rd

ARTS CPA REVIEW

3 Floor, Ala Moana Commercial Complex, Maharlika Highway, Santiago City
2ND Floor, Yague Building, Arellano corner Blumentritt Streets, Centro 1, Tuguegarao City, Cagayan
0917-5723900/ 0917-5784158
e-mail address: jonathandeveyra_ARTS@yahoo.com.ph
MANAGEMENT ADVISORY SERVICES ACCT. SAMUEL U. ITCHON, JR.
FIRST PRE-BOARD EXAMINATION Sunday, January 21, 2018

27TH BATCH /2ND BATCH 1:40 PM – 4:40 PM

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each item by SHADING THE CIRCLE
corresponding to the letter of your choice on the official answer sheet. STRICTLY NO ERASURES & ALTERATIONS ALLOWED. Use pencil only.

1. One of the factors that contributed to the emergence and growth of management consultancy is:
a. The development of techniques for the solution of management problems, and the businessmen’s awareness of their usefulness.
b. The development of techniques for the solution of management problems, and the businessmen’s awareness of how to use them.
c. The trend towards computerization.
d. The complexities in managing and conducting an MAS engagement.

2. The PICPA committee on MS classified the broad areas of MAS into two groups. What are these classifications?
(1) Areas which are normally related to the accounting and finance functions.
(2) Areas which are not normally related to the accounting and finance functions.
(3) Areas which are mathematical techniques like linear programming, queuing theory and simulation to solve complicated operational problems.
(4) Areas which involve financial, technical and marketing evaluation of proposed projects.
a. 1 and 2 c. 2 and 3
b. 3 and 4 d. 1 and 4

3. The Code of Ethics for Management Accountants includes a competence standard, which requires the financial manager/management
accountant to:
a. Report information, whether favorable or unfavorable.
b. Develop his/her professional proficiency on a continual basis.
c. Discuss ethical conflicts and possible course of action with an unbiased counselor.
d. Discuss with subordinates, their responsibilities regarding the disclosure of information about the firm.

4. Engagements should be adequately planned, supervised and controlled. Controlling involves the measurement of progress in attaining the
engagement plan and objectives. At significant engagement points, progress should be measured in terms of:
a. Time schedule, accomplishments, and quality of work.
b. Accomplishments, time schedule, and expenses incurred.
c. Quality of work, number of reports prepared and time schedule.
d. Accomplishments, number of personnel who played a role in the engagement, and attendance of the participants in the engagement.

5. The following characterize management advisory services, except:

a. MAS utilizes more junior staff that senior members of the firm.
b. MAS involves decision for the future.
c. MAS is broader in scope and varied in nature.
d. MAS relates to specific problems where expert help is required.

6. In regression analysis, the coefficient of determination is a measure of:

a. The estimated value of the dependent variable.
b. The slope of the line of regression.
c. The amount of variation in the dependent variable that cannot be explained by the independent variable.
d. The amount of variation in the dependent variable that can be explained by the independent variable.

7. Tomy has just been appointed chairperson of the Accountancy Department of ARTS College. In reviewing the department’s cost records,
Tomy has found the following total cost associated with MAS Part 2 subject over the last several terms:
Semester/Term Number of subjects offered Total cost
AY2004, First Semester 4 10,000
AY2004, Second Semester 6 14,000
AY2004, Summer 2 7,000
AY2005, First Semester 5 13,000
AY2005, Second Semester 3 9,500
Tomy knows that there are some variable costs, such as amounts paid to student assistants, associated with the course. He would like to have
variable and fixed cost components separated for planning purposes.
Using the least-squares method, what is the variable cost per section of MAS?
a. 1,750 c. 1,200
b. 1,500 d. 900

Use the following information for questions 8 & 9:

The cost accountant of Lambino Inc. is considering to use the ABC system in determining the cost of its products. At present, the company uses the
traditional costing system wherein factory overhead costs are allocated based on direct labor hours. The cost accountant believes that the present
system may be providing misleading cost information, hence, the plan to change to the ABC system.
FIRST PRE-BOARD EXAMINATION page 02

For the coming period, the company is planning to use 5,000 direct labor hours, and its total budgeted factory overhead amounts to P 90,000
broken down as follows:
Activity Cost Driver Budgeted Activity Budgeted Cost
1. Setup costs Number of setups 40 20,000
2. Production monitoring Number of batches 20 40,000
3. Quality control Number of inspections 1,000 30,000
Total overhead cost 90,000
========
Projected data for one of the company’s products, Product X, for the coming period are as follows:
Production and sales 1,000 units
Direct labor hours 2,000 hours
Units per batch 500
Number of setups 4
Number of inspections 200
Direct materials cost P10 per unit
Direct labor rate P 20 per hour
8. If the company will use the traditional full cost system, the cost per unit of product X for the coming period will be:
a. 36 c. 86
b. 50 d. 68

9. If the company will use the ABC system, the cost per unit of product X for the coming year will be:
a. 62 c. 86
b. 50 d. 12

10. Two companies are expected to have annual sales of 1 million decks of playing cards next year. Estimates for next year are presented
below:
Company 1 Company 2
Selling price per deck 3.00 3.00
Cost of paper per deck .62 .65
Printing ink per deck .13 .15
Labor per deck .75 1.25
Variable overhead per deck .30 .35
Fixed costs P 960,000 P 252,000
Given these data, which of the following responses is correct?
BEP in units for Co. 1 BEP in units for Co. 2 Volume in units at which
Profits of Co. 1 & Co. 2 are equal
a. 800,000 420,000 1,180,000
b. 800,000 420,000 1,000,000
c. 533,334 105,000 1,000,000
d. 533,334 105,000 1,180,000

Use the following information for questions 11 to 15:

The Tom Company retails two products: a standard and a deluxe version of a luggage carrier. The budgeted income statement for next period is as
follows:
Standard Deluxe
Carrier Carrier Total
Units sold 150,000 50,000 200,000
Revenues @ P 20 & P 30 per unit 3,000,000 1,500,000 4,500,000
Variable costs @ P 14 & P 18 per unit 2,100,000 900,000 3,000,000
Contribution margins @ P 6 & P 12 per unit 900,000 600,000 1,500,000
Fixed costs 1,200,000
Operating income 300,000
=========
11. The breakeven point in units, assuming that the planned sales mix is attained at:
a. 80,000 units of Standard; 20,000 units of Deluxe. c. 120,000 units of Standard; 40,000 units of Deluxe.
b. 100,000 units of Standard; 40,000 units of Deluxe. d. 130,000 units of Standard; 65,000 units of Deluxe.

12. What is the breakeven point in units if only standard carriers are sold?
a. 100,000 c. 250,000
b. 200,000 d. 150,000

13. What is the breakeven point in units if only deluxe carriers are sold?
a. 100,000 c. 150,000
b. 120,000 d. 80,000

14. Suppose 200,000 units are sold but only 20,000 of them are deluxe. What is the operating income?
a. 200,000 c. 100,000
b. 240,000 d. 120,000

15. Suppose 200,000 units are sold but only 20,000 of them are deluxe. What is the breakeven point in units?
a. 133,368 units of Standard; 11,821 units of Deluxe.
b. 130,000 units of Standard; 12,000 units of Deluxe.
c. 163,638 units of Standard; 18,182 units of Deluxe.
d. 138,386 units of Standard; 12,812 units of Deluxe.
FIRST PRE-BOARD EXAMINATION page 03

Use the following information for questions 16 to 18:

Your classmates elected you as the chairman of the Reviewees’ Social Organization. One of the major activities under your direction is the After-
Board Dinner and Dance for your class. Renting the hall at the nearby four-star hotel will cost P 3,000. The hall will seat up to 300 people.
Decorations for the head table, which will seat 16 people, will cost P 300. Decorations for each table will cost P 50 and each table will seat up to 8
people. For P 350, you can hire the choir director from one of the local high schools to play the piano and sing softly during the dinner. The dance
band (a prominent college student group) will cost P 1,000. Typesetting and printing at least 300 copies of the program costs P 410. The caterer
offered a full-course meal for P 200 per person, but you must guarantee one week in advance. To help serve the meals, you have arranged for the
voluntary services of the review support staff. These people will be given a meal for their trouble. You expect 25 people to help serve.

At the time the guarantee was required, you had 205 confirmed people attending the dinner, including all non-reviewee special guests who will be
seated on the head table, but not including servers. You guarantee 224 people plus the servers. The servers will eat in an adjoining room, which is
furnished free of charge.

16. What is the estimated total cost of the After-Board Dinner and Dance for the number of people guaranteed?
a. 56,260 c. 56,160
b. 51,100 d. 56,735

17. How much should each ticket be sold to recover the total costs, assuming that all seats will be taken and that the non-reviewee
special guests and servers will be given complimentary tickets?
a. 250 c. 300
b. 270 d. 206.25

18. What selling price should be charged for each ticket if the group wants to earn a profit of P 19,760 that will be donated to the school
for the acquisition and installation of a high-end review equipment, considering the same assumption as in item 17?
a. 345 c. 301.25
b. 395 d. 365

Use the following information for questions 19 to 21:

Crystal Company
Income Statement – Direct Costing Method
For the Month Ended May 31, 2009

Sales (P 10 per unit) 900,000

Less: Variable costs:
Variable cost of goods sold:
Beginning inventory 125,000
Variable cost of goods manufactured 400,000
Goods available for sale 525,000
Ending inventory 75,000
Variable cost of goods sold 450,000
Variable selling expense 90,000
Total variable costs 540,000
Contribution margin 360,000
Fixed costs:
Manufacturing 240,000
Selling and administrative 90,000
Total fixed costs 330,000
Net income 30,000
========
During May 2009, 80,000 units were manufactured. Variable production costs have remained constant on a per unit basis over the past several
months.
19. The peso value of the company’s inventory on May 31 under the absorption costing method would be:
a. 120,000 c. 75,000
b. 90,000 d. 60,000

20. Under absorption costing for the month ended May 31, 2009, the company would report a:
a. 30,000 loss c. 30,000 profit
b. 0 profit d. 60,000 profit

21. Crystal’s total costs at the break even point would be:
a. 900,000 c. 495,000
b. 825,000 d. 412,500

Use the following information for questions 22 to 27:

You have recently graduated from a university and have accepted a position with Villar Company, the manufacturer of a popular consumer product.
During your first week on the job, the vice president has been favorably impressed with your work. She has been so impressed with your work .
She has been so impressed, in fact, that yesterday she called you into her office and asked you to attend the executive committee meeting this
morning for the purpose of leading a discussion on the variances reported for last period. Anxious to favorably impress the executive committee,
you took the variances and supporting data home last night to study.

On your way to work this morning, the papers were laying on the seat of your new, red convertible. As you were crossing a bridge on the highway, a
sudden gust of wind caught the papers and blew them over the edge of the bridge and into the stream below. You managed to retrieve only one
page, which contains the following information:
FIRST PRE-BOARD EXAMINATION page 04

Standard Cost Summary

Direct materials, 6 pounds at P 3 18.00
Direct labor, 0.8 hours at P 5 4.00
Variable overhead, 0.8 hours at P 3 2.40
Fixed overhead, 0.8 hours at P 7 5.60
30.00
========
VARIANCES REPORTED
Total Price or Spending Quantity Volume
Standard Cost Rate or Budgetor Efficiency
Direct materials 405,000 6,900 F 9,000 U
Direct labor 90,000 4,850 U 7,000 U
Variable overhead 54,000 1,300 F ? @
Fixed overhead 126,000 500 F 14,000 U

@ Figure obliterated

You recall that manufacturing overhead cost is applied to production on the basis of direct labor hours and that all of the materials purchased
during the period were used in production. Since the company uses JIT to control work flows, work in process inventories are insignificant and can
be ignored.

It is now 8:30 AM. The executive committee meeting starts in just one hour, you realize that to avoid looking like a bungling fool you must somehow
generate the necessary “backup” data for the variances before the meeting begins. Without backup data it will be impossible to lead the discussion
or answer any questions.
22. How many pounds of direct materials were purchased and used in the production of 22,500 units?
a. 138,000 lbs. c. 135,000 lbs.
b. 132,000 lbs. d. 137,300 lbs.

23. What was the actual cost per pound of material?

a. 3.00 c. 2.95
b. 3.05 d. 3.10

24. How many actual direct labor hours were worked during the period?
a. 18,000 c. 19,400
b. 16,600 d. 18,970

25. How much actual variable manufacturing overhead cost was incurred during the period?
a. 55,300 c. 56,900
b. 58,200 d. 59,500

26. What is the total fixed manufacturing overhead cost in the company’s flexible budget?
a. 112,500 c. 139,500
b. 140,000 d. 125,500

27. What were the denominator hours for last period?

a. 18,000 hours c. 20,000 hours
b. 22,000 hours d. 25,000 hours

28. The cost accounting department of Century Company prepared the following cost analysis report on direct labor costs for the jobs
completed during the previous months:
 Payroll costs: P 37,450
 Actual hours at labor union contract rate: P 35,175
 Standard hours at labor union contract rate: P 36,430
The labor spending variance is:
a. 2,275 favorable c. 1,255 favorable
b. 2,275 unfavorable d. 1,255 unfavorable

Use the following information for questions 29 to 31:

Cyber Inc. has several divisions that operate as decentralized profit centers. Cyber’s Entertainment Division manufactures video arcade equipment
using the products of two of Cyber’s other divisions. The Plastic Division manufactures plastic components, one type that is made exclusively for
the Entertainment Division, while other less complex components are sold to outside markets. The products of the Video Cards Division are sold in
a competitive market, however, one video card model is also used by the Entertainment Division. The actual cost per unit used by the
Entertainment Division are presented below:
Plastic ComponentsVideo Cards
Direct material 1.25 2.40
Direct labor 2.35 3.00
Variable overhead 1.00 1.50
Fixed overhead .40 2.25
Total cost 5.00 9.15
======= ======
The Plastic Division sells its commercial products at full cost plus a 25% markup and believes the proprietary plastic component made for the
Entertainment Division would sell for P 6.25 per unit on the open market. The market price of the video card used by the Entertainment Division is
P 10.98 per unit.
FIRST PRE-BOARD EXAMINATION page 05

29. A per unit transfer price from the Video Cards Division to the Entertainment Division at full cost, P 9.15 would:
a. Allow evaluation of both divisions on a competiive basis.
b. Satisfy the Video Cards Division’s profit desire by allowing recovery of opportunity cost.
c. Provide no profit incentive for the Video Cards Division to control or reduce cost.
d. Encourage the Entertainment Division to purchase video cards from an outside source.

30. Assume that the Entertainment Division is able to purchase a large quantity of video cards from an outside source at P 8.70 per unit. The
Video Cards Division, having excess capacity, agrees to lower its transfer price to P 8.70 per unit. The action would:
a. Optimize the profit goals of the Entertainment Division while subverting the profit goals of Cyber Inc.
b. Allow evaluation of both divisions on the same basis.
c. Subvert the profit goals of the Video Cards Division while optimizing the profit goals of the Entertainment Division.
d. Optimize the overall profit goals of Cyber Inc.

31. Assume that the Plastic Division has excess capacity and it has negotiated a transfer price of P 5.60 per plastic component with the
Entertainment Division. This price will:
a. Cause the Plastic Division to reduce the number of commercial plastic components it manufactures.
b. Motivate both divisions as estimated profits are shared.
c. Encourage the Entertainment Division to seek an outside source for plastic components.
d. Demotivate the Plastic Division causing mediocre performance.

Use the following information for questions 32 to 37:

On May 01, 2009, Jolly Company began the manufacture of a new mechanical device known as “Sydney”. The company installed a standard cost
system in accounting for manufacturing costs. The standard costs for each unit of “Sydney” are as follows:
Raw materials, 6 kilos at P 1.00 per kilo 6.00
Direct labor, 1 hour at P 4.00 per hour 4.00
Overhead, 75% of direct labor costs 3.00
Standard unit cost 13.00
The following data were obtained from Jolly’s records for the month of May 2009: (Production was 4,000 units)
Debit (U) Credit (F)
Sales 50,000
Purchases 27,300
Material price variance 1,300
Material quantity variance 1,000
Labor rate variance 760
Labor efficiency variance 800
Total manufacturing overhead variance 500
The amount shown above for material price variance is applicable to raw materials purchased during May.
32. The standard quantity of raw materials allowed (in kilos):
a. 24,000 c. 25,000
b. 24,500 d. 25,500

33. Actual quantity of raw materials used (in kilos):

a. 24,000 c. 25,000
b. 24,500 d. 25,500

34. Standard hours allowed:

a. 3,800 c. 4,000
b. 3,900 d. 4,200

35. Actual hours worked:

a. 3,800 c. 4,000
b. 3,900 d. 4,200

36. Actual direct labor rate:

a. 3.90 c. 4.10
b. 4.00 d. 4.20

37. Actual total overhead costs:

a. 11,000 c. 12,000
b. 11,500 d. 12,500

Use the following information for questions 38 & 39:

A major activity at the Professional Regulation Commission is the processing of application forms for the Board Examinations of the various
professions under its control. To analyze and control the costs incurred in the Applications Department, the PRC’s accountant previously prepared
the following budgeted data for the year 200A:
Normal number of applications processed per year 150,000
Budgeted variable costs of processing the 150,000 applications P 10,500,000
Fixed costs per year 2,500,000
Number of hours per 100 applications processed 200 hours
Wage rate per 100 applications P 6,000
During the year 200A, the department processed a total of 120,000 applications using 250,000 hours. The costs incurred were:
Total costs 11,140,000
Labor costs 7,500,000
FIRST PRE-BOARD EXAMINATION page 06

38. For 200A, the Applications Department’s total cost to process the 120,000 applications assuming standard performance should be:
a. 13,000,000 c. 10,500,000
b. 10,900,000 d. 8,400,000

39. The total labor cost variance for 200A is:

a. 300,000 unfavorable c. 1,200,000 unfavorable
a. 300,000 favorable d. 1,860,000 favorable

40. GHI, Inc. manufactures 100,000 units of part XXX annually, which it uses in one of its products The controller has collected the following
cost data related to the part:
Materials 40,000
Direct labor 90,000
Variable overhead 80,000
Fixed overhead 180,000
-------------------
Total costs 390,000
==========
JKL Company offers to supply a functionally equivalent part for P 3.10 per unit. If GHI accepts the offer, it will be able to rent some of the
facilities it devotes to making the part to another company for P 20,000 annually and will also be able to reduce its fixed overhead costs by
about P 50,000.
At what annual unit volume will GHI earn the same income making the part as it would to buy it?
a. 70,000 units. c. 90,000 units.
b. 80,000 units. d. 100,000 units.

Use the following information for questions 41 to 44:

Camay Industries received an order for a piece of special machinery from Tigok Company. Just as Camay completed the machine, Tigok declared
bankruptcy, defaulted on the order, and forfeited the 10% deposit paid on the selling price of P 72,500.
Camay’s manufacturing manager identified the costs already incurred in the production of the special machinery for Tigok as follows:
Direct material 16,600
Direct labor 21,400
Manufacturing overhead:
Variable 10,700
Fixed 5,350 16,050
Fixed selling and administrative costs 5,405
Total 59,455
========
Another company, Kate Corporation, will buy the special machinery if it is reworked to Kate’s specifications. Camay offered to sell the reworked
machinery to Kate as a special order for P 68,400. Kate agreed to pay the price when it takes delivery in two months. The additional identifiable
costs to rework the machinery to Kate’s specifications are as follows:
Direct materials 6,200
Direct labor 4,200
Total 10,400
=========
A second alternative available to Camay is to convert the special machinery to the standard model, which sells for P 62,500. The additional
identifiable costs for this conversion are as follows:
Direct materials 2,850
Direct labor 3,300
Total 6,150
========
A third alternative for Camay is to sell the machine as is for a price of P 52,000. However, the potential buyer of the unmodified machine does not
want it for 60 days. This buyer has offered a P 7,000 down payment, with the remainder due upon delivery.

The following additional information is available regarding Camay’s operations:

 The sales commission rate on sales of standard models is 2% while the rate on special orders is 3%.
 Normal credit terms for sales of standard models are 2/10, net/30. This means that a customer receives a 2% discount if
payment is made within 10 days, and payment is due no later than 30 days after billing. Most customers take the 2% discount.
Credit terms for a special order are negotiated with the customer.
 The allocation rates for manufacturing overhead and fixed selling and administrative costs are as follows:
Manufacturing costs:
Variable 50% of direct labor costs
Fixed 25% of direct labor costs
Fixed selling and administrative costs 10% of the total manufacturing costs.

41. How much peso contribution would the sale to Kate add to Camay’s before tax profit?
a. 53,848 c. 55,900
b. 55,948 d. 9,300

42. How much peso contribution would the alternative of converting the special machinery to standard model add to Camay’s before tax
profit?
a. 52,200 c. 52,825
b. 54,475 d. 7,650
FIRST PRE-BOARD EXAMINATION page 07

43. If Kate makes Camay a counteroffer, what is the lowest price Camay should accept for the reworked machinery from Kate?
a. 10,400 c. 10,722
b. 12,500 d. 12,887

44. How much would the alternative of selling unmodified machinery to the potential buyer contribute to Camay’s before tax profit?
a. 50,440 c. 49,920
b. 1,740 d. 49,400

45. Bonus Co. uses 10,000 units of a part in its production process. The costs to make a part are: direct material, P 12; direct labor, P 25; variable
overhead, P 13 and applied fixed overhead, P 30. Bonus Co. has received a quote of P 55 from a potential supplier for this part. If Bonus Co.
buys the part, 70% of the applied fixed overhead would continue. Bonus Co. would be better off by:
a. 50,000 to manufacture the part. c. 40,000 to buy the part.
b. 160,000 to manufacture the part. d. 150,000 to buy the part.

46. A selling division produces components for a buying division that is considering accepting a special order for the products it
produces. The selling division has excess capacity. The minimum price the selling division would be willing to accept is:
a. The selling division’s variable costs.
b. The buying division’s outside purchase price.
c. The price that would allow the buying division to cover its incremental cost of the special order.
d. The price that would allow the selling division to maintain its current ROI.

47. All of the following statements are true except:

a. Activity-based costing helps identify various activities that explain why costs are incurred.
b. Direct tracing of costs improves cost accuracy.
c. For activity-based cost systems, activity costs are assigned to products in the proportional of the demand they place on
activity resources.
d. Using multiple unit-level cost drivers generally constitutes an effective activity-based cost system.

48. Which of the following statements about activity-based costing is not true?
a. Activity-based costing is useful for allocating marketing and distribution costs.
b. Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures
only one product rather than multiple products.
c. Activity-based costing seeks to distinguish batch level product-sustaining and facility-sustaining costs, especially when they
are not proportionate to one another.
d. Activity-based costing differs from traditional costing systems in that products are not cross-subsidized.

49. Which of the following statements about a make or buy decision analysis is not correct?
a. Available resources should be used as efficiently as possible before outsourcing.
b. The analysis should involve available costs only.
c. If the total relevant cost of production is less than the cost to buy the item, it should be produced in house.
d. The decision depends on whether the company is operating at or below the normal capacity.

Use the following information for questions 50 to 52:

The top management of Jonas Inc. has developed a pricing formula presented below. The formula is based on the operating results achieved during
the most recent year.
Direct materials xx
Direct labor xx
Factory overhead (50% of direct labor cost) xx
Corporate overhead (10% of direct labor cost) xx
-----------
Total cost of excluding sales commission xx
Add 25% for profit and taxes xx
------------
Sales price before sales commission xx
Divide by 90% to include the 10% sales commission 90%
-------------
Selling price xx
========
During the most recent year, the company operated at 80% of normal capacity and the results are as follows:
Sales 150,000
Less: sales commission (10%) 15,000
Net sales 135,000
Less: cost of sales: Materials 36,000
Labor 45,000
Variable factory overhead
(30% of labor cost) 13,500
Fixed factory overhead 9,000
Total cost of sales 103,500
Gross income 31,500
Less: corporate overhead (10% of labor cost) 4,500
Income before tax 27,000
Less: income tax (40%) 10,800
Net income 16,200
==========
FIRST PRE-BOARD EXAMINATION page 08

Jonas received an invitation from Ompong Corporation to submit a bid for a made to order item. Jonas used the pricing formula to compute the bid
price. The company’s cost accountant estimated that Ompong’s order would use half of the idle capacity and that prime costs to be incurred for the
order are as follows:
Materials 1,500
Labor 10,000
The capacity utilization and the relationships shown in the operating results last year, as well as those in the pricing formula are expected to
continue during the next period.
50. What was the bid price submitted by Jonas to Ompong?
a. 21,875 c. 19,688
b. 24,062 d. 24,306

51. Assume that upon receipt of Jonas’ proposal (the bid price in item 52), Ompong made a counter-offer that is 10% lower than the bid
price. Should Jonas accept the order of such lower price?
a. Yes, net income will increase by 2,625.
b. Yes, net income will increase by 3,112.50.
c. No, overall net income will decrease by 2,431.
d. No, net income will decrease by 1,458.60.

52. What is the lowest price Jonas can quote on the Ompong’s order without reducing its net income after taxes?
a. 14,500 c. 24,167
b. 16,111 d. 26,852

Use the following information for questions 53 & 54:

Tokong Inc. manages five (5) townhouses in Makati City. The summary income statements of the townhouses are as follows (in thousand pesos):
TOWNHOUSE 1 2 3 4 5
Rental INCOME 15,000 18,150 35,205 28,170 15,975
Expenses 12,000 19,500 39,000 36,000 19,500
Profit (loss) 3,000 ( 1,350 ) ( 3,795 ) ( 7,830 ) ( 3,525 )
======== ========= ======= ========== ===========
When the company president saw the income statements, he was dismayed that only Townhouse 1 is earning profit. Because of this, he is
considering to sell Townhouses 2 to 5 and continue operating Townhouse 1 only. But before making his final decision, he consulted the company’s
accountant first and instructed him to conduct further analysis and give a recommendation as to which townhouse should really be sold.

The accountant’s study revealed that included in the total expenses is P 18,000,000 of corporate overhead allocated to the townhouses based on
rental income. The company will continue to incur this corporate overhead regardless of whether any of the townhouses is sold.

53. Which townhouse(s) should be sold?

a. Two, Three, Four and Five c. Three, Four and Five
b. Four d. Four and Five.

54. If the appropriate townhouses were sold, the company’s total income would increase (decrease) by:
a. (4,301.80) c. 4,500
b. 4,301.80 d. 11,355

55. In data processing, coding assigns a unique identification number or key to each data record. Which of the following statements is
(are) true about coding?
1. A primary key, such as a customer number in an accounts receivable file, is the main code used to store and locate records within a file.
2. Codes, other than the primary keys, can be used to sort records and create temporary files.
3. Secondary keys are used to sort records based on an attribute other than the primary key, such as the current balance or credit limit for
an accounts receivable file.
a. All the statements are true. c. Only one statement is true.
b. Only two statements are true. d. None of the statements is true.

56. The financial accounting database has several critical relationships that must be properly maintained if the system is to function in an
orderly manner. Which of the following statements about the financial accounting database is false?
a. Transaction records include cross-references among general ledger files, subsidiary account numbers, and source
document numbers.
b. Cash disbursement journals are complete records of each transaction that reduces cash.
c. The general ledger is a master file in which a record is maintained for each and every account in the organization’s
accounting system.
d. Subsidiary ledgers are master files containing accounting records by specific account categories.

57. Separation of duties is a general control that is vital in a computerized environment. In the organization of the information systems
function, the most important separation of duties is that:
a. Programmers should not have access to data processing operations.
b. The data librarian should not be allowed to assist in data processing operations.
c. The company should have different programming personnel for different types of programs.
d. Programmers should not be allowed to design, write, test, and document specific programs required by the system
developed by the systems analysts.
FIRST PRE-BOARD EXAMINATION page 09

Use the following information for questions 58 to 60:

St. John Hospital contains 450 beds. The average occupancy rate is 80 percent per month. In other words, on average, 80 percent of the hospital’s
beds are occupied by patients. At this level of occupancy, the hospital’s operating costs are P 32 per occupied bed per day, assuming a 30-day
month. This P 32 figure contains both variable and fixed cost components. During the month of June, the hospital’s occupancy rate was only 60
percent. A total of P 326,700 in operating cost was incurred during that month.
58. Using the high-low method, the amount of variable cost per occupied bed per day is:
a. 7.00 c. 12.00
b. 9.00 d. 15.00

59. Using the variable cost as determined in the preceding item, the total fixed operating costs per month are:
a. 240,000 c. 290,000
b. 270,000 d. 300,000

60. Assuming an occupancy rate of 75 percent in a particular month, what amount of total operating costs would you expect the hospital to incur?
a. 310,000 c. 340,875
b. 315,500 d. 375,500

61. For the past 12 years, the JLO Company has produced the small electronic motors that fit into its main product line of dental drilling equipment.
As materials costs have steadily increased, the controller of the JLO Company is reviewing the decision to continue to make the small motors and
has identified the following facts:
(1) The equipment which is used to manufacture the electric motors has a book value of P 1,500,000.
(2) The space being occupied now by the electric motor manufacturing department could be used to eliminate the need for storage space which is
presently being rented.
(3) Comparable units can be purchased from an outside supplier for P 597.50
(4) Four of the people who work in the electric motor manufacturing department would be terminated and given eight weeks of separation pay.
(5) A P 750,000 unsecured note is still outstanding on the equipment that is being used in the manufacturing process.
Which of the items above are relevant to the decision that the controller has to make?
a. 1, 2, 4 and 5 c. 1, 3, 4 and 5
b. 1, 3 and 4 d. 2, 3 and 4

62. Dar Co. is considering disposing an equipment that costs P 50,000 and has P 40,000 of accumulated depreciation to date. Dar can sell the
equipment through a broker for P 25,000 less 5% commission. Alternatively, Mint Co. has offered to lease the equipment for five years for a total of
P 48,750. Dar will incur repair, insurance and property tax expense estimated at P 10,000. At lease-end, the equipment is expected to have no
residual value. The net differential income from the lease alternative is:
a. 15,000 c. 25,000
b. 5,000 d. 12,500

Use the following information for questions 63 & 64:

Marcus Inc. specializes in the manufacturing of synthetic fibers that the company uses in many products such as blankets, coats and uniforms for
police and firefighters. Marcus has been in the business since 1975 and has been profitable every year since 1983. The company uses a standard
cost system and applies overhead on the basis of direct labor hours.

Marcus has recently received a request to bid on the manufacture of 800,000 blankets scheduled for delivery to several military bases. The bid
must be started at full cost per unit plus a return on full cost of no more than 9 percent after income taxes. Full cost has been defined as including
all variable costs of manufacturing the product, a reasonable amount of fixed overhead, and reasonable incremental administrative costs associated
with the manufacture and sale of the product. The contractor has indicated that bids in excess of P 25 per blankets are not likely to be considered.

In order to prepare the bid for the 800,000 blankets, Andoy Lighter , cost accountant, has gathered the following information about the cost
associated with the production of the blankets.
Direct material 1.50 per pound of fibers
Direct labor 7.00 per hour
Direct machine costs* 10.00 per blanket
Variable overhead 3.00 per direct labor hour
Fixed overhead 8.00 per direct labor hour
Incremental administrative costs 2,500 per 1,000 blankets
Special fee** .50 per blanket
Material usage 6 pounds per blanket
Production rate 4 blankets per DLH
Effective tax rate 40%

63. The minimum price per blanket that Marcus could bid without reducing the company’s net income is:
a. 24.00 c. 50.25
b. 21.50 d. 40.25

64. Using the full cost criteria and the maximum allowable return specified, Marcus’ bid price per blanket would be:
a. 24.00 c. 26.00
b. 29.90 d. 27.90

FIRST PRE-BOARD EXAMINATION page 10

Use the following information for questions 65 to 68:

Bugoy, Inc. manufactures leather bags with 3-zipper-type pockets. The company outsources the zippers at P 8 per unit. Each bag requires 5 direct
labor hours to produce at a rate of P 10 per hour. Budgeted sales of bags for the first quarter of the year and the first month of the following
quarter is as follows:
January 900 units
February 1,000 units
March 1,500 units
April 1,800 units
Inventory data are as follows:
January 01: Leather bags 360
Zipper 1,620

End of each month:Leather bags - 40% of the following month’s budgeted sales
Zipper - 60% of the following month’s production requirement
65. What is the budgeted production of leather bags for the first quarter?
a. 3,760 c. 4,400
b. 3,040 d. 3,400
66. What is the budgeted purchases of zipper for February?
a. 2,844 c. 4,356
b. 1,956 d. 3,600
67. What is the total budgeted zipper and labor costs for the month of March?
a. 55,080 c. 122,472
b. 29,160 d. 119,880

68. Assume that on the average, a full-time factory worker works 188 hours per month and no overtime is allowed, how many full time equivalent
factory workers are needed to produce the budgeted output of leather bags in January?
a. 5 c. 100.00
b. 25 d. 23.94

Use the following information for questions 69 to 71:

Super Corporation, a computer disk storage and backup company, uses accrual accounting. The company’s statement of financial position for the
year ended November 30, 2008 is as follows:
Super Corporation
Statement of Financial Position
November 30, 2008
Assets
Cash 52,000
Accounts receivable, net 150,000
Inventory 315,000
Property, plant and equipment 1,000,000
Total assets 1,517,000
==========
Liabilities and Stockholders’ Equity
Accounts payable 175,000
Common stock 900,000
Retained earnings 442,000
Total liabilities and stockholders’ equity 1,517,000
==========
Additional information regarding Super’s operations include the following:
 Sales are budgeted at P 520,000 for December 2008 and P 500,000 for January 2009.
 Collections are expected to be 40% in the month following the sale.
 80% of the disk drive components are purchased in the month prior to the month of sale, and 20% are purchased in
the month of sale. Purchased components are 40% of the cost of goods sold.
 Payment for the components is made in the month following the purchase.
 Cost of goods sold is 80% of sales.
69. The budgeted cash collections for the month of December 2008 are:
a. 208,000 c. 402,000
b. 520,000 d. 462,000

70. The projected balance in accounts payable on December 31, 2008 is:
a. 161,280 c. 416,000
b. 166,400 d. 201,600

71. The projected gross profit for the month ending December 31, 2008 is:
a. 416,000 c. 536,000
b. 104,000 d. 0

FIRST PRE-BOARD EXAMINATION page 11

Use the following information for questions 72 to 76:

Agua Inc. manufactures water pumps and uses a standard cost system. The standard factory overhead costs per water pump are based on direct
labor hours and are as follows:
Variable overhead (4 hours at P 8 per hour) 32
Fixed overhead (4 hours at P 5* per hour) 20
Total overhead cost per unit 52
======
* Based on a capacity of 100,000 direct labor hours per month.
The following additional information is available for the month of November:
 22,000 pumps were produced although 25,000 had been scheduled for production.
 94,000 direct labor hours were worked at a total cost of P 940,000.
 The standard direct labor rate is P 9 per hour.
 The standard direct labor time per unit is 4 hours.
 Variable overhead costs were P 740,000
 Fixed overhead costs were P 540,000.
72. The fixed overhead spending variance for November was:
a. 40,000 unfavorable. c. 460,000 unfavorable.
b. 70,000 unfavorable. d. 240,000 unfavorable.

73. The variable overhead spending variance for November was:

a. 60,000 favorable c. 48,000 unfavorable
b. 12,000 favorable. d. 40,000 unfavorable.

74. The variable overhead efficiency variance for November was:

a. 48,000 unfavorable c. 96,000 unfavorable
b. 60,000 favorable d. 200,000 unfavorable

75. The direct labor price variance for November was:

a. 54,000 unfavorable c. 60,000 favorable
b. 94,000 unfavorable d. 148,000 unfavorable

76. The direct labor efficiency variance for November was:

a. 108,000 favorable c. 60,000 favorable
b. 120,000 favorable d. 54,000 unfavorable

Use the following information for questions 77 to 80:

The Verba Corporation which produces and sells to wholesalers a highly successful line of summer lotions and insect repellents, has decided to
diversify in order to stabilize sales over the year. A natural area for the company to consider is the production of special lotion and cream to prevent
dry and chapped skin. After considerable research, a special product line has been developed. However, because of the conservatism of the
company management, Verba’s president has decided to introduce only one of the new products for this coming rainy season. If the product is a
success, further expansion will be initiated in future years. The product selected (called Chaps) is a lip balm that will be sold in a lipstick-type tube.
The product will be sold to wholesalers in boxes of 24 tubes for P 800 per box. Because of available capacity, no additional fixed charges will be
incurred to produce the product. However, a P 10,000,000 fixed charge will be absorbed by the new product to allocate a fair share of the
company’s present fixed costs to it. Using the estimated sales and production of 100,000 boxes of Chaps as the standard volume, the accounting
department has developed the following costs:
Direct labor 200 per box
Direct materials 300 per box
Total overhead 150 per box
Total 650 per box
Verba has approached a cosmetics manufacturer to discuss the possibility of purchasing the tubes for Chaps. The purchase price of the empty
tubes from the cosmetics manufacturer would be P 90 per 24 tubes. If the Verba Corporation accepts the purchase proposal, it is estimated that
direct labor and variable overhead costs would be reduced by 10% and direct material costs would be reduced by 20%.

77. What is the variable overhead rate per box of Chaps?

a. 100 c. 50
b. 150 d. 200

78. How much would it cost Verba to produce the tubes per box?
a. 60 c. 90
b. 85 d. 120

79. How much cost would Verba incur by making 125,000 boxes, assuming that additional equipment, at an annual rental of P 1,000,000, must be
acquired to produce this volume?
a. 10,625,000 c. 11,250,000
b. 11,625,000 d. 12,500,000

80. Referring to the previous question, what is the impact on its profit if Verba were to buy 125,000 boxes?
a. Increase profit by P 1,000,000 c. Increase profit by P 375,000
b. Increase profit by P 1,250,000 d. Decrease profit by P 625,000
. - end of examination -