CRC-ACE REVIEW SCHOOL, INC. MAS-SUMMARY QUIZZER Suggested Answers aA 2B sc 7A 101 B 26 B 1s. B 1778 201 B 225 C. 2A 27 sc 7D 2 27 B 1s2D 178 B 202 C 226 C 3c 2B s3C wC 103A zs D a3 D 179 C 203 D 227A aA 2A' SHA 7A 0a C 13D asa A 180 C 204 A 228 C sD 320A ssC eB wsA 130D ass A 181 B 205 D 229 6C ac soC 2B 106 C BiA ass B 182 C 206 C 230 C 7¢ 2D s7€ aD 07 C a2 A 17 B 183 D 207 € 2B 3B ssB 3D 108 BA isa A 184 C 208 D aC 4A s9C 4B i9D 14B asa C 185 C 209 B 10 C 35 B oD aD 10B us D 160 B 186 C 210 € uB 36B aD aA 1B 36D 161 B 187 C 28 nB av oA wD wD 37D 162 C 188 B 228 BB 38D eC 3D 3B 1388 163 B 19D 23D uc 3B oA 3B 14D BoA 14 A 190 C 224A sA 0B oA oC usD 10 165 D 191 A 2s C is D aA «6 D aD u6eC aa C 166 A 192 B 216 B vC aD 7B 2C uC 12 B 167 C 193 B 27 £ wA 3B 6 B 3A 8B 10D 168 C 194 D 218 D wA 4B oD 4B 9B 1a C 169 A 195 A 219 B 20 6B 7 sA 1208 us B 170 C 196 A 220A uD 44D nB 9A in uc A iu D 197 € 221D 2B 7B 72D 7C 128 ur A inc 198 D 222 B 3B al 3B 3B 1238 as C 173 C 199 D 223D us as A aD 9C 14D 9A wa 200A 224D 2A so B 3c 10D 1s C 150 B 175 C : 176 Aeg The Professional CPA Review School ain: 3F C. Villaroman Bldg. 873 P, Campa St. cor Espana, Sampatoc, Manila (02) 735 6901 / 735 9031 Branch: Ruel Bla, V, Lower Mabini cor Diego Silang, Baguio City (074) 422-1440 ‘email add: crc_ace@yahoo,com MANAGEMENT ADVISORY SERVICES: OCTOBER 2014 BATCH SUMMARY NOTES OF CONCENTS Management Consultancy ¥ Advises = improve the client’s use of capabilities and resources Y Consultation (answering queries based on existing knowledge) versus Engagement (Scientific Process) ¥ Areas of Consultancy : (© Asto nature (corrective, progressive, oF opportunistic) (© Asto field (Accounting and Finance versts non-acco © Traditional versus Emerging, ¥ Analytical process (identifying objectives, definition of the problem, Gathering Data, Evaluation, and Findings and Recommenclation) Professional Attributes (Technical, Inter-personal, and Consulting Process Skills) MAS Practice Standards (Personal Characteristics, Competence, Due Professional Care, Client Benefit, Understanding with Clients, Planning and Supervision, Sufficient Relevant Data, and Communication of Results) ‘Steps in MAS Engagements (Negotiation, Planning, Conducting, Eval Engagement Follow-up) ing and non-finance) tion of the Engagement, and Post- Management Accounting Concepts. “Manager's Activities (planning, executing, and controlling) Financial versus Managerial (Users of Information) Controller (Financial information) versus Treasurer (Financial transactions) Line (provides goods and services to customers) and Staff (Support group) Code of Ethies (Integrity, Credibility, Competence, Confidentiality) SA S45 Cost Concepts and Analysis Sacrifices to acitieve the objective (versus Expense versus Expenditures) As to FS Presentation (Cost of Sales, Operating Expenses, Financing Costs)- As to purpose (Product and Period) As to traceability (Direct and Indirect) As to behavior (Variable and Fixed) As to effects of decisions (Controllable and Non-Controtlable) As to role in decision making (Differential, Opportunity and Sunk) Cost Analy: (© Qualitative Approach (Account Analysis and Engineering) © Quantitative Approach [y =a + bx] (High-Low Metiod, Seattergraph, Least-Square) CVP Analysis : ¥ Objective: To determine the level of sales that will maximize profit with respect to the current cost structure (ratio between variable and fixed costs) Contribution Approach income Statement (Sales - VC = CM ~ FC = Profit) Contribution Margin (Per unit, In total, and As 2 % of Sales) BEP (Graphical Approach, Formula, and Contribution Margin Approach) ‘Target Profit (the same as BEP except additional target profit that should be before tax) MOS ~ part of actual sales that provides the profit since BEP answers for the fixed costs DOL ~the ratio between contribution margin and profit (profit= |); the number of times net income will change with respect to changes in actual sales, CYP in multiproduct environment = Weighted Average or Composite Contribution Margin ‘© CMY% x Sales Mix based on Peso Sales © CM/unit x Sates Mis based on Unit Sales KR KKK KAS KAN6 4658 < Product Costing ¥ Objective: To determine the amount of inventoriable costs ? ¥ Point of Incurrence of Cost (Production [DM, DL, VOH, FOH] versus Sales [VSA & FSA]) Types of Product Costing ©. Throughput (DM only)j | ee ee ee PAGE 2 © Variable Costing (DM, DL, and VOH) © Absorption Costing (DM, DL,VOH & FO! Y- Reconciliation of Net Income a © FOWunit inventories © EL=COS{:Nit=AC> VC © Bl= COST; Nid =AC< Ve Relevant Costing ¥ Objective: To conduct cost-benefit anal ¥ Types of Costs © Relevant (Differential {incremental versus avoidable] and Opportunity Costs) © _Irelevant (Committed (Future costs} and Sunk [Past]) Make or Buy dessin or outsourcing decision (os! to make versus cost fo purchase) cept or Reject Special Orders (cost to make and sell versus discounted selling price) Drop oF Maintain (Loss CM versus Avoidable and incremental Costs) © Complimentary Products ©. Substitutes Y, Sellor Process Further (incremental income versus incremental costs) Constrained Resources (CM per constrained resources) © Maximum Market Limit and Minimum Required Production lysis with respect a given decision aS Budgeting Objective: To express in financial terms the planned activities of management Y Typesof Budget © Static versus Flexible © Rolling versus Zero Based budgeting (© Short-term versus Long-term ‘© Master Budget (operational and financial budget) versus Capital Budget © Participative versus Imposed Y- Master Budget - Operational © Sales © Production © Purchase © Direct labor and overhead (v ‘© Operating Expenses (variabl YY Master Budget ~ Financial © Cash Budge ‘+ Cash Receipts (Cash Sales and Collection of Credit Sales based collection pattern) + Cash Disbursement (Cash and Non-Cash expenses, Cash and Credit Purchases, Other Disbursement Requirement) + Minimum Cash Balance = treated as the zero balance, any amount below is already considered as a negative balance + Financing (Principal and Interest Payments © Budgeted Balance Sheet (Balances depends on what is left ofthe operational and cash budget) Standard Costing i : Y Objective: To set the expected (standard) performance of personne! within an entity to emphasize ‘management by exception Development of Standard ‘0 Cost = whatever will be recorded as part of costs under financial accounting. ‘© Quantity = aotual content inthe finished produet + provisions for normal spoilage ¥ Computation of Variances (vary) © Cost Variance ‘+ Purchase Price variance, Rat Variance, and Spending Variance * SP vs AP = Difference in Price x Actual Quantity (external transactions) ©. Quantity Variance + Usage Variance and Efficiency Variance = SQ vs AQ= Difference in Quantity x Standard Price (internal transaction) ‘i © Overhead Variance 7 = Two-way (effect of actual production = flexible budget will be based on actual units produced) + Three-way (effect of actual hours used = flexible budget will be based on actual hows sed then the difference in quantity variance is split into variable portion and fixed postion) = Four-way (individual aspect of overhead costs)CE/MAS: PREWEEK NO & QUIZZER PAGE 3 + Vavinblo Overhend (Spending and Efficiency Variance — just lke direct materials | and direct labor) | * Fixed Overlyead (Budget and Volume ~ since they are analyze based on total umount) : | ‘© Volume variance = difference in actual and budgeted production | Responsibility Accounting | Objective: To set up an evaluation system to emphasize management by objective ¥ Types of Organizational Structure: Centralized versus Decentralized | ¥ Types of Responsibility Ceuter (Cost, Profit, and Investment Center) | ¥ Evaluation © Profit Center seyniented income statement (contribution format income statement except that fixed cost is classified vither direeVtraveable or indirect) (© Investment Center ‘ © ROL* Ni/tnvestinent (investment = total assets); ATO x ROS 5 RE® Actual profit versus minimum required profit = EVA» After-tax operating income versus Weighted Average Cost of Capital (what is left in retained earnings) Transfer Price ¥ Objective: To seta price that will aid inter-company transactions ¥ Ceiling Price = MV of units (seller = SP; buyer = outside purchase price) ¥- Floor Price® VC of units ¥ Negotiated Price = Relevant cost to make and sell (Incremental Costs + Opportunity Costs) Financial Statement Analysis ¥ Objective: To interpret the financial statement in order to evaluate the risks and profitability of the reporting enti Y ‘Types of Analysis (© Horizontal or Trend Analysis (Two methods: Increase/decrease by (CY-BY/BY); Increase/decrease wo(Cy/ay) (© Vertical or Common Size Financial Statement (Account Balance/Base Amount) is = Financial Pos structure (Debt Ratio, Equity Ratio, debt-to-equity ratio) ‘Obligation (Current Ratio, Acid Test Ratio, Working Capital and Times Profitability Anat © Actual Retuens oF Dividend Rat © Nomiual Retwins 6 Return on Assets (Asset Turnover x ROS) ‘© Return on Equity (Du Pont Analysis) ‘0. EPS (Net Tavonie should be net of preference share dividends) (© Price Farings Ratio ~ pertains to ordinary shareholders Activity Based Costing and Management ‘Objective: To provide & more vecurate cost allocation technique ¥ ABC = two level allocation process » allocate to eost pool, then allocate to cost object % Costacation met: Tito ves ABC Lael ¥ Cost drivers and cost pook: Unit Level, Balch Level, Product Level, and Faciity Level ¥ patiy Baad ‘Managemen inprving effciney by eontolling the activites of the entity (vue ading ‘versus nonvale aking netivities) 7 < Finuncinl Management ~ Finanelng Concept of Present Value {i#Prt] ¥ Leverages (Operating and Finaneing Leverage) ¥ CAPM. ¥ “ s Growth Move! and the WACC Bonds Valuation and determination of future payment janucial Management ~ Capital Budgeting i capital inv Prone ayectie, To eon! cos-benett analysis order to ascertain whether a proponed capita iovssient project will be neceptable oF not,FORC-ACEM, PREWEEK NOTES & QUIZZER PAGE 4 ¥ Data Gathering ‘© Investment Period (Period 0) = Investment Costs (PP, ODAC, WC Requirement less any proceed from sale of old properties = total cash to be committed) © Operating Period . * Benefits = Additional Revenue or Cost Savings Costs © Cash Expenses (One time versus Annual) © Non-Cash Expenses (considered for their tax credit) © Disposal Period (Salvage Value, Disposal Costs, Recovery of WC) ¥ Types of Analysis . © Discounted = NPV © IRR = Profitability Index © Non-Discounted * Payback (Ordinary ~ even versus uneven cash flow; Reciprocal; Bail-out method) * ARR (initial investment and Average Investment (rule of comparing income statement and balance sheet accounts) Financial Management — Working Capital Management ¥ Working Capital (© Temporary versus Permanent Assets © Spontaneous, Temporary versus Permanent Financing Inventory Management (© How much to order = EOQ (Carrying or Holding Costs versus Ordering Costs) © When to order = ROP © Cost of Carrying versus Stock Out Costs * Lead Time x Daily Usage + Safety Stock Y Receivable Management © To offer or relax credit term (increase in CM versus Bad debts, Collection costs, and opportunity costs due to increase in investment in receivables) 0 To be strict or tighten credit policy (deerease in receivable = freed cash = additional investment income versus cost of collection (either offering discount or cost of using a lockbox system) ¥ Cash Management © Float * Disbursement or Positive Float versus Collection or Negative Float * Mailing, Processing, and Clearing Float Sources of Deposit in transit and Outstanding Checks © Optimal Cash Balance (See EOQ) © Cash Conversion Cycle versus Operating Cycle Y Marketable Securities ¥ Financing Working Capital (© Foregoing the discount (treat the discount as an interest) ‘© Short-term Joan (nominal versus effective interest = net cost/net proceeds) © Receivable Financing (Pledging, Assignment and Factoring) Inventory Financing 7 Emerging Business Concepts ar : ¥" Balance Scorecard (Strategic Map, Lead and Log Factors, Areas = Customer, Internal Operation, Learning and Growth, and Finance) Y Quulity Cost = Incutrence of defects (Preventive, Appraisal, Failure ~ internal versus external) ¥ Justin Time ~ pull method, reduction of inventories, multi-skilled workers, reliable suppliers, small-lot purchasing, and Kanban Method é ¥ TQM ~ Manufacturing Cycle efficiency (MCE), Delivery Cycle, and VelocitySUMMARY QUIZZER Management Consultancy 4 3 ‘Which of the following statement is True? 3. Adequate training and experience in both the analytical approach and process in the particular ‘undertaking are requisites for the CPA to be involved in a management service engagement. b. ACPA with MBA and Ph D Degrees is automatically qualified to render management services. Competence as a standard in the rendition of management services by a CPA may be equated to having excellent scholarly preparation to include the usual baccalaureate degree, an MBA and other post graduate studies. . ACPA by virtue of having the necessary academic preparation and by hurdling the licensure examinations required to have a CPA license can readily render management services to the public. Which of the following statement is False? a. CPAs provide management services to go around the ethical constraints as mandated by the ‘accountancy act. », Businesses hire management consultants to help define specific problems and develop solutions. . Included in the practice of consulting is the provision of confidential service in which the identity of the ~ cient is concealed, 4. CPAs performing management services may be considered to be in the practice of management consulting. Tne following characterize management advisory services except 2. Involve decision for the future b, Broader in scope and varied in nature © Utilize more junior staff than senior member of the firm d, Relate to specific problems expert help is required Which of the following statements is true? 2. Adequate training and experience in both the analytical approach and process in the particular Undertaking are requisites for the CPA to be involved in a management service engagement. b. ACPA with MBA Ph D degrees is automaticaly qualified to render manegement services. © Competence as a standard in the rendition of management services by a CPA may be equated to hraving excellent scholarly preparation to include the usual baccalaureate degree, and MBA and other ost graduate studies. 4. A Cenified Public Accountant by virtue of having the necessary academic preparation and by hurdling the licensure examinations required to have a CPA license can readily render management services to the public, Which of the following will not impair the Independence of a CPA in the rendition of Management Services? a. The CPA performs decision-making services for his client. b, _Thé CPA perform services wherein he is in effect, acting as an employee of the client. ©. The CPA loses his objectivity and acts in @ manner as if he is advocating fir the interest of his cent. 4. The CPA does not extend his services beyond the presentation of recommendation or giving of advice, Management Accounting Concepts 6 10, 1. Which of the following words DOES NOT describe @ main focus of management accounting? a, Operational Planning c External Poli b, Management Evaluation 4. Decision-making Which of the following statements are true? a. The main role of the management accountant is to produce financial accounts b, Management accountant’s work is always confined within the finance function €. Management accountants works in partnership with business managers, 4. None of the above Which of the following is not normally a duty of the controller? . Operational reporting and interpretation b. Insurance coverage © Preparing Tax Returns d. Establishing intemal control procedures to safeguard the company's assets. ‘The process of ensuring that @ firm is operating according to plan Is referred to as: 2. Planning Controlling b. Organizing Motivating Which of the following is most likely to be considered as quantitative Information? 2, Effect of stock-out to customers 'b. Effect of automation on employee morale Differential analysis on whether or not to drop a product 4. _ Repercussion on employees on downsizing the production department Which of the following is not a characteristic of a controller? a. Is a member of top management b. —Occuples a line position : ‘Exercises control outside the accounting department through the reporting and interpretation of data—a . Advises top management in special problem situations. Financial and Managerial Accounting are similar in that 2. Both record the financial history of an organization b. Both rely on the concept of responsibilty and stewardship- © Both have a strong Future orientation 4. Both rely on generally accepted accounting principles 13, Astrategy whereby the company creates an image of uniqueness either in its product brand, customer service, product design or loyalty. a. Cost Leadership © Confrontation Strategy b, Product Differentiation 4. Quality Strategy 14. The Standards of Ethical Conduct for Management Accountants developed by the Institute of Menagement Accountants contain a policy regarding confidentiality that requires management accountants to retrain from Gisclosing confidential information acquired in the course of their work: except when authorized by management. D. inal! situations, & _ except wien authorized by management, unless legally obligated to do so. 9. _ inal cases not prohibited by law. 15, Samantha Galloway is a managerial accountant In the accounting department of Mustang Industries, Inc. Samantha has Just discovered evidence that some of the corporation's marketing managers have been Wonafully inflating their expense reports in order to obtain higher reimbursements from the firm. According to the Institute of Management Accountants’ Standards of Ethical Conduct, what should Samantha do upon discovering this evidence? . notify the controller. Notify the marketing managers involved, ratify the president of the corporation, ‘anore the evidence because she is not part of the Marketing Department. Cost Concepts and Analysis 16, Which ONE of the following costs would NOT be classifed as a production overhead cost in a food processing ‘company? a. The cost of renting the factory building b. The salary of the factory manager c. The depreciation of equipment located in the materials store 4. The cost of ingredients 17, Ahospitals records show that the 12, b. c a. = cost of carrying out health checks in the last five accounting periods have been as follows: y Period Number of. Totalcost 9° 9 tox petits seen (Peso). a 650 17aas We * Dy 2 940 17800 pyz6 = @ 4 Gowl2.5») 3 1260 18,650 cecil 4 990 17,380 ey 5 1150 18,360 \sing the high-low method and ignoring inflation, the estimated cost of carrying out health checks on 850 : patents in period 6 ist ke cay cen es 9) Haase yr 5G 4 CO (3.69) ay 17/570 ©) 17625 rs { &P17,680 r 4 18. Which ONE of thé following statements is true? : FE The ol variable cox varies witha measure of atv, 6. Avarabe costs an unavoldoble cost, Averabe cost becomes fied in the fog run, Hl : 3 Wt et get gee d. —Alof the above is true vo pm ate asm ~ 19, The following extract I taken from the overhead budget of Xs Fo Sone jerry Som 1 ~ Budgeted activity 50% 75% og TO TL pase yur, Tiga i Budgeted overhead 100,000 112,500 a Hi The overhead budget for an actity ievel of 80% would be | 115,000 : 136,000 Hi 120,000 @, 160,000 i 20. An organization has the fllowing total costs at two activity level: i ‘ety Level (Units) 17,000. 22,000 3 : “otal Cost P 140,000 170,000 i Variabie cost per unit fs constant In this range of actvty and there fs a step up of P5,000 inthe total xed - i oss wn avy exces 16,000 nist te lo. activ eel of 2,00 us? : . P69, Bisson UC, «(Peeper woe AK 163,000 ie = smacs | rea Wek. FC rbe0(t) re AY vee Sd:21, In period 1 production costs are P 2,800 and output is 1,500 units. In period 2 production costs are P 3,100 ‘nd ontput is 1,700 units. By applying a linear regression analysis to these figures it's possible to represent the production costs as an equation in the form y = 9 + bx. In.this case, Bis: a. Pago - PO80 b. p25 P150 22, Maritime Company manufactures and sells Widget Q. For the year 2000, the cost of goods sold of Martime Company was P350,000, During the year, the work:in-process Inventory increased by P42,000 and the finished goods inventory decreased by P95,000. The total manufacturing costs incurred by Maritime Company in 2000 were” a 213,000, M4 . 350,000. b. | 297,000, E . d. 403,000. 23, Parker Company pays each member of ts sales staff a salary as well as @ commission on each unit sold. For the coming year, Parker plans to increase al salaries by $% and to keep unchanged the commission paid on each unit sold. Because of increased demand, Parker expects the volume of sales to increase by 10%, How _wil the total cost of sales salaries and commissions change for the coming year? '. Increase by 5% or less. . Increase by more than 5% but ess than 10%, © Increase by 10%. 4, Increase by more than 10%, 24, Whale Ltd. manufactures chairs and earned a gross margin of P80,000 in May, Year 13. Its total manufacturing cost in May was P100,000, work fi process inventory and finished goods inventory both decreased by P 20,000 and P 10,009, respectively. What was the revenue for May, Year 137 . 200,000 c.P190,000 b. 210,000 d. 230,000 25, "The flowing information was taken em Kay Company’ accounting ert for the year ended December , 2013: VS Increase in rew materials inventory « P 15,000 one Dectease in finished goods inventory | 35,000 ae Raw materials purchased 430,000 3 Direct manufacturing labor payroll 200,000 = Factory overhead 300,000 Freight-out 45,000% There was no work in process inventory at the beginning or end of the year. Kay's 2013 cost of goods sold is a.) 950,000 ‘c. P975,000 b. 965,000 d, 995,000 VP Analysis: 26. W Ltd makes feather purses. It has drawn up the following budget for its next financial period: Selling price per unit PH.60 4 2 Variable production cost per unit e340 1 E Sales commission 5% of selling price Fixed production costs P420,500* occ, foun Fixed selling and administration costs 198,150 178650 /E Sales 90,000 units “The margin of safety represents 95> a. 5.6% of budgeted sales a0.00 11.6% of budgeted sales b. 8.3% of budgeted sales 14.8% of budgeted sales 22. Information concerning K Co's single product's current cost ard sales information is as follows. ‘ Peso per unit Selling price 600K! Jo = Ore Variable production cost 20> )10 2. Variable selling cost 0.40 awe. Fixed production cost 400% Has HSE Fixed selling cost 0.80 Budgeted production and sales forthe year are 10,000 units. Its now expected that the variable production cost per unit and the selling price per unt will each Increase by 10%, and fixed production costs will ise Dy 25%, What will be the new breakeven point, to the nearest whole unit? fo we @. 28,788 units (ZO E885 uns aay b.__b 11,600 units 4, 4 12,397 units u 28. W Co sells one product for which data Is given below: eso per unit Selling price 10 Variable cost 6 * Fixed cost 2 “The fixed costs are based on a budgeted level of activity of §,000 units for the period:‘What 1s W Co's margin of safety for the budget period if the com, any wishes fixed costs prove to be 20% higher than budgeted? 7 baa amet ate a 29% ip oe we 8 lon on 28. W.Co sels one product for which data is given below: Peso per unit f° Seting price yyy 1 Variable cost wy 6 Fixed cost The fixed costs are based on a budgeted level of activity of 5,000 units for the period. Ifthe selling price and variable cost increase by 20% and 12% respective) i ly by how much must sales volume change compared with the original budgeted level in order to achieve the budgeted profit of P6,000 for the period? A. 24.2% decrease . 39.4% decrease © t 0 ~ys00 b, 24.2% increase & 384% increase aon 30. 2 Co makes a single product. The budget for next year is as follows. Production and sales 120,000 units. Breakeven point 90,000 units| ‘What is the margin of safety? a 25% 75% db. 33% d. 125% 31, Trendy Co, produced and sold 30,000 backpacks during the last year at an average price of P25 per unt. Unit variabie costs were the following: Variable manufacturing costs Pg Variable selling and administrative costs 6 Total Pas Total fixed costs were P250,000, There was no year-end work-in-process inventory. If Trendy had spent an Additional P15,000 on advertising, then sales would have increased by P30,000. If Trendy had made this investment, what change would have occurred in Trendy's pretax profit? a. P3,000 increase, ‘c. P3,000 decrease. b. 4,200 increase. d.P4,200 decrease. 32. Newfoundland Company sells products X and Y; 40 percent of the company’s total revenue Is from X. The Contribution margin ratios are 30 percent for X and 60 percent for Y. Fited costs are P200,000. What would be the total sales required for Newfoundland to earn a target profit of P40,000 before tax? a. 200,000 c PA16,667 b. 300,000 d. _P500,000 33. Associated Supply, Inc. 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 contribution -margin percentage would be 42%. Assuming a selling price of P15 per unit, determine the number of units (rounded to the ‘nearest whole unit), Associated 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, c. 25,575 units. b. 32,143 units, d. 23,276 units. 34, Specialty Cakes Inc. produces two types of cakes, a round cake and a heart-shaped cake, Total fixed costs for the firm are P92,000. Variable costs and sales date for these cakes are presented below. Round Cake Heart-shape Cake Selling price pet unit Pia 20 Variable cost per unit Ps pis. Budgeted sales (units) 10,000 45,000) How many cakes will be required to reach the breakeven point? a. 8,000 round cakes and 12,000 heart-shaped cakes. “>. 9,000 round cakes and 11,000 heart-shaped cakes. 10,000 round cakes and 10,000 heart-shaped cakes. 4d, 23,000 round cakes and 18,400 heart-shaped cakes, 35, Associated Supply, Inc. is considering introducing a new product that will require a P250,000 investment of ‘capital. The necessary funds would be raised through a bank foan at an interest rate of 6%. The fed ‘operating costs associated with the product would be P122,500 while the contribution margin percentage would be 42%, Assuming a selling price of PIS per unit, determine the number of units (rounded to the nearest whole unit), Associated would have to sell to generate earings before interest and taxes (EBIT) of 32% of the amount of capital invested in the new product. : a, 35,318 units. 25,575 uni b. 32,143 units, d. 23,276 units. 36, The following data relate to the Super. Material cost per unit 15.00 Labor cost per unit 52.05 Production overhead cost per machine hour 9.44 Machine hours per unit 7 General overhead absorption rate 8% of total production cost ‘“The capital invested in manufacturing and distributing 9,530 units of the Super per annum is estimated to be 36,200. If the requited annual rate of return on capital invested in each product is 14%, the selling price Per unit of the Super i, to the nearest PO.01: 2. P133.66 cr P1s2.61 b. Pi44.3t : 4. P163.91 37. Trendy Co. produced and sold 30,000 backpacks during the last year at an average price of P25 per unit. Unit variable costs were the following: Variable manufacturing costs P9 Variable selling and administrative costs 6 Total pis : Total fied costs were P250,000. There was no year-end work-in-process inventory. If Trendy had spent an ‘additional P15,000 on advertising, then sales would have increased by P30,000, If Trendy had made this investment, what change would have occurred in Trendy's pretax profit? 2. P3,000 increase. 3,000 decrease, b. _ P4,200 increase. 4, P4,200 decrease. 38. “A ceramics manufacturer sold cups last year for P7.50 each, Variable costs of manufacturing were °2.25 per unit. The company needed to sell 20,000 cups to break even, Net income was 5,040. This year, the ‘company expects the following changes: sales price per cup to be 9.00; variable manufacturing costs to Increase 33.3%; fixed costs to increase 10%; and the income tax rate to remain at 40%. Sales in the coming year are expected to exceed last year's sales by 1,000 units. How many units does the company expect to sell this year? . a. 21,000 21,960 b. 21,600 d. 22,600 39. Product Cott has sales of P200,000, a contribution margin of 20%, and margin of safety of PB0,000. What is Cott's fixed cost? a. P16,c00 <.P80,000 b. 24,000 dd.” P96,000 40, Thomas Company sells products X, Y, and 2. Thomas sells three units of X for each unit of Z, and two units (of ¥ for each unit of X. The contribution margins are P1.00 per unit of X, P1.50 per unit of Y, and P3.00 per Lnit of Z. Fixed costs are P00,000. How many units of X would Thomas sell at the breakeven point? a. 40,000 360,000 b. 120,000 4,400,000 Product Costing 41, Cost and selling price details for product Z are as follows, Direct materials P 6.00 . Direct labor 2.50 Variable overhead 250 Fixed overhead absorption rate 5,00 Total Cost per unit 21.00 Profit ee Selling price 30.00 ‘Budgeted production for the month was 5,000 units although the company managed to produce 5,800 units, selling 5,200 of them and incurring fixed overhead costs of P27,400. What was the variable costing profit for the month? a. P45,400 ce P53,800 b.P46,800 d. P72,800 42, Cost and selling price details for product Z are as follows. Direct materials P 6.00 Direct labor 750 Variable overhead 250 Fixed overhead absorption rate 5,00 ‘Total Cost per unit 21.00 7 Profit m2 Selling price . bucgeted production forthe month wes 5,000 uns athough te company managed to produce 5,600 uns seling 5,200 of them and incurring fixed overhead costs of P27,400. What was the absorption costing profit for the month? a. 45,200 & Pas900 be 45,400 PA, 43, The ovethead absorption rate for product T is P4 per machine hour. Each unit of T requires 3 machine hours. Inventories of product T in the last period were: units : ‘Opening inventory 2,400 Closing inventory 2,700 ‘Compared with the direct costing profit for the period, the absorption costing profit for product T will be: &P1,200 higher b. 3,600 highera ‘hasan 44, 45. 46. 47. © P1,200 lower d. 3,600 lower ‘The following details have been extracted from the budget papers of LK plc for June 2013: Selling price per unit P24 Variable production costs per unit, 54 Fixed producton costs per unit 36 Other variable costs per unit 12 Sales Volume 12,500 units Production volume 13,250 units ‘Opening stock of finished items 980 units Tf budgeted profit statements were prepared by using absorption costing and then by using marginal costing, a, marginal costing profits would be higher by P27,000. b. absorption costing profits would be higher P27,000. absorption costing profits would be higher P35,000. “d. absorption costing profits would be higher P62, 000. The following information relates to a manufacturing company for next period: Production 14,000 units Fixed production costs P 63,000 Sales 12,000 units Fixed selling costs 12,000 Using absorption costing the profit for next period has been calculated as P36,000. What would the profit for next period be using marginal costing? a. 25,000 b. 27,000 © 45,000 4. 47,000 Nintage Co. made 4,000 units of a product during its first year of operations and sold 3,000 units for 600,900. There was no ending work-in-process inventory. Total costs were P600,00 Direct materials and direct labor 250,000 Manufacturing overhead (50% fixed) 200,000 Marketing & administrative costs (100% variable) 150,000, ‘The cost of the 1,000 units of finished goods ending inventory under direct (variable) costing is @.P150,000 b. P125,000 & P112,500 4. 87,500 Lance Corporation began operations in January 2013. The company produced 50,000 units and sold 45,000 in ts first year of operations. Costs for 2013 were as follows: Fixed Manufacturing Costs 250,000 Variable Manufacturing Costs 180,000 Fixed General and Selling Costs 75,000 Variable General and Selling Costs 80,000 How would the net income of Lance Corporation compare between the variable method and full-absorption costing methods? Variable would be P25,000 higher b. Absorption would be P25,000 higher. Variable would be P32,500 higher 4. Absorption would be P32,500 higher. Relevant Costing . 48, 49, X Co generates @ 12 per cent contribution on its weekly sales of P280,000, A new product, Z, Is to be Introduced at @ special offer price in order to stimulate interest in all the company's products, resulting in a 5 er cent increase in weekly sales of the company's other products. Product Z will incur a variable unit cost of P2.20 to make and PO.15 to distribute. Weekly sales of Z, at a special offer price of P1.90 per unit, are expected to be 3,000 units, The effect of the special offer will be to increase the company's weekly profit by: a P330 c P12,650 b. P780 4. P19,700 Ess Co manufactures four produets but next month there is likely to be a shortage of labour. The following information is avaiable, @ RB r PoP Ba PB Contribution per unit 40 36.25 44 47.50 Net profit per unit 1150 12 1312.50 Contribution per labor hour 1250 12 11 9.50 Net profit per labour hour 350 4 3.25 250 oe ‘What order should the products be made In, in order to maximise profits? a QRST & STRQ b RQST Sy ee50. 51 52, 53, 54 A company uses limiting factor analysis to calculate an optimal production plan given a scarce resource. The following apples to the three products of the company: Product I on Mm i PoP P Direct materials (at P6/kg) 364 15 Direct labor (at P10/hour) 4 2 10 Variable overheads (P2/hour) -e@ ss 2 Maximum demand (units) 2,000 4,000 4,000 Optimal production plan 2/000 1,500 4,000 How many kg of material were available for use In production? a. 15,750 kg ¢. 30,000 kg b, 28,000 kg 4. 38,000 kg ‘A company is considering outsourcing one of the component parts for its product. The company currently ‘makes 10,000 parts per month. Current costs are as follows: Per unt —_ Total Direct materials “pa P40,000 Direct labor 3 30,000 Fixed plant factity cost 2 20,000 | ‘The company decides to purchase the part for P8 per unit from another supplier and rents its idle capacity for P5,000/month. How will the company's monthly costs change? a. Decrease P1S,000. . Increase P5,000. , Decrease 10,000. 4. Increase P10,000. Following are the operating results of the two segments of Parkin Corporation. ‘SeamentA___Segment B___Total Sales P 10,000 -P15,000 _P.25,000 Variable costs of goods sold 4/000 8,500 12,500 Fixed costs of goods sold 1.500__2,509 ____4,000 Gross margin 45500 ~~ 4,000 8,500 Variable selling and administrative 2,000 3,000 5,000 Fixed selling and administrative —1.500___1.500__3,000 Operating income (loss) P 1,000 P (500) P 500 Fixed costs of goods sold are allocated to each segment based on the number of employees. Fixed selling ‘and administrative expenses are allocated equally, If Segment B is eliminated, P1,500 of fixed costs of goods Soid would be eliminated. Assuming Segment 8 Is closed, the effect on operating income would be a. an increase of P500. c. a decrease of P2,000. b. an increase of P2,000, d, a decrease of P2,500. Usted below are a company's unit costs to manufacture and market a particular product. ‘Manufacturing Costs ‘Marketing Costs Direct materials 2.00 Variable 2,50 Direct labor 2.40 Fixed P1.50 Variable indirect 1.60 Fixed indirect 1.00 ‘The company must decide to continue making the product or buy it from an outside supplier. The supplier thas 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, Whet is the maximum amount per unit that the company can pay the supplier without decreasing operating income? a P7.75 c P67S b. Paso 4. 5.25 Power Systems Co, manufactures Jet engines for the United States armed forces on a cost-plus basis {meaning the price will be the cost of production plus some amouht or %). The cost of a particular jet engine the company manufactures is shown as follows, Direct materials 200,000 Direct labor 150,000 Overhead: ‘Supervisor's salary 20,000 Fringe benefits on direct labor 15,000 Depreciation 12,000 Rent —11.000 Total cost 408,000 TT production of this engine were discontinued, the production capacity would be idle, and the supervisor (Would be laid off. When asked to bid on the next contract for this engine, the minimum unit price that Power Systems should bid is: @ P385,000 & P 397,000 b. P 365,000 d. P 408,00055. Breagle Company produces three products (8-40, J-60, and H-102) from a single process. Breegle uses the Physical volume method to allocate Joint costs of P22,500 per batch to the products. Based on the following information, which product(s) should Breegle sell atthe spi-off point in order to maximize prof? B40 60 #102 Physical units produced per batch 1,500 2,000 3,200 Sales value per unit at spit-off y 10.00 4.00 P7.25 Cost per unit of further processing after spit-off 3.05 1.00 250 Sales value per unit after further processing 12.25 5.70 9.75 a. H-102 only, © B-40 and H-102 only. b. 3-60 only. d. 3460 and H-102 only. 56. Management at MDK Corp. is deciding whether to replace a delivery van. A new delivery van costing 40,000 Can be purchased to replace the existing delivery van, which cost the company P30,000 and has accumulated epreciation of P20,000. An employee of MDK has offered P12,000 for the old delivery van. Ignoring income taxes, which of the following correctly states relevant costs when making the decision whether to replace the delivery vehicle? .2: Purchase price of new van, disposal price of old van, gain on sale of old van b. Purchase price of new van, purchase price of old van, gain on sale of old van & Purchase price of new van, disposal price of old van 4. Purchase price of new van, purchase price of old van, accumulated depreciation of old van, gain on sale of old van, disposal price of old van, Budgeting 57. The following details have been extracted from the receivables records of X: Invoices paid in the month after sale 60% Involces paid in the second month after sale 20% Invoices paid in the third month after sale 15% Bad debts 5% Credit sales for June to August 2011 are budgeted as follows: June 100,000 duly 150,000, August 130,000 Customers paying in the month after sale are enttied to deduct @ 2% settlement discount. Invoices are {Issued on the last day of the month. The amount budgeted to be received in September 2011 from credit sales is 2. P 115,190 © P121,440 bP 116,750 dP 123,000 58. RS is currently preparing the production budget for Product A and the material purchase budget for material X for the forthcoming year. Each unit of Product A requires 5 kgs of material X. The anticipated opening laventory for Product A 1s 5,000 units and the company wishes to increase the closing inventory by 30% by + the end of the year. The anticipated opening inventory for material X is 50,000 kgs and In order to avoid Stock outs the required closing inventory has been increased to 60,000 kgs. The Sales Director has confirmed a sales requirement of 70,000 units of Product A. How many usits of Product A will need to be produced? 2. 68,500 ur © 76,500 units b. 71,500 units ¢. 80,000 units 59. PQ Co plans to sell 24,000 units of product R next year. Opening Inventory of R is expected to be 2,000 units and PQ Co plans to increase inventory by 25 per cent by the end of the year. How many units of product R should be produced next year? a. 23,500 units 24,500 units b, 24,000 units 6. 30,000 units 0. Budgeted sales of X for December are 18,000 units. At the end of the production process for X, 10% of broduction units are scrapped as defective. Opening inventories of X for December are budgeted to be 15,000 units and closing inventories will be 11,400 units. All inventories of finished goods must have successfully passed the quality control check. The production budget for X for December, in units Is: a. 12,960 15,840 b. 14,400 d, 16,000 61. PR Go| manufactures @ single product, M. Budgeted production output of product M during August is 200 units, Each unit of product M requires 6 labor hours for completion and PR Co anticipates 20 per cent idle time, Labor is paid at a rate of P7 per hour. The direct labor cost budget for August is a. P6,720 & P10,080 b. P8/400 10,500 {82. BDL plc is currently preparing its cash bidget for the year to 31 March 20X8, An extract from its sales budget for the same year shows the following sales values. March 60,000 Apri 70,000 May 55,000 June 65,000PRAM ALS 13 CRC-ACL/MAS:; PREWE K NOTES & QUIZZER PAGE 13 40% Of Its sales are expected to be for cash, OF Its credit sales, 70% are expected to pay in the month after sale and take a 2% discount; 27% are expected to pay in the second month after the sale, and the remaining 3% are expected to be bad debts. The value of sales receipts to be shown in the cash budget for May 20X7 is : a. P 60,532 cP 66,532 b. P 61,120 d. P 86,620 63, Leanne Co budgets to make 1,000 units next period and estimates that the standard labour cost of a unit will bbe PLO. In fact 1,100 units are made at a labour cost of P11,500. For the purposes of budgetary control of the expenciture on labour cost which two figures should be compared? Actual P10,000; Budlyet P11,000 b. Actual 11,500, Budge't 10,000 c. Actuat 11,500; Budget P11,000 d. Actua! P11,000; Budget P10,000 64, An extract from a company’s sales budget Is as follows: October 224,000 November 390,000 December 402,000 ‘Ten per cent of sales are paid for immediately in cash. Of the credit customers, 30 per cent pay in the month following the sale and are entitled to @ one per cent discount. The remaining customers pay two months after the sale is made, The value of sales receipts shown in the company’s cash budget for December is: a. P285,567 c P.290,430 b. P286,620, dP 312,830 65. Budgeted sales of product B for the forthcoming periods are as follows. Period Budgeted sates units 1 3,470 2 3,280 3 3,970 4 3,770 ‘Company policy Is to hold finished goods inventory at the end of each period which is sufficient to meet 20, Per cent of the sales demand for the next period. The budgeted production of product 8 for period number 3 is: a, 3,930 units 4,068 units b. 4,010 units J. 4,724 units 66, A company is preparing budgets for the forthcoming year. The estimated sales for the first four months of the forthcoming year are as follows: Month 1 12,000 units Month 2 14,000 units Month 3 11,000 units Month 4 12,000 units 40% of each month's sales units are to be produced in the month of sale and the balance will be produced in the previous month, The production budget in units for month 1 will be a. 12,000 units 8,400 units b. 7,200 units d. 13,200 units 67, The actual output for the perlod was 22,000 units and variable overhead costs were in fine with budget. The budgeted variable overhead cost per unit was P3 and total overhead expenditure of P108,000 meant that fixed overheads were P8,000 under budget. What was the budgeted level of fixed overheads for the perlod? a. 34,000 c P66,000 . b, P50,000 4. _P116,000 ‘Standard Costing * 68. The production overhead of department D Is absorbed using a machine hour rate, Budgeted production ‘overheads for the department were 280,000 and the actual machine hours were 70,000. Production overheads were under absorbed by P9,400. If actual production overheads were P295,000 what was the ‘Overhead absorption rate per machine hour (to the nearest cent)? a. 400 PAL Bb. Paoa d. 7435 ‘69. x operates a standard marginal costing system. The folloing budgeted and standerd cost Infomation Is avaiable: Budgeted production and sales 10,000 units Direct material cost ~3 kg x P10 30 per unit ‘Actual resuls for the period were as follows: Production and sales 11,500 units Direct material ~ 36,000 kg 342,000 ‘The direct material price variance Is 18,000 unfavorable _ P3,000 favorabie b.P3,000 unfavorable 4. 18,000 favorable70, G repairs electronic cakulators. The wages budget for the last period was based on a standard repair time of 24 minutes per calculator and a standard wage rate of P10.60 per hour. Following the end of the budget Period, it was reported that: i oa Number of repairs 31000 Labor rate variance P3300 Labor efficiency variance -0- Based on the above information, the actual wage rate during the period was: a. P10.35 per hour €. PIOSS per hour b, P10.60 per hour di. PLL.19 per nour 71, A sports equipment company uses a pre-determined overhead absorption rate based on labor hours, The budgeted variable overheads for August were P3,161,700 and the actual vanable overheads were P3,096,800. Budacted labor hours were 175,650 and the overheads were over-absorbed by 28,500. What were the actual labor hours? a. 170,450 hours: ¢. 174,016 hours b. 173,650 hours 4.177.283 hours 72. IC Co operates a bottling plant. The liquid content of a filed bottle of product T is 2 Witers. During the filing rocess there is a 30% loss of liquid input due to spillage and evaporation. The standard price of the liquid is P1.20 per liter. The standard cost of the liquid per bottle of product T, to the nearest cent, is a. P2490 < PI2 b. P2.86 a 73.43 73. In a period, 11,280 kilograms of material were used at a total standard cost of P46,248. The material usage Variance was P492 adverse, What was the standard allowed weight of material for the period? 3, 10,788 kgs, 11,289 kgs, b. 11,160 49s 11,900 gs 74. During a period 17,500 labor hours were worked at a standard cost of P6.50 per hour. The labor efficiency variance was P7,800 favorable. How many standard hours were produced? 1,200 17,500 b. 16,300 d. 18,700 75. Trafalgar Co budgets to produce 10,000 units of product 012, each requiring 45 minutes of labor. Labor is charged at P20 per hour, and variable overheads at P15 per labor hour. During September 20X3, 11,000 Units were preduced. 8,000 hours of lsbor were paid at 2 total cost of P168,000. Variable overheads in September amounted to 132,000. What is the correct variable overhead expenditure varionce for September 20X32 a. P3,750(F) & _P12,000(U) b. 4,125 (F) d._P12,000(F) 76. A manufacturing company that produces trivets has established the following standards for the current year: Standard price per pound °3.00 : ‘Standard material usage per trivet, 2.00 During Apri, the company purchased 10,000 pounds of material for P33,000 and used 9,400 pounds to Produce 4,500 trivets. Four thousand trvets were sold during April. What amount should be reported as the materials’ quantity (usage) variance? a. 71,200 unfavorable. .P3,000 unfavarable. b. P1,320 unfavorable. .P4,200 unfavorable. Responsibility Accounting 77, Managers of the Doggie Food Co. want to add a bonus component to their compensation plan. They are trying to decide between return on investment (ROI) and residual income (RI) as the performance measure they will use. If Doggie adopts the RI performance measure, the relevant required rate of return would be 18%. One seginent of Doggle is the Good Treats division, where the manager has invested in new equipment. The operating results from this equipment are as follows: % Revenues 80,000 Cost of goods sold 45,000 General and administrative expenses 15,000. Assuming that there are no income taxes, what would be the ROI and RI for this equipment that has an ‘average value of P100,000? & ROL P2,000; RI 20% ROI P3,600; RI 35% RO 35%; RI P3,600 d. ROL 20%; RE P2,000 78. Company € is a large manufacturer that treats its divisions as profit centers, Division X produces an electronic component at the following costs: Variable production cost 80/unit Variable selling cost Piorunit Fixed cost (based on 10,000 units) Pi0/unit Ovison ¥ cent purchases intr campone om a ose spor for PLS. has detained that the component producad by Division X could: be used instead with no adverse effects on the quality of the final product. Currently, Division X, which is operating at full capacity, sells a of is output 10 outsice79, 81. 82. 83, customers at P112/unlt par component, What Is the lowest price at which Division X would agree to transfer ‘the cumpunent to Division Y? 4 a PO c Pi02 b. P10 de PLI2 The roceipt of raw materials used in the manufacture of products and the shipping of finished goods to Customers are under the control of the warehouse supervisor. Approximately 60% of the warehouse supervisor's time Is spent on receiving activities and 40% on shipping activities. Separate employees handle {he receiving and shipping operations. The labor-related costs for the warehousing function are as follows: Warehousing supervisor's salary P 40,000 Receiving clerk's wages 75,000 Shipping clerk's wages 55,000 Employee benefit costs (30% of wage and salary costs) 51,000 ‘The company employs a responsibilty accounting system for performance reporting purposes. The costs are ‘classified on the report as period or product costs. The total labor-related costs to list on the responsiblity accounting performance report as product costs under the control of the warehouse supervisor for the ‘warehousing function are: a. P-97,500 130,000 >. P 128,700, . _P 169,000 EB Service Co, 15a computer service center. For the month of May 2013, REB had the folowing operating statistics: Sales P 450,000 % Operating Income. 25,000 Net Profit after taxes 8,000 Total Assets 500,000 ‘Shareholders’ Equity 200,000 Minimum Required Rate 6% Based on the above information, which of the following statements is correct? REB has a ‘a, Return on investment of 4% ¢. Return on investment of 1.6% 'b, Residual Income of P (5,000) 4d. Residual Income of P (22,000) Ben Co. Is trying to evaluate one of its subsidiaries and wants to calculate the economic value added for Jones Division. The following information is available for Jones: Pre-tax operating profit 400,000 ‘Current Assets (Book Value) 100,000 Long term assets (book value) 200,000 Current labilties 50,000 Shareholders’ Equity 100,000 Tax Rate 25% Weighted Average Cost of Capital 10% ‘What is the EVA for Jones for 20137 2. 273,000 c. P373,000 b, P.275,000 d. 375,000 Division Z of a company produces a component that it currenty sells to outside customers for P20 per unit. At its current level of production, which is 60% of capacity, Division 2's fixed cost of producing this ‘component is 5 per unit and its variable cost is P12 per unit. Division Y of the same company would tke to purchase this component from Division Z for P10. Division Z has enough excess capacty to fll Division Y's Tequitements, The managers of both divisions are compensated based upon reported profits. Which of the following transfer prices will maximize total company profits anid be most equitable to the managers of Division Y and Division Z? PLZ per unit P20 per unit b. P22 per unit ¢. P18 per unit Usted below (s selected financial information for the Western Division of Hinzel Company for last year: ‘Average working capital P 625,000 General and admin expenses 75,000 Net sales 4,000,000 Average plant and equipment: 1,775,000 Cost of goods sold 3,525,000 If Hinze! treats the Western Division as an investment center for performance measurement purposes, what Is the before-tax ROI for last year? a 34.78% « 1379% b. 22.54% d. 16.67% Return-on-investment (ROT) is a term often used to express Income earned on capital Invested in a business unit. A company’s ROI wil increase if: ae lacs ‘a, Sales increase by the same dollar amount as expenses and total assets increase. 'b, Sales remain the same and expenses are reduced by the same dollar amount that total assets increase. Sales decrease by the same dollar amount that expenses increase. 1d. Sales and expenses Increase by the same percentage that total assets increase.