FS ANALYSIS

4.
Perry Technologies Inc. had the following financial information for the past
year:
Sales
$860,000
Inventory turnover
8x
Quick ratio
1.5
Current ratio
1.75
What were Perrys current liabilities?
a.
$430,000
b.
$500,000
c.
$107,500
d.
$ 61,429
5.
A service company's working capital at the beginning of January of the
current year was $70,000. The following transactions occurred during January:
Performed services on account
$30,000
Purchased supplies on account
5,000
Consumed supplies
4,000
Purchased office equipment for cash
2,000
Paid short-term bank loan
6,500
Paid salaries
10,000
Accrued salaries
3,500
What is the amount of working capital at the end of January?
A.
$90,000
B.
$80,500
C.
$50,500
D.
$47,500
6.
The working capital of Regalado Co. is P600,000 and its current ratio is 3 to 1.
The amount of current assets is
a.
P900,000
b.
P1,200,000 c.
P600,000
d.
P1,800,000
7.
Blasso Co.s net accounts receivable were $500,000 at December 31, 2000
and $600,000 at December 31, 2001. Net cash sales for 2001 were $200,000. The
accounts receivable turnover for 2001 was 5.0. What were Blassos total net sales
for 2001?
a.
$2,950,000 b.
$3,000,000 c.
$3,200,000 d.
$5,500,000
8.
During 1989, Rand Co. purchased $960,000 of inventory. The cost of goods
sold for 1989 was $900,000, and the ending inventory at December 31, 1989 was
$180,000. What was the inventory turnover for 1989?
a.
6.4
b.
6.0
c.
5.3
d.
5.0
9.
Last year's asset turnover ratio for Wuerffel Airlines was 2.5. This year, sales
increased by 20% and average total assets increased by 10%. What is the new
asset turnover ratio?
A.
2.50 B.
2.59 C.
2.73 D.
3.00
10.
The following information pertains to AL Corporation as of and for the yearended December 31, 19x7.
Liabilities
P 60,000
Stockholders equity
P 500,000
Shares of common stock issued and outstanding
10,000
Net income
P 30,000
During 1997, AL officers exercised stock options for 1,000 shares of stock at an
option price of P8 per share. What was the effect of exercising the stock option?
a.
No ratios were affected. c.
Debt to equity ratio decreased to 12%.

b.
Asset turnover increased to 50.4%
P0.33

d.

Earnings per share increased by

11.
Alumbat Corporation has $800,000 of debt outstanding, and it pays an
interest rate of 10 percent annually on its bank loan. Alumbats annual sales are
$3,200,000, its average tax rate is 40 percent, and its net profit margin on sales is 6
percent. If the company does not maintain a TIE ratio of at least 4 times, its bank
will refuse to renew its loan, and bankruptcy will result. What is Alumbats current
TIE ratio?
a.
2.4
b.
3.4
c.
3.6
d.
5.0
12.
OTW Corporation has current assets totaling P15 million and a current ratio of
2.5 to 1. What is OTWs current ratio immediately after it has paid P2million of its
accounts payable?
a.
3.75 to 1
b.
2.75 to 1
c.
3.25 to 1
d.
4.75 to 1
13.
What would be a companys times interest earned ratio if interest paid on
loans amount to P9,000 and its net income after income tax is P99,000. (Assume a
25% income tax rate on first P100,000 of income and 35% income tax rate on
income in excess of P100,000.)
a.
10 times
b.
12 times
c.
13 times
d.
16.21 times
14.
The average stockholders equity for ABC Company for 2000 was P2,000,000.
Included in this figure is P200,000 par value of 8% preferred stock, which remained
unchanged during the year. The return on common shareholders equity was 12.5%
during the 2000. How much was the net income of the company in 2000?
a.
P234,000
b.
P241,000
c.
P250,000
d.
P225,000
15.
Planners have determined that sales will increase by 25% next year, and that
the profit margin will remain at 15% of sales. Which of the following statements is
correct?
A.
Profit will grow by 25%.
B.
The profit margin will grow by 15%.
C.
Profit will grow proportionately faster than sales.
D.
Ten percent of the increase in sales will become net income.
ABAABCCDCDBA
CVP ANALYSIS
16, 16. 960,000/ 3- 1.8
252000/3-2.4
17. 11 [ 2 (2.5) + [ 5 (1.20 ] = 49500/11 = 4500
18. 11 [ 2 (2.5) + [ 5 (1.20 ] = 49500 + 22000/11 2x6500 = 13000
5x6500=
32500
19. 19. 65. CPA-03707 ARE Nov 95 #43 Page 42
Product Cott has sales of $200,000, a contribution margin of 20%, and a margin of
safety of $80,000.
What is Cott's fixed cost?
a. $16,000
b. $24,000
c. $80,000

d. $96,000
CPA-03707 Explanation
Choice "b" is correct. Margin of safety equals actual (or budgeted) sales less
breakeven sales. Since the
margin of safety is $80,000 and sales are $200,000, breakeven sales must be
$120,000 ($200,000
$80,000).
Breakeven sales $120,000
Contribution margin rate 20%
Contribution margin $ 24,000
At breakeven, fixed cost equals contribution margin, or $24,000.
20. 90,000*40%
21 -22 GODBLESS US
23.-25
1.
Break-even units = $100,000/($400 $200) = 500 units
2.
First, convert after-tax profit to before-tax profit.
Before-tax profit = $240,000/(1 0.4) = $400,000
Let X equal the number of units which must be sold to yield before-tax profit
of $400,000.
$400,000
= $400X $200X $100,000
X
= 2,500
3.

Alternative A is best, as shown by the following calculations:

Alternative A:
Revenue = $400(350) + $360(2,700) = $1,112,000
Variable cost = $200(3,050) = $610,000
Operating profit = $1,112,000 $610,000 $100,000 = $402,000
After-tax profit = $402,000(1 0.4) = $241,200
DECISION MAKING
26- 35
1.
A proprietor who just inherited a building is considering using it in a new
business venture. Projections for the business are: revenue of $100,000, fixed cost
of $30,000, and variable cost of $50,000. If the business is not started, the owner
will work for a company for a wage of $23,000. Also, there have been two offers to
rent the building, one for $1,000 per month and one for $1,200 per month. What
are the expected annual net economic profits (losses) to the owner if the new
business is started?
A.
$20,000
B.
$(3,000)
C.
$(15,000)
D.
$(17,400)

2.
Bolsa Co. estimates that 60,000 special zipper will be used in the
manufacture of industrial bags during the next year. Sure Zipper Co. has quoted a
price of P6 per zipper. Bolsa would prefer to purchase 5,000 units per month but
Sure is unable to guarantee this delivery schedule. In order to ensure the
availability of these zippers, Bolsa is considering the purchase of all 60,000 units at
the beginning of the year. Assuming that Bolsa can invest cash at 12%, the
companys opportunity cost of purchasing the 60,000 units are the beginning of the
year is
a.
P21,600
b.
P43,200
c.
P19,800
d.
P39,600
3.

Chow Inc. has its own cafeteria with the following annual costs
Food
P 400,000
The
Labor
300,000
Overhead
440,000
Capital
P1,140,000
overhead is 40% fixed. Of the fixed overhead, P100,000 is the salary of the
cafeteria supervisor. The remainder of the fixed overhead has been allocated from
total company overhead. Assuming the cafeteria supervisor will remain and that
Chow will continue to pay said salary, the maximum cost Chow will be willing to pay
an outsider firm to service the cafeteria is
a.
P1,140,000 b.
P1,040,000 c.
P700,000
d.
P964,000
4.
Listed below are a companys monthly unit costs to manufacture and market
a particular product.
Unit Costs
Variable Cost
Fixed Costs
Direct materials
$2.00
Direct labor
2.40
Indirect Manufacturing
1.60
$1.00
Marketing
2.50
1.50
The company must decide to continue making the product or buy it from an outside
supplier. The supplier has offered to make the product at the same level of quality
that the company can make it. Fixed marketing costs would be unaffected, but
variable marketing costs would be reduced by 30% if the company were to accept
the proposal. What is the maximum amount per unit that the company can pay the
supplier without decreasing its operating income?
a.
$8.50 b.
$6.75 c.
$7.75 d.
$5.25
5.
Picnic Items, Inc. manufactures coolers of 10,000 units that contain a
freezable ice bag. For an annual volume of 10,000 units, fixed manufacturing costs
of P500,000 are incurred. Variable costs per unit amount are direct materials P80;
direct labor P15, and variable factory overhead P20
Bags Corp. offered to supply the assembled ice bag for P40 with a minimum order of
5,000 units. If Picnic accepts the offer, it will be able to reduce variable labor and
overhead by 50%. The direct materials for the freezable bag will cost Picnic P20 if it
will produce it. Considering Bags Corp. offer, Picnic should
a.
Buy the freezable ice bag due to P150,000 advantage.
b.
Produce the freezable ice bag due to P25,000 advantage.
c.
Produce the freezable ice bag due to P50,000 advantage.
d.
Buy the freezable bag due to P50,000 advantage.

6.
Savage Industries is a multi-product company that currently manufactures
30,000 units of Part QS42 each month for use in production. The facilities now
being used to produce Part QS42 have fixed monthly cost of P150,000 and a
capacity to produce 84,000 units per month. If Savage were to buy Part QS42 from
an outside supplier, the facilities would be idle, but its fixed costs would continue at
40% of their present amount. The variable production costs of Part QS42 are P11
per unit.
If Savage Industries is able to obtain Part QS42 from an outside supplier at a unit
purchase price of P12.875, the monthly usage at which it will be indifferent between
purchasing and making Part QS42 is
A.
30,000 units.
B.
32,000 units.
C.
80,000
D.
48,000
7.
Great Electronics is operating at 70% capacity. The plant manager is
considering making component 501 now being purchased for P110 each, a price
that is projected to increase in the near future. The plant has the equipment and
labor force required to manufacture the component. The design engineer estimates
that each component requires P40 of direct materials and P30 of direct labor. The
plant overhead is 200% of direct labor peso cost, and 40% of the overhead is fixed
cost. A decision to manufacture component 501 will result in a gain or (loss) for
each component of
a.
P28 b.
P16 c.
P(20) d.
P4
8.
Part BX is a component that Motors and Engines Co. uses in the assembly of
motors. The cost to produce one BX is presented below:
Direct materials
P 4,000
Materials handling (20% of direct materials)
800
Direct labor
32,000
Overhead (150% of direct labor)
48,000
Total manufacturing costs
P84,800
Materials handling which is not included in manufacturing overhead, represents the
direct variable costs of the receiving department that are applied to direct materials
and purchased components on the basis of their cost.
The companys annual overhead budget is one-third variable and two-thirds fixed.
Pre-casts Co., offers to supply BX at a unit price of P60,000. Should the company
buy or manufacture?
a.
Buy, due to advantage of P24,800 per product.
b.
Manufacture, due to advantage of P7,200 per unit.
c.
Buy, due to advantage of P12,800 per unit.
d.
Manufacture, due to advantage of P19,200 per unit.
9.
Panghulo Company manufactures part H for use in its production cycle. The
cost per unit for 3,000 units of Part N are
Direct labor
P50
Fixed overhead
P30
Direct
P10
Variable overhead
P20
materials
Quebadia Company has offered to sell Panghulo 3,000 units of part H for P100 per
unit. If Panghulo accepts Quebadas offer, the released facilities could be used to
save P70,000 in relevant costs in its manufacture of Part I. In addition, P15 per unit
of fixed overhead applied to Part H would be totally eliminated.

The alternative that is more desirable and the corresponding net cost savings is
a.
b.
c.
d.
Alternative
Manufacture Manufacture
Buy
Buy
Net cost
P10,000
P20,000
P55,000
P85,000
savings
10.
Tyler Company currently sells 1,000 units of product M for $1 each. Variable
costs are $0.40 and avoidable fixed costs are $400. A discount store has offered
$0.80 per unit for 400 units of product M. The managers believe that if they accept
the special order, they will lose some sales at the regular price. Determine the
number of units they could lose before the order become unprofitable.
a.
267 units.
b.
500 units.
c.
600 units.
d.
750 units
responsibility accounting 36-37
standard costing
38- 42 dddbd
1.
KNOTTY, Inc. estimated the cost of a project it started in October 19x4 as
follows: Direct materials, P495,000; direct labor, 6,000 hours at P30 per hour;
variable overhead, P24 per direct labor hour. By the end of the month, all the
required materials have been used at P491,900; labor was 80% complete at 4,650
hours at P30 per hour; and, the variable overhead amounted to P113,700. The total
variance for the project as at the end of the month was
A.
P7,500 U
B.
P8,400 U
C.
P9,000 F
D.
P9,00 F
2.
SUPER Co. at normal capacity, operates at 600,000 labor hours with standard
labor rate of P20 per hour. Variable factory overhead is applied at the rate of P12
per labor hour. Four units should be completed in an hour.
Last year, 1,350,000 units were produced using 300,000 labor hours. All labor
hours were paid at the standard rate, and actual overhead cost consisted of
P3,738,000 for variable items and P3,000,000 fixed items.
The total labor and overhead costs saved, by producing at more than standard,
amounted to
A.
P450,000
B.
P500,000
C.
P750,000
D.
P1,200,000
3.
A defense contractor for a government space project has incurred $2,500,000
in actual design costs to date for a guidance system whose total budgeted design
cost is $3,000,000. If the design phase of the project is 60% complete, what is the
amount of the contractor's current overrun or savings on this design work?
A.
$300,000 savings. C.
$500,000 savings.
B.
$500,000 overrun. D.
$700,000 overrun.
4.
Hankies Unlimited has a signature scarf for ladies that is very popular.
Certain production and marketing data are indicated below:
Cost per yard of cloth
P36.00
Allowance for rejected scarf
5% of production
Yards of cloth needed per scarf 0.475 yard
Airfreight from supplier P0.60/yard
Motor freight to customers
P0.90 /scarf

Purchase discounts from supplier

3%
Sales discount to customers
2%
The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf.
Rejects have no market value. Materials are used at the start of production.
Calculate the standard cost of cloth per scarf that Hankies Unlimited should use in
its cost sheets.
A.
P16.87
B.
P17.76
C.
P18.21
D.
P17.30
5.
ALPHA Co. uses a standard cost system. Direct materials statistics for the
month of May, 19x7 are summarize below:
Standard unit price
P90.00
Actual units purchased
40,000
Standard units allowed for actual
36,250
production
Materials price variance- favorable
P6,000
What was the actual purchase price per unit?
A.
P75.00
B.
P85.89
C.
P88.50
D.
P89.85

VARIABLE COSTING
43-48
a 31. Rounder Industries manufactures a single product. Variable production costs
are $20 and fixed production costs are $300,000. Rounder uses a normal activity of
20,000 units to set its standard costs. Rounder began the year with no inventory,
produced 22,000 units, and sold 21,000 units. Ending inventory under variable
costing would be
a. $20,000.
b. $30,000.
c. $35,000.
d. cannot be determined without further information.
c 32. Rounder Industries manufactures a single product. Variable production costs
are $20 and fixed production costs are $300,000. Rounder uses a normal activity of
20,000 units to set its standard costs. Rounder began the year with no inventory,
produced 22,000 units, and sold 21,000 units. Ending inventory under absorption
costing would be
a. $20,000.
b. $30,000.
c. $35,000.
d. cannot be determined without further information.
a 33. Rounder Industries manufactures a single product. Variable production costs
are $20 and fixed production costs are $300,000. Rounder uses a normal activity of
20,000 units to set its standard costs. Rounder began the year with no inventory,
produced 22,000 units, and sold 21,000 units. The volume variance under variable
costing would be
a. $0.
b. $20,000.

c. $30,000.
d. some other number.
c 34. Rounder Industries manufactures a single product. Variable production costs
are $20 and fixed production costs are $300,000. Rounder uses a normal activity of
20,000 units to set its standard costs. Rounder began the year with no inventory,
produced 22,000 units, and sold 21,000 units. The volume variance under
absorption costing would be
a. $0.
b. $20,000.
c. $30,000.
d. some other number.
b 35. Rounder Industries manufactures a single product. Variable production costs
are $20 and fixed production costs are $300,000. Rounder uses a normal activity of
20,000 units to set its standard costs. Rounder began the year with no inventory,
produced 22,000 units, and sold 21,000 units. The standard cost of goods sold
under variable costing would be
a. $400,000.
b. $420,000.
c. $735,000.
d. some other number.

c 36. Rounder Industries manufactures a single product. Variable production costs

are $20 and fixed production costs are $300,000. Rounder uses a normal activity of
20,000 units to set its standard costs. Rounder began the year with no inventory,
produced 22,000 units, and sold 21,000 units. The standard cost of goods sold
under absorption costing would be
a. $400,000.
b. $420,000.
c. $735,000.
d. some other number.