy & Millie Company uses an annual cost formula for overhead of
rounded to the nearest pesos? P72,000 + P1.60 for each direct labor hour worked. For the
A. P28,330 C. P37,200 upcoming month Karla plans to manufacture 96,000 units. Each
B. P32,780 D. P40,800 unit requires five minutes of direct labor. Boy & Millie’s budgeted
overhead for the month is
5. Largo Company wishes to determine the fixed portion of its A. P12,800 C. P 84,800
maintenance expense (a semi-variable expense), as measured B. P18,800 D. P774,000
against direct labor hours for the first three months of the year.
Information for the first quarter is as follows: 2. Saldua Company uses a monthly cost formula for overhead of
Direct Labor Hours Maintenance P50,000 + P30.00 for each direct labor hour worked. For the
Costs coming year, Saldua plans to manufacture 200,000 units. Each unit
January 25,000 P210,000 requires five minutes of direct labor. Saldua’s total budgeted
February 30,000 240,000 overhead for the coming year is
March 27,000 222,000 A. P 550,000 C. P1,200,000
What is the fixed portion of Largo Company’s maintenance B. P1,100,000 D. P 650,000
expense?
A. P60,000 C. P90,000 6. The following cost functions were developed for manufacturing overhead
B. P30,000 D. P120,000 costs:
Manufacturing Overhead Cost Function
Total Costs Costs
17.Molds Corporation has developed the following flexible budget Electricity P100 + P20 per direct labor
formula for annual indirect labor costs: hour
Total Cost = P300,000 + P5.00 per machine hour
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Maintenance P200 + P30 per direct labor B. P200,000 D. P450,000

hour
Supervisors’ salaries P10,000 per month Units Sold
Indirect materials P16 per direct labor hour 18.At a sales volume level of 2,250 units, Luzon Company’s
If July production is expected to be 1,000 units requiring 1,500 contribution margin is one and one-half of the fixed costs of
direct labor hours, estimated manufacturing overhead costs would P36,000. Contribution margin is 30%. How many units must be sold
be by the company to breakeven?
A. P109,300 C. P76,300 A. 1,250 C. 2,580
B. P99,000 D. P10,366 B. 1,500 D. 2,520

7. El Noche, Inc. has a total of 2,000 rooms in its nationwide chain of 8. At 40,000 units of sales, Snail Company had an operating loss of
hotels. On the average, 70% of the rooms are occupied each day. P3.00 per unit. When sales were 70,000 units, the company had a
The company’s operating costs are P21 per occupied room per day profit of P1.20 per unit. The number of units to breakeven is
at this occupancy level, assuming a 30-day month. This P21 figure A. 35,000 C. 52,500
contains both variable and fixed cost elements. During October, B. 45,000 D. 57,647
the occupancy dropped to only 45%. A total of P792,000 in
operating cost was incurred during the month. 9. Gala Company sold 100,000 units of its product at P20 per unit.
What would be the expected operating costs, assuming that the Variable costs are P14 per unit, consisting of manufacturing costs of
occupancy rate increases to 60% during November? P11 and selling costs of P3. Fixed costs, which are incurred
A. P1,056,000 C. P846,000 uniformly throughout the year, amount to P792,000 (manufacturing
B. P756,000 D. P829,500 costs of P500,000 and selling expenses of P292,000). There are no
beginning inventories.
Cost-Volume-Profit Relationship If labor costs are 50% of variable costs and 20% of fixed costs, a
Basic Concepts 10% increase in wages and salaries would increase the number of
2. With the aid of computer software, managers can vary assumptions units required to breakeven to
regarding selling prices, costs, and volume and can immediately A. 152,423 C. 175,617
see the effects of each change on the break-even point and profit. B. 143,875 D. 129,938
Such an analysis is called: (E)
A. "What if" or sensitivity analysis C. computer aided analysis 10.Glareless Company manufactures and sells sunglasses. Price and
B. vary the data analysis D. data gathering cost data are as follows:
Selling price per pair of sunglasses P25.00
Breakeven Analysis – Single Product Variable costs per pair of sunglasses:
Sales Amount Raw materials P11.00
20.Scrambled Brain Company has fixed costs of P90,000. At a sales Direct labor 5.00
volume of P300,000, return on sales is 10%; at a P500,000 volume, Manufacturing overhead 2.50
return on sales is 22%. What is the break-even volume? Selling expenses 1.30
A. P120,000 C. P225,000 Total variable costs per unit P19.80
Annual fixed costs:
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Manufacturing overhead P192,000 8. The BEDANs is planning its annual Riverboat Extravaganza. The
Selling and administrative 276,000 Extravaganza committee has assembled the following expected
Total fixed costs P468,000 costs for the event:
Forecasted annual sales volume P3,000,000 Dinner per person P 70
(120,000 pairs) Programs and souvenir per person 30
Income tax rate 40% Orchestra 15,000
Glareless Company estimates that its direct labor costs will increase Tickets and advertising 7,000
8 percent next year. How many units will Glareless have to sell next Riverboat rental 48,000
year to reach breakeven? Floor show and strolling entertainment 10,000
A. 97,500 units C. 83,572 units The committee members would like to charge P300 per person for
B. 101,740 units D. 86,250 units the evening’s activities.
Assuming that only 250 persons are expected to attend the
22.Madel Company manufactures a single electronic product called extravaganza, what ticket price must be charged to breakeven?
Walastik. Walastik sells for P900 per unit. In 2000, the following A. P420 C. P350
variable costs were incurred to produce each Walastik device. B. P320 D. P390
Direct labor P180
Direct materials 240 Breakeven Analysis – Multiple Product
Factory overhead 105 23.In calculating the break-even point for a multi-product company,
Selling costs 75 which of the following assumptions are commonly made when
Total variable costs P600 variable costing is used?
Madel is subject to 40 percent income tax rate, and annual fixed I. Sales volume equals production volume
cost are P6,600,000. Except for an operating loss incurred in the II. Variable costs are constant per unit
year of incorporation, the firm has been profitable over the last five III. A given sales mix is maintained for all volume changes
years. A. I and II C. II and III
In 2001, a significant change in Madel’s production technology B. I and III D. I, II, and III
caused a 10% increase in annual fixed cost and a 20% unit cost
increase in the direct labor component as a result of higher skilled Unit Sales
direct labor. However, this change permitted the replacement of a 3. Phipps Co. sells two products, Arks and Bins. Last year. Phipps sold
costly imported component with a local component. The effect was 12,000 units of Arks and 28,000 units of Bins, Related data are:
to reduce unit material costs by 25%. There has been no change in Produc Unit Selling Unit Variable Unit Contribution
the Walastik selling price. t Price Cost Margin
The annual sales units required for Madel to breakeven are: Arks P120 P80 P40
A. B. C. D. Bins 80 60 20
2000 22,000 22,000 14,000 14,000 Assuming that last year's fixed costs totaled P910,000, what was
2001 20,840 22,407 22,407 20,840 Phipps Co.'s break-even point in units? (E)
A. 40,000 C. 35,000
Selling Price B. 12,000 D. 28,000

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B. 5,000 units D. 36,000 units

Sales Amount
24.Bush Electronics, Inc. had the following sales results for 2004: 11.Ms Makiling started a canteen in 2002. For this purpose a space
TV sets CD player Radios was rented for P4,000 per month. Two women were hired to work
Peso sales 0.30 0.30 0.40 full time at the canteen and six college students were hired to work
component ratio 30 hours per week delivering value meals. This level of
Contribution margin 0.40 0.40 0.60 employment has been consistent. An outside accountant was hired
ratio for tax and bookkeeping purposes, for which Ms. Makiling pays
Bush Electronics, Inc. had fixed costs of P2,400,000. P3,000 per month. The necessary canteen equipment and delivery
The break even sales in pesos for Bush Electronics, Inc. are: car were purchased with cash. Ms. Makiling has noticed that
A. B. C. D. expenses for utilities and supplies have been rather constant. Ms.
Makiling increased her business between 2002 and 2005. Profits
TV sets P1,800,000 P1,800,000 P1,500,000 P1,531,915
have more than doubled since 2002. Ms. Makiling does not
CD player P1,800,000 P1,800,000 P1,500,000 P1,531,915
understand why profits have increased faster than volume.
Radios P3,600,000 P1,600,000 P2,000,000 P2,042,553
A projected income statement for the year ended December 31,
2005, prepared by the accountant, is shown below:
4. The manager of Salvacion Store reviewed the following data: Sales (each P25) P950,000
Fruits Meat Canned Cost of food sold P285,000
Products Wages & fringe benefits:
Contribution 40% 50% 40% Restaurant help 81,500
margin ratio Delivery help 173,000
Sales mix in pesos 20% 30% 50% Rent 48,000
Fixed costs, P1,290,000 per month. Accounting services 36,000
The breakeven sales for each month is Depreciation:
A. P1,677,000 C. P4,500,000 Delivery equipment 50,000
B. P3,000,000 D. P6,000,000 Restaurant equipment 30,000
Utilities 23,250
Breakeven Analysis – Cash Basis Supplies 12,000 738,750
16.BE&H Co. is considering dropping a product. Variable costs are Net income before taxes P211,250
$6.00 per unit. Fixed overhead costs, exclusive of depreciation, Income taxes (40%) 84,500
have been allocated at a rate of $3.50 per unit and will continue Net income P126,750
whether or not production ceases. Depreciation on the equipment
is P20,000 a year. If production is stopped, the equipment can be What is the cash flow breakeven point sales that must be sold?
sold for P18,000, if production continues, however, it will be useless A. P488,215 C. P324,750
at the end of 1 year and will have no salvage value. The selling B. P533,929 D. P269,325
price is P10 a unit. Ignoring taxes, the minimum units to be sold in
the current year to break even on a cash flow basis is Breakeven Analysis - ABC
A. 4,500 units C. 1,800 units 15.Perla Company had the following information.
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Activity Driver Unit Variable Cost Level of Activity  Variable cost to manufacture will increase by one-third
Driver  Fixed costs will increase by 10%
Units sold P40  The income tax rate of 40% will be uncharged
Setups 1,000 80 The selling price that would maintain the same contribution margin
Engineering hours 60 2,000 rate as last year is
Other data: A. P9.00 C. P10.00
Total fixed costs P400,000 B. P8.25 D. P9.75
(traditional)
Total fixed costs P150,000 23.Larz Company produces a single product. It sold 25,000 units last
(ABC) year with the following results:
Unit selling price P80 Sales P625,000
What is the breakeven point using ABC? Variable costs P375,000
A. 10,000 units. C. 5,000 units. Fixed costs 150,000 525,000
B. 15,000 units. D. 8,750 units. Net income before taxes P100,000
Income taxes 40,000
Profit Planning Net income P 60,000
Selling Price In an attempt to improve its product in the coming year, Larz is
21.Glow Co. wants to sell a product at a gross margin of 20%. The cost considering replacing a component part in its product that has a
of the product is P2.00. The selling price should be cost of P2.50 with a new and better part costing P4.50 per unit. A
A. P1.60 C. P2.40 new machine will also be needed to increase plant capacity. The
B. P2.10 D. P2.50 machine would cost P18,000 with a useful life of 6 years and no
salvage value. The company uses straight-line depreciation on all
22. Purvis Company manufactures a product that has a variable cost plant assets.
of P50 per unit. Fixed costs total P1,000,000 and are allocated on If Larz wishes to maintain the same contribution margin ratio after
the basis of the number of units produced. Selling price is computed implementing the changes, what selling price per unit of product
by adding a 10% markup to full cost. How much should the selling must it charge next year to cover the increased material costs?
price be per unit for 100,000 units? A. P27.00 C. P32.50
A. P55. C. P61 B. P25.00 D. P28.33
B. P60. D. P66
Additional unit sales
29.Donnelly Corporation manufactures and sells T-shirts imprinted with 25.In 2001 Lucia Company had a net loss of P8,000. The company sells
college names and slogans, Last year, the shirts sold for P7.50 one product with a selling price of P80 and a variable cost per unit
each, and the variable cost to manufacture them was P2.25 per of P60. In 2002, the company would like to earn a before-tax profit
unit. The company needed to sell 20,000 shirts to break even. The of P40,000. How many additional units must the company sell in
net income last year was P5,040. Donnelly's expectation for the 2002 than it sold in 2001? Assume that the tax rate is 40 percent.
coming year include the following: A. 1,600 C. 2,400
 The sales price of the T-shirts will be P9 B. 2,000 D. 5,400

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Unit sales income by P30,000? (effective income tax rate is 40%)

36.Gorilla, Co. provides two products, M and W. M accounts for 60 A. 10,700 C. 20,000
percent of total sales, variable cost as a percentage of selling price B. 12,100 D. 28,300
are 60% for M and 85% for W. Total fixed costs are P225,000.
If fixed costs will increase by 30 percent, what amount of peso sales 41.Siberian Ski Company recently expanded its manufacturing
would be necessary to generate an operating profit of P48,000? capacity, which will allow it to produce up to 15,000 pairs of cross-
A. P1,350,000 C. P1,135,000 country skis of the mountaineering model or the touring model. The
B. P486,425 D. P910,000 Sales Department assures management that it can sell between
9,000 pars and 13,000 pairs of either product this year. Because the
10.Tip Company wishes to market a new product for P15.00 a unit. models are very similar, Siberian Ski will produce only one of the
Fixed costs to manufacture this product are P1,000,000 for less than two models.
500,000 units and P1,500,000 for 500,000 or more units. The The following information was compiled by the Accounting
contribution margin is 20%. How many units must be sold to realize Department.
net income from this product of P1,000,000? Per Unit (Pairs) Data
A. 266,667 C. 833,333 Mountaineering Touring
B. 533,333 D. 666,667 Selling price P88.00 P80.00
Variable costs 52.80 52.80
18.Lindsay Company reported the following results from sales of 5,000 Fixed cost will total P369,600 if the mountaineering model is
units of product A for June: produced but will be only P316,800 if the touring model is
Sales P200,000 produced. Siberian ski is subject to a 40% income tax rate.
Variable costs (120,000) If Siberian Ski Company desires an after tax net income of P24,000,
Fixed costs ( 60,000) how many pairs of touring model skis will the company have to sell?
Operating income P 20,000 A. 13,118 C. 13,853
Assume that Lindsay increases the selling price of product A by B. 12,529 D. 4,460
10% on July. How many units of product A would have to be sold in
July to generate an operating income of P20,000? Sales amount
A. 4,000 C. 4,500 5. DJH Company has sales of P360,000, variable costs of P216,000,
B. 4,300 D. 5,000 and fixed costs of P150,000. To earn a 10% return on sates, DJH
must have sales of (E)
20.Brunei Corp. is developing a new product, surge protectors for high- A. P375,000 C. P440,000
voltage electrical flows. The cost information for the product are: B. P470,000 D. P500,000
Direct materials, P3.25 per unit; Direct labor, P4.00 per unit;
Distribution, P0.75 per unit. The company will also be absorbing 26.Gorilla, Co. provides two products, M and W. M accounts for 60
P120,000 of additional fixed costs associated with this new product. percent of total sales, variable cost as a percentage of selling price
A corporate fixed charge of P20,000 currently absorbed by other are 60% for M and 85% for W. Total fixed costs are P225,000. If
products will be allocated to this new product. fixed costs will increase by 30 percent, what amount of peso sales
How many surge protectors (rounded to the nearest hundred) must would be necessary to generate an operating profit of P48,000?
Brunei sell at a selling price of P14 per unit to increase after-tax
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A. P1,350,000 C. P1,135,000 made on other days if the stores were no open on Sundays. The
B. P486,425 D. P910,000 one-day volume of Sunday sales that would be necessary for Six-
Two to attain the same weekly operating income as the current six-
32.Mount Park, Inc. had the following economic information for the day week is
year 2002: A. P6,000 C. P7,500
Sales (50,000 units @ P20) P1,000,000 B. P5,000 D. P8,000
Variable manufacturing costs 400,000
Fixed costs 250,000 5. Six-Two Convenience Store currently opens only Monday through
Income tax rate 40 percent Saturday. Six-Two is considering opening on Sundays. The annual
Mount Park budgets its 2003 sales at 60,000 units or P1,200,000. incremental fixed costs of Sunday openings are estimated at
The company anticipates increased competition; hence, an P39,000. Six-Two’s gross margin on sales is 25 percent. Six-Two
additional P75,000 advertising costs is budgeted in order to estimates that 60 percent of its Sunday sales to customers would
maintain its sales target for 2003. be made on other days if the stores were not open on Sundays.
What is the amount of peso sales needed for 2003 in order to equal The one-day volume of Sunday sales that would be necessary for
the after-tax income in 2002? Six-Two to attain the same weekly operating income as the current
A. P1,125,000 C. P1,187,500 six-day week is
B. P1,325,000 D. P1,387,500 A. P6,000 C. P7,500
B. P5,000 D. P4,500
27.Mount Park, Inc. had the following economic information for the
year 2002: 10. Camay Company is a grocery store that is currently open only
Sales(50,000 units @ P20) P1,000,000 Monday through Saturday. Camay Company is considering opening
Variable manufacturing costs 400,000 on Sundays. The annual incremental costs of Sunday openings are
Fixed costs 250,000 estimated at P31,200. Camay’s gross margin on sales is 25
Income tax rate 40 percent percent. Camay estimates that 75 percent of its Sunday sales to
Mount Park budgets its 2003 sales at 60,000 units or P1,200,000. customers would be made on other days if the store were not open
The company anticipates increased competition; hence, an on Sundays.
additional P75,000 advertising costs is budgeted in order to The one-day volume of Sunday sales that would be necessary for
maintain its sales target for 2003. Camay to attain the same weekly operating as the current six-day
What is the amount of peso sales needed for 2003 in order to equal week is
the after-tax income in 2002? A. P2,400 C. P9,600
A. P1,125,000 C. P1,187,500 B. P3,200 D. P9,984
B. P1,325,000 D. P1,387,500
28.Donnelly Corporation manufactures and sells T-shirts imprinted with
26.Six-Two Convenience Store currently opens only Monday through college names and slogans. Last year, the shirts sold for P7.50
Saturday. Six-Two is considering opening on Sundays. The annual each, and the variable cost to manufactures them was P2.25 per
incremental fixed costs of Sunday openings are estimated at unit. The company needed to sell 20,000 shirts to break even. The
P41,600. Six-Two’s gross margin on sales is 25 percent. Six-Two net income last year was P5,040. Donnelly’s expectation for the
estimates that 60percent of its Sunday sales to customers would be coming year include the following:
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 The sales price of the T-shirts will be P9 28.The following relates to Gloria Corporation, which produced and sold 50,000
 Variable cost to manufacture will increase by one-third units during a recent accounting period:
 Fixed costs will increase by 10% Sales P850,000
 The income tax rate of 40% will be unchanged Income tax rate 40%
If Donnelly wishes to earn P22,500 in net income for the coming Variable Fixed
year, the company’s sales volume in pesos must be Manufacturing cost 140,000 210,000
A. P213,750 C. P207,000 Selling & administrative 45,000 300,000
B. P257,625 D. P229,500 expense
For the next accounting period, if production and sales are expected
25.Madden, Company has projected its income before taxes for next to be 40,000 units, the company should anticipate a contribution
year as shown below. Madden is subject to a 40% income tax rate. margin per unit of
Sales (160,000 P8,000,000 A. P1.00. C. P3.10
units) B. P13.30. D. P7.30
Cost of sales
Variable costs P 2,000,000 Contribution Margin Ratio
Fixed costs 3,000,000 5,000,000 29.Last year, the marginal contribution rate of Lamesa Company was
Income before P 3,000,000 30%. This year, fixed costs are expected to be P120,000, the same
taxes as last year, and sales are forecasted at P550,000 a 10% increase
Madden’s net assets are P36,000,000. The peso sales that must be over last year. For the company to increase income by P15,000 in
achieved for Madden to earn a 10 percent after tax return on assets the coming year, the marginal contribution margin rate must be
would be A. 20% C. 40%
A. P8,800,000 C. P12,000,000 B. 30% D. 70%
B. P16,000,000 D. P6,880,000
Total Fixed Costs
Unit variable cost 30.The Ship Company is planning to produce two products, Alt and
31.Story Manufacturing incurs an annual fixed cost of P250,000 in Tude. Ship is planning to sell 100,000 units of Alt at P4 a unit and
producing and selling "Tales" Estimated unit sales for 2000 are 200,000 units of Tude at P3 a unit. Variable costs are 70% of sales
125,000. An after-tax income of P75,000 is desired by management. for Alt and 80% of sales for Tude. In order to realize a total profit of
The company projects its income tax rate at 40%. What is the P160,000, what must the total fixed costs be?
maximum amount that Story can expend for variable costs per unit A. P80,000 C. P240,000
and still meet its profit objective if the sale price per unit is B. P90,000 D. P600,000
projected at P6?
A. P3.37 C. P3.00 Operating income
B. P3.59 D. P3.70 32.A manufacturer produces a product that sells for P10 per unit.
Variable costs per unit are P6 and total fixed costs are P12,000. At
Unit Contribution Margin this selling price, the company earns a profit equal to 10% of total
peso sales. By reducing its selling price to P9 per unit, the

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manufacturer can increase its unit sales volume by 25%. Assume country. The stores carry many styles of shoes that are all sold at
that there are no taxes and that total fixed costs and variable costs the same price. To encourage sales personnel to be aggressive in
per unit remain unchanged. If the selling price were reduced to P9 their sales efforts, the company pays a substantial sales
per unit, the profit would be commission on each pair of shoes sold. Sales personnel also
A. P3,000 C. P5,000 receive a small basic salary.
B. P4,000 D. P6,000 The following cost and revenue data relate to Store 21 and are
typical of the company’s many sales outlets:
33.Wilson Co. prepared the following preliminary forecast concerning Selling price P 800
product G for next year assuming no expenditure for advertising: Variable expenses:
Selling price per unit P 10 Invoice costs P360
Units sales 100,000 Sales commission 140
Variable costs P600,000 500
Fixed costs P300,000 Fixed expenses per year:
Based on a market study in December of this year, Wilson Rent P1,600,000
estimated that it could increase the unit selling price by 15% and Advertising 3,000,000
increase the unit sales volume by 10% if P100,000 were spent on Salaries 1,400,000
advertising. Assuming that Wilson incorporates these changes in its Total P6,000,000
forecast, what should be the operating income from product G? The company is considering paying the store manager a P60
A. P175,000 C. P205,000 commission on each pair of shoes sold in excess of break-even
B. P190,000 D. P365,000 point. If this change were made, what will be the store’s before tax
profit or loss assuming 23,500 pairs of shoes are sold in a year?
27.Below is an income statement for Bender Co. for 2000: A. P(360,000) C. P840,000
Sales P400,000 B. P2,930,000 D. P1,330,000
Variable costs (125,000)
Contribution margin P275,000 Change in operating income
Fixed costs (200,000) 30.Machan Co.’s year-end income statement is as follows:
Profit before tax P75,000 Sales (20,000 units) P360,000
Assuming that the fixed costs are expected to remain at P200,000 Variable costs 220,00
for 2001, and the sales price per unit and variable costs per unit are 0
also expected to remain constant, how much profit before tax will Contribution margin P140,000
be produced if the company anticipates 2001 sales rising to 130% Fixed costs 105,000
of the 2000 level? Net income P35,000
A. P97,000 Management is unhappy with the results and plans to make some
B. P195,000 changes for next year. If management implements a new marketing
C. P157,500 program, fixed costs are expected to increase by P19,200 and
D. A prediction cannot be made from the information variable costs to increase by P1 per unit. Unit sales are expected to
34.Shoes, Unlimited operates a chain of shoe stores around the
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increase by 15 percent. What is the effect on income if the Selling price per unit P500
foregoing changes are implemented? Variable cost per unit P300
A. decrease of P21,200 C. increase of P13,800 Total fixed costs P2,000,000
B. increase of P1,800 D. increase of P14,800 What is the profit when one unit more than the breakeven point is
sold?
31.Signal Co. manufactures a single product. For 2000, the company A. P500 C. P5,000,500
had sales of P90,000, variable costs of P50,000, and fixed costs of B. P200 D. P2,000,200
P30,000. Signal expects its cost structure and sales price per unit
to remain the same in 2001, however total sales are expected to Fixed costs
jump by 20%. If the 2001 projections are realized, net income in 4. DSP Company earned P100,000 on sales of P1,000,000. It earned
2001 should exceed net income in 2000 by P130,000 on sales of P1,100,000. Total fixed costs are (M)
A. 100% C. 20% A. P 0 C. P420,000
B. 80% D. 50% B. P200,000 D. P900,000

Sensitivity Analysis 35.Last month, Zamora Company had an income of P0.75 per unit with
Change in breakeven point sales of 60,000 units. During the current month when the units
19.The following data relate to Homer Company which sells a single sales are expected to be only 45,000, there is a loss of P1.25 per
product: unit. Both the variable cost per unit and total costs remain
Unit selling price P 20.00 constant.
Purchase cost per unit 11.00 The fixed costs amounted to
Sales commission, 10% of selling price 2.00 A. P80,000 C. P247,500
Monthly fixed costs P80,000 B. P360,000 D. P210,000
The firm’s salespersons would like to change their compensation
from a 10 percent commission to a 5 percent commission plus 6. Aloha, Inc. has a total of 2,000 rooms in its nationwide chain of
P20,000 per month in salary. They now receive only commission. hotels. On the average, 70 percent of the rooms are occupied each
The change in compensation plan should change the monthly day. The company’s operating costs are P21 per occupied room per
breakeven point by day at this occupancy level, assuming a 30-day month. This P21
A. 1,071 Increase C. 1,538 Increase figure contains both variable and fixed cost elements. During
B. 1,071 Decrease D. 1,538 Decrease October, the occupancy dropped to only 45 percent. A total of
P792,000 in operating cost was incurred during the month.
Contribution margin What would be the expected operating costs, assuming that the
34.If fixed costs increase while variable cost per unit remains constant, occupancy rate increases to 60 percent during November?
the contribution margin will be A. P1,056,000 C. P846,000
A. Lower C. Unchanged B. P 756,000 D. P829,500
B. Higher D. Unpredictable
Change in fixed costs
21.Paperbacks Publishing Co. projected the following information for 33.The following data apply to Cross Corporation for the year 2004:
next year: Total variable cost per unit P3.50
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Contribution margin/sales 30% price. To encourage sales personnel to be aggressive in their sales
Breakeven sales (present volume) P1,000,000 efforts, the company pays a substantial sales commissions on each
Cross wants to sell an additional 50,000 units at the same selling pair of shoes sold. Sales personnel also receive a minimum basic
price and contribution margin. By how much can fixed costs salary.
increase to generate a gross margin equal to 10% of the sales value The following cost and revenue data typical of the company’s many
of the additional 50,000 units to be sold? sales outlets:
A. P50,000 C. P67,500 Selling price P800
B. P57,500 D. P125,000 Variable expenses:
Invoice costs P360
9. Santos Company is planning its advertising campaign for next year Sales commission 140
and has prepared the following budget data based on a zero P500
advertising expenditure: Fixed expenses per year:
Normal plant capacity 200,000 units Rent P1,600,000
Sales 150,000 units Advertising 3,000,000
Selling price P25 per unit Salaries 1,400,000
Variable manufacturing costs P15 per unit Total P6,000,000
Fixed manufacturing costs P800,000 The company is considering paying the store manager a P60
Fixed selling and adm costs P700,000 commission on each pair of shoes sold in excess of break-even
An advertising agency claims that an aggressive advertising point. If this change were made, what will be the store’s before tax
campaign would enable Santos to increase its unit sales by 20%. profit or loss assuming 23,000 pairs of shoes are sold in a year?
What is the maximum amount that Santos Company can pay for A. P 720,000 C. P 920,000
advertising and have an operating profit of P200,000 next year? B. P(480,000) D. P(680,000)
A. P100,000 C. P300,000
B. P200,000 D. P550,000 7. Candyman Company is a wholesale distributor of candy. The
company services grocery, convenience, and drug stores in Metro
37.The Rizal Marketing Co., is expecting an increase of fixed costs by Manila. Small but steady growth in sales has been achieved by the
P78,750 upon moving their place of business to the downtown area. company over the past few years while candy prices have been
Likewise it is anticipating that the selling price per unit and the increasing. The company is formulating its plans for the coming
variable expense will not change. At present, the sales volume fiscal year. Presented below are the data used to project the
necessary to breakeven is P750,000 but with the expected increase current year’s after-tax net income of P110,400.
in fixed costs, the sales volume necessary to breakeven would go Average selling price P4.00 per box
up to P975,000. Based on these projections, what would be the Average variable costs
total fixed costs after the increase of P78,750? Cost of candy P2.00 per box
A. P341,250 C. P183,750 Selling expenses 0.40 per box
B. P262,500 D. P300,000 Total P2.40 per box
Annual fixed costs
38.MS operates a chain of shoe stores around the metropolitan city. Selling P160,000
MS stores carry many styles of shoes that are all sold at the same Administrative 280,000
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Total fixed costs P440,000 Sales commission, 10% of selling price 2.00
Expected annual sales volume (390,000 boxes) Monthly fixed costs P80,000
P1,560,000 The firm’s salespersons would like to change their compensation
Manufacturers of candy have announced that they will increase from a 10 percent commission to a 5 percent commission plus
prices of their products an average of 15% in the coming year due P20,000 per month in salary. They now receive only commissions.
to increases in raw material (sugar, cocoa, peanuts, etc.) and labor At what sales volume would the two compensation plans be
costs. Candyman Company expects that all other costs will remain indifferent?
at the same rates or levels as the current year. Candyman is A. 12,500 C. 20,000
subject to 40 percent tax rate. B. 22,222 D. 22,860
If net income after taxes is to remain the same after the cost of
candy increases but no increase in the sales price is made, how Sales amount
many boxes of candy must Candyman sell? 39.BM Motors Inc. employs 40 sales personnel to market its line of
A. 480,000 C. 503,225 luxury automobiles. The average car sells for P1,200,000 and a 6%
B. 423,385 D. 443,871 commission is paid to the salesperson. BM Motors is considering a
change to a commission arrangement that would pay each
Indifference Point salesperson a salary of P24,000 per month plus a commission of 2%
Units sold of the sales made by that salesperson.
40.Dulce, Inc. owns and operates a chain of food centers. The The amount of total car sales at which BM Motors would be
management is considering installing machines that will make indifferent as to which plan to select is
popcorn on the premises. These machines are available in two A. P22,500,000 C. P24,000,000
different sizes with the following details. B. P30,000,000 D. P12,000,000
Economy Regular
Annual capacity 20,000 50,000 10. Blue Ski Company recently expanded its manufacturing capacity
Costs: Annual machine P60,000.00 P82,500.00 to allow it to produce up to 15,000 pairs of cross-country skis of
rental either the mountaineering model or the touring model. The sales
Popcorn cost per box 3.90 3.90 department assures management that it can sell between 9,000
Cost of each box 0.80 0.80 and 13,000 pairs (units) of either product this year. Because the
Other variable cost per box 6.60 4.20 models are very similar, Blue Ski will produce only one of the two
models. The information below was compiled by the accounting
The level of output in boxes at which the Economy and the Regular
department.
would earn the same profit (loss) is
A. 20,000 boxes C. 9,375 boxes Mountaineer Touring
B. 15,000 boxes D. 12,500 boxes ing
Selling price per unit P880.00 P800.00
13.The following data relate to Homer Company which sells a single Variable costs per unit P528.00 P528.00
product: Fixed costs will total P3,696,000 if the mountaineering model is
Unit selling price P 20.00 produced but will be only P3,168,000 if the touring model is
Purchase cost per unit 11.00 produced. Blue Ski is subject to a 40% income tax rate.

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The total sales revenue at which Blue Ski Company would make the A. P1,066,667 C. P1,000,000
same profit or loss regardless of the ski model it decided to produce B. P1,280,000 D. P 800,000
is
A. P8,800,000 C. P4,224,000 Fixed costs
B. P9,240,000 D. P6,864,000 7. Lemery Corporation had sales of P120,000 for the month of May. It
has a margin of safety ratio of 25 percent, and after-tax return on
Margin of Safety sales of 6 percent. The company assumes its sales and fixed costs
9. The following information pertains to Dove Corporation for the year constant every month. If the tax rate is 40 percent, how much is the
ending December 31, 2000: annual fixed costs? (M)
Budgeted sales P1,000,000 A. P36,000 C. P432,000
Breakeven sales 700,000 B. P90,000 D. P360,000
Budgeted contribution margin 600,000
Cashflow breakeven 200,000 Operating Leverage
Dove’s margin of safety is 43.A very high operating leverage indicates that a firm
A. P300,000 C. P500,000 A. has high fixed cost C. has high variable costs
B. P400,000 D. P800,000 B. has high net income D. is operating close to its
breakeven point
Breakeven point
42.Russini, Inc. had the following economic data for 2004: 45.Firm D and Finn S are competitors within the same industry. Firm D
Net sales P400,000 produces its product using large amounts of direct tabor. Firm S has
Contribution margin P160,000 replaced direct labor with investment in machinery. Projected sales
Margin of safety P 40,000 for both firms are fifteen percent less than in the prior year. Which
What is Russini's breakeven point in 2004? statement regarding projected profits is true?
A. P360,000 C. P288,000 A. Firm D will lose more profit than Firm S.
B. P320,000 D. P 80,000 B. Firm S will lose more profit than Firm D.
C. Firm D and Firm S will lose the same amount of profit.
Current sales D. Neither Firm D nor Firm S will lose profit.
6. If a business had a margin of safety ratio of 20%. variable costs of
75% of sales, fixed costs of P240,000, a break-even point of 44.The Didang Company has an operating leverage of 2. Sales for
P960,000 and operating income of P60,000 for the current year, 2001 are P2,000,000 with a contribution margin of P1,000,000.
what are the current year's sales? (M) Sales are expected to be P3,000,000 in 2002. Net income for 2002
A. P1,200,000 C. P1,260,000 can be expected to increase by what amount over 2001?
B. P1,040,00 D. P1,020,000 A. P250,000 C. P500,000
B. 200 percent D. 40 percent
6. Pansipit Company had a 25 percent margin of safety. Its after-tax
return on sales is 6 percent, and tax rate of 40 percent. If fixed 46.Signal Co. manufactures a single product. For 2000, the company
costs amount to P320,000, how much sales did Pansipit make for had a sales of P90,000, variable costs of P50,000, and fixed costs of
the year? P30,000. Signal expects its cost structure and sales price per unit to
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remain the same in 2001, however total sales are expected to jump 49.Coo Company manufactures a single product using standard
by 20%. If the 2001 projections are realized, net income in 2001 costing. Variable production costs; are P12 and fixed production
should exceed net income in 2000 by costs are P125,000. Coo uses a normal activity of 12,500 units to
A. 100% C. 20% set its standard costs. Coo began the year with 1,000 unite in
B. 80% D. 50% inventory, produced 11,000 units, and sold 11,500 units.
The standard cost of goods sold under variable costing would be
Absorption Costing & Variable Costing A. P115,000 C. P242,000
Variable Costing B. P138,000 D. P253,000
47.Which of the following statements is true for a firm that uses
variable (direct) costing? Absorption Costing
A. The cost of a unit of product changes because of changes in the 15. When a firm prepares financial reports by using absorption costing
number of units manufactured A. profits will always increase with increase in sales
B. Profits fluctuate with sales B. profits will always decrease with decreases in sales
C. An idle facility variation is calculated C. profits may decrease with increased sales even if there is no
D. Product costs include “direct” (variable) administrative costs change in selling prices and costs
D. decreased output and constant sales result in increased profits
48.Which of the following is not true of variable costing?
A. Profits may increase though sales decrease 18.West Co.’s 2000 manufacturing costs were as follows:
B. Profits fluctuate with sales Direct materials and direct labor P 700,000
C. The cost of the product consists of all variable production costs Other variable manufacturing costs 100,000
D. The income statement under variable costing does not include Depreciation of factory building and manufacturing equipment
overhead volume variance. 80,000
Other fixed and manufacturing overhead 18,000
21.The following information was extracted from the first year of What amount should be considered product cost for external
absorption-based accounting records of NOLI Co. reporting purposes?
Total fixed costs incurred .P100,000 A. P 700,000 C. P880,000
Total variable costs incurred 50,000 B. P800,000 D. P898,000
Total period costs incurred .70,000
Total variable period costs incurred 30,000 16. Toshiba Company incurred the following costs in manufacturing
Units produced 20,000 desk calculators:
Units sold 12,000 Direct materials . P70
Unit sales Price P 12 Indirect materials (variable) 20
Based on variable costing, if NOLI Company had sold 12,001 units Direct labor 40
instead of 12,000, its income before taxes would have been Indirect labor (variable) 30
A. P 9.50 higher C. P8.50 higher Other variable factory overhead 50
B. P11.00 higher D. P8.33 higher Fixed factory overhead 140
Variable selling expenses 100
Fixed selling expenses 70
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During the period, the company produced and sold 1,000 units. direct labor hours per year. The actual factory overhead cost for the
What is the inventory cost per unit using absorption costing? end of 2004 and 2005 was P60,000. Assume that it takes one direct
A. P520 C. P420 labor hour to make one finished unit.
B. P350 D. P310 When the annual estimated factory overhead rate is used, the gross
profits for 2004 and 2005, respectively, are
50.Colger Company manufacture a single product using standard A. P75,000 and P75,000 C. 75,000 and P55,000
costing. Variable production costs are P12 and fixed production B. P125,000 and P125,000 D. P75,000 and P50,000
costs are P125,000. Colger uses a normal activity of 12,500 units to
set its standard costs. Colger began the year with 1,000 units in 14.Apo Company’s variable costing income statement for August
inventory, produced 11,000 units, and sold 11,500 units. The appears below:
standard costs of goods sold under absorption costing would be Sales (P15 per unit) P600,000
A. P115,000 C. P242,000 Less variable costs:
B. P132,000 D. P253,000 Variable cost of goods sold:
Beginning inventory P 72,000
51.The Trinkets Company estimated the following data for the coming Add variable cost of goods manufactured 315,000
year: Goods available for sale 387,000
Fixed manufacturing costs P565,000 Less ending inventory 27,000
Variable production costs per peso of sales Variable cost of goods sold 360,000
Materials P0.125 Variable selling expenses 80,000
Direct labor 0.150 Total variable costs 440,000
Variable overhead 0.075 Contribution margin 160,000
Variable selling costs per peso of sales 0.150 Fixed costs:
Trinkets estimates its sales for the coming year to be P2,000,000. Fixed manufacturing P 105,000
The expected costs of goods sold for the coming year is Fixed selling and administrative 35,000
A. P1,265,000 C. P1,115,000 Total fixed costs 140,000
B. P1,565,000 D. P700,000 Net income P 20,000
The company produces 35,000 units each month. Variable
52.Alma Company budgeted that factory overhead for 2004 and 2005 production costs per unit and total fixed costs have remained
would be P60,000 for each year. The predicted and actual activity constant over the past several months.
for 2004 and 2005 were 30,000 and 20,000 direct labor hours, Using the absorption costing method, the peso value of the
respectively. company’s inventory on August 31 and the absorption income,
2004 2005 respectively, would be
Sales in units 25,000 25,000 A. B. C. D.
Selling price per unit P10 P10 Inventory P27,000 P27,000 P36,000 P36,000
Direct materials and direct labor P5 P5 Value
per unit Absorption P35,000 P 5,000 P 5,000 P35,000
The company assumes that the long-run production level is 20,000 Income

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56.Southseas Corp. uses a standard cost system. The standard cost

54.Nirvana Co. employs a normal (nonstandard) absorption cost per unit of one of its products are as follows:
system. The information below is from the financial records of the Direct Materials P4.00
company for the year. Direct labor 6.00
 Total manufacturing costs were P2,500,000 Factory overhead
 Costs of goods of manufactured was P2,425,000 Variable 3.00
 Applied factory overhead was 30 percent of total manufacturing Fixed (based on a normal capacity of 10,000 units) 2.00
costs Total 15.00
 Factory overhead was applied to production at a rate of 80% of
direct labor cost Beginning inventory 2,000 units
 Work-in-process inventory at January 1 was 75% of work-in- Production 8,000 units
process inventory at December 31 Units sold (selling price P50) 7,000 units
What are the amounts/value of the following cost elements and
inventory? Actual costs:
Direct labor Direct materials Work-in-process Direct materials P35,000
inventory Direct labor 50,000
A P750,000 P750,000 P225,000 Variable overhead 23,000
. Fixed 18,000
B P937,500 P812,500 P225,000 Variable selling and adm. 60,000
. Fixed selling and adm. 35,000
C P937,500 P812,500 P300,000 Variances are closed to cost of sales monthly
. How much are the net income under absorption costing and
D P750,000 P750,000 P300,000 variable costing methods?
. A. B. C. D.
Absorption P144,000 P143,000 P144,000 P142,000
Variable & Absorption Costing Variable P143,000 P144,000 P142,000 P144,000
55.Lord Industries manufactures a single product. Variable production
costs are P10 and fixed production costs are P75,000. Lord uses a Variable vs. Absorption Costing
normal activity of 10,000 units to set its standard costs. Lord began 8. Absorption costing differs from variable costing in that (M)
the year with no inventory, produced 11,000 units and sold 10,500 A. standards can be used with absorption costing/ but not with
units. The volume variance under each product costing are: variable costing.
A. B. C. D. B. absorption costing inventories are more correctly valued,
Under Absorption P3,750 P3,750 P7,500 P7,500 C. production influences income under absorption costing, but not
Costing under variable costing.
Under Variable 0 7,500 3,750 0 D. companies using absorption costing have lower fixed costs.
Costing

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12.A manufacturing firm presently has total sales of P1,000,000. If its

sales rise, its 58.Simple Corp. produces a single product. The following cost structure
A. net income based on variable costing will go up more than applied to their first year of operations, 2000:
its net income based on absorption costing. Variable costs:
B. net income based on absorption costing will go up more SG&A P2.00 per unit
than its net income based on variable costing. Production 4.00 per unit
C. fixed costs will also rise. Fixed Costs (total cost incurred for the year)
D. per unit variable costs will rise. SG&A P14,000
Production P20,000
9. Which of the following is(are) closely related to variable costing Assume that during 2000 Simple Corp. manufactured 5,000 units
than to absorption costing? (M) and sold 3,800 There was no beginning or ending work-in-process
1. Predetermined fixed overhead 5. Gross margin inventory. How much larger or smaller would Simple Corp.'s income
2. Unit sales 6. Volume variance be if it uses absorption rather than variable costing?
3. Production units 7. Cost behavior A. The absorption costing income would be P6,000 larger
4. Contribution margin 8. Management accounting B. The absorption costing income would be P6,000 smaller
A. 1, 2, 4, 6, 7, 8 C. 1, 3, 4, 7, 8 C. The absorption costing income would be P4,800 larger
B. 2, 4, 7, 8 D. 1, 3, 5, 6 D. The absorption costing income would be P4,000 smaller

57.The level of production affects income; under which of the following 59.The following information has been extracted from P Co.’s financial
methods? records for its first year of operations:
A. Absorption costing C. both absorption and variable Units produced 10,000
costing Units sold 7,000
B. variable costing D. neither absorption nor Variable cost per unit:
variable costing Direct materials P8
Direct labor 9
10.Under which inventory costing method could increases or decreases Factory overhead 3
in income from operations be misinterpreted to be the result of SG&A 4
operating efficiencies or inefficiencies? (M) Fixed costs:
A. Variable costing C. Incremental costing Manufacturing overhead P70,000
B. Absorption costing D. Differential costing SG&A 30,000
Based on absorption costing, P Co.’s income in its first year of
Reconciliation of Variable & Absorption Costing Income operations will be
11.York Company had P200,000 income using absorption costing. York A. P21,000 higher than it would be under variable costing
has no variable manufacturing costs. Beginning inventory was B. P70,000 higher than it would be under variable costing
P15,000 and ending inventory was P22,000. Income under variable C. P30,000 higher than it would be under variable costing
costing would have been (M) D. Higher than it would be under variable costing, but the exact
A. P178,000 C. P193,000 difference cannot be determinable from this information
B. P200,000 D. P207,000
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60.Valyn Corporation employs an absorption costing system for which was the same as the 2001 planned unit manufacturing cost.
internal reporting purposes; however, the company is considering There are no work-in-process inventories at either the beginning or
using variable costing. Data regarding Valyn's planned and actual the end of the year. The planned and actual unit selling price for
operations for the 2001 calendar year are presented below. 2001 was P70.00 per unit
Planned Actual activity The difference between Valyn Corporations 2001 operating income
activity calculated on the absorption costing basis and calculated on the
Beginning finished goods 35,000 35,000 variable costing basis was
inventory in units A. P65,000 C. P40,000
Sales in units 140,000 125,000 B. P25,000 D. P90,000
Production in units 140,000 130,000
The planned per unit cost figures shown in the next schedule were Standard Costing & Variance Analysis
based on the estimated production and sale of 140,000 units in Basic Concepts
2001. Valyn uses a predetermined manufacturing overhead rate for 12.Normal costing and standard costing differ in that (M)
applying manufacturing overhead to its product; thus, a combined A. the two systems can show different overhead budget variances.
manufacturing overhead rate of P9.00 per unit was employed for B. only normal costing can be used with absorption costing.
absorption costing purposes in 2001. Any over-or under applied C. the two systems show different volume variances if standard
manufacturing overhead is closed to the cost of goods sold account hours do not equal actual hours.
at the end of the repotting year. D. normal costing is less appropriate for multiproduct firms.
Planned costs Incurred
62.Which of the following is a difference between a static budget and a
Per unit Total Costs
flexible budgets?
Direct materials P12.00 P1,680,00 P1,560,00
A. A flexible budget includes only variable costs; a static budget
0 0
includes only fixed costs.
Direct labor 9.00 1,260,000 1,170,000
B. A flexible budget includes all costs, a static budget includes only
Variable manufacturing 4.00 560,000 520,000
fixed costs.
overhead
C. A flexible budget gives different allowances for different levels of
Fixed manufacturing 5.00 700,000 715,000
activity, a static budget does not
overhead
D. There is no difference between the two.
Variable selling expenses 8.00 1,120,000 1,000,000
Fixed selling expenses 7.00 980,000 980,000
Standard Setting
Variable administrative 2.00 280,000 250,000
63.Which of the following statements about the selection of standards
expenses
is true?
Fixed administrative 3.00 420,000 425,000
A. Ideal standards tend to extract higher performance levels since
expenses
they give employees something to live up to.
Total P50.00 P7,000,00 P6,620,00 B. Currently attainable standards may encourage operating
0 0 inefficiencies.
The 2001 beginning finished goods inventory for absorption costing C. Currently attainable standards discourage employees from
purposes was valued at the 1998 planned unit manufacturing cost, achieving their full performance potential.
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D. Ideal standards demand maximum efficiency which may leave 17.Agusan Company uses a standard costing system in connection
workers frustrated, thus causing a decline in performance. with manufacture of a “one size fits all” article of clothing. Each
unit of finished product contains 2 yards of direct material.
64.The best basis upon which costs standards should be set to However, a 20% direct material spoilage calculated on input
measure controllable production inefficiencies is quantities occurs during the manufacturing process. The cost of
A. Engineering standards based on ideal standards the direct material is P150 per yard. The standard direct material
B. Normal capacity cost per unit of finished product is
C. Recent average historical performance A. P240 C. P360
D. Engineering standards based on attainable performance B. P300 D. P375

65.To measure controllable production inefficiencies, which of the 66.T Company purchased 340,000 pounds of material at a cost of
following is the best basis for a company to use in establishing the P510,000. The materials price variance was unfavorable by
standard hours allowed for the output of one unit of product? P34,000. During the year, 300,000 pounds of this material was
A. Average historical performance for the last several years. requisitioned for production. The materials quantity variance was
B. Engineering estimates based on ideal performance. unfavorable by P11,200. The standard cost of materials that should
C. Engineering estimates based on attainable performance. have been used in production was
D. The hours per unit that would be required for the present A. P430,200 C. P555,200
workforce to satisfy expected demand over the long run. B. P551,500 D. 408,800

Direct materials 67.Derby Co. uses a standard costing system in connection with the
14.Dahl Company, a clothing manufacturer uses a standard costing manufacture of a line of T-shirts. Each unit of finished products
system. Each unit of a finished product contains 1.6 yards of cloth. contains 2 yards of direct material. However, a 20 percent direct
However there is unavoidable waste of 20% calculated on input material spoilage calculated on input quantities occurs during the
quantities, when the cloth is cut for assembly. The cost of the cloth manufacturing process. The cost of the direct materials is P120 per
is P3 per yard. The standard direct material cost for cloth per unit of yard.
finished product is: (M) The standard direct material cost per unit of finished products is
A. P4.80 C. P7.00 A. P192 C. P240
B. P6.00 D. P7.50 B. P288 D. P300

16.Each finished unit of Spring contains 60 pounds of raw material. Variable Overhead
The manufacturing process must provide for a 20% waste 21.The per-unit standard cost for variable overhead is normally based
allowance. The raw material can be purchased for P2.50 a pound on which of the following:
under terms of 2/10, n/30. The company takes all cash discounts. A. The standard quantity of an input factor used in a unit of
The standard direct material cost for each unit of Spring is product.
A. P180.00 C. P183.75 B. The actual variable overhead cost incurred at the achieved level
B. P187.50 D. P176.40 of production.
C. The budgeted total cost for variable overhead divided by the
number of units expected to be produced.
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D. The ratio of fringe benefits to the basic cost of labor.

Materials Variance
Total Overhead Price variance
68.Relevant Company had the following flexible budget for 2003 at 100 70.Information on Energy’s direct material costs for October is as
percent capacity of 30,000 direct labor hours. follows:
Direct materials P800,000 Actual quantity of direct materials purchased and used30,000
Direct labor 600,000 lbs.
Variable manufacturing overhead 360,000 Actual cost of direct materials P92,000
Fixed manufacturing overhead 288,000 Unfavorable direct materials usage variance P 3,000
What is the total manufacturing overhead application rate id the Standard quantity of direct materials allowed for May
Relevant Company has to operate at 80 percent of the stated production 29,000 lbs
capacity? For the month of October, Energy’s direct materials price variance
A. P24.00 C. P24.60 was:
B. P27.00 D. P21.60 A. P3,000 favorable C. P2,000 unfavorable
B. P2,000 favorable D. P2,000 favorable
69. ABC Company is preparing a flexible budget for 2004 and the
following maximum capacity estimates for the manufacturing 11.Information on Mirriam’s direct material costs for May is as follows:
division are available: Actual quantity of direct materials purchased and used 30,000
Direct labor hours 60,000 hours lbs.
Variable factory overhead P600,000 Actual cost of direct materials P84,000
Fixed manufacturing overhead P300,000 Unfavorable direct materials usage variance P 3,000
Assume that ABC’s expected capacity is 80% of maximum capacity. Standard quantity of direct materials allowed for May production
What would be the total factory overhead rate, based on direct 29,000 lbs
labor hours, in a flexible budget at expected capacity? For the month of May, Mirriam’s direct materials price variance was:
A. P18.75 C. P16.25 A. P2,800 favorable C. P6,000 unfavorable
B. P14.25 D. P15.00 B. P2,800 unfavorable D. P6,000 favorable

19.Serafin Company is preparing a flexible budget for 2004 and the Quantity Variance
following maximum capacity estimates for Assembly Department 15.Cox Company's direct material costs for the month of January were
are available: as follows:
Direct labor hours 80,000 hours Actual quantity purchased 18,000 kilograms
Variable factory overhead P640,000 Actual unit purchase price P 3.60 per kilogram
Fixed manufacturing overhead P300,000 Materials price variance unfavorable (based on purchases) P
Assume that Serafin’s expected capacity is 75% of maximum 3,600
capacity. What would be the total factory overhead rate, based on Standard quantity allowed for actual production16,000 kilograms
direct labor hours, in a flexible budget at expected capacity? Actual quantity used 15,000 kilograms
A. P13.00 C. P11.75 For January there, was a favorable direct material quantity variance
B. P15.67 D. P11.00 of: (M)
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A. P3,360 C. P3,400 Material A: 30.25 GALLONS @ P1.25 per gallon

B. P3,375 D. P3,800 Material B: 24.75 gallons @ P2.00 per gallon

Standard quantity Actual:

71.Ramie has a standard price of P5.50 per pound for materials. July's Material A: 10,716 gallons purchased and used @ P1.50 gallon
results showed an unfavorable material price variance of P44 and a Material B: 17,484 gallons purchased and used @ P1.90 per
favorable quantity variance of P209. If 1,066 pounds were used in gallon
production, what was the standard quantity allowed for materials? Skilled labor hours: 1,950 @ P11.90 per hour
A. 1,104 C. 1,074 Unskilled labor hours: 1,300 @ P7.15 per hour
B. 1,066 D. 1,100 During the current month Xtra Klean manufactured five hundred 55-
gallon drums. (Round all answers to the nearest whole peso)
18.The Bohol Company uses standard costing. The following data are What are the total materials mix variance and material yield
available for October: variance?
Actual quantity of direct materials used 23,500 pounds A. B. C. D.
Standard price of direct materials P2 per pound Mix P3,596 U P3,596 F P4,864 F P4,864 U
Material quantity variance P1,000 unfavorable Yield P1,111 U P1,111 F P2,670 F P2,670 U
The standard quantity of material allowed for October production is
A. 23,000 lbs C. 24,500 lbs Labor Variance
B. 24,000 lbs D. 25,000 lbs Labor rate variance
74.The flexible budget for the month of May 2002 was for 9,000 units
Units produced with direct material at P15 per unit. Direct labor was budgeted at 45
72.Silver Company has a standard of 15 parts of Component R costing minutes per unit for a total of P81,000. Actual output for the month
P1.50 each. Silver purchased 14,910 units of R for P22,145. Silver was 8,500 units with P127,500 in direct material and P77,775 in
generated a P220 favorable price variance and a P3,735 favorable direct labor expense. Direct labor hours of 6,375 were actually
usage variance. If there were no changes in the component of worked during the month. Variance analysis of the performance for
inventory, how many units of finished product were produced? the month of May would show a(n)
A. 994 units C. 1,725 units A. favorable material quantity variance of P7,500
B. 1,160 units D. 828 units B. unfavorable direct labor efficiency variance of P1,275
C. unfavorable material quantity variance of P7,500
Mix & Yield Variance D. unfavorable direct labor rate variance of P1,275
73.Xtra Klean manufactures a cleaning solvent. The company employs
both skilled and unskilled workers. Skilled workers class C are paid Actual hours
P12 per hour, while unskilled workers class D are paid P7 per hour. 16.The standards for direct labor for a product are 2.5 hours at P8 per
To produce one 55-gallon drum of solvent requires 4 hours of skilled hour. Last month, 9,000 units of the product were made and the
labor and 2 hours of unskilled labor. The solvent requires 2 different labor efficiency variance was P8,000 F. The actual number of hours
materials: A and B. The standard and actual material information is worked during the past period was: (M)
given below: A. 23,500 C. 20,500
Standard:
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B. 22,500 D. 21,500 P5,100 unfavorable. The actual average wage rate was P0.20 lower
than the average standard wage rate.
75.Stars Company uses a standard cost system. Information about its The company uses a variable overhead rate of 20% of standard
direct labor costs for Product Mars for the month of April follows: direct-labor cost for flexible budgeting purposes. Actual variable
Standard hours allowed for actual production 1,500 overhead for the month was P30,750.
Actual hourly rate paid P61.00 What were the standard hours allowed during the month of April?
Standard hourly rate P60.00 A. 50,250 C. 48,550
Labor efficiency variance, Favorable P6,000 B. 58,625 D. 37,520
How many direct labor hours were actually worked during the
month of April? Standard rate
A. 1,400 C. 1,498 77.Anne had a P750 unfavorable direct labor rate variance and an
B. 1,402 D. 1,600 P800 favorable efficiency variance. Anne paid P7,150 for 800 hours
of labor. What was the standard direct labor wage rate?
76. Information on Ulan Company’s direct labor costs is as follows: A. P8.94 C. P7.94
Standard direct labor rate P7.50 B. P8.00 D. P7.80
Actual direct labor rate P7.00
Standard direct labor hours 20,000 Two-Way Overhead Variance
Direct labor usage variance – unfavorable P8,400 Budget or Controllable Variance
What were the actual hours worked, rounded to the nearest hour? 22. Which of the following are considered controllable variance?
A. 21,914 C. 21,120 A. B. C. D.
B. 20,714 D. 21,200 VOH Spending Yes No No Yes
Total Overhead Yes No Yes Yes
12.Information on Rita Company’s direct labor costs is as follows: Budget
Standard direct labor rate P 3.75 Volume Yes Yes No No
Actual direct labor rate P 3.50
Standard direct labor hours 10,000 78.If actual overhead is P14,000, overhead applied is P13,400, and
Direct labor usage variance – unfavorable P 4,200 overhead budgeted for the standard hours allowed is P15,600, then
What were the actual hours worked, rounded to the nearest hour? the overhead controllable variance is
A. 11,914 C. 11,120 A. P600 F C. P1,600 F
B. 10,714 D. 11,200 B. P2,200 U D. P1,600 U
Standard hours allowed 17.The standard costs and actual costs for factory overhead for the
13.The Carrera Corporation makes a variety of leather goods. It uses manufacture of 2,500 units of actual production are as follows:
standards costs and a flexible budget to aid planning and control. Standard cost
Budgeted variable overhead at a 45,000-direct labor hour level is Fixed overhead (based on 10,000 hours)3 hours @ P.80 per hour
P27,000. Variable overhead 3 hours @ P2 per hour
During April material purchases were P241,900. Actual direct-labor Actual cost
costs incurred were P140,700. The direct-labor usage variance was
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Total variable cost P18,000 Using the two-way analysis of overhead variance, what is the
Total fixed cost P8,000 controllable variance for December?
The amount of the factory overhead controllable variance is (M) A. P3,000 Favorable C. P
A. P2,000 unfavorable C. P0 9,000 Favorable
B. P3,000 favorable D. P3,000 unfavorable B. P5,000 Favorable D.
P10,500 Unfavorable
15.GMA Company employs a standard absorption system for product
costing. The standard cost of its product is as follows: Volume Variance
Direct materials P14.50 13.The unfavorable volume variance may be due to all but which of the
Direct labor (2 direct labor hours at P8) 16.00 following factors? (M)
Manufacturing overhead ( 2 DLH at P11) 22.00 A. failure to maintain an even flow of work
The manufacturing overhead rate is based upon a normal activity B. machine breakdowns
level of 600,000 direct labor hours. Joker planned to produce C. unexpected increases in the cost of utilities
25,000 units each month during the year. The budgeted annual D. failure to obtain enough sales orders
manufacturing overhead is:
Variable P3,600,000 20.How will a favorable volume variance affect net income under each
Fixed 3,000,000 of the following methods?
During November, GMA produced 26,000 units. GMA used 53,500 A. B. C. D.
direct labor hours in November at a cost of P433,350. Actual Absorption Reduce Reduce Increase Increase
manufacturing overhead for the month was P250,000 fixed and Variable No effect Increase No effect Reduce
P325,000 variable.
The manufacturing overhead controllable variance for November is 80.The fixed overhead application rate is a function of a predetermined
A. P13,000 unfavorable C. "normal" activity level. If standard hours allowed for good output
P3,000 favorable equal this predetermined activity level for a given period, the
B. P10,000 favorable D. P4,000 favorable volume variance will be
A. zero
79.Calma Company uses a standard cost system. The following B. favorable
budget, at normal capacity, and the actual results are summarized C. unfavorable
for the month of December: D. either favorable or unfavorable, depending on the budgeted
Direct labor hours 24,000 overhead
Variable factory OH P 48,000
Fixed factory OH P108,000 18.The standard factory overhead rate is P7.50 per machine hour
Total factory OH per DLH P 6.50 (P6.20 for variable factory overhead and P1.30 for fixed factory
overhead) based on 100% capacity of 80,000 machine hours. The
Actual data for December were as follows: standard cost and the actual cost of factory overhead for the
Direct labor hours worked 22,000 production of 15,000 units during August were as follows:
Total factory OH P147,000 Actual:
Standard DLHs allowed for capacity attained 21,000
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Variable factory overhead P360,000 Actual manufacturing overhead for the month was P250,000 fixed
Fixed factory overhead 104,000 and P325,000 variable.
Standard hours allowed for units produced: The manufacturing overhead volume variance for November is
60,000 hours at P7.50 450,000 A. P10,000 unfavorable C. P5,000 unfavorable
What is the amount of the factory overhead volume variance? (M) B. P10,000 favorable D. P5,000 favorable
A. P12,000 unfavorable C. P14,000 unfavorable
B. P12,000 favorable D. P26,000 unfavorable Budgeted Overhead
83.Karla Company use an annual cost formula for overhead of P72,000
81.Hero Company uses a flexible budget system and prepared the + P1.60 for each direct labor hour worked. For the upcoming mouth
following information for the year: Karla plans to manufacture 96,000 units. Each unit requires five
Percent of Capacity 80 90 Percent minutes of direct labor. Karla's budgeted overhead for the month is
Direct labor hours 24,000 27,000 A. P12,800 C. P84,800
Variable factory overhead P 54,000 P 60,750 B. P18,800 D. P774,000
Fixed factory overhead P108,000 P 108,000
Budgeted fixed costs
Total factory overhead rate per P6.75 P6.25
84.CTV Company has a standard feed cost of P6 per unit. At an actual
Hero operated at 80 percent of capacity during the year, but production of 8,000 units a favorable volume variance of P 12,000
applied factory overhead based on the 90 percent capacity level. resulted. What were total budgeted fixed costs?
Assuming that actual factory overhead was equal to the budgeted A. P36,000 C. P60,000
amount of overhead, how much was the overhead volume variance B. P48,000 D. P75,000
for the year?
A. P12,000 unfavorable C. P16,750 unfavorable 23.The Arayat Company makes and sells a single product and uses
B. P12,000 favorable D. P16,750 favorable standard costing. During January, the company actually used 8,700
direct labor-hours (DLHs) and produced 3,000 units of product. The
82.Meteor Company employs a standard absorption system for product standard cost card for one unit of product includes the following:
costing. The standard cost of its product is as follows: Variable factory overhead: 3.0 DLHs @ P4.00 per DLH.
Direct materials P14.50 Fixed factory overhead: 3.0 DLHs @ P3.50 per DLH
Direct labor (2 direct labor hours at P9) 18.00 For January, the company incurred P22,000 of actual fixed overhead
Manufacturing overhead ( 2 DLH at P12) 24.00 costs and recorded a P875 favorable volume variance.
The manufacturing overhead rate is based upon the annual normal The budgeted fixed overhead overhead cost for January is
activity level of 600,000 direct labor hours. Meteor planned to A. P31,500 C. P32,375
produce 25,000 units each month during the year. The budgeted B. P30,625 D. P33,250
annual manufacturing overhead is:
Variable P4,200,000 Normal Capacity
Fixed 3,000,000 85.South Company has total budgeted fixed costs of P75,000. Actual
During November, Meteor produced 26,000 units. Meteor used production of 19,500 units resulted in a P3,000 favorable volume
53,500 direct labor hours in November at a cost of P433,350. variance. What normal capacity was used to determine the fixed
overhead rate?
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A. 16,500 C. 20,313 B. P3,000 Unfavorable D. P5,400 Unfavorable

B. 18,750 D. 20,325
26.The Suez Company has standard variable costs as follows:
Questions 86 & 87 are based on the following information. Materials, 3 pounds at P4.00 per pound P12.00
Lucky Company sets the following standards for 2003: Labor, 2 hours P10.00 per hour 20.00
Direct labor cost (2 DLH @ P4.50) P9.00 Variable overhead, P7.50 per labor hour 15.00
Manufacturing overhead (2 DLH @ P7.50) 15.00 Total P47.00
Lucky Company plans to produce its only product equally each month. During September Suez Company produced 6,000 units, using
The annual budget for overhead costs are: 11,560 labor hours at a total wage of P113,870 and incurring
Fixed overhead P150,000 P88,600 in variable overhead. The variable overhead variances are:
Variable overhead 300,000 A. B. C. D.
Normal activity in direct labor hours 60,000 Spending P1,900 F P1,900 U P1,400 F P1,400 U
In March, Lucky Company produced 2,450 units with actual direct labor Efficiency P3,300 U P3,300 F P1,900 F P1,900 F
hours used of 5,050. Actual overhead costs for the month amounted to
P37,245 (Fixed overhead is as budgeted.) Questions 24 & 25 are based on the following information.
Richard Company employs a standard absorption system for product
86.The amount of overhead volume variance for Lucky Company is costing. The standard cost of its product is as follows:
A. P250 unfavorable C. P750 unfavorable Raw materials P14.50
B. P500 unfavorable D. P375 unfavorable Direct labor (2 DLH x P8) 16.00
Manufacturing overhead (2 DLH x P11) 22.00
87.The controllable overhead variance was Total standard cost P52.50
A. P505 favorable C. P245 favorable The manufacturing overhead rate is based upon a normal activity level
B. P505 unfavorable D. P245 favorable of 600,000 direct labor hours. Richard planned to produce 25,000
units each month during the year. The budgeted annual
Three-Way Overhead Variance manufacturing overhead is:
88.The following data are the actual results for Bustos Company for the Variable P3,600,000
month of May: Fixed 3,000,000 P6,600,000
Actual output 4,500 units During November, Richard produced 26,000 units. Richard used
Actual variable overhead P360,000 53,500 direct labor hours in November at a cost of P433,350. Actual
Actual fixed overhead P108,000 manufacturing overhead for the month was P260,000 fixed and
Actual machine time 14,000 MH P315,000 variable. The total manufacturing overhead applied during
Standard cost and budget information for Bustos Company follows: November was P572,000.
Standard variable overhead rate P6.00 per MH
Standard quantity of machine hours 3 hours per unit 24.The fixed manufacturing overhead volume variance for November is
Budgeted fixed overhead P777,600 per year A. P10,000 favorable C. P3,000 unfavorable
Budgeted output 4,800 unit per month B. P10,000 unfavorable D. P22,000 favorable
The overhead efficiency variance is
A. P3,000 Favorable C. P5,400 Favorable
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25.The total variance related to efficiency of the manufacturing Standard" labor rate per direct labor hour P12
operation for November is Standard variable overhead rate per direct labor hour: P4
A. P9,000 unfavorable C. P21,000 unfavorable Actual labor hours used: 14,000
B. P12,000 unfavorable D. P11,000 unfavorable Actual variable manufacturing overhead costs: P58,290

Three-Way Overhead Variance (Variable OH Spending, Fixed OH 19.The variable overhead spending variance for May was: (M)
Budget, Volume) A. P2,290 F C. P2,290 U
89.Arlene had an P18,000 unfavorable volume variance, a P25,000 B. P1,710 F D. P1,710 U
unfavorable variable overhead spending variance, and P2,000 total
under applied overhead. The fixed overhead budget variance is 20.The standard hours allowed to make one unit of finished product
A. P41,000 favorable C. P41,000 unfavorable are: (M)
B. P45,000 favorable D. P45,000 unfavorable A. 1.0 C. 1.5
B. 1.2 D. 1.3
Four-Way Overhead Variance
Variable overhead spending variance Variable overhead efficiency variance
18. Baltimore, Inc. analyzes manufacturing overhead in the production of its 90.Franklin Glass Works, production budget for the year ended
only one product, Blu. The following set of information applies to the month November 30, 2001 was based on 200,000 units. Each unit requires
of May, 2003: two standard hours of labor for completion. Total overhead was
Budgeted Actual budgeted at P900,000 for the year, and the fixed overhead rate was
Units produced 40,000 38,000 estimated to be P3.00 per unit. Both fixed and variable overhead
Variable manufacturing P4/DLH P16,400 are assigned to the product on The basis of direct labor hours. The
overhead actual data for the year ended November 30,2001 are presented
Fixed manufacturing P20/DLH P88,000 below.
overhead Actual production in units 198,000
Direct labor hours 6 4,200 hours Actual direct labor hours 440,000
minutes/unit Actual variable overhead P 352,000
Actual freed overhead P 575,000
How much was the variable overhead spending variance?
Franklin's variable overhead efficiency variance for the year ended
A. P400 Favorable C. P1,200 Favorable
November 30, 2001 is
B. P400 Unfavorable D. P1,200 Unfavorable
A. P33,000 unfavorable C. P66,000 unfavorable
B. P35,520 favorable D. P33,000 favorable
Questions 19 & 20 are based on the following information.
The Clark Company makes a single product and uses standard costing.
Fixed overhead spending variance
Some data concerning this product for the month of May follow:
91. Long Company analyzes its manufacturing overhead in the
Labor rate variance P7,000 F
production of its only one product, Shorts. The following set of
Labor efficiency variance P12,000 F
information applies to the month of January 2004:
Variable overhead efficiency variance P4,000 F
Number of units produced 10,000 Budgeted Actual

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Units produced 40,000 38,000 Lustre uses expected volume of 20,000 units. During the year, Lustre
Variable manufacturing overhead P4/DLH P16,400 used 31,500 direct labor hours for the production of 20,000 units.
Fixed manufacturing overhead P20/DLH P85,000 Actual overhead costs were P545,000 fixed and P308,700 variable.
Direct labor hours 6 4,000 hours
minutes/un 93.The amount of variable overhead spending variance is
it A. P6,300 Favorable C. P6,300 Unfavorable
What is the fixed overhead spending variance? B. P8,700 Favorable D. P8,700 Unfavorable
A. P5,000 Favorable C. P1,600 Unfavorable
B. P1,600 Favorable D. P5,000 Unfavorable 94.The total overhead controllable variance is
A. P13,700 Favorable C. P13,700 Unfavorable
17.Bravo Corporation’s master budget calls for the production of 5,000 B. P8,700 Favorable D. P8,700 Unfavorable
units of product monthly. The annual master budget includes
indirect labor of P144,000 annually. Bravo considers indirect labor 95.The overhead efficiency variance is
to be a variable cost. During the month of April, 4,500 units of A. P22,500 Favorable C. P22,500 Unfavorable
product were produced, and indirect labor costs of P10,100 were B. P15,000 Favorable D. P15,000 Unfavorable
incurred. A performance report utilizing flexible budgeting would
report a budget variance for indirect labor of Gross Profit Variation Analysis
A. P1,900 Unfavorable C. P700 Unfavorable 96.Vicki Division operates as a revenue center and sells only one
B. P1,900 Favorable D. P700 product. Data for May 2000 are as follows:
Favorable Actual Expected
Sale in units 10,000 9,500
Applied fixed manufacturing overhead Selling price per unit P11 P10
92.Fixed manufacturing overhead was budgeted at P500,000 and Variable expense P6
25,000 direct labor hours were budgeted. If the fixed overhead per unit
volume variance was P12,000 favorable and the fixed overhead What are the price variance and price volume variance?
spending variance was P16,000 unfavorable, fixed manufacturing A. B. C. D.
overhead applied must be Sales Price P10,000 F P5,000 F P5,000 U P10,000 U
A. P516,000 C. P504,000 Variance
B. P512,000 D. P496,000 Price Volume P5,000 F P10,000 U P10,000 F P5,000 U
Variance
Comprehensive
Questions 93 thru 95 are based on the following information. Master Budget
The Lustre Company produces its only product. Kool Chewing Gum. The Basic Concepts
standard overhead costs for one pack of the product follows: 97.The basic difference between a master budget and a flexible budget
Fixed overhead (1.50 hours at P18.00) P27.00 is that a
Variable overhead (1.50 hours at P10.00) 15.00 A. Flexible budget considers only variable costs but a master
Total application rate P42.00 budget considers all costs.
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B. Flexible budget allows management latitude in meeting goals Production Budget

whereas a master budget is based on a fixed standard. 101. Isabelle, Industries plans to sell 200,000 units of Batik products
C. Master budget is for an entire production facility but a flexible in October and anticipates a growth in sales of 5 percent per month.
budget is applicable to single department only. The target ending inventory in units of the product is 80 percent of
D. Master budget is based on one specific level of production and a the next month’s estimated sales. There are 150,000 units in
flexible budget can be prepared for any production level within a inventory as of the end of September. The production requirement
relevant range in units of Batik for the quarter ending December 31 would be
A. 670,560 C. 665,720
98.Zero-base budgeting requires managers to B. 691,525 D. 675,925
A. Justify expenditures that are increases over the prior period’s
budget amount Purchasing Budget
B. Justify all expenditures, not just increases over last year’s 102. The Jung Corporation's budget calls for the following production:
amount. Quarter 1 45,000 units
C. Maintain a full-year budget intact at all times. Quarter 2 38,000 units
D. Maintain a budget with zero increases over the prior period. Quarter 3 34,000 units
Quarter 4 48,000 units
99.A systematized approach known as zero-based budgeting Each unit of product requires three pounds of direct material. The
a Presents the plan for only one level of activity and does not company's policy is to begin each quarter with an inventory of
adjust to changes in the level of activity. direct materials equal to 30% of that quarters direct material
B. Presents a statement of expectations for a period of time but purchase requirements. Budgeted direct materials purchases for
does not present a firm commitment. the third quarter would be
C. Divides the activities of individual responsibility centers into a A. 114,600 pounds C. 38,200 pounds
series of packages which are ranked ordinally. B. 89,400 pounds D. 29,800 pounds
D. Classifies budget requests by activity and estimates the benefits
arising from each activity. 25. Plainfield Company prepares its budgets on annual basis. The following
beginning and ending inventory unit levels are planned for the fiscal year of
23.Budget slack is a condition in which June 1, 2002 through May 31, 2003.
A. Demand is low at various times of the year June 1, 2002 May 31, 2003
B. Excess machine capacity exists in some areas of the plant Raw material* 40,000 50,000
C. There is an intentional overestimate of expenses or an Work-in-process 10,000 10,000
underestimate of revenues Finished goods 80,000 50,000
D. Managers grant favored employees extra time-off
*Two (2) units of raw material are needed to produce each unit of
finished product.
100. When preparing the series of annual operating budgets,
If 500,000 finished units were to be manufactured during the 2000-
management usually starts the process with the
2001 fiscal year by Plainfield Company, the units of raw material
A. Cash budget C. Sales budget
needed to be purchased would be
B. Production budget D. Capital budget
A. 1,000,000 units C. 1,010,000 units
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B. 1,020,000 units D. July P 60,000

990,000 units August 70,000
September 80,000
Cash Budget October 90,000
105. At the beginning of the current month, Rose had P100,000. Cash November 100,000
disbursements were P2,600,000 and cash collections were December 85,000
P2,850,000. Rose invests all excess cash in a money market fund The estimated total cash collections during the fourth calendar
and has a line of credit to cover cash deficiencies. quarter from sales made on open account during the fourth
If Rose wishes to start the next month with P150,000, Rose must calendar quarter would be
A. invest P200,000 C. invest P350,000 A. P172,500 C. P230,000
B. borrow P400,000 D. do nothing B. P265,400 D. P251,400

103. The Mango Company is preparing its cash budget for the month 104. The Magic Company is preparing its cash budget for the month
of May. The following information is available concerning its ending January 31. The following information pertains to Peace’s
accounts payable: past collection experience from its credit sales:
Estimated credit sales for May P200,000 Current month’s sales 12%
Actual credit sales for April 150,000 Prior month’s sales 75%
Estimated collections in May for credit sales in May 20% Sales two months prior to current month 6%
Estimated collections in May for credit sales in April 70% Sales three months prior to current month 4%
Estimated collections in May for credit sales prior to April Cash discounts (2/30, net/90) 2%
P12,000 Doubtful accounts 1%
Estimated write-offs in May for uncollectible credit sales 8.000 Credit sales:
Estimated provision for bad debts in May for credit sales in May January – estimated P2,000,000
7,000 December 1,800,000
What are the estimated cash receipts from accounts receivable November 1,600,000
collections in May? October 1,900,000
A. P142,000 C. P150,000 How much is the estimated credit to Accounts Receivable as a
B. P149,000 D. P157,000 result of collections expected during January?
A. P1,730,200 C. P1,762,000
26. The Queen Company has the following historical pattern on its B. P1,757,200 D. P1,802,000
credit sales.
 percent collected in month of sale 106. The Mango Company is preparing its cash budget for the month
 percent collected in the first month after sale of May. The following information is available concerning its
 percent collected in the second month after sale accounts payable:
 percent collected in the third month after sale Estimated credit sales for May P200,000
 percent uncollectible Actual credit sales for April 150,000
The sales on open account have been budgeted for the last six Estimated collections in May for credit sales in May 25%
months of 2003 are shown below: Estimated collections in May for credit sales in April 70%
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Estimated collections in May for credit sales prior to April B. More efficient use of headquarters staff officials and specialists.
P15,000 C. Quicker and better operating decisions.
Estimated write-offs in May for uncollectible credit sales 8,000 D. Greater economies in purchasing.
Estimated provision for bad debts in May for credit sales in May
7,000 109. The least complex segment of area of responsibility for which
What are the estimated cash receipts from accounts receivable costs ate allocated is a(n)
collections in May? A. profit center C. contribution center
A. P142,000 C. P157,000 B. investment center D. cost center
B. P149,000 D. P170,000
110. Which of the following does not apply to the content of
Responsibility Accounting & Transfer Pricing managerial reports?
Basic Concepts A. Reporting standard is relevant to the decision to be made
27. What term identifies an accounting system in which the B. May extend beyond double-entry accounting system
operations of the business are broken down into reportable C. Pertains to subunits of the entity and may be very detailed
segments and the control functions of a foreperson, sales D. Pertains to the entity as a whole and is highly aggregated.
managers, or supervisor is emphasized?
A. Responsibility accounting C. Control accounting 29.The best measure of managerial efficiency in the use of
B. Operations-research accounting D. Budgetary accounting investments in assets is: (M)
A. rate of return on stockholders’ equity C. income from
107. Controllable costs are operations
A. Costs that are likely to respond to the amount of attention B. investment turn over D. inventory turnover
devoted to them by a specified manager.
B. Costs that are governed mainly by past decisions that Return on Investment
established the present levels of operating and organizational 111. If the investment turnover decreased by 10 percent and ROS
capacity and that only change slowly in response to small decreased by 30 percent, the ROI would
changes in capacity A. increase by 30% C. decrease by 37%
C. Costs that will be unaffected by current managerial decisions. B. decrease by 10% D. decrease by 33.3%
D. Costs that fluctuate in total in response to small change in the
rate of utilization of capacity. 112. The following information pertains to Pluto Company's Satellite
Division for 2004:
108. The CEO of a rapidly growing high-technology firm has exercised Sales P311,000
centralized authority over all corporate functions. Because the Variable cost. 250,000
company now operates in four geographically dispersed locations, Traceable fixed costs 50,000
the CEO is considering the advisability of decentralizing operation Average invested capital 40,000
control over production and sales. Which of the following conditions Imputed interest rate 10%
probably would result from and be a valid reason for decentralizing? Satellite's return on investment was
A. Greater local control over compliance with government A. 10.00% C. 27.50%
regulations. B. 13.33% D. 30.00%
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A. B. C. D.
30.The following data relate to the Happy Division of Euphoria Residual Income P36,000 P40,000 P36,000 P40,000
Company: Return on 36% 18% 18% 36%
Sales P10,000,000 Investment
Variable costs 3,000,000
Direct fixed costs 5,000,000 114. Ylagan Company is a highly decentralized company. It evaluates
Invested capital 8,000,000 the performance of each segment using both the Return on
Allocated actual interest costs 800,000 Investments, as well as Residential Income provided by each
Capital charge 12% segment. Ylagan Company requires each segment to provide at
The divisional return on investment is: least 20 percent return on all its investments.
A. 15 percent C. 25 percent The following data are typical of the operations of North Division,
B. 13 percent D. 20 percent one of the leading segments of Ylagan Company.
Sales P24,000,000
31.Two divisions of Halloway Company (Divisions X and Y) have the Variable costs 10,000,000
same profit margins. Division X's investment turnover is larger than Fixed costs 8,000,000
that of Division Y (1.2 to 1.0). Income from operations for Division X Share on headquarters’ costs 3,000,000
is P50,000, and income from operations for Division Y is P38,000. Average investment 25,000,000
Division X has a higher return on investment than Division Y by: (M) What are the North’s Return on Investments and Residual Income,
A. using income from operations as a performance measure respectively?
B. comparing income from operations A. 12.00 percent and P(2,000,000) C. 24.00 percent and
C. applying a negotiated price measure P1,000,000
D. using its assets more efficiently in generating sales B. 12.00 percent and P1,000,000 D. 24.00 percent and
P(2,000,000)
Residual Income
32.Stevenson Corporation had P550,000 in invested assets, sales of 115. The Global Division of Sun Company expects the following result
P660,000, income from operations amounting to P99,000, and a for 2004:
desired minimum rate of return of 15%, The residual income for Unit sales 70,000
Stevenson is: (E) Unit selling price P 10
A. P0 C. P14,850 Unit variable cost P 4
B. P17,820 D. P16,500 Total fixed costs P300,000
Total investment P500,000
113. Scotch Co. has the following results for the year: The minimum required ROI is 15 percent, and divisions are
Sales P740,000 evaluated on residual income. A foreign customer has approached
Variable expenses 260,000 Global’s manager with an offer to buy 10,000 units at P7 each. If
Fixed expenses 300,000 Global accepts the order, it would not lose any of the 70,000 units
Total divisional assets average P1,000,000. The company’s at the regular price. Accepting the order would increase fixed costs
minimum required rate of return is 14 percent. by P10,000 and investment by P40,000.
The residual income and return on investment for Scotch are:
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What is the minimum price that Global could accept for the order invested capital. If the objective is to maximize residual income,
and still maintain its expected residual income? should these divisions accept or reject their projects?
A. P5.00 C. P4.75 A. B. C. D.
B. P5.60 D. P9.00 Alpha Accept Reject Reject Accept
Beta Accept Accept Reject Reject
116. The following data ate available for the South Division of
Banawe Company and the single product it makes: Segment Reporting
Unit setting price P20 118. Stellar Industries has two divisions: North Division and South
Variable cost per unit P12 Division. Information relating to the divisions for the year just ended
Annual fixed costs P280,000 is as follows:
Average operating assets P1,500,000 North South
If South wants a residual income of P50,000 and the minimum
Units produced and 30,000 40,000
required rate of return is 10%, the annual turnover will have to be:
sold
A. 0.32 C. 1.25
Selling price per unit P 8.00 P 15.00
B. 0.80 D. 1.50
Variable expenses per P 3.00 P 5.00
unit
117. The following information relates to two projects of Rica
Direct fixed expanse P48.000 P110,000
Corporation.
Common fixed P40,000 P 40,000
Project A Project B expenses
Operating income P2,500,000 P600,000 Common fixed expenses have been allocated equally to each of the
Residual income P 500,000 P200,000 two division.
ROI 10% 12% Stellar's contribution and segment margin for North Division are:
Return on residual investment 2% 4% A. P150,000 and P102,000 C. P150,000 and P72,000
A bonus of P 50,000 will be paid to the manager whose project B. P400,000 and P290,000 D. P400,000 and P250,000
contributed most to the performance of the firm. The P50,000
bonus should go to the manager of Transfer Pricing
A. Project A because the residual income is higher 119. To avoid waste and maximize efficiency when transferring
B. Project E because the return on investment is higher products among segments is a competitive economy, a large
C. Project A because it was a larger, mote complex project diversified entity should base transfer prices on
D. Project B because the return on residual investment is higher A. Bargained price C. Market price
B. Dual transfer price D. Full cost
32.Division Alpha is considering a project that will earn a rate of return
which is greater than the imputed interest charge for invested 30.The worst transfer-pricing method is to base the prices on (M)
capital, but less than the division’s historical return on invested A. market prices C. budgeted total costs.
capital. Division Beta is considering a project that will earn a rate of B. budgeted variable costs D. actual total costs.
return which is greater than the division’s historical return on
invested capital, but less than the imputed interest charge for 120. Universal Company has intracompany service transfers from
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Internal Division, a cost center to World Division, a profit center. Excess Capacity
Under stable economic conditions, which of the following transfer 33.Materials used by Aro-Products Inc. in producing Division 3's
prices is likely to be most conducive to evaluating whether both product are currently purchased from outside suppliers at a cost of
divisions have met their responsibilities? P5 per unit. However, the same materials are available from
A. Actual cost C. Market price Division 6. Division 6 has unused capacity and can produce the
B. Standard variable cost D. Negotiated price materials needed by Division 3 at a variable cost of P3 per unit. A
transfer price of P3.20 per unit is established, arid 40,000 units of
121. An appropriate transfer price between two divisions of the Star material are transferred, with no reduction in Division 6’s current
Corporation can be determined from the following data: sales. How much would Aro-Products total income from operations
Fabrication Division increase? (M)
Market price of subassembly P50 A. P32,000 C. P80,000
Variable cost of subassembly P20 B. P72,000 D. P8,000
Excess capacity (in units) 1,000
Assembling Division 30.Pasig Division of River Company sells 80,000 units of part Z to the
Number of units needed 900 outside market. Part Z sells for P10.00 and has a variable cost of
What is the natural bargaining range for the two divisions? P5.50 and a fixed cost per unit of P2.50. Pasig has a capacity to
A. Between P20 and P50 C. Any amount less than P50 produce 100,000 units per period. Marikina Division currently
B. Between P50 and P70 D. P50 is the only acceptable purchases 10,000 units of part Z from Pasig for P10.00. Marikina
price has been approached by an outside supplier who is willing to supply
the former part Z for P9.00. What are the effects on River’s overall
122. Clara Industries is a decentralized company that evaluates its profit if:
divisions based on ROI. The Ibarra Division has the capacity to Marikina Buys Outside at Marikina Buys from Pasig at
make 1,000 units of a component. The Ibarra Division's variable P9.00 P9.00
costs are P40 per unit. Ibarra can sell all that it produces for P100 A. No change P35,000 decrease in profit
each. B. P35,000 decrease in profit P35,000 increase in profit
The Simoun Division can use the component in one of its products. C. P35,000 decrease in profit No change
The Simoun Division would incur P50 of variable costs to convert D. P35,000 increase in profit No change
the component into its own product which sells for P160. Simoun
needs 100 units. Partial Excess Capacity
What are the minimum transfer price that Ibarra is willing to accept 123. Plastic Division makes and sells a single product. Presently it
and the maximum price that Simoun is willing to pay for the goods? sells 12,000 units per year to outside customers at P24 per unit.
A. B. C. D. The annual capacity is 20,000 units and the variable cost to make
Ibarra’s Minimum P40 P40 P100 P100 each unit is P16. All selling expenses are fixed. Light Division would
Price like to buy 10,000 units a year from Plastic Division. The unit price
Simoun’s P100 P110 P110 P100 that Plastic Division should charge Light Division, according to the
Maximum Price transfer pricing formula, is
A. P24.00 C. P17.60

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B. P21.40 D. P16.00 the Blades Division’s output is sold to the Lawn Products Division of Dana; the
remainder is sold to outside customers. The Blade Division’s estimated sales and
Full Capacity standard costs data for the fiscal year ending June 30 are as follows:
124. The High Division of Para Company produces a high quality kite. Lawn Products Outsiders
Unit production costs (based on capacity production of 100,000 Sales P15,000 P40,000
units per year) follow: Variable costs (10,000) (20,000)
Direct materials P 60 Fixed costs (3,000) (6,000)
Direct labor 25 Gross |margin P 2,000 P14,000
Overhead (20% variable) 15 Unit sales 10,000 20,000
The Lawn Products Division has an opportunity to purchase 10,000
Other information
identical quality blades from an outside supplier at a cost of P1.25 per
Sales price 120
unit on a continuing basis. Assume that the Blade Division cannot sell
Selling expenses (15% variable) 20
any additional products to outside customers.
The High Division is producing and selling at capacity.
What is the minimum selling price that the division would consider
32.Should Dana allow its Lawn Products Division to purchase the
as a “transfer price” to the Recreation Division on which no variable
blades from the outside supplier, and why?
period costs would be incurred?
A. Yes, because buying the blades would save Dana Company
A. P120 C. P 91
P500.
B. P 88 D. P117
B. No, because making the blades would save Dana Company
P1,500.
31.The Red Division of Colour Company produces a high quality
C. Yes, because buying the blades would save Dana Company
marker. Unit production costs (based on capacity production of
P2,500.
100,000 units per year) follow:
D. No, because making the blades would save Dana Company
Direct materials P 60
P2,500
Direct labor 25
Overhead (20% variable) 15
33.Assume the Blade Division is now at capacity and sufficient demand
Other information
exist to sell all production to outsiders at present prices. What is the
Sales price 120
differential cost (benefit) of producing the blade internally?
The Red Division is producing and selling at capacity.
A. P2,500 benefit C. P7,500 cost
What is the minimum selling price that the division would consider
B. P0 differential cost D. P10,000 cost
as a “transfer price” to the Violet Division on which no variable
period costs would be incurred?
Decision
A. P120 C. P 91
125. Barangay Division of Community Company sells 80,000 units of
B. P 88 D. P117
part Z to the outside market. Part Z sells for P10.00 and has a
variable cost of P150 and a fixed cost per unit of P2.50. Barangay
Questions 32 and 33 are based on the following information.
has a capacity to produce 100,000 units per period. Municipal
Blade Division of Dana Company produces hardened steel blades. One-third of Division currently purchases 10,000 units of part Z from Barangay
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for P10.00. Municipal has been approached by an outside supplier

who is willing to supply the former part Z for P9.00. What are the 128. For the year ended December 31, 2004, Earth Company incurred
effects on Community Company's overall profit if: direct costs of P500,000 based on a particular course of action
Municipal buys outside at Municipal buys from during the year. If a different course of action had been taken,
P9.00 Barangay at P9.00 direct costs would have been P400,000. In addition, Earth's 2004
A. No change P35,000 decrease in profit fixed costs were P90,000. the incremental cost was
B. No change P35,000 increase in profit A. P10,000 C. P100,000
. P35,000 decrease in profit No change B. P90,000 D. P190,000
D. P35,000 increase in profit P35,000 decrease in profit
Opportunity Cost
129. The potential benefit that may be obtained from following an
Product Pricing alternative course of action is called
126. In a cost-based pricing system the markup should cover A. Opportunity benefit C. Relevant cost
I. Selling and administrative expenses B. Opportunity cost D. Sunk cost
II. Desired profit
III. Manufacturing cost 31.An important concept in decision making is described as “the
A. I, II, and III C. I and III only contribution to income that is forgone by not using a limited
B. I and II only D. II and III only resources in its best alternative use.” This concept is called
A. Marginal cost C. Potential cost
Relevant Costing B. Incremental cost D.
Basic Concepts Opportunity cost
21.A cost that will not be affected by later decisions is termed a(n): (E)
A. historical cost C. sunk cost 130. Luzon Fabricators, Inc. estimates that 60,000 special
B. differential cost D. replacement cost components will be used in the manufacture of a specialty steel
window for the whole next year. Its supplier quoted a price of P60
127. The Auto Division of Fly Insurance employs three claims per component. Luzon prefer to purchase 5,000 units per month,
processors capable of processing 5,000 claims each. The division but its supplier could not guarantee this delivery schedule. In order
currently processes 12,000 claims. The manager has recently been to ensure availability of these components, Luzon is considering the
approached by two sister divisions. Division A would like the auto purchase of all 60,000 units at the beginning of the year. Assuming
division to process approximately 2,000 claims. Division B would Luzon can invest cash at 8%, the company’s opportunity cost of
like the auto division to process approximately 5,000 claims. The purchasing the 60,000 units at the beginning of the year is
Auto Division would be compensated Division A or Division B for A. P132,000 C. P150,000
processing these claims. Assume that these are mutually exclusive B. P144,000 D. P264,000
alternatives. Claims processor salary cost is relevant for
A. division A alternative only Profit Maximization
B. division B alternative only 131. Fe Company has only 25,000 hours of machine time each month
C. both Division A and Division B alternatives to manufacture its two products. Product X has a contribution
D. neither Division A nor Division B alternatives margin of P50 and Product Y has a contribution margin of P64.
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Product X requires 5 machine hours and Product Y, 8 hours. If Fe Direct materials P6 P11
wants to dedicate 80% of its machine time to the product that will Direct labor 4 9
provide the most income, Fe will have a total monthly contribution Factory overhead @ P16 per 16 32
margin of hour
A. P250,000 C. P210,000 Cost if purchased from an 20 38
B. P240,000 D. P200,000 outside supplier
Annual demand (units) 20,000 28,000
23.Niva Co. Manufactures three products: Bales; Tales and Wales. The Past experience has shown that the fixed manufacturing overhead
selling prices are: 55; 78; and 32 respectively. The variable costs for component included in the cost per machine hour averages P10.
each product are: 20; 50: and 15, respectively. Each product must Geary has a policy of filling, all sales orders, even if it means
go through the same processing in a machine that is limited to purchasing units from outside suppliers.
2,000 hours per month. Bales take 7 hours to process, Tales take 4 If 50,000 machine hours are available, and Geary Manufacturing
hours, and Wales take 1 hour. desires to follow an optimal strategy, it should
Assuming that Niva Co. can sell ail of the products they can make, A. produce 25,000 electric mixers, and purchase all other units as
what is the maximum contribution margin they can earn per needed
month? (E) B. produce 20,000 blenders and 15,000 electric mixers, and
A. P64,000 C. P56,000 purchase all other units as needed
B. P70,000 D. P34,000 C. produce 20,000 blenders and purchase all other units as needed
D. produce 28,000 electric mixers and purchase all other units as
30.The Hingis Corporation manufactures two products: X and Y. needed
Contribution margin per unit is determined as follows:
Product Xf Product Y 133. The Pato Company produces three products with the following
Revenue P130 P80 costs and selling prices:
Variable costs 70 P38 A B C
Contribution margin P 60 P42 Selling price per unit P16 P21 P21
Total demand for X is 16,000 units and for Y is 8,000 units. Machine Variable cost per unit 7 11 13
hours is a scarce resource. 42,000 machine hours are available Contribution margin P9 P10 P8
during the year. Product X requires 6 machine hours per unit while per unit
product Y requires 3 machine hours per unit. Direct labor hours 1 1.5 2
How many units of X and Y should Hingis Corporation produce? per unit
A. B. C. D. Machine hours per 4.5 2 2.5
Product X 16,000 8,000 7,000 3,000 unit
Product Y -0- 4,000 -0- 8,000 In what order should the three products be produced if either the
direct labor-hours or the machine hours are the company's
132. Geary Manufacturing has assembled the following data production constraint?
pertaining to two popular products. A. B. C. D.
Blender Electric mixer Direct labor A,B,C B,C,A B,C,A A,B,C
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hours
Machine hours B,C,A B,C,A A,C,B A,C,B 135. The cost to manufacture an unfinished unit is P40 (P30 variable
and P10 fixed). The selling price per unit is P50. The company has
24.Bear Valley produces three products: A, B, and C, One machine is unused production capacity and has determined that units could be
used to produce the products, The contribution margins, sales finished and sold for P65 with an increase in variable costs of 40%.
demands, and time on the machine (in minutes) are as follows: What is the additional net income per unit to be gained by finishing
Demand CM Time on machine the unit?
A 100 P25 10 A. P3 C. P15
B 80 18 5 B. P10 D. P12
C 150 30 10
136. Ottawa Corporation produces two products from a joint process.
There are 2400 minutes available on the machine during the week.
Information about the two joint products follows:
How many units should be produced and sold to maximize the
weekly contribution? (E) Product Product Y
X
A. B. C. D.
Anticipated production 2,000 4,000 lbs
A 100 50 90 100
lbs
B 80 80 0 80
Selling price lb at split-off P30 P16
C 150 150 150 100
Additional processing costs/lb after Split- P15 P30
off (all variable)
Sell as is or Process Further Selling prices/lb after further processing F40 P50
134. Indicate which of the following costs would be avoided if a
The cost of the joint process is P85,000.
segment is eliminated.
Ottawa currently sells both products at the split-off point. If Ottawa
1. variable manufacturing costs
makes decisions which maximizes profit, Ottawa's profit will
2. direct fixed costs
increase by
3. common fixed costs
A. P16,000 C. P50,000
4. variable selling costs
B. P4,000 D. P10,000
5. direct listed selling costs
6. common fixed setting costs
137. BEA Industries produces two products. Information about the
A. 2, 3, 5, 5 C. 2, 3, 4, 5
products is as follows:
B. 1, 2, 4, 3 D. 1, 4, 5, 6
Item 38B Item 40F
22.Jones Co. can further process Product B to produce Product C. Units produced and 1,000 4,000
Product B is currently selling for P30 per pound and costs P28 per sold
pound to produce. Product C would sell for P60 per pound and Selling price per unit P 25 P 20
would require an additional cost of P24 per pound to produce. What Variable expenses per P 15 P12
is the differential cost of producing Product C? (E) unit
A. P30 per pound C. P28 per pound
B. P24 per pound D. P 6 per pound
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The company's fixed costs totaled P40,000, of which P8,000 can be The fixed costs include a normal P3,700 allocation for in-house
avoided if Item 38B is dropped and P25,000 can be avoided if Item design costs, although no in-house design will be done. Instead the
40F is dropped. Product margin for Item 40F is job will require the use of external designers costing P7,750. What
A. P3,200 C. P(2,000) is the total amount to be included in the calculation to determine
B. P7,000 D. P10,000 the minimum acceptable price for the jobs?
A. P36,700 C. P54,000
38.Green Company’s unit cost of manufacturing and selling a given B. P40,750 D. P58,050
item at an activity level of 10,000 units per month are:
Manufacturing costs 25.KC Industries manufactures a product with the following costs per
Direct materials P24 unit at the expected production of 30,000 units.
Direct labor 8 Direct materials .P 4
Variable overhead 5 Direct labor . 12
Fixed overhead 6 Variable manufacturing overhead . 6
Selling expenses Fixed manufacturing overhead . 8
Variable 11 The company has the capacity to produce 40,000 units. The
Fixed 8 product regularly sells for P40. A wholesaler has offered to pay P32
The company has an inventory of 3,000 of this item left over from a unit for 2,000 units.
last year’s model. These must be sold through regular channels at If the firm is at capacity and the special order is accepted, the effect
reduced prices. The inventory will be valueless unless sold this on operating income would be
way. What unit cost is relevant for establishing the minimum selling A. a P20,000 increase C. a P4,000 increase
price of these 3,000 units? B. a P16,000 decrease D. P0
A. P11 C. P48
B. P37 D. P62 28.Dary Co, Produces a single product. It’s normal selling price is P28
per unit. The variable costs are P18 per unit. Fixed costs are
Special Order P20,000 for a normal production run of 5,000 units per month. Dary
27.Pueblo Company sells a product for P60. Variable cost is P32. Pueblo received a request for a special order that would not interfere with
could accept a special order for 1,000 units at P46. If Pueblo normal sales. The order was for 1,500 units and a special price of
accepted the order, how many units could it lose at the regular P17.50 per unit. Dary Co. has the capacity to handle the special
price before the decision became unwise? (M) order, and for this order a variable selling cost of P2 per unit would
A. 1,000 C. 200 be eliminated. If the order is accepted, what would be the impact
B. 500 D. 2,000 on net income? (M)
A. decrease of 750 C. increase of P2,250
24.Climate Co. has considerable excess manufacturing capacity. A B. decrease of P3,750 D. increase of P1,500
special job order’s cost sheet includes the following applied
manufacturing overhead costs: 37.Fiesta Company’s unit cost of manufacturing and selling a given
Fixed costs .P21,000 item at an activity level of 10,000 units per month are:
Variable costs . 33,000 Manufacturing costs
Direct materials P39
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Direct labor 6 144. AFM, Inc. manufactures jet engines for an aircraft assembler on
Variable overhead 8 a cost –plus basis. The cost of a particular jet engine that the
Fixed overhead 9 company manufactures is shown below:
Selling expenses Direct materials P20,000,000
Variable 30 Direct labor 15,000,000
Fixed 11 Overhead:
The company desires to seek an order for 5,000 units from a foreign Supervisor’s salary 2,000,000
customer. The variable selling expenses will be reduced by 40%, Fringe benefits on direct labor 1,500,000
but the fixed costs for obtaining the order will be P20,000. Depreciation 1,200,000
Domestic sales will not be affected by the order. Rent 1,100,000
The minimum break-even price per unit to be considered on this Total P40,800,000
special sale is If production of this engine were discontinued, the production
A. P71 C. P69 capacity would be idle, and the supervisor would be laid off. When
B. P75 D. P84 asked to bid on the next contract for the engine, the minimum unit
price that AFM Inc should bid is
Make or Buy A. P38,500,000 C. 36,500,000
138. For the past 12 years, the Blue Company has produced the small B. P40,800,000 D. 39,700,000
electric motors that fit into its main product line of dental drilling
equipment. As material costs have steadily increased, the controller 139 Buena Corporation operates a plant with a productive capacity
of the Blue Company is reviewing the decision to continue to make to manufacture 10,000 units of its product a year. The following
the small motors and has identified the following facts: information pertains to the production costs at capacity:
1. The equipment used to manufacture the electric motors has a Variable costs P80,000
book value of P150,000. Fixed costs 120,000
2. The space now occupied by the electric motor manufacturing
Total costs P200,000
department could be used to eliminate the need for storage
space now being rented. A supplier has offered to sell 8,000 units to Buena annually. Assume
3. Comparable units can be purchased from an outside supplier for no change in the fixed costs.
P59.75 What is the price per unit that makes Buena indifferent between the
4. Four of the persons who work in the electric motor “Make” and “Buy” options?
manufacturing department would be terminated and given eight A. P8 C. P20
weeks severance pay B. P12 D. P10
5. A P10,000 unsecured note is still outstanding on the equipment
used in the manufacturing process. 25.Medford Corporation operates a plant with a productive capacity to
Which of the items above are relevant to the decision that the manufacture 20,000 units of its product a year. The follow
controller has to make? information pertains to the production costs at capacity:
A. 1, 3, and 4 C. 2, 3, 4, and 5 Variable costs P160,000
B. 2, 3, and 4 D. 1, 2, 4, and 5 Fixed costs 240,000
Total costs P400,000
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A supplier has offered to sell 4,000 units to Medford annually. proposal. What is the maximum amount per unit that Grace can
Assume no change in the fixed costs. What is the price per unit that pay the suppliers without decreasing its operating income?
makes Medford indifferent between the "make" and "buy" options? A. P 9.50 C. P 9.00
(E) B. P10.50 D. P11.00
A. P8 C. P20
B. P12 D. P40 142. Savage Industries is a multi-product company that currently
manufactures 30,000 units of Part QS42 each month for use in
140. Elly Industries is a multi-product company that currently production. The facilities now being used to produce Part QS42 have
manufacture 30,000 units of Part MR24 each month for use in fixed monthly cost of P150,000 and a capacity to produce 84,000
production. The facilities now being used to produce Part MR24 units per month. If Savage were to buy Part QS42 from an outside
have a fixed monthly costs of P150,000 and a capacity to produce supplier, the facilities would be idle, but its fixed costs would
84,000 units per month. If Elly were to buy Part MR24 from an continue at 40 percent of their present amount. The variable
outside supplier, the facilities would be idle, but its fixed costs production costs of Part QS42 are P11 per unit.
would continue at 40 percent of their present amount. The variable If Savage Industries is able to obtain Part QS42 from an outside
production costs of Part MR24 are P11 per unit. supplier at a unit purchase price of P12,875, the monthly usage at
If Elly Industries is able to obtain Part MR24 each month, it would which it will be indifferent between purchasing and making Part
realize a net benefit by purchasing Part MR24 from an outside QS42 is
supplier only if the supplier’s unit price is less than A. 30,000 units C. 80,000 units
A. P14.00 C. P16.00 B. 32,000 units D. 48,000 units
B. P11.00 D. P13.00
143. Classic Company currently manufactures all components parts
141. The following are details of the monthly unit cost to manufacture used in the manufacture of various hand tools. A steel handle is
and sell a particular product for Grace Company: used in three different tools. The 2001 budget for 20,000 handles
Manufacturing Costs: has the following unit cost:
Direct materials P3.00 Direct material P6.00
Direct labor 4.00 Direct labor 4.00
Variable indirect 2.00 Variable overhead 1.00
Fixed indirect 1.50 Fixed overhead 2.00
Total unit cost P13.00
Marketing Costs: Modern Steel has offered to supply 20,000 handles to Classic for
Variable 2.00 P12.50 each delivered. If Classic Co. currently has idle capacity that
Fixed 1.00 cannot be used, accepting the offer will
Grace must decide to continue making the product or buy it from an A. Decrease the handle unit cost by P0.50 C. Decrease
outside supplier. The supplier has offered to make the product at the handle unit cost by P1.50
the same level of quality that the company can make it. Fixed B. Increase the handle unit cost by P1.50 D. Increase the
marketing costs would be unaffected, but variable marketing costs handle unit cost by P0.50
would be reduced by 25% if the company were to accept the

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26.The Connell Company uses 5,000 units of part 501 each year. The outside supplier. If Rural Cooperative purchases 1,000 units of Part
cost of manufacturing one unit part 501 at this volume is as follows: M from the outside supplier per month, then its monthly operating
Direct materials .. P2.50 income will
Direct labor . 3.50 A. decrease by P4,000 C. decrease by P14,000
Variable overhead 1.50 B. increase by P4,000 D. increase by P14,000
Fixed overhead . 1.00
Total. P8.50 14.The Reno Company manufactures Part No. 498 for use in its
An outside supplier has offered to sell Connell unlimited quantities production cycle. The cost per unit for 20,000 units of part No. 498
of part 501 at a unit cost of P7.75. If Connell accepts this offer, it are as follows:
can eliminate 50 percent of the fixed costs assigned to part 501. Direct materials P6
Furthermore, the space devoted to the manufacture of part 501 Direct labor 30
would be rented to another company for P6,000 per year. If Connell Variable overhead 12
accepts the offer of the outside supplier, annual profits will Fixed overhead applied 16
A. Increase by P13,500 C. increase by P11,000 P64
B. increase by P7,250 D. The Tray Company has offered to sell 20,000 units of part No. 498
increase by P1,250 to Reno for P60 per unit. Reno will make the decision to buy the
part from Tray if there is a savings of P25,000 for Reno. If Reno
26.A business is operating at 90% of capacity and is currently accepts Tray’s offer, P9 per unit of the fixed overhead applied would
purchasing a part used in its manufacturing operations for P15 per be totally eliminated. Furthermore, Reno has determined that the
unit. The unit cost for the business to make the part is P20, released facilities could be used to save relevant costs in the
including fixed costs, and P12, not including fixed costs. If 30,000 manufacture of part No. 575. In order to have a savings of P25,000,
units of the part are normally purchased during the year but could the amount of the relevant costs that would be saved by using the
be manufactured using unused capacity, what would be the amount released facilities in the manufacture of part No. 575 would have to
of differentials cost increase or decrease from making the part be
rather than purchasing it? (M) A. P80,000 C. P125,000
A. P150,000 cost increase C. P150,000 cost increase B. P85,000 D. P140,000
B. P90,000 cost decrease D. P90,000 cost increase
34.Bulacan Company manufactures part G for use in its production
33.The Rural Cooperative, Inc. produces 1,000 units of Part M per cycle. The costs per unit for 10,000 units of part G are as follows:
month. The total manufacturing costs of the part are as follows: Direct materials P 3
Direct materials P10,000 Direct labor 15
Direct labor 5,000 Variable overhead 6
Variable overhead 5,000 Fixed overhead 8
Fixed overhead 30,000 Total P32
Total manufacturing cost P50,000 Pampanga Company has offered to sell Bulacan 10,000 units of part
An outside supplier has offered to supply the part at P30 per unit. It G for P30 per unit. If Bulacan accepts Pampanga’s offer, the
is estimated that 20% of the fixed overhead assigned to Part M will released facilities could be used to save P45,000 in relevant costs in
no longer be incurred if the company purchases the part from the
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the manufacture of part H. In addition, P5 per unit of the fixed 28.BEA Industries produces two products. Information about the
overhead applied to part G would continue. products is as follows:
What alternative is more desirable and by what amount? Item 38B Item 40F
A. B. C. D. Units produced and 1,000 4,000
Alternative Manufactur Manufactur Buy Buy sold
e e Selling price per P 25 P 20
Amount P10,000 P15,000 P15,000 P10,000 unit
Variable expenses P 15 P 12
Keep-or-Drop a Segment per unit
27.Indicate which of the following costs would be avoided if a segment The company’s fixed costs totaled P40,000, of which P8,000 can be
is eliminated. avoided if Item 38B is dropped and P25,000 can be avoided if Item
1. variable manufacturing costs 4. variable selling costs 40F is dropped.
2. direct fixed costs 5. direct fixed selling costs Product margin for Item 40F is
3. common fixed costs 6. common fixed selling costs A. P3,200 C. P(2,000)
B. P7,000 D. P10,000
A. 2, 3, 5, 6 C. 2, 3, 4, 5
B. 1, 2, 4, 5 D. 1, 4, 5, 6
Capital Budgeting
32.Banahaw Company plans to discontinue a department that has a Basic Concepts
contribution margin of P240,000 and P480,000 in fixed costs. Of 145. When compared Net Present Value method to Internal Rate of
the fixed costs, P210,000 can be avoided. The effect of this Return in terms of reinvestment of cash flows, NPV is better than
discontinuance on Banahaw’s overall net operating income would IRR. What are the reinvestment rate for each method?
be a(an) Net Present Value Method Internal Rate of Return
A. decrease of P30,000 C. decrease of P10,000 Method
B. increase of P30,000 D. increase of P10,000 A Discount Rate Discount Rate
.
34.Mina Co. mines three products. Gold Ore sells for P1,000,000 per B Discount Rate IRR
ton, variable costs are P600,000 per ton, and fixed mining costs are .
P6,000,000. The segment margin for 2003 was P(1,200,000). The C IRR IRR
management of Mina Co. was considering dropping the mining of .
Gold Ore. Only one-half of the fixed expenses are direct and would D IRR Discount Rate
be eliminated if the segment was dropped. If Gold Ore were .
dropped, net income for Arayat Mining would
A. Increase by P2,000,000 C. Increase by P1,200,000 Accounting Rate of Return
B. Decrease by P2,000,000 D. Net investment
Decrease by P1,200,000 39.The Zambales Company is planning to purchase a new machine
which it will depreciate, for book purposes, on a straight-line basis
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over a ten-year period with no salvage value and a full year’s estimates that the annual cash savings from this project will
depreciation taken in the year of acquisition. The new machine is amount to P65,000. Tax and book depreciation on the project will
expected to produce cash flow from operations, net of income be P40,000 per year for five years. On investments of this type,
taxes, of P175,000 a year in each of the next ten years. The WLF’s desired adjusted rate of return is 12%. Information on
accounting (book value) rate of return on the average investment is present value factors is as follows:
expected to be 15%. How much will the new machine cost? At At At
A. P1,000,000 C. P1,666,667 12% 14% 16%
B. P 700,000 D. P1,800,000 Present value of P1 for 5 periods 0.57 0.52 0.48
Present value of an annuity of 1 3.6 3.4 3.3
Differential income for 5 periods
146. Maxwell Company has an opportunity to acquire a new machine For the project’s first year, WLF’s accounting rate of return, based
to replace one of its present machines. The new machines would on the project’s average book value would be
cost P90,000, have a five-year life, and no estimated salvage value. A. 14.4% C. 12.5%
Variable operating costs would be P100,000 per year. The present B. 13.9% D. 25.0%
machine has a book value of P50,000 and a remaining life of five
years. Its disposal value now is P5,000, but it would be zero after
five years. Variable operating costs would be P125,000 per year. Cash Flows
Ignore present value calculations and income taxes. Net Investment
Considering the five years in total, what would be the difference in 147. Big City Motors is trying to decide whether it should keep its
profit before income taxes by acquiring the new machine as existing cash washing machine or purchase a new one that has
opposed to retaining the present one? technological advantages (which translate into cost savings) over
A. P10,000 decrease C. P35,000 increase the existing machine. Information on each machine follows:
B. P15,000 decrease D. P40,000 increase Existing New Machine
Machine
Operating cash flow before tax
Original cost P9,000 P20,000
37.The Mutya ng Pasig Company, a calendar company, purchased a
Accumulated depreciation 5,000 0
new machine for P280,000 on January 1. Depreciation for tax
Annual cash operating 9,000 4,000
purposes will be P35,000 annually for eight years. The accounting
costs
(book value) rate of return (ARR) is expected to be 20% on the
Current salvage value in 2,000 1,000
initial increase in required investment. On the assumption of a
10 years
uniform cash inflow, this investment is expected to provide annual
Remaining life 10 years 10 years
cash flow from operations, before 30 percent income taxes, of
A. P80,000 C. P115,000 The incremental cost to purchase the new machine is
B. P91,000 D. P175,000 A. P11,000 C. P13,000
B. P20,000 D. P18,000
ARR based on average investment
41.Water Lily Foundation (WLF), a tax-exempt organization, invested 148. Gray Company is considering replacing a machine with a book
P200,000 in a five-year project at the beginning of the year. WLF value of P200,000, a remaining useful-life of 5 years, and annual
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straight-line depreciation of P40,000. The existing machine has a 151. Alpha Company is considering replacing a machine with a book
current market value of P200,000. The replacement machine would value of P100,000, a remaining useful life of 4 years, and annual
cost P350,000, have a 5-year life, and save P50,000 per year in straight-line depreciation of P25,000. The existing machine has a
cash operating costs. If the replacement machine would be current market value of P80,000. The replacement machine would
depreciated using the straight-line method and the tax rate is 40%, cost P160,000, have a 4year life, and save P50,000 per year in cash
what would be the net investment required to replace to the operating costs. If the replacement machine would be depreciated
existing machine? using the straight-line method and the tax rate is 40%, what would
A. P90,000 C. P150,000 be the increase in annual income taxes and annual net cash flow if
B. P210,000 D. P350,000 the company replaces the machine?
A. B. C. D.
Operating Cash Flow After Tax Income Tax P14,000 P14,000 P 4,000 P 4,000
34.Which of the following is NOT relevant in calculating annual net Net Cash 36,000 46,000 46,000 36,000
cash flows for an investment? (M) Flow
A. Interest payments on funds borrowed to finance the project.
B. Depreciation on fixed assets purchased for the project. End-of-life Cash Flow
C. The income tax rate. 152. Acme is considering the sale of any of the two machines,
D. Lost contribution margin if sales of the product invested in will Machine A or Machine B. Machine A has a book value of P50,000, 3
reduce sales of other products. years remaining it its useful life with P15,000 annual straight-line
depreciation. Its market value is P75,000. Machine B has a book
149. The Hills Company, a calendar year company, purchased a new value of P75,000, 3-years remaining in its life, with P25,000 annual
machine for P280,000 on January 1. Depreciation for tax purposes straight-line depreciation. Its current market value is P50,000. What
will be P35,000 annually for eight years. The accounting (book are the cash flows from selling any of the two machines if the tax
value) rate of return (ARR.) is expected to be 15% on the initial rate is 40%?
increase in required investment. On the assumption of a uniform A. B. C. D.
cash inflow, this investment is expected to provide annual cash flow
Machine A P65,000 P65,000 P45,000 P45,000
from operations, net of income taxes, of
Machine B P40,000 P60,000 P60,000 P40,000
A. P35,000 C. P42,000
B. P40,250 D. P77,000
Comprehensive
150. A company is considering replacing a machine with one that will 153. Bata Company is considering replacing a machine with a book
save P40,000 per year in cash operating costs and have P10,000 value of P100,000, a remaining useful life of 5 years, and annual
more depreciation expense per year than the existing machine. The straight-line depreciation of P20,000. The existing machine has a
tax rate is 40%. Buying the new machine will increase annual net current market value of P100,000. The replacement machine would
cash flows of the company by cost P150,000, have a 5-year life, and save P50,000 per year in
A. P28,000 C. P18,000 cash operating costs. If the replacement machine would be
B. P24,000 D. P6,000 depreciated using the straight-line method arid the tax rate is 40%,
what would be the economic values relevant to me decision?
A. B. C. D.
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Net Investment P50,00 P50,00 P150,0 P150,00 A. a payback period of less than one-half the life of a project will
0 0 00 0 yield an IRR lower than the target rate.
Net Incremental Cash Flow P34,00 P42,00 P34,00 P42,000 B. the payback period is the present value factor for the IRR.
0 0 0 C. a project whose payback period does not meet the company's
Net Incremental Annual P16,00 P16,00 P3,00 P8,00 cutoff rate for payback will not meet the company's criterion for
Income Taxes 0 0 0 0 IRR.
D. none of the above
Questions 154 & 155 are based on the following information.
Brown Company is considering to replace its old equipment with a new 156. Energy Company is planning to spend P84,000 for a new
one. The old equipment had a net book value of P100,000, 4 remaining machine, to be depreciated on the straight-line basis over ten years
useful life with P25,000 depreciation each year. The old equipment can with no salvage value. The related cash flow from operations, net of
be sold at P80,000. The new equipment costs P160,000, have a 4-year income taxes, is expected to be P10,000 a year for each of the first
life. Cash savings on operating expenses before taxes amount to six years and P12,000 for each of the next four years. What is the
P50,000 per year. payback period?
A. 4.4 years C. 7.8 years
154. What is the amount of investment in the new equipment? B. 7.6 years D. 8.0 years
A. P160,000 C. P72,000
B. P80,000 D. P68,000 157. Salve Company is considering an investment in a new cheese-
cutting machine to replace its existing cheese cutter. Information
155. How much annual after-tax cash savings (inflow) would the new on the existing machine and the replacement machine follow:
equipment provide? Cost of the new machine P100,000
A. P36,000 C. P37,200 Net annual savings in operating costs 20,000
B. P46,000 D. P14,000 Salvage value now of the old machine 10,000
Salvage value of the old machine in 8 years 0
Payback Period Salvage value of the new machine in 8 years 20,000
36.Which of the following is(are) closely relevant to Payback Method? Estimated life of the new machine 8 years
(M) What is the expected payback period for the new machine?
A. Intermediate cash flows are reinvested at zero percent. A. 4.00 years C. 4.50 years
B. The use of cash inflows instead of profit. B. 4.33 years D. 5.00 years
C. Avoidance of too much risk of uncertainty.
D. Explicit considerations of timing of cash flows. 158. Biloxi Beluga is considering an investment in a new cheese-
E. Prevention of excessive liquidity problems. cutting machine to replace its existing cheese cutter. Information on
F. Cost of capital the existing machine and the replacement machine follow.
A. All of these C. A, B, C, E Cost of the new machine P40,000
B. A, C, E, F D. B, C, E Net annual savings in operating costs 9,000
Salvage value now of the old machine 6,000
35.The relationship between payback period and IRR is that (E) Salvage value of the old machine in 8 years 0
Salvage value of the new machine in 8 years 5,000
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Estimated life of the new machine 8 years C. The IRR method docs riot assume reinvestment of the cash flow
What is the expected payback period for the new machine? while the NPV assumes the reinvestment rate is equal to the
A. 4.44 years C. 8.50 years discount rate.
B. 2.67 years D. 3.78 years D. The NPV method assumes a reinvestment rate equal to the bank
loan interest rate while the IRR method assumes a reinvestment
Bailout Period rate equal to the discount rate.
159. A project costing P1,800,000 is expected to produce the
following annual cash flows (after tax) and salvage value: 162. The advantage of the Net Present Value method over the
Year Net cash inflow Salvage value Internal Rate of Return method for screening investment projects is
1 500,000 800,000 that it:
2 500,000 600,000 A. does not consider the time value of money
3 600,000 500,000 B. implicitly assumes that the company is able to reinvest cash
4 800,000 400,000 flows from the project at the company’s discount rate
5 700,000 300,000 C. implicitly assumes that the company is able to reinvest cash
What is the bailout period for the project? flows from the project at the internal rate of return
A. 3.25 yrs C. 2.73 yrs D. fails to consider the timing of cash flows
B. 2.5 yrs D. 2.4 yrs
163. Which of the following combinations is possible?
Discounted Cash Flow Profitability Index NPV IRR
160. If Sol Company expects to get a one-year loan to help cover the A. Greater than 1 Positive Equal cost of
initial financing of capital project, the analysis of the project should capital
A. offset the loan against any investment in inventory or receivable B. Greater than 1 Negative Less than cost of
required by the project capital
B. show the loan as an increase in the investment . Less than 1 Negative Less than cost of
C. show the loan as a cash outflow in the second year of the capital
project’s life D. Less than 1 Positive Less than cost of
D. ignore the loan capital

161. Why do the NPV method and the IRR method sometimes 38.B Company is considering two alternative ways to depreciate a
produce different rankings of mutually exclusive investment proposed investment. The investment has an initial cost of
projects? P100,000 and an expected 5 year life. The two alternative
A. The NPV method does not assume reinvestment of cash flows depreciation schedules follow:
while the IRR method assumes the cash flows will be reinvested Method 1 Method 2
at the internal rate of return. Year 1 depreciation P40,000 P20,000
B. The NPV method assumes a reinvestment rate equal to me Year 2 depreciation P30,000 P20,000
discount rate while the IRR method assumes a reinvestment rate Year 3 depreciation P20,000 P20,000
equal to the internal rate of return. Year 4 depreciation P10,000 P20,000
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Year 5 depreciation P 0 P20,000 A. P14,620 C. P 7,340

Present value of annuity of 1 for 5 periods at 10% , 3.79079. B. P12,188 D. P 9,750
Present value of 1, end of periods:
Perio 1 2 3 4 5 Net Present Value
d 40.The King of Hearts, Inc. is considering to replace its old equipment
PV of 0.90909 0.82645 0.75131 0.68301 0.620 with a more efficient one. The old equipment was purchased two
1 92 years ago for P720,000. Though the old equipment will be used for
Assuming that the company faces a marginal tax rate of 40%, and eight years, the company elected to depreciate it ever 6 years. If
has a cost of capital of 10%, what is the net advantage (in present the company would keep and use the old equipment during its
value) in using one method over the other one in computing remaining useful life, the annual cash operating expenses will be
depreciation? P640,000. The old equipment can be sold for P380,000.
A. P7,196 C. P2,879 The new equipment costs the company P900,000. The new
B. P0 D. P6,342 equipment will be depreciated over its useful life of six years
without any salvage value. The use of the new equipment will
165. Silliman Corporation purchased a new machine for P450,000. decrease the company's cash operating expenses by P175,000, The
The new machine has an estimated useful life of five years with no company is consistently using straight-line method of depreciation
salvage value. The machine is expected to produce cash flows from with 32% income tax. The company uses 16% cost of capital.
operations, net of 40 percent income taxes, as follows: The purchase of the new equipment will result to net present value
First year P160,000 of: (D)
Second year 140,000 A. P127,351 C. P19,901
Third year 180,000 B. P(14,143) D. P11,922
Fourth year 120,000
Fifth year 100,000 Profitability Index
Silliman will use the sum-of-the-years-digits’ method to depreciate 166. A project has a NPV of P15,000 when the cutoff rate is 10%. The
the new machine as follows: annual cash flows are P20,505 on an investment of P50,000. The
First year P150,000 profitability index for tins project is
Second year 120,000 A. 1.367 C. 2.438
Third year 90,000 B. 3.333 D. 1.300
Fourth year 60,000
Fifth year 30,000 41.Sulu Company is considering to acquire a machine in order to
The present value of 1 for 5 periods at 12 percent is 3.60478. The reduce its direct labor costs. This machine shall last for 4 years with
present values of 1 at 12 percent at end of each period are: End no salvage value. His initial analysis indicated that the time-
of: Period 1 – 0.8928, Period 2 - 0.79719, Period 3 - 0.71178, adjusted rate of return is 15 percent. At 12 percent (cost of capital
Period 4 - 0.63552, Period 5 - 0.56743 to finance the purchase of the machine), the company expects net
The net advantage (in present value) of using the Sum-of-the-Years’- present value of P5,470,80.
Digits method over the straight-line method at a discount rate of The present value of 1 for four periods at 12 percent is 3.03735 and
12 percent is at 15 percent is 2.85499.
Ignoring income tax considerations, the profitability index is (D)
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A. 1.064 C. 1.047 B. P62,100 D. P122,100

B. 1.183 D. 1.250
168. Gene, Inc. invested in a machine with a useful life of six years
Internal Rate of Return and no salvage value. The machine was depreciated using the
37.A weakness of the internal rate of return method for screening straight-line method. It was expected to produce annual cash inflow
investment projects is that it: (E) from operations, net of income taxes, of P2,000. The present value
A. does not consider the time value of money of an ordinary annuity of P1 for six periods at 10% is 4.355. The
B. implicitly assumes that the company is able to reinvest cash present value of P1 for six periods at 10% is 0.5464. Assuming that
flows from the project at the company's discount rate Gene used a time adjusted rate of return of 10%, what was the
C. implicitly assumes that the company is able to reinvest cash amount of the original investment?
flows from the project at the internal rate of return A. P5,640 C. P9,000
D. fails to consider the timing of cash flows B. P8,710 D. P11,280

Net Investment 169. Fordem Co. is considering an investment in a machine that

167. The Forest Company is planning to invest in a machine with a would reduce annual labor costs by P30,000. The machine has an
useful life of five years and no salvage value. The machine is expected life of 10 years with no salvage value. The machine would
expected to produce cash flow from operations, net of income be depreciated according to the straight-line method over its useful
taxes, of P20,000 in each of the five years. Forest's expected rate of life. The company’s marginal tax rate is 30%. Assume that the
return is 10%. Information on present value and future amount company will invest in the machine of it generates a pre-tax
factors is as follows. internal rate of return of 16%. What is the maximum amount the
PERI0D company can pay for the machine and still meet the internal rate of
1 2 3 4 5 return criterion?
Present value of P1 at 10% . .826 .751 .683 .621 A. P180,000 C. P187,500
9 B. P210,000 D. P144,996
0
9 Unit sales
Present value of an annuity of . 1.736 2.487 3.170 3.791 42.King of Kings Company has been renting equipment during peak
P1 at 10% 9 season in addition to its own equipment in handling standard
0 materials. The rental cost averages P9,000 a year. The company's
9 Investment Committee is evaluating the possibility of buying
Future amount of P1 at 10% 1.1 1.210 1.331 1.464 1.611 additional equipment at a cost of P225,000 with an estimated
0 useful life of 5 years and with no salvage value at the end of 5
0 years. The committee estimates that it can save P0.25 per unit of
Future amount of an annuity 1.0 2.100 3.310 4.641 6.105 material by using its own equipment. Also, it estimates that
of P1 at 10% 0 270,000 units can be handled \n each of the 5 years, A 15%
How much will the machine cost? discounted rate of return is considered appropriate, ignoring income
A. P32,220 C. P 75,820 tax. Present value of annuity of 1, at 15% for 5 years, is 3,352.
What is the approximate number of units at which the investment
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can just meet the 15% return requirement? (D) Project 1 Project 2 Project 3 Project 4
A. 232,496 C. 304,496 Initial cash P200,000 P298,000 P248,000 P272,000
B. 268,496 D. 256,428 outlay
Annual net cash
Selling price inflows
42.Moorman Products Company is considering a new product that will Year 1 P65,000 P100,000 P80,000 P95,000
sell for P100 and have a variable cost of P60. Expected volume is Year 2 70,000 135,000 95,000 125,000
20,000 units. New equipment costing P1,500,000 and having a five- Year 3 80,000 90,000 90,000 90,000
year useful life and no salvage value is needed, and will be Year 4 40,000 65,000 80,000 60,000
depreciated using the straight-line method. The machine has cash Net present (3.798) 4,276 14,064 14,662
operating costs of P20,000 per year. The firm is in the 40 percent value
tax bracket and has cost of capital of 12 percent. The present value Profitability index 98% 101% 106% 105%
of 1, end of five periods is 0.56743; present value of annuity of 1 for Internal rate of 11% 13% 14% 15%
5 periods is 3.60478. return
Suppose the 20,000 estimated volume is sound, but the price is in
doubt. What is the selling price (rounded to nearest peso) needed Which project(s) should Investors, Inc. select during the upcoming
to earn a 12 percent internal rate of return? year under each budgeted amount of funds?
A. 81.00 C. P70.00 No Budget P600,000 Available P300,000 Available
B. 86.00 D. P90.00 Restriction Funds Funds
A. Projects 2, 3, & Projects 3 & 4 Projects 3
Operating Cash Flow Before Tax
4
170. Payback Company is considering the purchase of a copier
B. Projects 1, 2, & Projects 2, 3 & $ Projects 3 & 4
machine for P42,825. The copier machine will be expected to be
3
economically productive for 4 years. The salvage value at the end
C. Projects 1, 3 & Projects 2 & 3 Projects 2
of 4 years is negligible. The machine is expected to provide 15
4
percent internal rate of return. The company is subject to 40
D. Projects 3 & 4 Projects 2 & 4 Projects 2 & 4
percent income tax rate.
The present value of an ordinary annuity of 1 for 4 periods is
2.85498. Financial Statement Analysis
In order to realize the IRR of 15 percent, how much is the estimated Horizontal Analysis
before-tax cash inflows to be provided b the machine? 172. Sales for a three year period are: Year 1, P4.0 million, Year 2,
A. P17,860 C. P25,000 P4.6 million, and Year 3, P5.0 million. Using year 1 as the base year,
B. P15,000 D. P35,700 the respective percentage increase in sales in year 2 and 3 are
A. 115% and 125% C. 115% and 130%
Investment Decisions B. 115% and 109% D. 87% and 80%
171. Investors, Inc. uses a 12% hurdle rate for all capital expenditures
and has done the following analysis for four projects for the Liquidity & Activity Ratios
upcoming year:
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37.Which ratio is most helpful in appraising the liquidity of current Ratio

assets?
A. current ratio C. debt ratio Profitability Ratios
B. acid-test ratio D. accounts 175. Selected financial data for May on Company appear below:
receivable turnover Account Balances
Beginning of Year End of Year
173. The days sales-in-receivable ratio will be understated if the
Preferred P125,000 P125,000
company
stock
A. Uses a natural business year for its accounting period
Common 300,000 400,000
B. Uses a calendar year for its accounting period
stock
C. Uses average receivable in the ratio calculation
Retained 75,000 185,000
D. Has high sales at the end of the year
earnings
During the year, the company paid dividends of P10,000 on its
174. Baguio Company's accounts receivable were P600,000 at the
preferred stock. The company's net income for the year was
beginning of the year and P800,000 at the end of the year. Cash
P120,000. The company's return on common stockholders' equity
sales for the year were P300,000. The accounts receivable turnover
for the year is closest to:
for the year was 5 times. Baguio Company's total sales for the year
A. 17% C. 23%
were:
B. 19% D. 25%
A. P 800,000 C. P3,300,000
B. P1,300,000 D. P3,800,000
Solvency Ratios
176. A firm’s financial risk is a function of how it manages and
40.The following financial data have been taken from the records of
maintains its debt. Which one of the following sets of ratios
Lotion Company:
characterizes the firm with the greatest amount of financial risk?
Accounts receivable P200,000
A. High debt-to-equity ratio, high interest coverage ratio, volatile
Accounts payable 80,000
return on equity
Bonds payable, due in 10 years 500,000
B. High debt-to-equity ratio, high interest coverage ratio, stable
Cash 100,000
return on equity
Interest payable, due in three months 25,000
C. Low debt-to-equity ratio, low interest coverage ratio, volatile
Inventory 440,000
return on equity
Land 800,000
D. High debt-to-equity ratio, low interest coverage ratio, volatile
Notes payable, due in six months 250,000
return on equity
What will happen to the ratios below if Lotion Company uses cash
to pay 50 percent of its accounts payable?
38.The times interest earned ratio of Maxi Company is 4.5 times. The
A. B. C. D.
interest expense for the year was P20,000, and the company’s tax
Current Increase Decrease Increase Decrease rate is 40%. The company’s net income is:
Ratio A. P22,000 C. P54,000
Acid-test Increase Decrease Decrease Increase B. P42,000 D. P66,000
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 Common stock, par value, P5; authorized 40,000 shares;

Other Ratios  Issued and outstanding 20,000 shares – 100,000
177. Recto Co. has a price earnings ratio of 7, earnings per share of Adventure’s net income for the first year ended December 31 was
P2.20, and a pay out ratio of 80%. The dividend yield is P1,880,000, but no dividends were declared. How much was
A. 80.0% C. 11.4% Adventure’s book value per common share at December 31?
B. 39.3% D. 31.4% A. P97 C. P99
B. P98 D. P120
178. The following were reflected from the records of War Freak
Company: 41.The Dawson Corporation projects the following for the year 2003.
Earnings before interest and taxes P1,250,000 Earnings before interest and taxes P35 million
Interest expense 250,000 Interest expense P 5 million
Preferred dividends 200,000 Preferred stock dividends P 4 million
Payout ratio 40 percent Common stock dividend payout ratio 30%
Shares outstanding throughout 2003 Common shares outstanding 2 million
Preferred 20,000 Effective corporate income tax rate 40%
Common 25,000 The expected common stock dividend per share by Dawson
Income tax rate 40 percent Corporation for 1995 is
Price earnings ratio 5 times A. P2.34 C. P1.80
The dividend yield ratio is B. P2.70 D. P2.10
A. 0.50 C. 0.12
B. 0.40 D. 0.08 Integrated Ratios
28.Calumpang Company has a total assets turnover of 0.30 and a
39.The Delta Company projects the following for the upcoming year: profit margin of 10 percent. The president is unhappy with the
Earnings before interest and taxes P40 million current return on assets, and he thinks it could be doubled. This
Interest expense P 5 million could be accomplished (1) by increasing the profit margin to 12
Preferred stock dividends P 4 million percent, and (2) by increasing the total assets turnover. What new
Common stock dividend payout ratio 20% asset turnover ratio, along with the 12 percent profit margin, is
Average number of common shares outstanding 2 million required to double the return on assets?
Effective corporate income tax rate 40% A. 25% C. 50%
The expected dividend per share of common stock is B. 36% D. 60%
A. P1.70 C. P2.10
B. P1.86 D. P1.00 179. JayR has debt ratio of 0.50, a total asset turnover of 0.25, and a
profit margin of 10%. The president is unhappy with the current
39.Strada Corporation was organized on January 1 with the following return on equity, and he thinks it could be doubled. This could be
capital structure: accomplished: (1) by increasing the profit margin to 14%; and, (2)
 10% cumulative preferred stock, par and liquidation value of by increasing debt utilization. Total asset turnover will not change.
P110; authorized, issued and outstanding 2,000 shares – What new debt ratio, along, with 14% profit margin is required to
P200,000 double the return on equity?
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A. 0.75 C. 0.65 ratio, along with the 15 percent profit margin, is required to double
B. 0.70 D. 0.55 the return on assets?
A. 35% C. 40%
180. Glo expects sales for 2002 to be P2,000,000, resulting in a B. 45% D. 50%
return on sales of 10%. The dividend payout rate is 60%. Beginning
stockholders’ equity was P850,000 and current liabilities are 42.Delo Co. has a debt ratio of 0.50, a total assets turnover of 0.25,
projected to be P300,000 at the end of 2002. What are the total and a profit margin of 10%. The president is unhappy with the
equities available if the ratio of long-term debt to stockholders’ current return on equity, and he thinks it could be doubled. This
equity is 60%? could be accomplished (1) by increasing the profit margin to 14%
A. P1,788,000 C. P2,046,000 and (2) increasing debt utilization. Total assets turnover will not
B. P1,980,000 D. P858,000 change. What new debt ratio, along with the 14% profit margin, is
required to double the return on equity?
40.Assume you are given the following relationships for the Marhya A. 0.75 C. 0.65
Company: B. 0.70 D. 0.55
Sales/total assets 1.5X
Return on assets (ROA) 3% Working Capital Finance
Return on equity (ROE) 5% Working Capital Financing Policy
The Marhya Company’s debt ratio is Conservative Financing Policy
A. 40% C. 35% 183. As a company becomes more conservative with respect to
B. 60% D. 65% working capital policy, it would tend to have a(n).
A. Increase in the ratio of current liabilities to noncurrent liabilities.
181. Selected data from Shyr Company’s year-end financial B. Decrease in the operating cycle
statements are presented below. The difference between average C. Increase in the operating cycle
and ending inventory is immaterial. D. Increase in the ratio of current assets to noncurrent liabilities
Current ratio 2.0
Quick ratio 1.5 Aggressive Financing Policy
Current liabilities P120,000 184. Jekel Company follows and aggressive financing policy in its
Inventory turnover (based on cost of sales) 8 times working capital management while Michael Corporation follows a
Gross profit margin 40% conservative financing policy. Which one of the following
Shyr’s net sales from the year were statements is correct?
A. P800,000 C. P480,000 A. Jekel has low ratio of short-term debt to total debt while Michael
B. P1,200,000 D. P672,000 has a high ratioof short-term debt to total debt
B. Jekel has a low current ratio while Michael has a high current
182. Salami Company has a total assets turnover of 0.30 and a profit ratio
margin of 10 percent. The president is unhappy with the current C. Jekel has less liquidity risk while Michael has more liquidity risk
return on assets, and he thinks it could be doubled. This could be D. Jekel finances short-term assets with long-term debt while
accomplished (1) by increasing the profit margin to 15 percent, and Michael finances short-term assets with short-term debt.
(2) by increasing the total assets turnover. What new asset turnover
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185. Nutty Co. has total fixed assets of P100,000 and no current marketable securities and vice versa. Ocampo’s yield on its
liabilities. The table below displays its wide variation in current temporary investments is 12%. What is the total costs of keeping
asset components. Ocampo’s cash?
1st 2nd 3rd 4th A. P2,846 C. P6,000
Quarter Quarter Quarter Quarter B. P1,897 D. P3,242
Cash P16,000 P10,000 P11,000 P18,000
Accounts 70,000 30,000 40,000 90,000 Lockbox System
receivable 189. The Alabang Company has a daily average collection of checks
Inventory 20,000 60,000 70,000 10,000 of P250,000. It takes the company 4 days to convert the checks to
Total P106,000 P100,000 P121,000 P118,000 cash. Assume a lockbox system would have a net cost of P25,000
If Nutty’s policy is to finance all fixed assets and half the permanent per year, but any additional funds made available could be invested
current assets with long-term financing and rest with short time- to net 8 percent per year. Should Alabang adopt the lockbox
financing, what is the maximum level of short-term financing? system?
A. P68,000 C. P150,000 A. Yes, the system would free P250,000 in funds
B. P50,000 D. P71,000 B. Yes, the benefits of the lock-box system exceed the costs
C. No, the benefit is only P10,000
Cash Management D. No, the firm would lose P5,000 per year if the system were used
Optimal cash conversion size
186. Gear Inc. has a total annual cash requirement of P14,700,000 Receivables Management
which are to be paid uniformly. Gear has the opportunity to invest Credit policy
the money at 24% per annum. The company spends, on the 190. It is held that the level of accounts receivable that a firm has or
average, P40 for every cash conversion to marketable securities. holds reflects both the volume of a firm’s sales on account and a
What is the optimal cash conversion size? firm’s credit policies. Which one of the following items is not
A. P50,000 C. P80,000 considered as part of a firm’s “credit policy”?
B. P62,500 D. P70,000 A. The maximum risk group to which credit should be extended.
B. The extent (in terms of money) to which a firm will go to collect
187. Morr Co. has a total annual cash requirement of P9,075,000 an account.
which are to be paid uniformly. Morr has the opportunity to invest C. The length of time for which credit is extended.
the money at 24% per annum. The company spends, on the D. The size of the discount that will be offered.
average, P40 for every cash conversion to marketable securities.
What is the optimum average cash balance? Incremental investment in receivables
A. P60,000 C. P43,000 191. Lipa Company currently has annual sales of P2,000,000. Its
B. P55,000 D. P27,500 average collection period is 40 days, and bad debts are 5 percent of
sales. The credit and collection manager is considering instituting a
Total cost of keeping cash stricter collection policy, whereby bad debts would be reduced to 2
188. Ocampo Co. estimates its total annual cash requirements at percent of total sales, and the average collection period would fall
about P600,000. It costs the company P25 to convert cash from to 30 days. However, sales would also fall by an estimated
P250,000 annually. Variable costs are 60 percent of sales and the
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cost of carrying receivables is 12 percent. Assume a tax rate of 40 B. P3,125,000 D. P5,000,000

percent and 360 days per year.
What would be the incremental investment in receivables if the Inventory Management
change were made? Economic Order Quantity
A. P(16,667) C. P(48,611) 195. Gerstein Company manufactures a line of deluxe office fixtures.
B. P(27,167) D. P(45,833) The annual demand for its miniature oak file is estimated to be
5,000 units. The annual cost of carrying one unit in inventory is P10,
Increase in accounts receivable and the cost to initiate a production run is P1,000. There are no
192. Matang-Lawin’s budgeted sales for the coming year are miniature oak files on hand, and Gerstein has scheduled four equal
P48,000,000 of which 80% are expected to be credit sales at a production runs of the miniature oak file for the coming year, the
terms of n/30. Matang-Lawin estimates that a proposed relaxation first of which is to be rum immediately. Gerstein has 250 business
of credit standards would increase credit sales by 30 percent and days per year. Assume that sales occur uniformly throughout the
increase the average collection period from 30 days to 45 days. year and that production is instantaneous.
Based on a 360-day year, the proposed relaxation of credit The number of production runs per year of the miniature oak files
standards would result in an expected increase in the accounts that would minimize the sum of carrying costs and setup costs for
receivable balance of the coming year is
A. P3,440,000 C. P3,040,000 A. 7 C. 4
B. P1,440,000 D. P960,000 B. 2 D. 5

193. Relax Company’s budgeted sales for the coming year are 196. Gleim Company, which manufactures a line of appliances, has
P40,500,000 of which 80% are expected to be credit sales at terms an annual demand for its HD washing machine estimated at 7,500
of n/30. Relax estimates that a proposed relaxation of credit units. The annual cost of carrying one unit of inventory is P200, and
standards will increase credit sales by 20% and increase the the cost to initiate a production run is P5,000. There are no HD
average collection period from 30 days to 40 days. Based on a 360- washing machine on hand, and Gleim has scheduled 5 equal
day year, the proposed relaxation of credit to standards will result production runs of HD washing machines for the coming year. Gleim
in an expected increase in the average accounts receivable balance has 250 business days per year. Assume that sales occur uniformity
of throughout the year and that production is instantaneous.
A. P540,000 C. P900,000 If Gleim does not maintain a safety stock, the estimated total
B. P2,700,000 D. P1,620,000 carrying costs and total set-up costs for the coming year are:
A. B. C. D.
194. Real Company’s budgeted sales for the coming year are Carrying P150,000 P300,000 P150,000 P300,000
P50,000,000 of which 75% are expected to be credit sales at terms Costs
of n/30. Real estimates that a proposed relaxation of credit Set-up 25,000 25,000 5,000 5,000
standards will increase credit sales by 20% and increase the Costs
average collection period from 30 days to 40 days. Based on a 360-
day year, the proposed relaxation of credit standards will increase Annual cost of keeping inventory
average accounts receivable balance by: 197. The Cindy Fashion uses about 200,000 yards of a particular
A. P1,200,000 C. P1,875,000
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fabric each year. The fabric costs P150 per yard. The current policy 200. When a specified level of safety stock is carried for an item in
is to order the fabric 8 times a year. Incremental ordering costs ate inventory, the average inventory level for that item
about P900 per order, and incremental carrying costs are about A. decreased by the amount of the safety stock
P0.75 per yard, much of which represents the opportunity cost of B. is one-half the level of the safety stock
the funds tied up in inventory. How much total annual costs are C. Increases by one-half the amount of the safety stock
associated with the current inventory policy? D. Increases by the amount of the safety stock
A. P16,575 C. P25,950
B. P18,750 D. P9,200 201. The Glimpse Corporation purchases 60,000 headbands per year. The
average purchase lead time is 20 working days. Maximum lead time is 27
Opportunity cost working days. The corporation works 240 days per year. The appropriate
198. Luzon Fabricators, Inc. estimates that 60,000 special safety stock level and the reorder point for the company are:
components will be used in the manufacture of a specialty steel A. B. C. D.
window for the whole next year. Its supplier quoted a price of P60
Safety Stock 1,750 1,750 1,167 1,167
per component. Luzon prefer to purchase 5,000 units per month,
Reorder Point 6,750 5,250 6,750 5,250
but its supplier could not guarantee this delivery schedule. In order
to ensure availability of these components, Luzon is considering the
purchase of all 60,000 units at the beginning of the year. Assuming Stockout Cost
Luzon can invest cash at 8%, the company’s opportunity cost of 202. Which of the following items is irrelevant for a company that is
purchasing the 60,000 units at the beginning of the year is attempting to minimize the cost of the stockout?
A. P132,000 C. P150,000 A. Cost of placing an order C. Storage cost of inventory
B. P144,000 D. P264,000 B. Contribution margin on lost sales D. Size of the safety stock

Service level Optimal Safety Stock Level

199. The sales office of Hermit Company has developed the following 203. Each stockout of a product sold by FM Co. costs P1,750 per
probability distributed for daily sales of a perishable product. occurrence. The company’s carrying cost per unit of inventory is P5
X (Units Sold) P(Sales-X) per year, and the company orders 1,500 units of product 20 times a
200 0.2 year at a cost of P100 per order. The probability of a stockout at
250 0.5 various levels of safety stock are:
300 0.2 Units of Safety Stock Probability of Stockout
350 0.1 0 0.50
The product is restocked at the start of each day. If the company 100 0.30
desires a 90% service level in satisfying sales demand, the initial 200 0.14
stock balance for each day should be 300 0.05
A. 245 C. 315 The optimal safety stock level for the company based on the units
B. 300 D. 220 of safety stock level above is
A. 0 units C. 300 units
Safety Stock & Reorder Point B. 100 units D. 400 units

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Trade Credit account. The loan is payable at the end of 6 months. The effective
204. If a firm purchases raw materials from its supplier on a 2/10, interest rate if this loan is
n/50 term, the equivalent annual interest (using 360-day year) of A. 28.21% C. 14.29%
giving up a cash discount and making payment on the 60th day is B. 27.27% D. 15.38%
A. 14.73% C. 14.69%
B. 18.37% D. 12.29% 210. Bratas Company is negotiating for a 4-month discounted loan for
P200,000 at 12% per annum. The negotiated loan requires a 20%
205. If a retailer’s term of trade are 3/10, net 45 with supplier, what is compensating balance. What is the effective interest rate of the
the cost on an annual basis of not taking the discount? Assume a loan?
360-day year. A. 17.65% C. 15.59%
A. 24.00% C. 24.74% B. 15.79% D. 15.00%
B. 37.11% D. 31.81%
Cost of Capital
206. Calvin Lopez regularly purchases from Jackson at terms of 3/10, Cost of Debt
n/45. What is the simple nominal cost of foregoing the discount if 211. The Medium Company’s bonds have 10 years remaining to
Calvin pays on the 55th day? maturity. Interest is paid annually; the bonds have a P1,000 face
A. 24.74% C. 20.24% value; and the coupon interest rate is 9 percent.
B. 31.81% D. 24.49% What is the estimated yield to maturity of the bonds at their current
market price of P900?
207. If a firm purchases raw materials from its supplier on a 3/10, A. 10.64 percent C. 8.53 percent
n/50 term, the approximate annual interest rate (using 360-day B. 10.00 percent D. 7.50 percent
year) of giving up a cash discount and making payment on the 60 th
day is Dividend Growth Model
A. 22.27 percent C. 18.37 percent 212. The dividends and stock price of Mikey Company are expected
B. 27.84 percent D. 14.69 percent to grow at 7 percent per year after this year. Mickey’s common
stock sells for P25 per share, its last dividend was P2.50 and the
Short-term Financing company will pay P2.675 at the end of the current year. Mickey
208. The Dean Company has an outstanding 1 year bank loan of should pay P2.50 flotation cost.
P800,000 at a stated interest rate of 8%. In addition, Dean is What is the expected returns on retained earnings for Mickey
required to maintain a 20% compensating balance in its checking Company?
account. Assuming Dean would normally maintain a zero balance in A. 17.77 percent C. 18.45 percent
its checking account , the effective interest rate on the loan is B. 18.89 percent D. 19.72 percent
A. 8.0% C. 11.11%
B. 10.0% D. 6.4% 213. The Mint’s Company’s last dividend was P4.50; its growth rate is
6 percent and the stock now sells for P60. Flotation cost is P5.00
209. Alice Company borrows from a bank a certain loan at a stated What is Mint Company’s cost of new common stock?
discount rate of 12 percent per annum. The bank requires 10 A. 8.67 percent C. 14.18 percent
percent of loan as compensating balance in its new checking B. 14.67 percent D. 13.50 percent
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stock with a cost of 18%. The marginal corporate tax rate is 40%.
214. Miladym Inc. paid cash dividend to its common shareholders What is the weighted average cost of capital?
over the past twelve months of P2.20 per share. The current market A. 8.1% C. 10.8%
value of the common stock is P40 per share and investors are B. 9.9% D. 11.7%
anticipating the common dividend to grow at a rate of 6% per
annum. The cost to issue new common stock will be 5 percent of Marginal Cost of Capital
the market value. The cost of retained earnings and new common 218. Raiders, Inc. just paid P3.00 cash dividend per share. Over the
stock, respectively, are past 5 years, Raiders’ dividends averaged an 8 percent growth. The
A. B. C. D. common share of Raiders currently sells at P62.50; flotation cost on
Retained 12.14% 11.83% 11.79% 12.14% common shares is P2.50 per share.
earnings What is the marginal cost of capital for new issues of common
Common stock 11.83% 12.14% 12.14% 11.79% shares?
A. 13.0 percent C. 13.2 percent
Capital Asset Pricing Model B. 13.4 percent D. 12.8 percent
215. The Capital Asset Pricing Model (CAPM) computes the expected
return on a security by adding the risk-free rate of return to the 219. The Beta Corporation asks you to determine its marginal cost of
incremental yield of the expected market return which is adjusted capital. Beta’s current capital structure consists of 45 percent debt,
by the company's beta. What is MNO's expected rate of return if the 15 percent preferred stock and 40 percent common equity. The
equity market is expected to earn 12 percent; the treasury bonds separate marginal costs of the various components of the capital
are currently yielding 5 percent. The beta coefficient for MNO is structure are as follows: debt, after-tax 5.0 percent; preferred
estimated to be 0.60. MNO is subject to an effective corporate stock, 9 percent; retained earnings, 12 percent; and new common
income tax rate of 40 percent. stock, 13.5 percent. If Beta has P15 million investible retained
A. 12.00 percent C. 9.20 percent earnings, and Beta has an opportunity to invest in an attractive
B. 12.20 percent D. 7.20 percent project that costs P60 million, what is the marginal cost of capital of
Beta Corporation?
216. Based on the following data, compute the market return for A. 8.40 percent C. P9.00 percent
Box’s stock: B. 8.63 percent D. P9.88 percent
Required return on Box common 15 percent
Beta coefficient 1.5 230. The Cardinal Company sets the following capital structure for
Risk-free rate 9.0 percent 2003:
A. 13.0 percent C. 25.0 percent Debt 50.0%
b. 18.0 percent D. 16.0 percent Preferred equity 10.0%
Common Equity 40.0%
Weighted-Average Cost of Capital The company is planning to invest in a project that requires the
217. A firm maintains a debt/equity ratio of 1.0. The debt consists of company P4,000,000 costs.
bonds with a before tax cost of 9%. The equity consists of common At the size of the new funds required, the estimated individual
marginal cost of capital are:
Debt (after tax) 9.00 percent
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Preferred 12.50 percent The objective function for maximizing profits and the equation for
Retained earnings 14.00 percent the constrain on raw materials are:
Common shares 15.00 percent Objective Function Constraint on raw materials
What are the marginal weighted average cost of capital for Cardinal A. Max P1A + P2B 4A + 2B=100
Company if it has available retained earnings of P600,000 and B. Max P4A + P5B 1A + 2B=100
P1,600,000 respectively? C. Max P4A + P2B 4A + 5B=100
Available Retained Earnings D. Min P4A + P5B 4A + 5B=300
P600,000 P1,600,000
A. 11.75% 11.35% PERT-CPM
B. 11.60% 11.35% 233. AGL Builders uses the critical path method to monitor
C. 11.75% 11.75% construction jobs. The company is currently 2 weeks behind
D. 11.55% 11.55% schedule on Job 501, which is the subject to P10,500 per week
completion penalty. Path A-B-C-F-G-H-I has a normal completion
Retained Earnings Breakpoint time of 20 weeks, and critical path A-D-E-F-G-H-I has a normal
231. Resi, Inc. expects net income of P800,000 for the next fiscal completion time of 22 weeks. The following activities can be
year. Its targeted and current capital structure is 40% debt and 60% crashed
common equity, The director of capital budgeting has determined Activities Cost to Crash 1 Cost to Crash 2
that the optimal capital spending for next year is P1,200,000. If Resi week weeks
follows a strict residual dividend policy, what is the expected BC P8,000 P15,000
dividend payout ratio for next year? DE P10,000 P19,600
A. 80.0% C. 40.0% EF P8,800 P18,500
B. 66.7% D. 10.0% AGL desires to reduce the normal completion time of Job 501 and,
at the same time, report the highest possible income for the year.
Quantitative Methods AGL should crash
Linear Programming A. Activity BC 1 week and activity EF 1 week
232. Anderson Co. manufactures two different products, A and B. The B. Activity BC 2 weeks
company has 100 pounds of raw materials and 300 direct labor C. Activity EF 2 weeks
hours available for production. The time requirement and D. Activity DE 1 week and activity EF 1 week
contribution margins per unit are as follows:
A B 234. Castle Building Company uses the critical path method to
Raw materials per unit 1 2 monitor construction jobs. The company is currently 2 weeks behind
(lbs) schedule on Job WW, which is subject to a P10,500-per-week
Direct labor hours per 4 2 completion penalty. Path A-B-C-F-G-H-I has a normal completion
unit time of 20 weeks, and critical path A-D-E-F-G-H-I has a normal
Contribution margin per P4 P5 completion time of 22 weeks.
unit

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The following activities can be crashed.

Activities Cost to Crash 1 Week Cost to Crash 2 237. MOYMOY, Inc. has been operating the concession stands at the
Weeks university football stadium. The university has had successful
B-C P 8,000 P15,000 football teams for many years; as a result the stadium is always full.
D-E 10,000 19,600 The university is located in an area that suffers no rain during the
E-F 8,800 19,500 football season. From time to time, MOYMOY has found itself very
Castle desires to reduce the normal completion time of Job WW and, short of hotdogs and at other times it has had many left. A review
at the same time, report the highest possible income for the year. of the records of sales of the past five seasons revealed the
Castle should crash following frequency of hot dogs sold:
A. activity B-C 1 week and activity EF 1 week Total Games
B. activity B-C 2 weeks 10,000 hot dogs 5 times
C. activity D-E 1 week and activity B-C 1 week 20,000 hot dogs 10 times
D. activity D-E 1 week and activity E-F 1 week 30,000 hot dogs 20 times
40,000 hot dogs 15 times
Probabilities 50 total
235. CTV Company has three sales departments. Department FA games
process about 50 percent of CTV’s sales, Department TA about 30 Hotdogs sell for P5.00 and cost MOYMOY P3 each. Unsold hotdogs
percent, and Department PA about 20 percent. In the past, are given to a local orphanage without charge.
Departments FA, TA, and PA had error rates of about 2 percent, 5 You have started and completed constructing a payoff table
percent, and 2.5 percent, respectively. A random audit of the sales (conditional profits) as follows:
records yields a recording error of sufficient magnitude to distort Stocking Actions
the company’s results. The probability that Department FA is Demand 10,000 20,000 30,000 40,000
responsible for this error is 10,000 P20,000 P(10,000) P(40,000) P(70,000)
A. .50 C. .02 20,000 20,000 40,000 10,000 (20,000)
B. .33 D. .25 30,000 20,000 40,000 60,000 30,000
40,000 20,000 40,000 60,000 80,000
Expected Value What are the expected payoff of stocking 30,000 hotdogs and the
236. The following table represents payoffs for farm products for expected value of perfect information?
three different sales levels. Which one of the products would be A. B. C. D.
illogical if only three products can be produced?
Payoff of stocking P18,000 P40,000 P40,000 P18,000
Deman Product A Product B Product C Product D 40,000
d EV of Perfect P18,000 P18,000 P40,000 P40,000
Sales 1 (10,000) 6,000 8,000 (12,000) Information
Sales 2 26,000 19,000 22,000 17,000
Sales 3 31,000 38,000 33,000 37,000 Questions 238 & 239 are based on the following information.
A. Product A C. Product C A beverage stand can sell either softdrinks or coffee on any given day.
B. Product B D. Product D If the stand sells softdrinks and the weather is hot, it will make P2,500;
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if the weather is cold, the profit will be P1,000. If the stand sells coffee B. 187.2 D. 76.8
and the weather is hot, it will make P1,900; if the weather is cold, the
profit will be P2,000. The probability of cold weather on a given day at 243. Moss Point Manufacturing recently completed and sold an order
this time is 60%. of 50 units that had the following costs:
Direct materials P 1,500
238. The expected payoff if the vendor has perfect information is Direct labor (1,000 hours @ P8.50) 8,500
A. P3,900 C. P1,360 Variable overhead (1,000 hours at P4.00) *4,000
B. P2,200 D. P1,960 Fixed overhead **1,400
*Appiied on the basis of direct labor hoars.
239. The expected payoff for selling coffee is **Applrcd at the rate of 10% of variable cost
A. P1,360 C. P3,900 The company has now been requested to prepare a bid for 150
B. P2,200 D. P1,960 units of fee some product
If an 80 percent learning curve is applicable, Moss Point's total cost
Decision Tree on this order would be estimated at
240. Express Co. is developing a silver mine at a cost of P5 million. A. P26,400 C. P37,950
There is a 20% probability that silver worth of P15 million can be B. P31,790 D. P38,500
sold. There is a 20% probability that the silver will only be worth
P500,000. What is the maximum Express would be willing to spend 244. Moss Point Manufacturing recently completed and sold an order
to develop the mine? of 50 units that had the following costs:
A. P10,000,000 C. P3,100,000 Direct materials P1,500
B. P5,000,000 D. P0 Direct labor (1,000 hours @ P8.50) 8,500
Variable overhead (1,000 hours at P4.00) *4,000
Learning Curve Fixed overhead **1,400
241. Soft, Inc. has a target total labor cost of P1,500 for the first four P15,400
batches of a product. Labor is paid P10 an hour. If Soft expects an *Applied on the basis of direct labor hours.
80% learning curve, how many hours should the first batch take? **Applied at the rate of 10% of variable costs.
A. 150 hours. C. 96.0 hours The company has now been requested to prepare a bid for 350
B. 58.6 hours D. 24.0 hours units of the same product.
If an 80 percent learning curve is applicable, Moss Point’s total costs
242. Taal Company manufactures specialty components for the on this order would be estimated at
electronics industry in a highly labor intensive environment. May on A. P26,400 C. P37,950
Company has asked Taal to bid on a component that Taal made for B. P31,790 D. P54,120
May on last month. The previous order was for 80 units and
required 120 hours of direct labor to manufacture. Mayon would Information Systems
now like 240 additional components. Taal experiences an 80% 245. Which of the following is not a characteristic of a batch
learning curve on all of its jobs. The number of direct labor hours processing system?
needed for Taal to complete 240 additional components is A. The collection of like transactions which are sorted and
A. 360.0 C. 307.2 processed sequentially against a master file
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B. Keypunching of transactions, followed by machine processing

C. The production of numerous printouts 250. The process of monitoring, evaluating and modifying a system
D. The posting of transaction, as it occurs, to several files without as needed is referred to as system
intermediate printouts. A. Design C. Review
B. Analysis D. Maintenance
246. The batch processing of business transactions can be the
appropriate mode when 5. The proper sequence of activities in the systems development life
A. the sequence of master file records is not relevant cycle is
B. timeliness is a major issue A. Design, analysis, implementation, and operation.
C. a single handling of the data is desired B. Design, implementation, analysis, and operation.
D. economy of scale can be gained because of high volume of C. Analysis, design, implementation, and operation.
transactions D. Programming, analysis, implementation, and operation.

43.The least risky strategy for converting from a manual to a 251. The process of developing specifications for hardware, software,
computerized accounts receivable system would be a personnel hours, data resources, and information products required
A. direct conversion C. parallel conversion to develop a system is referred to as
B. pilot conversion D. data base conversion A. systems analysis C. systems design
B. systems feasibility D. systems maintenance
247. The real-time processing system of business transactions cannot
be the appropriate mode when 252. The process of monitoring, evaluating, and modifying a system
A. Economy of scale can be gained because of high volume of as needed is referred to as systems
transactions A. Analysis C. Maintenance
B. Timeless is a major issue B. Design D. Implementation
C. A single handling of data is desired
D. Master file data are accessed randomly 253. An integrated set of computer programs that facilitates the
creation, manipulation, and querying of integrated files is called
248. Which of the following comprises all of the data components of A. A translator C. An operating system
the data processing cycle? B. A Database management system D. A flat file system
A. Batching, processing, output.
B. Collection, refinement, processing, maintenance, output. 254. One of the first steps in the creation of a database is to
C. Input, classifying, Batching, verification, transmission A. define common variables and fields used throughout the firm
D. Collection, refinement, storing, output. B. increase the secondary storage capacity,
C. obtain software that will facilitate data retrieval.
249. All activity related to a particular application in a manual system D. integrate the accounting system into the data base.
is recorded in a journal. The name of the corresponding item in a
computerized system is a 255. A system with several computers that are connected for
A. master file C. transaction file communication and data transmission purposes but that permits
B. year-to-date file D. current balance file each computer to process its own data is a
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A. distributed data processing network C. decentralized C. Multiple occurrences of data items are useful for consistency
network checking.
B. centralized network D. multidrop network D. Backup and recovery procedures are minimized.

256. A major advantage of obtaining a package of application

software from software vendor is Situational
A. The likelihood of reducing the time span from planning to Cost-Volume-Profit Analysis
implementation Questions 260 through 265 are based on the following:
B. The ability to more easily satisfy the unique needs of users Pullman Company is a small but growing manufacturer of
C. Greater operating efficiency from the computer telecommunications equipment. The company has no sales force of its
D. The assurance the programs will be written in a high-level own; rather, it relies completely on independent sales agents to market
language. its products. These agents are paid a commission of 15% of selling
price for all items sold.
257. A major advantage of obtaining a package of applications Maui Soliman, Pullman’s controller, has just prepared the company’s
programs from a software vendor is budgeted income statement for next year. The statement follows:
A. the likelihood of reducing the time span from planning to
implementation. Pullman Company
B. the ability to more easily satisfy the unique needs of users Budgeted Income Statement
C. greater operating efficiency from the computer For the Year Ended December 31
D. the assurance that the programs will be written in a high- Sales P16,000,000
level language Manufacturing costs:
Variable P7,200,000
258. The least risky strategy for converting from a manual to a Fixed overhead 2,340,000 9,540,000
computerized accounts receivable system would be a Gross margin 6,460,000
A. direct conversion C. pilot conversion Selling and administrative costs:
B. parallel conversion D. database conversion Commissions to agents 2,400,000
Fixed marketing costs *120,000
259. Turnaround document Fixed administrative costs 1,800,000 4,320,000
A. Generally circulate only within the computer center Net operating income 2,140,000
B. Can be read and processed only by the computer Less fixed interest cost 540,000
C. Are generated by the computer and eventually return to it Income before income taxes 1,600,000
D. Are only used internally in an organization Less income tax (30%) 480,000
Net income P 1,120,000
4. Of the following, the greatest advantage of a database architecture *Primarily depreciation on storage facilities
is
A. Data redundancy can be reduced. As Maui handed the statement to Kim Viceroy, Pullman’s president, she
B. Conversion to a database system is inexpensive and can be commented, “I went ahead and used the agents’ 15% commission rate
accomplished quickly. in completing these statements, but we’ve just learned that they
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refuse to handle our products next year unless we increase the

commission rate to 20%.” 261. What is the breakeven point in pesos for next year assuming
“That’s the last straw,” Kim replied angrily. “Those agents have been that the agents’ commission rate is increased to 20%?
demanding more and more, and this time they’ve gone too far. How A. P13,171,000 C. P13,714,286
can they possibly defend a 20% commission rate?” B. P15,000,000 D. P12,750,000
“They claim that after paying for advertising, travel, and the other
costs of promotion, there’s nothing left over for profit,” replied Maui. 262. What is the breakeven point in pesos for next if the company
“I say it’s just plain robbery,” retorted Kim. “And I also say it’s time we employs its own sales force?
dumped those guys and got our own sales force Can you get your A. P15,000,000 C. P13,090,909
people to work up some cost figures for us to look at?” B. P12,954,545 D. P15,157,895
“We’ve already worked them up,” said Maui. “Several companies we
know about pay a 7.5% commission to their own salespeople, along 263. Assume that Pullman Company decides to continue selling
with a small salary. Of course, we would have to handle all promotion through agents and pays the 20% commission rate. The volume of
costs, too. We figure our fixed costs would increase by P2,400,000 per sales that would be required to generate the same net income as
year, but that would be more than offset by the P3,200,000 (20% x contained in the budgeted income statement for next year would
P16,000,000) that we would avoid on agents’ commissions.” be:
The breakdown of the P2,400,000 cost figure follows: A. P18,285,714 C. P19,225,000
Salaries: B. P18,368,421 D. P20,414,714
Sales manager P 100,000
Salespersons 600,000 264. The volume of sales at which net income would be equal
Travel and entertainment 400,000 regardless of whether Pullman Company sells through agents (at a
Advertising 1,300,000 20% commission rate) or employs its own sales force:
Total P2,400,000 A. P11,625,000 C. P19,200,000
B. P12,000,000 D. P18,600,000
“Super,” replied Kim. “And I note that the P2,400,000 is just what
we’re paying the agents under the old 15% commission rate.” 265. At a sales volume level of 2,250 units, Luzon Company’s
“It’s even better than that,” explained Maui. “We can actually save contribution margin is one and one-half of the fixed costs of
P75,000 a year because that’s what we’re having to pay the auditing P36,000. Contribution margin is 30% How many units must be sold
firm now to check out the agents’ reports. So our overall by the company to breakeven?
administrative costs would be less.” A. 1,250 C. 2,2580
“Pull all of these number together and we’ll show them to the B. 1,500 D. 2,520
executive committee tomorrow,” said Kim. “With the approval of the
committee, we can move on the matter immediately.” Questions 45 through 50 are based on the following information:
San Carlos operates a general hospital but rents space and beds to
260. What is the breakeven point in pesos for next year assuming separate entities for specialized treatment such as pediatrics,
that the agents’ commission rate remains unchanged at 15%? maternity, psychiatric, etc. San Carlos charges each separate entity
A. P10,650,000 C. P 9,000,000 for common services to its patients like meals and laundry and for all
B. P12,000,000 D. P10,750,000 administrative services such as billings, collections, etc. All
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uncollectible accounts are charged directly to the entity. Space and 23,726 – 25 14 5
bed rentals are fixed for the year. 25,550
For the entire year ended June 30, the Pediatrics Department at San 25,551 – 26 14 5
Carlos Hospital charged each patient an average of P650 per day, had 27,375
a capacity of 60 beds, operated 24 hours per day for 365 days, and 27,376 – 29 16 6
had revenue of P10,676,250. 29,200
Expenses charged by the hospital to the Pediatrics Department for the
year ended June 30 were: The staffing levels above represent full-time equivalents, and it should
Basis of Allocation be assumed that the Pediatrics Department always employs only the
Patient Days Bed Capacity minimum number of required full-time equivalent personnel.
Dietary P 328,500
Janitorial P 118,400 Annual salaries for each class of employee follow: supervising nurses,
Laundry 197,100 P180,000; nurses, P130,000; and aides, P50,000. Salary expense for
Lab, other than direct charges 410,625 the year ended June 30 for supervising nurses, nurses, and aides was
to patients P720,000, P1,560,000, and P1,100,000, respectively.
Pharmacy 410,625
Repairs and maintenance 65,700 66,045 The Pediatrics Department operated at 100% capacity during 111 days
General administrative services 1,218,780 of the past year. It is estimated that during 90 of these capacity days,
Rent 2,546,710 the demand average 17 patients more than capacity and even went as
Billings and collections 689,850 high as 20 patients more on some days. The hospital has an additional
Bad debt expense 246,375 20 beds available for rent for the coming fiscal year.
Others 114,975 240,315
Total P2,463,750 P4,190,250 45.The contribution margin per patient day is
The only personnel directly employed by the Pediatrics Department are A. P400.00 C. P500.00
supervising nurses, nurses, and aides. The hospital has minimum B. P450.00 D. P525.00
personnel requirements based on total annual patient days. Hospital
requirements beginning at the minimum, expected level of operation 46.How many patient days are necessary to cover fixed costs for bed
follow: capacity and for supervisory nurses?
A. 9,500 C. 10,250
Annual Patient Aides Nurses Supervising Nurses B. 9,820 D. 12,000
Days
10,000 – 21 11 4 47.The number of patient days needed to cover total costs is
14,000 A. 14,780 C. 15,820
14,001 – 22 12 4 B. 15,140 D. 16,080
17,000
17,001 – 22 13 4
23,725
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48.If the Pediatrics Department rented an additional 20 beds and all

other factors remain the same as in the past year, what would be 42.The total sales revenue at which Anilao Ski Company would make
the increase in revenue? the same profit or loss regardless of the ski model it decided to
A. P994,500 C. P1,054,500 produce is
B. P877,500 D. P 897,500 A. P880,000 C. P924,000
B. P422,400 D. P686,400
49.Continuing to consider the 20 additional rented beds, the increase
in total variable cost applied per patient day is 43.How much would the variable cost per unit of the touring model
A. P229,350 C. P229,650 have to change before it had the same breakeven point in units as
B. P229,500 D. P239,350 the mountaineering model?
A. P2.68/unit increase C. P5.03/unit decrease
50.What is the increased fixed cost applied for bed capacity, given the B. P4.53/unit increase D. P2.97/unit decrease
increased number of beds?
A. P1,396,750 C. P1,470,000 44.If the variable cost per unit of touring skis decreases by 10%, and
B. P1,187,238 D. P1,520,000 the total fixed cost of touring skis increases by 10%, the new
breakeven point will be
Questions 41 through 45 are based on the following: A. 10,730 pairs
Anilao Ski Company recently expanded its manufacturing capacity to B. 13,007 pairs
allow it to product up to 15,000 pairs of cross-country skis of either the C. 12,812 pairs
mountaineering model or the touring model. The sales department D. Unchanged from 11,648 pairs because the cost changes are
assures management that it can sell between 9,000 and 13,000 pairs equal and offsetting
(units) of either product this year. Because the models are very
similar, Anilao Ski will produce only one of the two models. The 45.If the Anilao Ski Company sales department could guarantee the
information below was compiled by the accounting department. annual sale of 12,000 skis of either model, Anilao would
A. Produce touring skis because they have a lower fixed cost.
Mountaineering Touring B. Produce only mountaineering skis because they a lower
Selling price per unit P88.00 P80.00 breakeven point.
Variable cost per unit 52.00 52.80 C. Produce mountaineering skis because they are more profitable.
D. Be indifferent as to which model is sold because each model has
Fixed costs will total P369,600 if the mountaineering model is produced the same variable cost per unit.
but will be only P316,800 if the touring model is produced. Anilao Ski
Company is subject to a 40% income tax rate. Questions 266 through 272 are based on the following information:
Calamba Hospital operates a general hospital but rents space and beds
41.If Anilao Ski Company desires an after-tax net income of P24,000, to separate entities fro specialized treatment such as pediatrics,
how many pairs of touring model skis will the company have to sell? maternity, psychiatrics, etc. Calamba charges each separate entity for
A. 13,118 C. 13,853 common services to its patients like meals and laundry and for all
B. 12,529 D. 4,460 administrative services such as billings, collections, etc. All

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uncollectible accounts are charged directly to the entity. Space and 17,000
bed rentals are fixed for the year. 17,001 – 22 13 4
23,725
For the entire year ended June 30, the Pediatrics Department at 23,726 – 25 14 5
Calamba Hospital charged each patient an average of P65 per day, had 25,550
a capacity of 60 beds, operated 24 hours per day for 365 days, and 25,551 – 26 14 5
had revenge of P1,138,800. 27,375
27,376 – 29 16 6
Expense charged by the hospital to the Pediatrics Department for the 29,200
year ended June 30 were:
Basis of Allocation The staffing levels above represent full-time equivalents, and it should
Patients Days Bed Capacity be assumed that the Pediatrics Department always employs only the
Dietary P42,952 minimum number of required full-time equivalent personnel.
Janitorial P12,800
Laundry 28,000 Annual salaries for each class of employee follow: supervising nurses,
Lab. Other than direct charges 47,800 P18,000; nurses, P13,000; and aides, P5,000. Salary expense for the
to patients year ended June 30 for supervising nurses, nurses and aides was
Pharmacy 33,800 P72,000, P169,000 and P111,000, respectively.
Repairs and maintenance 5,200 7,140
General administrative 131,760 The Pediatrics Department operated at 100% capacity during 111 days
services of the past year. It is estimated that during 90 of these capacity days,
Rent 275,320 the demand average 17 patients more than capacity and even went as
Billings and collections 40,000 high as 20 patients more on some days. The hospital has an additional
Bad debt expense 47,000 20 beds available for rent for the coming fiscal year.
Other 18,048
P262,800 P453,000 266. The variable expense per patient day is
A. P15.08 C. P15.00
The only personnel directly employed by the Pediatrics Department are B. P12.50 D. P50.00
supervising nurses, nurses, and aides. The hospital has minimum
personnel requirements based on total annual patient days. Hospital 267. The contribution margin per patient day is
requirements beginning at the minimum, expected level of operation A. P49.92 C. P50.00
follow: B. P52.50 D. P52.00
Annual Patient Aides Nurses Supervising
Days Nurses 268. How many patient days are necessary to cover fixed costs for
10,000 – 21 11 4 bed capacity and for supervisory nurses?
14,000 A. 9,500 C. 12,500
14,001 – 22 12 4 B. 11,500 D. 10,500

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272. What is the increased fixed cost applied for bed capacity, given
269. The number of patient days needed to cover total costs is the increased number of beds?
A. 14,200 C. 15,820 A. P151,000 C. P147,000
B. 15,200 D. 14,220 B. P173,950 D. P152,000

270. If the Pediatrics Department rented an additional 20 beds and all Questions 273 thru 275 are based on the following information.
other factors remain the same as in the past year, what would be Ms. Casserole started a pizza restaurant in 1998. For this purpose a
the increase in revenue? building was rented for P400 per month. Two women were hired to
A. P99,450 C. P105,450 work full time at the restaurant and six college students were hired to
B. P87,750 D. P89,750 work 30 hours per week delivering pizza. This level of employment has
been consistent. An outside accountant was hired for tax and
271. Continuing to consider the 20 additional rented beds, the bookkeeping purposes, for which Ms. Casserole pays P300 per month.
increase in total variable cost applied per patient day is The necessary restaurant equipment and delivery cars were purchased
A. P22,935 C. P22,965 with cash. Ms. Casserole has noticed that expenses for utilities and
B. P22,950 D. P23,935 supplies have been rather constant. Ms. Casserole increased her
business between 1998 and 2001. Profits have more than doubled
since 1998. Ms. Casserole does not understand why profits have
increased faster than volume.

A projected income statement for the year ended December 31, 2002,
prepared by the accountant is shown below.
Sales P95,000
Cost of food sold P28,500
Wages & fringe benefits:
Restaurant help 8,150
Delivery help 17,300
Rent 4,800
Accounting services 3,600
Depreciation:
Delivery equipment 5,000
Restaurant equipment 3,000
Utilities 2,325
Supplies 1,200 73,875
Net income before taxes P21,125
Income taxes (40%) 8,450
Net income P12,675

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273. What is the tax shield on the non-cash fixed costs? 274. What is the breakeven point in number of pizzas that must be
A. P3,200 C. P3,400 sold?
B. P14,950 D. P5,400 A. 25,929 C. 18,150
B. 23,569 D. 42,114

275. What is the cash flow breakeven point in number of pizzas that
must be sold?
A. 19,529 C. 12,990
B. 21,284 D. 10,773

Questions 276 through 280 should be answered independent of each other. They
should be answered based the following most recent income statement for
OPMACO COMPANY that appears below:
OPMACO Company
Income Statement
For the Year Ended December 31
Sales 45,000 units @ P10 P450,000
Less cost of goods sold:
Direct materials P90,000
Direct labor 78,300
Manufacturing overhead 98,500 266,800
Gross margin 183,200
Less operating expenses:
Selling expenses:
Variable:
Sales commissions P27,000
Shipping 5,400 32,400
Fixed (advertising, salaries) 120,000
Administrative:
Variable (billing and other) 1,800
Fixed (salaries and other) 48,000 202,200
Net loss P(19,000
)
All variable expenses in the company vary in terms of unit sold,
except for sales commissions, which are based on peso sales.
Variable manufacturing overhead is 30 centavos per unit. There
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were no beginning or ending inventories. OPMACO Company's plant costs would be increased by 50% and variable administrative costs
has a capacity of 75,000 units per year. would be reduced by 25%. In addition, a P5,700 special insurance
The company has been operating at a loss for several years. fee would have to be paid by OPMACO Company to protect the
Management is studying several possible courses of action to goods in transit. Regular business would not be disturbed by this
determine what should be done to make next year profitable. special order.
What unit price would have to be quoted on the 9,500 units by
276. For next year, the vice president would like to reduce the unit OPMACO Company to allow the company to earn a profit of P14,250
setting price by 20%. She is certain that this would fill the plant to on total operations?
capacity. What would be the profit if the plan is implemented? A. P8.35 C. P7.35
A. P 2,750 C. P 1,250 B. P6.35 D. P9.35
B. P(6,250) D. P(4,000)
Questions 43 through 47 are based on the following information.
277. For next year, the sales manager would like to increase the unit The Statement of Income of Sana, Inc., which represents the operating
selling price by 20%, increase the sales commission to 9% of sales, results for the current fiscal year ending December 31, had sales of
and increase advertising by P100,000. Based on marketing studies, 1,800 tons of product during the current year. The manufacturing
he is confident this would increase sales by one-third. What would capacity of Sana's facilities is 3,000 tons of product. Consider each
be the profit under this plan? question's situation separately.
A. P50,200 C. P108,000 Sales P900,000
B. P79,000 D. P 800 Variable costs
Manufacturing P315,000
278. The president believes it would be a mistake to change the unit Selling costs 180,000
selling price. Instead, he wants to use less costly materials in Total variable costs P495,000
manufacturing units of products, thereby reducing unit costs by Contribution margin P405,000
P0.70. How many units would have to be sold next year to earn a Fixed costs
target profit of P30,200? Manufacturing P90,000
A. 51,220 C. 44,780 Setting 112,500
B. 48,000 D. 32,000 Administration 45,000
Total fixed costs P247,500
279. OPMACO Company's board of directors believes that the Net income before income taxes P157,500
company's problem lies in inadequate promotion. By how much can Income taxes (40%) (63,000)
advertising be increased and still allow the company to earn a Net income after income taxes P94,500
target return of 4.5% on sales of 60,000 units?
A. P 32,000 C. P39,200 43.The breakeven volume in tons of product for the year is (E)
B. P152,000 D. P59,000 A. 420 C. 495
B. 1,100 D. 550
280. The company has been approached by an overseas distributor
who wants to purchase 9,500 units on a special price basis. There 44.If the sales volume is estimated to be 2,100 tons in the next year,
would be no sales commission on these units. However, shipping and if the prices and costs stay at the same levels and amounts
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next year, the after-tax net income that Sana can expect for next the people who operate it?" The statements to which Tom was referring
year is (E) are shown below (absorption costing basis):
A. P135,000 C. P283,500 2004 2005
B. P110,250 D. P184,500 Sales (20,000 units each year) P700,000 P700,000
Less cost of goods sold 460,000 400,000
45.Sana has a potential foreign customer that has offered to buy 1,500 Gross margin 240,000 300,000
tons at P450 per ton. Assume that all of Sana's costs would be at Less: Operating expenses 200,000 200,000
the same levels and rates as last year. What net income after taxes Profit P40,000 P100,000
would Sana make if it took this order and rejected some business
from regular customers so as not to exceed capacity? (M)
A. P297,500 C. P211,500
V. P252,000 D. P256,500

46.Without prejudice to your answers to previous questions, and

assume that Sana plans to market its product in a new territory,
Sana estimates that an advertising and promotion program costing
P61,500 annually would need to be undertaken for the next two or
three years In addition, a P25 per ton sales commission over and
above the current commission to the sales force in the new territory
would be required. How many tons would have to be sold in the
new territory to maintain Sana's current after-tax income of
P94,500? (M)
A. 307.5 C. 273.33
B. 1,095 D. 1,545

47.Without prejudice to preceding questions, assume that Sana

estimates that the per ton selling price will decline 10% next year.
Variable costs will increase P40 per ton and the fixed costs will not
change. What sales volume in pesos will be required to earn an
after-tax net income of P94,500 next year? (M)
A. P1,140,000 C. P1,500,000
B. P825,000 D. P1,350,000

Variable & Absorption Costing

Question Nos. 48 through 50 are based on the following information.
This makes no sense at all, “said Tom, President of Horizon, Inc. "We
sold the same number of units this year as we did fast year, yet our
profits have more than doubled. Who made the goof - the computer or
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The statements above show the results of the first two years of product. During your first week on the job, the vice president has been
operation. In the first year (2004), the company produced and sold favorably impressed with your work. She has been so impressed, in
20,000 units. In 2005, the company again sold 20,000 units, but it fact, that yesterday she called you into her office and asked you to
increased production in order to have a stock of units on hand, as attend the executive committee meeting this morning for the purpose
shown below: of leading a discussion on the variances reported for last period.
2004 2005 Anxious to favorably impress the executive committee, you took the
Production in units 20,000 25,000 variances and supporting data home last night to study.
Sales in unite 20,000 20,000 On your way to work this morning, the papers were laying on the seat of
Variable production cost per P8 P3 your new, red convertible. As you were crossing a bridge on the
unit highway, a sudden gust of wind caught the papers and blew them over
Fixed manufacturing OH costs P300,000 P300,000 the edge of the bridge and into the stream below. You managed to
(total) retrieve only one page, which contains the following information:
Standard Cost Summary
Horizon produces a single product. Fixed manufacturing overhead costs
Direct materials, 6 pounds at P3 P18.00
are applied to the product on the basis of each year’s production,
Direct labor, 0.8 hours at P5 4.00
(Thus, a new fixed manufacturing overhead rate is computed each
Variable overhead, 0.8 hours at P3 2.40
year) Variable selling and administrative expense are P1 per unit sold.
Fixed overhead, 0.8 hours at P7 5.60
P30.00
48.Had the company used variable costing, the profit for each year ,
2004 and 2005, would have been: (E)
A. P40,000, P100,000 C. P100,000, P100,000 Total VARIANCES REPORTED
B. P100,000, P40,000 D. P40,000, P40,000 Standard Price Spending Quantity
Cost * or Rate Or Budget or Volume
49.Using the absorption costing, the product’s unit cost for 2004 and Efficienc
2005, respectively, are: (E) y
Direct P405,000 P6,900 F P9,000 U
A. B. C. D.
materials
2004 P8 P23 P23 P8 Direct labor 90,000 4,850 U 7,000 U
2005 P8 P23 P20 P9 Variable 54,000 P1,300 F ?@
overhead
50.If JIT has been in use during 2005, what would the company’s net Fixed 126,000 500 F P14,000 U
income have been under absorption costing? (M) overhead
A. P100,000 C. P20,000 * Applied to Work in process during the period
B. P40,000 D. P60,000 @
Figure obliterated.
Standard Costing & Variance Analysis You recall that manufacturing overhead cost is applied to production on
Questions No. 45 through 50 are based on the following information: the basis of direct labor-hours and that all of the materials purchased
You have recently graduated from a university and have accepted a during the period were used in production. Since the company uses JIT
position with Villar Company, the manufacturer of a popular consumer
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to control work flows, work in process inventories are insignificant and year ending December 31, 2003. Ilongo had sales of 1,800 tons of
can be ignored. product during the current year. The manufacturing capacity of
It is now 8:30 A.M. The executive committee meeting starts in just one Ilongo’s facilities is 3,000 tons of product. Consider each question’s
hour; you realize that to avoid looking like a bungling fool you must situation separately.
somehow generate the necessary “backup” data for the variances Sales P900,000
before the meeting begins. Without backup data it will be impossible Variable costs
to lead the discussion or answer any questions. Manufacturing P315,000
Selling costs 180,000
45.How many pounds of direct materials were purchased and used in Total variable costs P495,000
production? Contribution margin P405,000
A. 138,000 lbs. C. 132,000 lbs. Fixed costs
B. 135,000 lbs. D. 137,300 lbs. Manufacturing P 90,000
Selling 112,500
46.What was the actual cost per pound of material? Administration 45,000
A. P3.00 C. P3.05 Total fixed costs P247,500
B. P2.95 D. P3.10 Net income before income taxes P157,500
Income taxes (40%) (63,000)
47.How many actual direct labor hours were worked during the period? Net income after income taxes P 94,500
A. 18,000 C. 16,600
B. 19,400 D. 18,970 281. The breakeven volume in tons of product for the 2003 is
A. 420 C. 495
48. How much actual variable manufacturing overhead cost was B. 1,100 D. 550
incurred during the period?
A. P55,300 C. P58,200 282. If the sales volume is estimated to be 2,100 tons in the next
B. P56,900 D. P59,500 year, and if the prices and costs stay at the same levels and
amounts next year, the after-tax net income that Ilongo can expect
49. What is the total fixed manufacturing overhead cost in the for 2004 is
company’s flexible budget? A. P135,000 C. P283,500
A. P112,500 C. P140,000 B. P110,250 D. P184,500
B. P139,500 D. P125,500
283. Ilongo has a potential foreign customer that has offered to buy
50.What were the denominator hours for last period? 1,500 tons at P450 per ton. Assume that all of Ilongo’s costs would
A. 18,000 hours C. 22,000 hours be at the same levels and rates as last year. What net income after
B. 20,000 hours D. 25,000 hours taxes would Ilongo make if it took this order and rejected some
business from regular customers so as not to exceed capacity?
Relevant Costing A. P297,500 C. P211,500
Questions 281 through 286 are based on the Statement of Income of B. P252,000 D. P256,500
Ilongo, Inc. which represents the operating results for the current fiscal
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284. Ignore the facts presented in the previous questions, and Fixed selling expenses (P210,000 total) 3.50
assume that Ilongo plans to market its product in a new territory. Total cost per unit P26.50
Ilongo estimates that an advertising and promotion program costing
P61,500 annually would need to be undertaken for the next two or 287. Assume that Adrenal Company has sufficient capacity to
three years. In addition, a P25 per ton sales commission over and produce 90,000 CADS each year without any increase in fixed
above the current commission to the sales force in the new territory manufacturing overhead costs. The company could increase its
would be required. How many tons would have to be sold in the sales by 25% above the present 60,000 units each year if it were
new territory to maintain Ilongo’s current after-tax income of willing to increase the fixed selling expenses by P180,000. The
P94,500? increase in income if the production is increased by 25% is
A. 307.5 C. 273.33 A. P30,000 C. P10,833
B. 1,095 D. 1,545 B. P2,500 D. P208

285. Ilongo is considering replacing a highly labor-intensive process

with an automatic machine. This change would result in an
increase of P58,500 annually in manufacturing fixed costs. The
variable manufacturing costs would decrease P25 per ton. The new
breakeven volume in tons would be
A. 990 C. 1,854
B. 1,224 D. 612

286. Ignoring the facts presented in Question 285, assume that Ilongo
estimates that the per ton selling price will decline 10% next year.
Variable costs will increase P40 per ton and the fixed costs will not
change. What sales volume in pesos will be required to earn an
after-tax net income of P94,500 next year?
A. P1,140,000 C. P1,500,000
B. P825,000 D. P1,350,000

Questions 287 through 291 are based on the following information:

Adrenal Company has a single product called a CAD. The company
normally produces and sells 60,000 CADS each year at a selling price
of P32 per unit. The company’s unit costs at this level of activity are
given below:
Direct materials P10.00
Direct labor 4.50
Variable manufacturing overhead 2.30
Fixed manufacturing overhead (P300,000 total ) 5.00
Variable selling expenses 1.20
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288. Assume again that Adrenal Company has sufficient capacity to is the unit cost figure that is relevant for comparison to whatever
produce 90,000 CADS each year. A customer in a foreign market quoted price is received from the outside manufacturer?
wants to purchase 20,000 CADS. Import duties on the CADS would A. P20.95 C. P21.35
be P1.70 per unit, and costs for permits and licenses would be B. P20.55 D. P16.80
P9,000. The only selling costs that would be associated with the
order would be P3.20 per unit shipping cost. What is the break-even Standard Costing & Variance Analysis
price on this order? Questions 292 thru 297 are based on the following information.
A. P23.35 C. P28.65 You have recently graduated from a university and have accepted a
B. P22.15 D. P21.70 position with Villar Company, the manufacturer of a popular consumer
product. During your first week on the job, the vice president has been
289. The company has 1,000 CADS on hand that have some favorably impressed with your work. She has been so impressed, in
irregularities and are therefore considered to be “seconds”. Due to fact, that yesterday she called you into her office and asked you to
the irregularities, it will be impossible to sell these units at the attend the executive committee meeting this morning for the purpose
normal price through regular distribution channels. What unit cost of leading a discussion on the variances reported for last period.
figure is relevant for setting a minimum selling price? Anxious to favorably impress the executive committee, you took the
A. P16.80 C. P18.00 variances and supporting data home last night to study.
B. P4.70 D. P1.20 On your way to work this meaning, the papers were laying on the seat
of your new, red convertible. As you were crossing a bridge on the
290. Due to a strike in its supplier’s plant, Adrenal Company is unable highway, a sudden gust of wind caught the papers and blew them over
to purchase more material for the production of CADS. The strike is the edge of the bridge and into the stream below. You managed to
expected to last for two months. Adrenal Company has enough retrieve only one page, which contains the following information:
material on hand to continue to operate at 30% of normal levels for Standard Cost Summary
the two months. If the plant were closed, fixed overhead costs Direct materials, 6 pounds at P3 P18.00
would continue at 60% of their normal level during the two-month Direct labor, 0.8 hours at P5 4.00
period; the fixed selling costs would be reduced by 20% while the Variable overhead, 0.8 hours at P3 2.40
plant was closed. How much is the advantage or disadvantage of Fixed overhead, 0.8 hours at P7 5.60
closing the plant for the two-month period? P30.00
A. Disadvantage, P144,000 C. Advantage, P144,000 Total VARIANCES REPORTED
B. Disadvantage, P15,000 D. Advantage, P15,000 Standard Price or Spendi Quantity Volume
Cost* Rate ng Or or
291. An outside manufacturer had offered to produce CADS for Budget Efficienc
Adrenal Company and to ship them directly to Adrenal’s customers. y
If Adrenal Company accepts this offer, the facilities that it uses to Direct P405,00 P6,900 F P9,000 U
produce CADS would be idle; however, fixed overhead costs would materials 0
be reduced by 75% of their present level. Since the outside Direct labor 90,000 4,850 U 7,000 U
manufacturer would pay for all the costs of shipping, the variable Variable 54,000 P1,300 ?@
selling costs would be only two-thirds of their present amount. What overhead F

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Fixed overhead 126,000 500 F P14,000 U B. P139,500 D. P125,500

* Applied to Work in process
during the period 297. What were the denominator hours for last period?
@ Figure obliterated. A. 18,000 hours C. 22,000 hours
B. 2.0,000 hours D. 25,000 hours
You recall that manufacturing overhead cost is applied to production
on the basis of direct labor-hours and that all of the materials
Capital Budgeting
purchased during the period were used in production.
Questions 298 through 301 are based on the following information:
Since the company uses JIT to control work flows, work in process
Pinewood Craft Company is considering the purchase of two different
inventories are insignificant and can be ignored.
items of equipment, as described below:
It is now 8:30 A.M. The executive committee meeting starts in just
one hour, you realize that to avoid looking like a bungling fool you
Machine A. A compacting machine has just come onto the market that
must somehow generate the necessary "backup" data for the
would permit Pinewood Craft Company to compress sawdust into
variances before the meeting begins. Without backup data it will be
various shelving products. At present the sawdust is disposed of as a
impossible to lead the discussion or answer any questions.
waste product. The following information is available on the machine:
A. The machine would cost P420,000 and would have a 10% salvage
292. How many pounds of direct materials were purchased and used
value at the end of its 12-year useful life. The company uses
in production?
straight-line depreciation and considers salvage value in computing
A. 138,000 lbs. C. 132,000 lbs.
depreciation deductions.
B. 135,000 lbs. D. 137,300 lbs.
B. The shelving products manufactured from use of the machine would
generate revenues of P300.000 per year. Variable manufacturing
293. What was the actual cost per pound of material?
costs would be 20% of sales.
A. P3.00 C. P3.05
C. Fixed expenses associated with the new shelving products would be
B. P2.95 D. P3.10
(per year): advertising, P40,000; salaries, P110,000; utilities,
P5,200; and insurance, P800.
294. How many actual direct labor hours were worked during the
period?
Machine B. A second machine has come onto the market that would
A. 18,000 C. 16,600
allow Pinewood Craft Company to automate a sanding process that is
B. 19,400 D. 18,970
now done largely by hand. The following information is available.
A. The new sanding machine would cost P234,000 and would have no
295. How much actual variable manufacturing overhead cost was
salvage value at the end of its 13-year useful life. The company
incurred during the period?
would use straight-line depreciation on the new machine.
A. P55,300 C. P58,200
B. Several old pieces of sanding equipment that are fully depreciated
B. P56,900 D. P59,500
would be disposed of at a scrap value of P9,000.
C. The new sanding machine would provide substantial annual savings
296. What is the total fixed manufacturing overhead cost in the
in cash operating costs. It would require an operator at an annual
company's flexible budget?
salary of P16,350 and P3,400 in annual maintenance costs. The
A. P112,500 C. P140,000
current, hand-operated sanding procedure costs the company
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P78,000 per year in total. Current Liabilities P320,000

Sales P4,200,000
Pinewood Craft Company requires a simple rate of return of 15% on all Interest expense P80,000
equipment purchases. Also, the company will not purchase equipment
unless the equipment has a payback period of 4.0 years or less. (In all The following additional information were among the notes that he had
the following questions, please ignore income tax effect) developed when he had finalized the financial statements:

298. The expected income each year from the new shelving products 1. All sales during the year were on account.
(Machine A) is:
A. P52,500 C. P240,000 2. There was no change in the number of shares of common stock
B. P84,000 D. P 92,500 outstanding during the year.

299. The annual savings in cost if Machine B is purchased is 3. The interest expense on the income statement relates to the bonds
A. P56,250 C. P43,250 payable; the amount of bonds outstanding did not change during
B. P38,250 D. P21,750 the year.

300. The simple rates (%) of return for Machine A and Machine B are: 4. Selected balances at the beginning of the current fiscal year were:
A. B. C. D. Accounts receivable P 270,000
Machine A 12.5 20.0 12.5 20.0 Inventory 360,000
Machine B 17.0 17.0 16.4 16.4 Total assets 1,800,000
5. Selected financial ratios computed from the unreadable financial
statements for the current year are:
301. The payback periods (years) for Machine A and Machine B are:
Earnings per share P2.30
A. B. C. D.
Debt-to-equity ratio 0.875 to 1
Machine A 4.5 5.0 4.5 5.0 Accounts receivable turnover 14.0 times
Machine B 4.0 4.0 4.2 4.2 Current ratio 2,75 to 1
Return on total assets (using net Operating income) 18.0%
Financial Statement Analysis Times interest earned 6.75 times
Questions 46 thru 50 are based on the following information. Acid test ratio 1.25 to 1
Emong de Leon, the nervous accountant, spilled a cup of coffee over Inventory turnover 6.5 times
the annual financial statements for Bathala Company. Luckily, though
the content of the financial statements were unreadable, the notes The selected balances and amounts that are to be included in the
that he had developed had been still intact. balance sheet and income statement for the current year are:
He recalled that the balance sheet contained his favorite numbers (the
first two digits) that suggested his ages when he got married, when he 46.Accounts receivable
passed the CPA examination, and his present age, respectively, as A. 300,000 C. 330,000
follows: B. 270,000 D. 240,000

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47.Inventory
A. 360,000 C. 420,000
B. 320,000 D. 480,000

48.Total liabilities
A. 1,120,000 C. 2,400,000
B. 1,280,000 D. 800,000

49.Cost of goods sold

A. 2,730,000 C. 2,420,000
B. 1,470,000 D. 2,940,000

50.Total assets
A. 2,100,000 C. 3,000,000
B. 2,400,000 D. 4,200,000

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