Professional Documents
Culture Documents
PROBLEM
Frank Co.’s total costs of operating five sales offices last year were P500,000, of which
P70,000 represented fixed costs. Frank has determined that total costs are significantly
influenced by the number of sales offices operated. Last year’s costs and number of sales
offices can be used as the bases for predicting annual costs. What would be the budgeted
costs for the coming year if Frank were to operate seven sales offices?
A. 700,000
B. 672,000
C. 614,000
D. 586,000
Castelo, Villasin and Barrera is a large, local accounting firm located in Cebu. Belle
Castelo, one of the Firm’s founders, appreciates the success her firm has enjoyed and
wants to give something back to her community. She believes that an inexpensive
accounting services clinic could provide basic accounting services for small businesses
located in the province. She wants to price the services at cost.
Since the clinic is brand new, it has no experience to go on. Belle decided to operate the
clinic for two months before determining how much to charge per hour on an ongoing
basis. As a temporary measure, the clinic adopted an hourly charge of P50, half the
amount charged by Castelo, Villasin and Barrera for professional services.
The accounting services clinic opened on January 1. During January, the clinic had 120
hours of professional service. During February, the activity was 150 hours. Costs for these
two level of activity usage are as follows:
3. Apple Baby, the chief paraprofessional of the clinic, has estimated that the clinic will
average 140 professional hours per month. If the clinic is to be operated as a nonprofit
organization, how much will it need to charge per professional hour?
A. 97.81
B. 87.06
C. 82.77
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D. 22.60
HSR Computer System designs and develops specialized software for companies and use a
normal costing system. The following data are available for 2018:
Budgeted
Overhead P600,000
Machine hours 24,000
Direct labor hours 75,000
Actual
Units produced 100,000
Overhead P603,500
Prime costs P900,000
Machine hours 25,050
Direct labor hours 75,700
Hazelnut Company uses activity-based costing. The company produces two products: coats
and hats. The annual production and sales volume of coats is 8,000 units and of hats is 6,000
units. There are three activity cost pools with the following expected activities and estimated
total costs:
Elaine Hospital plans to use the activity-based costing to assign hospital indirect costs to the
care of patients. The hospital has identified the following activities and activity rates for the
hospital indirect costs:
The records of two representative patients were analyzed, using the activity rates. The activity
information associated with the two patients are as follows:
Patient 1 Patient 2
Number of days 7 3
Number of images 4 2
Number of physician orders 5 1
Number of tests 6 2
Number of operating room hours 4.5 1
Balat Leather Works, which manufactures saddles and other leather goods, has three
departments. The Assembly Department manufactures various leather products, such as belts,
purses, and saddle bags, using automated production process. The Saddle Department
produces handmade saddles and uses very little machinery. The Tanning Department produces
leather. The tanning process requires little in the way of labor or machinery, but it does
require space and process time. Due to the different production processes in the three
departments, the company uses three different cost drivers for the application of manufacturing
overhead. The cost drivers and overhead rates are as follows:
The company’s deluxe saddle and accessory set consists of handmade saddle, two saddlebags,
a belt, and a vest, all coordinated to match. The entire set uses 100 square-feet of leather
from the Tanning Department, 3 machine hours in the Assembly Department, and 40 direct-
labor hours in the Saddle Department. The company is processing Job No. 20 consisting of 20
deluxe saddle and accessory sets.
How much is the applied manufacturing overhead in the Assembly Department for Job No. 20?
A. 3,200
B. 540
C. 6,000
D. 3,000
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Harry Manufacturing incurs annual fixed costs of P250,000 in producing and selling a single
product. Estimated unit sales are 125,000. An after-tax income of P75,000 is desired by
management. The company projects its income tax rate at 40 percent. What is the maximum
amount that Harry can expend for variable costs per unit and still meet its profit objective if the
sales price per unit is estimated at P6?
A.3.37
B.3.59
C.3.00
D.3.70
For its most recent fiscal year, a firm reported that its contribution margin was equal to 40
percent of sales and that its net income amounted to 10 percent of sales. If its fixed costs for
the year were P60,000, how much was the margin of safety?
A.150,000
B.200,000
C.600,000
D.50,000
Sam Company manufactures a single product. In the prior year, the company had sales of
P90,000, variable costs of P50,000, and fixed costs of P30,000. Sam expects its cost structure
and sales price per unit to remain the same in the current year, however total sales are
expected to increase by 20 percent. If the current year projections are realized, net income
should exceed the prior year’s net income by:
A. 100 percent
B. 80 percent
C. 20 percent
D. 50 percent
Antiporda, Inc. sells three products, A, B, and C. The company sells three (3) units of C for
each unit of A and two (2) units of B for each unit of C. Total fixed costs amount to P760,000.
Product A’s contribution margin per unit is P2, Product B’s is 150% of A’s, and Product C’s is
twice as much as B’s. How many units of each product must be sold to break-even?
A company is making plans for next year, using cost-volume-profit analysis as its planning tool.
Next year’s sales data about its product are as follows:
Selling price P60.00
Variable manufacturing costs per unit 22.50
Variable selling and administrative costs 4.50
Fixed operating costs (60% is manufacturing cost) P148,500
Income tax rate 32%
12. How much should sales be next year if the company wants to earn profit after tax of
P22,440, the same amount that it earned last year?
A. 310,800
B. 397,500
C. 330,000
D. 222,000
13. Assume that the company’s management learned that a new technology that will increase
the quality of its product is available. If implemented, its projections for next year will be
changed:
1. The selling price of the product will increase to P75 per unit.
2. Fixed manufacturing costs will increase by 20%.
3. Additional advertising costs will be incurred to promote the higher-quality
product. This will increase fixed non-manufacturing cost by 10%.
4. The improved product will require a new material that will increase direct
materials cost by P4.50
If the new technology is adapted, how much sales should the company make to earn a
pre-tax profit of 10% on sales?
A. 366,130
B. 358,875
C. 253,324
D. 353,897
14. If the sales required in Item #13 is realized, the company will have an operating leverage
factor of
A. 8.53
B. 5.80
C. 7.24%
D. 5.50
Yamyam Company is considering introducing a new product that will require a P250,000
investment of capital. The necessary funds would be raised through a bank loan at an interest
rate of 8%. The fixed operating costs associated with the product would be P122,500 while the
variable cost ratio would be 58%. Assuming a selling price of P15 per unit, determine the
number of units (rounded to the nearest whole unit) Yamyam would have to sell to generate
earnings before interest and taxes (EBIT) of 32% of the amount of capital invested in the new
product.
A.35,318 units
B.25,575 units
C.32,143 units
D.23,276 units
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16. How many units does the company need to produce and sell to make a before-tax profit
of 10% of sales?
A. 65,000 units
B. 36,562 units
C. 90,000 units
D. 29,250 units
17. Assuming that the company sells 80,000 units, what is the maximum that can be paid for
an advertising campaign while still breaking even?
A. 135,000
B. 1,015,000
C. 535,000
D. 695,000
Sales P500,000
Net operating income P25,000
Degree of operating leverage 5
Sales at Hera are expected to be P600,000 next year. Assuming no change in cost structure,
this means that net operating income for next year should be:
A. 30,000
B. 45,000
C.50,000
D.125,000
The materials mix variance for a product is P450 unfavorable and the materials yield variance is
P150 unfavorable. This means that
A. The materials price variance is P600 unfavorable.
B. The materials quantity variance is P600 unfavorable
C. The total materials cost variance is definitely P600 unfavorable.
D. The materials price variance is also unfavorable, but the amount cannot be determined
from the given information.
Samson Company uses a standard costing system in the production of its only product. The
84,000 units of raw materials inventory were purchased for P126,000 and 4 units of raw
materials are required to produce one unit of final product. In October, the company produced
14,400 units of product. The standard cost allowed for materials was P72,000, and there was
an unfavorable usage variance of P3,000.
The materials price variance for the units used in October was
A.15,000 unfavorable
B.15,000 favorable
C. 3,000 unfavorable
D. 3,000 favorable
The standard direct materials cost to produce a unit of a product is four meters of materials at
P2.50 per meter. During June, 2018, 4,200 meters of materials costing P10,080 were purchased
and used to produce 1,000 units of the product. What was the materials price variance for
June, 2018
A. 480 unfavorable
B. 80 unfavorable
C. 400 favorable
D. 420 favorable
Buchoy Company manufactures one product with a standard direct manufacturing labor cost of
four hours at P12.00 per hour. During June, 1,000 units were produced using 4,100 hours at
P12.20 per hour. What was the unfavorable direct labor efficiency variance?
A. 820
B. 400
C. 1,200
D. 1,220
Vhong, Inc. evaluates manufacturing overhead in its factory by using variance analysis. The
following information applies to the month of July:
ACTUAL BUDGETED
Number of units produced 19,000 20,000
Variable overhead costs P4,100 P2 per direct labor hour
Fixed overhead costs P22,000 P20,000
Direct labor hours 2,100 0.1 hour per unit
24. Using the three-way variance analysis, the spending variance amounts to
A. 100 favorable
B. 1,900 unfavorable
C. 2,000 unfavorable
D. 2,100 unfavorable
Reyna Co. manufactures one product with a standard direct manufacturing labor cost of four
hours at P12.00 per hour. During June, 1,000 units were produced using 4,100 hours at P12.20
per hour. The unfavorable direct labor efficiency variance was
A. 1,220
B. 1,200
C. 820
D. 400
Tyson Co. uses a standard costing system in connection with the manufacture of a “one size
fits all” article of rubber clothing. Each unit of finished product contains two yards of direct
material. However, a 20% direct material spoilage calculated on input quantities occurs during
the manufacturing process. The cost of the direct material is P3 per yard. The standard direct
material cost per unit of finished product is
A. 4.80
B. 6.00
C. 7.20
D. 7.50
In its first year of operations, Nasty Company had the following costs when it produced
100,000 units and sold 80,000 units of its only product:
Manufacturing costs:
Fixed P180,000
Variable 160,000
How much higher would Nasty’s net income be if it used full absorption costing instead of
variable costing?
A. 94,000
B. 68,000
C. 36,000
D. 54,000
At the end of Luke Co.’s first year of operations, 1,000 units of inventory remained on hand.
Variable and fixed manufacturing costs per unit were P90 and P20, respectively. If Luke uses
absorption costing rather than variable (direct) costing, the result would be a higher pretax
income of
A. 0
B. 20,000
C. 70,000
D. 90,000
Ning Company has only 25,000 hours of machine time each month to manufacture its two
products. Product X has a contribution margin of P50, and Product Y has a contribution margin
of P64. Product X requires 5 hours of machine time, and Product Y requires 8 hours of machine
time. If Ning Company wants to dedicate 80 percent of its machine time to the product that will
provide the most income, the company will have a total contribution margin of
A. 250,000
B. 240,000
C. 210,000
D. 200,000
Mangit Company is currently operating at a loss of P15,000. The sales manager has received a
special order for 5,000 units of product, which normally sells for P35 per unit. Costs associated
with the product are: direct material, P6; direct labor, P10; variable overhead, P3; applied fixed
overhead, P4; and variable selling expenses, P2. The special order would allow the use of a
slightly lower grade of direct material, thereby lowering the price per unit by P1.50 and selling
expenses would be decreased by P1. If Mangit wants this special order to increase the total net
income for the firm to P10,000, what sales price must be quoted for each of the 5,000 units?
A.23.50
B.24.50
C.27.50
D.34.00
Dolly Company has 3 divisions: R, S, and T. Division R's income statement shows the following
for the year ended December 31:
Sales P1,000,000
Cost of goods sold (800,000)
Gross profit P 200,000
Selling expenses P100,000
Administrative expenses 250,000 (350,000)
Net loss P (150,000)
Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60 percent
are avoidable if the division is closed. All of the selling expenses relate to the division and
would be eliminated if Division R were eliminated. Of the administrative expenses, 90 percent
are applied from corporate costs. If Division R were eliminated, Dolly’s income would
A. Increase by 150,000
B. Decrease by 75,000
C. Decrease by 155,000
D. Decrease by 215,000
Schundel Hair Care Company produces shampoo with conditioner. This is the company’s only
product, which it sells under the name “Shamcon.”
Clever Company, owner and operator of a chain of hotels, asked Schundel Hair Care Company
to submit a bid for 500 boxes of Shamcon. Each box will contain 24 bottles. Per Clever’s
specifications, its order should be different in chemical composition from the regular Shamcon.
According to Schundel Company’s production manager, Clever’s specifications can be met if an
additional chemical, Chem 4 would be used. Schundel Company has 60,000 ml of this
chemical. Chem 4 was used by the company in one of its brands that it decided to eliminate.
The remaining inventory of Chem 4 was not sold or discarded because it does not deteriorate
and the company has adequate space for its storage. Schundel Company can sell Chem 4 at
the prevailing market price of P0.40 per ml less P0.10/ml selling and handling costs. Clever’s
order would require 5 ml of Chem 4 per bottle.
The company has a stock of Chem 5. This was used by Schundel Hair Care for its manufacture
of another product that is no longer being produced. Chem. 5, which cannot be used in
Shamcon, can be substituted for Chem 1 on a one-for-one basis without affecting the quality of
the Clever order. There is no problem about the supply of Chem 1. At present, the company
has 20,000 ml of Chem 5 in its inventory, which has a salvage value of P6,000.
The production of the Clever’s order would require the same direct labor hours per bottle as in
the regular Shamcon. However, at present, the company has only 20,000 direct labor hours
available. The Clever order can be produced if the workers would work overtime, although an
overtime premium of 30% of the regular rate should be paid.
Schundel Hair Care Company’s policy is to price new products at 130% of full manufacturing
cost.
35. If Schundel Company bids this month for the special one-time order of 500 boxes of the
product, the special order’s total direct materials cost will be
A. 73,944
B. 61,680
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C. 68,880
D. 56,880
36. If Schundel Hair Care Company bids this month for the special one-time order of 500
boxes of the product, the special order’s total relevant conversion cost will be
A. 123,600
B. 219,600
C. 120,000
D. 216,000
37. If the company’s policy is to price new products at 130% of full manufacturing cost, what
is the bid price per unit for this one-time special order of Clever Company?
A. 19.55
B. 6.91
C. 29.95
D. 23.80
38. What will be the total variable manufacturing costs for the subsequent, recurring 500-box
orders?
A. 180,480
B. 373,464
C. 287,280
D. 191,280
Jane Corporation produces wood glue that is used by furniture manufacturers. The company
normally produces and sells 10,000 gallons of the glue each month. White Glue is sold for
P280 per gallon, variable costs is P168 per gallon, fixed factory overhead cost totals P460,000
per month, and the fixed selling costs totals P620,000 per month.
Labor strikes in the furniture manufacturers that buy the bulk of White Glue have caused the
monthly sales of Jane Corporation to temporarily decrease to only 15% of its normal monthly
volume. Jane Corporation’s management expects that the strikes will last for about 2 months,
after which, sales of White Glue should return to normal. However, due to the dramatic drop in
the sales level, Jane Corporation’s management is considering to close down its plant during
the two-moth period that the strikes are on.
If Jane Corporation will temporarily shut down its operations, it is expected that the fixed
factory overhead costs can be reduced to P340,000 per month and that the fixed selling costs
can be reduced by P62,000 per month. Start-up costs at the end of the shut-down period
would total P56,000. Jane Corporation uses the JIT system, so no inventories are on hand.
40. At the sales level of only 30% of the normal volume, should the company continue
operating or shut down temporarily for two months?
A. Continue, because the expected sales is above the shutdown point.
B. Shut down, because the expected sales is above the shutdown point.
C. Continue, so that the shutdown costs may be avoided.
D. Shut down, because the shutdown costs is less than the contribution margin under
continued operations.
Number 41 (DIFFERENTIAL COSTS ANALYSIS)
Spikey Company produces two products: Pat and Chin. The projected income for the coming
year, segmented by product line, follow:
Pat Chin Total
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The selling prices are P30 for Pat and P50 for Chin.
Spikey company can increase the sales of Pat with increased advertising. The extra advertising
would cost an additional P245,000, and some of the potential purchasers of Chin would switch
to Pat. In total, sales of Pat would increase by 25,000 units, and sales of Chin would decrease
by 5,000 units. This strategy would
A. Increase Spikey’s total sales by 750,000.
B. Decrease Spikey’s total contribution margin by 300,000.
C. Increase Spikey’s total income by 55,000.
D. Not affect Spikey’s total fixed costs.
Demigod Corporation, a manufacturer of light bulbs, budgeted sales of 500,000 units of light
bulbs at P100 per unit for the year 2015. Variable manufacturing costs was budgeted at P40
per unit and fixed manufacturing costs at P25 per unit.
A special order offering to buy 50,000 units of light bulbs for P58 each was received by
Demigod Corporation in March 2015. Demigod Corp. has sufficient plant capacity to produce
the additional units of light bulbs. However, overtime work has to be done at an additional cost
of P8 per unit. No selling expenses would be incurred for this special order.
42. Should Demigod Corporation accept the special order, assuming that it would not affect
regular sales?
A. Yes, because operating income would increase to 500,000.
B. Yes, because operating income would increase by 500,000.
C. No, because the special price of P58 is much lower than the regular price of 100.
D. No, because the special price of P58 is lower than the full cost of 65.
43. Assume that the available (excess) capacity for the special order is only 30,000 units, and
that if the 50,000 units being ordered is accepted, Demigod Corporation would reduce its
sales to the regular customers. Should the corporation accept the order?
A. Yes, because operating income would increase by 500,000.
B. Yes, because operating income would increase by 2,500,000.
C. No, because operating income would decrease by 700,000.
D. No, because operating income would decrease by 2,100,000.
Chiron Corporation produces three joint products, X, Y, and Z, form one input. The products
can be sold at the split-off point or processed further. The joint production costs for the
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month, allocated among the products based on the relative physical volume of output, are as
follows:
Materials P150,000
Labor 30,000
Factory overhead 20,000
Total joint costs P200,000
Additional information about the three products are given in the following tabulation:
How much is the total gross profit if the company took the most profitable action with respect
to each of the three products?
A. 690,000
B. 430,000
C. 535,000
D. 490,000
Grover Corporation produces cellular phone Grovers. Each Grover requires a keypad which it
also manufactures at a cost of P20 per unit, inclusive of fixed overhead cost of P5.
Grover Corporation needs 50,000 units of this keypad annually. A supplier, Keypad Corp., has
offered to sell to Grover Corp. its keypad requirements at P24 per unit. If Grover decides to
buy the keypads, P2 per unit of the fixed overhead based on the annual estimate could be
eliminated, and the facility previously used to produce the keypad could be rented to another
company.
45. If Grover Corp. outsources the keypads but does not rent the unused facility, it would
A. save P4 per unit
B. save P2 per unit
C. lose P4 per unit
D. lose P7 per unit
46. If the keypads were purchased and the facility rented, how much must the annual rent on
the facility be if Grover Corporation wishes to realize annual savings of P80,000?
A. 270,000
B. 430,000
C. 280,000
D. 380,000
Ricky Ironworks is considering a proposal to sell an existing lathe and purchase a new
computer-operated lathe. Information on the existing lathe and the computer-operated lathe
follow:
Computer-
Existing Lathe operated
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Lathe
48. If the company uses 10 percent as its discount rate, what is the net present value of the
proposed new lathe purchase? (Round present value factors to four decimal places)
A. 236,465
B. 256,465
C. 195,485
D. 30,422
The initial cost of the machinery was (round present value factor to four decimal places)
A. 157,392
B. 174,992
C. 165,812
D. impossible to determine from the information given
Tanya Corporation issued preferred stocks for P120 per share. The issue price is P20 more
than the stock’s par value. The company incurred underwriting fees of P10 per share. The
stocks will earn annual dividends of P12 per share. If the tax rate is 30%, the cost of capital
(preferred stocks) is
A. 10%
B. 12%
C. 7.42%
D. 10.91%
At the beginning of the year, Djorn Corporation purchased a new equipment for P360,000. The
machine has an estimated useful life of four (4) years with no salvage value. It is expected to
produce cash flows from operations, net of income taxes of 32%, as follows:
Year 1 P128,000
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2 112,000
3 144,000
4 96,000
5 80,000
The company’s cost of capital is 10%. The present value factors at 10% are as follows:
End of Year 1 0.909
2 0.826
3 0.751
4 0.683
Total, 4 years 3.170
If Djorn Corporation used the straight-line method of depreciation instead of the SYD method,
the net present value provided by the equipment would increase (decrease) by:
A. 13,464
B. (13,464)
C. ( 4,308.48)
D. 4,308.48
Harry owns a computer reselling business and is expanding his business. Harry is presented
with one proposal, Proposal P1, such that the estimated investment for the expansion project is
P85,000 and it is expected to produce cash flows after taxes of P25,000 for each of the next 6
years. An alternate proposal, Proposal P2, involves an investment of P32,000 and after-tax
cash flows of P10,000 for each of the next 6 years. The present value factors for an annuity of
P1 for 1 to 6 years are as follows:
The cost of capital that would make Harry indifferent between these two proposals lies between
A. 10% and 12%
B. 14% and 16%
C. 16% and 18%
D. 18% and 20%
Harold Co. is considering an investment in a capital project. The sole outlay will be
P716,417.90 at the outset of the project and the annual net after-tax cash inflow will be
P216,309.75 for 6 years. The present value factors at Harold’s 8% cost of capital are:
Year PV Factors
1 0.926
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2 0.857
3 0.794
4 0.735
5 0.681
6 0.630
The investment banking firm of M and Associates will use a dividend valuation model to
appraise the shares of the L&L Corporation. Dividends (D) at the end of the current year will
be P1.20. The growth rate (g) is 9% and the discount rate (K) is 13%?
What should be the price of the stock to the public?
A. 28.75
B. 31.50
C. 30.00
D. 29.00
BSR Co, has an opportunity to purchase a new conveyor line for P250,000. They can borrow
P200,000, paying P50,000 down with annual payments for five years and an interest of 15%.
They also have an opportunity to lease the line for P65,000 a year. The present value of an
annuity of P1 for five years at 9% and 15% are 3.8897 and 3.3522, respectively. At the end of
five years, the estimated salvage value is P40,000. If owned, the cost of maintenance is
expected to be P10,000 per year. Assume straight-line depreciation, a 40% tax rate, a cost of
debt of 15%, and a cost of capital of 9%.
What is the present value of the after-tax cost of leasing for the five-year period?
A. 151,698
B. 98,698
C. 144,000
D. 165,800
For the next two years, a lease is estimated to have an operating net cash inflow of P7,500 per
annum, before adjusting for P5,000 per annum tax basis lease amortization, and a 40% tax
rate. The present value of an ordinary annuity of P1 per year at 10% for two years is 1.74.
What is the lease’s after-tax present value using a 10% discount factor?
A. 2,610
B. 4,350
C. 9,570
D. 11,310
Numbers 57 and 58 (CAPITAL BUDGETING)
A firm, with an 18% cost of capital, is considering the following projects (on January 1, 2018):
Project A Project B
Cash outflow, January 1, 2018 P3,500,000 P4,000,000
Cash inflow, December 31, 2022 7,400,000 9,950,000
Project internal rate of return 15% ?
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57. Using the net present value method, Project A’s net present value is
A. 316,920
B. 0
C. (265,460)
D. ( 316,920)
Hazel, Inc. plans to sell 80,000 bags of potato chips in June, and each of these bags requires
five potatoes. Pertinent data includes:
Bags of potato chips Potatoes
Actual June 1 inventory 15,000 bags 27,000 potatoes
Desired June 30 inventory 18,000 bags 23,000 potatoes
What number of units of raw material should Hazel plan to purchase?
A. 381,000
B. 389,000
C. 411,000
D. 419,000
After careful planning, Change Style, Inc. has decided to switch to a just-in-time inventory
system effective on July 1 of the current year. As of July 1, the corporation has 70 units of
product in inventory. It has 1,000 labor hours available for the month of July. These hours
could produce 250 units of product. Customer demand for July is 200 units. If just-in-time
principles are correctly followed, how many units should Change Style Inc. plan to produce in
July?
A. 200
B. 130
C. 180
D. 250
The projected sales price for a new product (which is still in the development stage of the
product life cycle) is P50. The company has estimated the life-cycle cost to be P30 and the first-
year cost to be P60. On this type of product, the company requires a P12 per unit profit. What
is the target cost of the new product?
A. 60
B. 30
C. 38
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D. 43
Ivory Company has the following expected pattern of collections on credit sales: 70 percent
collected in the month of sale, 15 percent in the month after the month of sale, and 14 percent
in the second month after the month of sale. The remaining 1 percent is never collected. At the
end of May, Ivory Company has the following accounts receivable balances:
Ivory's expected sales for June are P150,000. What were total sales for April?
A. 150,000
B. 72,414
C. 70,000
D. 140,000
Bali Company has a policy of maintaining an inventory of finished goods equal to 30 percent of
the following month's sales. For the forthcoming month of March, Bali has budgeted the
beginning inventory at 30,000 units and the ending inventory at 33,000 units. This suggests
that
A. February sales are budgeted at 10,000 units less than March sales.
B. March sales are budgeted at 10,000 units less than April sales.
C. February sales are budgeted at 3,000 units less than March sales.
D. March sales are budgeted at 3,000 units less than April sales.
The cost of goods sold section of Dale Corporation’s operating budget for 2018 is presented
below:
The actual results for the first quarter of 2018 require the following changes in the budget
assumptions:
The budgeted production for the year is expected to increase by 5,000 units. During the first
quarter, the company has already produced 25,000 units. The balance of production will be
scheduled in equal segments over the last 3 quarters of the budget year.
The expected finished goods inventory on January 1 dropped to only 9,000 units, but its total
value will not be revised anymore. The ending inventory value is computed using the
average manufacturing cost for the year.
A new Labor Bill passed by Congress is expected to be signed into a law by the President. The
new law will take effect beginning the last quarter of the budget year, including a provision
for an increase of 8% in wage rates.
The company uses the FIFO method in valuing its materials inventory. During the first quarter,
the company purchased 27,500 units of direct materials for P1,760,000. The remaining direct
materials requirement will be purchased evenly for the last 9 months of the budget year.
Effective July 1, 2018, the beginning of the third quarter, direct materials cost is expected to
increase by 5%. The assumptions regarding the quantity of materials inventories at the
beginning and end of the year will remain unchanged.
The variable factory overhead of P2,009,600 includes indirect materials and factory supplies
amounting to P889,600. It is computed at 10% of the cost of materials used. The balance
of the variable factory overhead varies directly with production.
Considering the given actual data for the first quarter, as well as the changes in assumptions
and estimates in the budgeted data for the year, the company’s accountant prepared a revised
budgeted cost of goods sold statement. This revised statement should show:
A. 1,024,000
B. 1,243,200
C. 1,184,000
D. 1,216,100
A 2018 cash budget is being prepared for the purchase of Riptide, a merchandise item.
Budgeted data are
Cost of goods sold for 2018 P300,000
Accounts payable 1/1/18 20,000
Inventory—1/1/18 30,000
12/31/18 42,000
Purchases will be made in twelve equal monthly amounts and paid for in the following month.
What is the 2018 budgeted cash payment for purchases of Riptide?
A. 295,000
B. 300,000
C. 306,000
D. 312,000
Nico Company budgeted sales on account of P120,000 for July, P211,000 for August, and
P198,000 for September. Collection experience indicates that 60% of the budgeted sales will be
collected the month after the sale, 36% the second month, and 4% will be uncollectible. The
cash from accounts receivable that should be budgeted for September would be
A. 169,800
B. 194,760
C. 197,880
D. 198,600
MANAGEMENT ADVISORY SERVICES Page 22
Dionysius Company plans to sell 24,000 units of Product A during July and 30,000 units during
August. Sales of Product A during June were 25,000 units. Past experience has shown that end-
of-month inventory should equal 3,000 units plus 30% of the next month's sales. On June 30
this requirement was met. Based on these data, how many units of Product A must be
produced during the month of July?
A. 28,800
B. 22,200
C. 24,000
D. 25,800
At the end of 2017, Gabbuat Company’s total assets was P500,000. In 2018, it earned net
income of P30,000 and paid dividends of P10,000. What is the company’s internal growth rate?
A. 1%
B. 4%
C. 5%
D. 9%
A division of Lockman Corporation reported a return on investment of 20% for a recent period.
If the division's asset turnover was 5, its profit margin must have been
A. 100%
B. 25%
C. 4%
D. 2%
As of the end of 2017, Ice Company had total assets of P375,000 and equity of P206,250. For
2018, its budget for capital investment projects is P62,500. To finance a portion of the capital
budget, the company may borrow from a bank which set a condition that the loan would be
approved, provided that the 2018’s debt-to-equity ratio should be the same as the debt-to-
equity ratio in 2017.
The management of Seymour Corporation asks you to prepare an analysis of the gross profit
variance based on their comparative income statements for 2017 and 2018:
The only known information given to you is that volume increased from 2017 to 2018 by 10%.
A. 80,000 favorable
B. 64,000 unfavorable
C. 16,000 favorable
D. 70,000 favorable
Last year’s asset turnover of Johvic Company was 3.0. This year, the company’s sales
increased by 25% and average total assets decreased by 5%. What is this year’s asset
turnover?
A. 3.9
B. 3.6
C. 3.4
D. 3.1
During the year, Tindugan Company earned net income of P60,000. For next year, it has a
capital budget of P80,000. If the company’s plowback ratio is 30%, how much external funding
is needed for the capital investment project?
A. 80,000
B. 62,000
C. 56,000
D. 98,000
A firm has daily receipts of P100,000. A bank has offered to reduce the collection time on the
firm’s deposits by two days for a monthly fee of P500. If money market rates are expected to
average 6% during the year, the net annual benefit from having this service is
A. 0
B. 3,000
C. 6,000
D. 12,000
Leo Company has been offered credit terms of 3/10, net 30. Using a 365-day year, what is the
nominal cost of not taking advantage of the discount if the firm pays on the 35th day after the
purchase?
A. 14.2%
B. 32.2%
C. 37.6%
D. 45.2%
Computer Solutions Corporation manufactures and sells various high-tech office automation
products. Two divisions of Computer Solutions Corporation are the Computer Chip Division and
the Computer Division. The Computer Chip Division manufactures one product, a "super chip,"
that can be used by both the Computer Division and other external customers. The following
information is available on this month's operations in the Computer Chip Division:
Presently, the Computer Division purchases no chips from the Computer Chips Division, but
instead pays P45 to an external supplier for the 4,000 chips it needs each month.
82. Two possible transfer prices (for 4,000 units) are under consideration by the two
divisions: P35 and P40. What would be the effect on corporate profit if P35 is selected as
the transfer price rather than P40, and the Computer Division purchases from the
Computer Chip Division instead of from the external supplier?
A. 20,000 larger
B. 100,000 larger
C. 20,000 smaller
D. the same
83. Assume, for this question only, that the Computer Chip Division is selling all that it can
produce to external buyers for P50 per unit. How would overall corporate profits be
affected if it sells 4,000 units to the Computer Division at P45? (Assume that the
Computer Division can purchase the super chip from an outside supplier for P45.)
A. no effect
B. 40,000 largerP20,000 increase
C. 20,000 decrease
D. 90,000 increase
The following information is given for the Alpha Division of Sorority Corporation.
Sales P600,000
Var. cost of goods sold 200,000
Fixed manufacturing costs 50,000
Variable selling 30,000
Fixed admin. (50% allocated) 20,000
Fixed selling (20% allocated) 50,000
Assets at cost 800,000
Accumulated depreciation 200,000
If Sorority Corporation uses ROI to evaluate division managers and uses historical cost as the
investment base, the ROI for Alpha Division is:
A. 31.25%
B. 33.75%
C. 41.67%
D. 45.00%
Adan Corporation pays an income tax rate of 32%. Its weighted-average cost of capital is
10%. What is Adan Corporation’s Economic Value Added (EVA)?
A. 184,000
B. 144,000
C. 440,000
D. 400,000
MANAGEMENT ADVISORY SERVICES Page 26
Sales P2,000,000
Average invested capital 500,000
Net income 300,000
Required rate of return 18%
B. 26,000,000
C. 15,000,000
D. 36,000,000
A company annually consumes 10,000 units of Part C. The carrying cost of this part is P2 per
year and the ordering costs are P100. The company uses an order quantity of 500 units. By
how much could the company reduce its total costs if it purchased the economic order quantity
instead of 500 units?
A. 500
B. 2,000
C. 2,500
D. 0
King Corporation operates its factory 300 days per year. Its annual consumption of Material Y is
1,200,000 gallons. It carries a 10,000 gallon safety stock of Material Y and its lead time is 12
business days. What is the order point for Material Y?
A. 10,000 gallons
B. 38,000 gallons
C. 48,000 gallons
D. 58,000 gallons
The school canteen can sell either halo-halo or mami (hot noodle soup) on any given day. The
contribution margin that the canteen could earn from halo-halo and mami is affected by the
weather, as follows:
MANAGEMENT ADVISORY SERVICES Page 28
CONTRIBUTION MARGIN
Item sold
Hot Weather Cold Weather
Halo-Halo P15,000 P 6,000
Mami 11,400 12,000
If the probability of hot weather on a given day at this time is 60%, which item(s) should the
company sell?
Mr. Javee owns a piece of land that is adjacent to a big area of a vacant lot owned by the city
government. Recently, Mr. Javee heard that the city government has plans about the vacant
lot. He inquired about such plans and he was given the following, including each plan’s
probability of occurrence:
Plan A – Lease the lot to a businessman who will construct a mall on the lot 60%
B – Construct a theme park on the vacant lot 30%
C – Construct a building that will house some of the city government’s offices 10%
Mr. Javee knows that the value of his land, which he acquired ten years ago at a cost of only
P500 per square meter, will increase depending on which plan would materialize. His estimates
are as follows:
Plan A – P5,000 per square meter
B – 2,000
C – 1,000
Bahalana Company produces and sells Product Z. Each unit of Product Z contributes P5 to the
recovery of fixed costs and generation of profit. Total fixed costs amounts to P200,000 per
period. Selling price of Product Z is P20 per unit.
For the coming period, the company believes that there is a 70% chance that the sales of
Product Z will be 80,000 units, and a 30% chance that sales will equal 10,000 units. What is the
expected profit from Product Z for the coming period?
A. 95,000
B. 250,000
C. 80,000
D. 295,000
The Frank Company has decided to introduce a new product. The company estimates that there
is a 30% probability that the product will contribute P700,000 to profits, a 30% probability that
it will contribute P200,000, and a 40% probability that the contribution will be a negative
P400,000. The expected contribution of the new product is
A. 500,000
B. 110,000
C. 166,667
D. 380,000
Anja Company can acquire a P700,000 machine now that will benefit the firm over the next 5
years. A newly hired staff assistant correctly computed the net present value to be P134,020 by
using a 10% hurdle rate. On the basis of this information, the machine was expected to
produce annual cash operating savings of approximately
A. 166,804
B. 220,000
C. 268,605
D. 834,020
The projected sales price for a new product (which is still in the development stage of the
product life cycle) is P100. The company has estimated the life-cycle cost to be P60 and the
first-year cost to be P120. On this type of product, the company requires a P24 per unit profit.
What is the target cost of the new product?
A. 60
B. 76
C. 842
D. 120
Pugol Company is considering an investment in a machine that would reduce annual labor costs
by P30,000. The machine has an expected life of 10 years with no salvage value. The machine
would be depreciated according to the straight-line method over its useful life. The company's
marginal tax rate is 30 percent.
Assume that the company will invest in the machine if it generates an internal rate of return of
16 percent. What is the maximum amount the company can pay for the machine and still meet
the internal rate of return criterion?
A. 118,705
B. 210,000
C. 187,500
D. 144,990
Ignoring income taxes and assuming that cash flows occur evenly throughout a year, what is
the equipment's approximate payback period?
A. 1 year, 7 months
B. 2 years, 1 month
C. 2 years, 5 months
D. over 5 years
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