OCTOBER 2014 Batch’s MS Quiz 3

1. C 10. D 19. D 28. D

2. A 11. A 20. C 29. A
3. A 12. B 21. D 30. C
4. A 13. D 22. C 31. A
5. C 14. A 23. C 32. D
6. B 15. A 24. C 33. C
7. A 16. D 25. C 34. A
8. A 17. B 26. C 35. A
9. D 18. D 27. C

Brief explanations/solutions to selected items

5. ABC’s two-stage allocation:

> FIRST stage: overhead costs are assigned to activities

> SECOND stage: overhead costs are assigned to products based on activities done for/by the product.

8. Return on investment (RoI) = Margin x Turnover ‘Margin’ is a percentage or profit based on sales

12. Choice ’B’ is an example of appraisal costs Choice ‘C’ is an example of Internal failure costs

Choice ‘D’ is an example of prevention costs Choice ‘p’ is an example of external failure costs

16. Four (4) perspectives of the Balanced Scorecard: (1) Financial perspective (2) Customer perspective (3) Internal Business
Processes perspective (4) Learning & Growth perspective

17. Choices A, C and D would result in lower EOQ.

18. Refer to MS – E1 handouts on Macroeconomics (i.e., inflation)

22. Reorder point = average daily usage x maximum lead time

23. Contribution margin – traceable (direct) fixed expenses = segment margin

24. Refer to MS – E1 handouts on Macroeconomics (i.e., fiscal policy);

RECESSIONS* INFLATION (demand-pull)**

MONEY SUPPLY: (increase) vs. (decrease)

FISCAL Policy: (implemented by the government)

 Taxes: vs.
 Government Spending: vs.

MONETARY Policy: (implemented by Central Bank)

 Securities (Open Market): buy vs. sell buy sell

 Reserve Ratio: vs.
 Lending Rates: vs.

*During recession, money supply should be increased ( ) to give the economy monetary relief in the face of economic slowdown that
is caused by declining GDP growth.

** In case of inflation, money should be taken away from economy ( ) to prevent consumers from buying commodities, which
causes the demand-pull inflation.

26. ORDERING COSTS usually include purchasing costs, shipping & handling costs, quantity discount lost
 CARRYING COSTS usually include storage, rent, security, interest (opportunity cost/cost of capital), spoilage, depreciation,
obsolescence, insurance, and property taxes.

29. Applied FOH = P 176, 000 (P 240,000 ÷ P 160, 000) = P 264, 000 vs. Actual FOH = P 256,000

30. Total input costs: 900 (1.5) + 600 ((2.75) ÷ 600 (15) = P 12, 000

Total productivity factor: 3,000 units ÷ P 12,000 = 0.25 units per peso input

31. Refer to MSQ 09, Item 54:

150 units DL & VFOH (@80%) DL & VFOH (@70%)

Direct materials P 4,500 Units Average Total Units Average Total

Direct labor P 19,500* 50 u 250 12,500 50 u 250 12,500

Variable overheard 100u 200 20,000 100u 175 17,500

Fixed overheard 2,400 200u 160 32,000 200u 122.5 24,500**

TOTAL P 26,400 *32,000 – 12,500

32. DL & VFOH: (24,500** - 12,500) ÷ (8.5 + 4) = 960 hours 960 hrs ÷ 150 units – 6.4 hrs per unit

33. Traditional costing: P10,000 X 35% = p 35,000

ABC: 10,000 (30/300) + 800 (500./20) ÷ 100 (100/10) + 12 (200/2) ÷ 5 (20/1) ÷ 18 (480/12) = P24,020

Cost under ABC is lower by P 10,980 P 35,000 – P 24, 020

34. Manufacturing Cycle Efficiency (MCE) ratio: 6 ÷ (6 + 1 + 1 + 1) = U.67

35. Total ordering costs: (18,000/600) 15 = 450 Total carrying costs: (600/2) 1.50 = 450
ReSA - The Review School of Accountancy

MS Quiz 2

Items 19 to 23 are based on the following information

Michell, Inc. evaluates manufacturing overhead in its factory by using variance analysis. The following information applies
to the month of May:

Actual Budget

Number of frames manufactures 19,000 2,000

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 frame

Labor payroll P10,500 P4.50 per direct labor hour

19. What is the direct labor usage variance?

a. P900 favorable c. P450 favorable

b. P900 unfavorable d. P450 unfavorable

20. What is the direct labor rate variance?

a. P1,050 debit c. P950 debit

b. P1,050 credit d. P950 credit

21. what is the overhead controllable variance?

a. P2,100 favorable c. P2,300 favorable

b. P2,100 unfavorable d. P2,300 unfavorable

22. what is the variable overhead spending variance?

a. P100 favorable c. P3,000 favorable

b. P100 unfavorable d. P3,000 unfavorabe

23. What is the fixed overhed volume variance?

a. P1,000 favorable c. P3,000 favorable

b. P1,000 unfavorable d. P3,300 unfavorable

ReSA – The Review School of Accountancy Management Services

MS Quiz 3

1. The obligation to accomplish a task or achieve an objective is

a. Strategy c. Responsibility

b. Authority d. Core competency

2. What is the slack time of the critical path through a PERT network?

a. Zero c. The maximum slack time

b. The minimum slack time d. Not determinable without given information

3. Which of the following is a value-added activity?

a. Processing time c. Transfer time

b. Inspection time d. Idle time

4. The best transfer price is usually

a. A reliable market price c. Variable cost plus percentage mark-up

b. Actual cost plus a percentage mark-up d. Budgeted full cost plus a percentage mark-up

5. Activity-based costing (ABC) first assigns costs to

a. Products c. Activities

b. Overhead d. Departments

6. Market-based transfer prices are best for

a. The company when the selling division is operating below capacity

b. The company when the selling division is operating at capacity

c. The buying division if it is operating at capacity

d. The buying division

7. Which of the following would tend to benefit from the effect of unanticipated inflation?

a. Borrowers c. Savers

b. Lenders d. Fixed-income recipients

8. A company’s rate of return on investment (Rol) is equal to the

a. Percentage of the profit on sales multiplied by the capital employed turnover rate

b. Percentage of profit on sales divided by the capital employed turnover rate

c. Investment capital multiplied by the capital employed turnover rate

d. Investment capital divided by the capital employed turnover rate

9. Generally, individual department rates rather than plantwide rate for applying overhead would be

used if

a. A company wants to adopt a standard cost system

b. A company’s manufacturing operations are all highly automated

 c. Manufacturing overhead is the largest cost component of its product cost

d. the manufactured products differ in the resources consumed from the individual departments

in the plant

10. The use of the graphic method as a means for solving linear programming problems

a. Cannot be used if there are any restrictions

b. I limited to situations where there is one restriction

c. Is limited to situations where there are two restrictions

d. Can be used when there are more that two restrictions

11. In comparison with firms that use plantwide overhead rates and departmental overhead rates, companies that have adopted
activity-based costing will typically use:

a. More cost pools and more cost drivers b. Fewer cost pools and more cost drivers

b. More cost pools and fewer cost drivers d. Fewer cost pools and fewer cost drivers

12. In the cost of quality, which of the following is an example of appraisal cost?

a. Cost of parts returned by customers

b. Cost of inspecting products on the production line by quality inspectors

c. Cost of reworking defective parts detected by the quality assurance group

d. Labor cost of product designers whose task is to design components that will not break under

extreme temperature conditions

13. Which of the following situations is counter-productive?

a. Big inputs, bigger outputs c. Large inputs, larger outputs

b. Small outputs, smaller inputs d. Few inputs, fewer outputs

14. What is the most accurate method of allocating service department costs?

a. Reciprocal method c. Direct method

b. Step method d. Accretion method

15. Cost allocation bases in activity-based costing should be

a. Cost drivers c. Activity centers

b. Value0added activities d. Processes

16. Which of the following is not a characteristic of the balanced scorecard?

a. Both financial and non-financial performance measures are included

b. Causes-and-effect linkages between strategic objectives

c. Internal process performance measures are included

d. Customer performance measures are excluded

17. the economic order quantity for inventory is higher for an organization that has

a. Lower annual sales

b. Higher fixed inventory ordering costs

c. Higher purchase price per unit of inventory

 d. Higher annual carrying costs as percentage of inventory value

18. A period of rising inflation

a. Will not be affected by contracts that include the indexing of payments

b. enhances the positive relationship between the price level and purchasing power of money

c. Increases the price level, which benefits those entitled to receive a certain amount of money

d. Increase the price level, which is negatively related to the purchasing power of money

19. Which of the following is non-value-added activity

a. Product design c. Research and development

b. Customer service d. Rework of defective items

20. The imputed interest rate used in the residual income approach to performance evaluation is described as

a. Average lending rate for the year being evaluated

b. Historical weighted average cost of capital for the company

c. Target return on investment set by the company’s management

d. Marginal after-tax costof capital on new equity capital

21. Which of the following would not be included in th calculation of the GDP?

a. Purchase of a new home c. A doctor’s fee

b. An automotive worker’s wages d. Purchase of common stock

22. To determine the inventory reorder point, calculations normally include the

a. Ordering cost c. Average daily usage

b. Carrying cost d. Economic order quantity

23. All other things being equal, if a division’s traceable fixed expenses increase, then

a. The division’s contribution margin ratio will decrease

b. The division’s segment margin ratio will remain the same

c. The division’s segment margin will decrease

d. The overall company profit will remain the same

24. If a government were to use only a fiscal policy to stimulate the economy from a recession, it would

a. Lower business taxes and government speding

b. Raise consumer taxes and increase government spending

c. Lower consumer taxes and increase government spending

d. Increase the money supply and increase government spending

25. Set up time is

a. Batch cost (no); value-added cost (no); production cost (yes)

b. Batch cost (yes); value-added cost (yes); production cost (no)

 c. Batch cost (yes); value-added cost (no); production cost (yes)

d. Batch cost (no); value-added cost (yes); production cost (yes)

26. The carrying costs associated with inventory management include

a. Insurance costs, shipping costs, storage costs and obsolescence

b. Purchasing cost, shipping costs, set up costs and quantity discount lost

c. Storage costs, insurance costs, interest on capital invested and purchasing order costs

27. The most effective fiscal program to help reduce demand-pull inflation would be to

a. Increase both taxes and government spending

b. Decrease the rate of growth of the money supply

c. Decrease taxes and increase government spending

d. Increase taxes and decrease government spending

28. The balanced scorecard and value-based management are techniques that are being used by a number of corporations. In
comparison to the balanced scorecard, value-based management focuses on

a. Quality measure c. Nonfinancial measures

b. Financial measures d. Both financial and nonfinancial measures

29. Two companies have prepared the following budgets data for 2014:

Company X Company Y

Overhead cost driver Machine hours Direct labor cost

Budgeted overhead P200,000 P240,000

Budgeted machine hours P100,000

Budgeted direct labor cost P160,000

The actual overhed cost and the actual level of activity for 2014 for each firm are shows as follows:

Company X Company Y

Actual overhead costs P198, 000 P256,000

Actual machine hours P96,000

Actual direct labor cost P176,000

What is company Y’s factory overhead?

a. Over-applied by P8,000 c. Under-applied P8,000

b. Over-applied by P16,000 d. Under-applied by P16,000

30. Silva Company produced 3,000 units of Product X last week. The inputs to the productin process for Product X were as follows:

900 grams of Material A P1.50 per gram

600 grams of Material B P2.75 per gram

600 labor hours P15.00 per hour

What is the total factor productivity for Product X?

a. 2.00 units per pound c. 0.25 units per peso unit

b. 5.00 units per hour d. 0.33 units per peso unit

MS Quiz 4

INSTRUCTIONS: Choose the letter-choice that corresponds to your best answer. No need for a special answer sheet. Checking and
discussions sha; start 15 minutes before time. Start now and ANSWER EFFICIENTLY

Items 1 and 2 based on the following information

Nadal Co. is negotiating for the purchase of equipment that would cost P 100,000 with the expectation that P20,000 per year
could be saved in after-tax cash costs if the equipment were acquired. The equipment’s estimated useful life is ten years, with no
residual value and would be depreciated by the straight-line method.

1. what is the payback period?

a. 4.0 years c. 4.5 years

b. 4.4 years d. 5.0 years

2. What is the accrual accounting rate of return based on the initial investment?

a. 30% c. 12%

b. 20% d. 10%

3. An organization offers its customers credit terms of 5/10 net 20. One-third of the customers take the cash discount and the
remaining customers pay on day 20. An average, 20 units are sold per day, priced at P10,000 each. The rate of sales is uniform
throughout the year. Using a 360-day year, what is the organization’s DSO (days’ sales outstanding) in accounts receivable, rounded to
the nearest full day?

a. 13 days c. 17 days

b. 15 days d. 20 days

Items 4 and 5 based on the following information

The Rafa Corporation projects the following for the year 2014:

Earnings before interest and taxes P35 million

Interest Expense P 5 million

Preferred stock dividends P 4 million

Common stock dividend payout ratio 30%

Common shares outstanding P 2 million

Effective corporate income tax rate 40%

4. What is the expected common stock dividend per share for Rafa Corporation for 2014?

a. P 2.10 c. P 2.70

b. P 2.34 d. P 3.90

5. If Rafa Corporation’s common stock is expected to trade at a price/earnings ratio of eight, what would the market price per share(to
the nearest peso)?

a. P 125 c. P 68

b. 72 d. P 56

6. The management of Federer Corporation is considering a lockbox system. The bank will charge P 10,000 annually for the service,
which will save the firm approximately P 5,000 in processing costs. The lockers system will reduce the float for cash receipts by 3
days. Assuming the average daily cash receipts atre equal to P 100,000, and short-term interest costs are 5%, calculate the benefit or
loss from adapting the lockbox system.

a. P 5,000 loss c. P 10, 000 benefit

 b. P10,000 loss d. P 5,000 benefit

7. During 2014, Djokovie purchased P 1,920,000 of inventory. The 2014 costs of good sold was P 1, 800, 000 and the ending
inventory at December 31, 2014 was P 360,000. What was the 2014 inventory turnover?

a. 5.0 c. 6.0

b. 5.3 d. 6.4

8. Murray Company has been offered trade credit terms of 3/15, net 45. The firm does not take advantage of the discount, and it pays
the account after 67 days. Using 365-day year, what is the nominal cost of not taking the discount?

a. 18.20 % c. 23.48 %

b. 21.71% d. 26.45 %

9. tennis Co. has P 2,500,000 in inventory and P 2,000,000 in accounts receivable. Its average daily sales are P 100,000. The firm’s
payable deferral period is 30 days and average daily cost of sales are P 50,000. What is the length of the firm’s cash conversion
period?

a. 100 days c. 50 days

b. 60 days d. 40 days

24. A decision to close Suburban Store would result in a monthly increase (decrease) in operating income of

a. (P10,800) c. (P1,200)

b. (P6,000) d. P4,000

25. Robert considering a promotional campaign at Suburban Store that would not affect Urban Store. Increasing annual promotional
expense at Suburban Store by P 60,000 in order to increase this store’s sales by 10% would result in a monthly increase (decrease) in
operating income during the year (rounded) of

a. (P,5000) c. P487

b. (P1,400) d. P7,000

Items 26 to 0 are based on the following information

Joey Company marks up all merchandise at 25 percent of gross purchase price. All purchases are made on account with term
of 1/10, net 60. Purchase discounts, which are recorded as miscellaneous income, are always taken. Normally, 60 percent of each
month’s purchases are paid for in the month of purchase, while the other end of each month are kept at 30 percent of the next month’s
projected cost of goods sold.

Terms for sales on the account are 2.10, net/30. Cash sales are not subject to discount. Fifty percent month’s sales on account
are collected during the month of sal, 45 percent are collected in the succeeding month, and the remainder is usually uncollectible.
70% of the following of the collections in the month of sale subject to discount, while 10% of the collections in the succeeding month
are subject to discount.

Projected sales date for selected months follow:

Sales on account (Gross) Cash Sales Total Sales

December P 1, 900,000 P400,000 P2,300,000

January 1,500,000 250,000 1,750,000

February 1,700,000 350,000 2,050,000

March 1,600,000 300,000 1,900,000

26. Projected gross purchases for January are

a. P1,400,000 c. P1,472,000

b. P1,470,000 d. P1,248,000
27. Projected inventory at the end of December are

a. P420,000 c. P552,000

b. P441,600 d. P393,750

28. Projected payments to suppliers during February are

a. P1,551,200 c. P1,528,560

b. P1.535,688 d. P1,509,552

29 Projected sales discount to be taken by customers making remittances during February are

a. P5,250 c. P13,250

b. P11,900 d. P15,925

30. Projected total collections from customers during February are

a. P1,875,000 c. P1,511,750

b. P1,861,750 d. P1,188,100

Items 31 and 32 are based on the following information

Henderson Manufacturing recently completed and sold an order of 50 units that had the following costs:

Direct materials P1,500

Direct labor (1,000 hours x P8.50) 8,500

Variable overhead (1000hoursxP4) 4,000*

Fixed overhead 1,400**

*Applied on the basis of direct labor hours

**Applied at the rate of 10% of variable cost

The company has been requested to prepare a bid for 150 units of the same product.

31. If an 80% learning curve is applied, Henderson total cost on the bid0order for 150-units would be

a. P26,400 c. P38,000

b. P32,000 d. P41,800

32. If Henderson Manufacturing had experienced a 70% learning curve, the bid for the 150 units would

a. Show a 30% reduction in the total labor hours required with mo learning curve

b. Include increased fixed overhead costs

c. Be 10% lower than the total bid at an 80% learning curve

d. Include 6.40 direct labor hours per unit at P8.50 per hour

33. Jon Jones, Inc. previously used a traditional cost system that allocated all factory overhead costs to products based on 350 percent
of direct labor cost. The company had just implemented an ABC system that traces indirect costs to products based on consumption of
major activities as indicated below:

Activity Annual Cost Driver Cost Product X Consumption

Labor P300,000 P30,000 P10,000

Machining 20,000 hours P500,000 800 hours

Setup 10,000 hours P100,000 100 hours

Production order 2,000 orders P 200,000 12 orders

Material handling 1,0000 requisitions P20,000 5 requisitions

Parts administration 12,000 parts P480,000 18 parts

Usinig Activity Based Costing (ABC) rather than the traditional cost system what would have been the total cost assigned to Product
X?

a. Higher by P1,980 c. Lower by P10,980

b. Lower by P1.980 d. Lower by P11,980

34. what is the manufacturing cycle efficiency when the processing time is six hours and inspection, waiting (queue before delivery),
and move time one hour each?

a. 0.67 c. 0.78

b. 0.75 d. 0.88

35. Aldo uses an economic order quantity model and has determined an optimal order size of 600 units. Annual demand is 18,000
units, ordering costs are P15 per order, and holding costs are P1.50 per unit. What is Aldo’s annual ordering and holding costs?

a. P900 c. P9,900

b. P1,350 d. P27,450