CRC-ACE REVIEW SCHOOL

The Professional CPA Review School

 735-9031 / 735-8901
MANAGEMENT SERVICES OCTOBER 2007
BATCH
SECOND PRE-BOARD EXAMS AUG 18, 2007 (Sat) 12:30-
3:00

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer
for each item by writing a VERTICAL LINE corresponding to the letter of your choice on the answer
sheet provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 1 or No. 2 only.

1. In most cases, businesses hire management consultants to do the following except:

a. Help define specific problems and develop solutions
b. Train client personnel
c. Help improve intra-company communications
d. Implement recommendations
2. Periodic internal performance reports based upon a responsibility accounting system should not
a. Distinguish between controllable and uncontrollable costs
b. Be related to the organization chart
c. Include allocated fixed overhead in determining performance evaluation
d. Include variances between actual and budgeted controllable costs
3. A company develops a budget that is based on the behavior of costs and revenues over a range of sales
for the upcoming year. This is an example of a
a. Production budget b. Cash budget c. Capital budget d. Flexible budget
4. The sum of the costs necessary to effect a one-unit increase in the activity level is a (N)
a. Margin of safety c. Marginal cost
b. Opportunity cost d. Incremental cost
5. When an organization is operating above the breakeven point, the degree of amount that sales may
decline before losses are incurred is called the
a. Residual income rate c. Margin of safety
b. Marginal rate of return d. Target (Hurdle) Rate of return
6. Residual income is a performance evaluation that is used in conjunction with return on investment (ROI)
or instead of ROI. In many cases, residual income is preferred over ROI because.
a. Residual income is a measure over time while ROI represents the results for a single time period.
b. Residual income concentrates on maximizing absolute pesos of income rather than a percentage
return as with ROI.
c. The imputed interest rate used in calculating residual income is more easily derived than the target
rate that is compared to the calculated ROI.
d. Average investment is employed with residual income while year-end investment is employed with
ROI.
7. The responsibility for safeguarding financial assets and arranging financing is given to the
a. Controller c. Comptroller
b. Chief financial officer d. Treasurer
8. Of most relevance in deciding how or which costs should be assigned to a responsibility center is the
degree of
a. Avoidability b. Causality c. Controllability d. Variability
9. A company’s return on investment is affected by a change in:
Capital Turnover Profit Margin on Sales Capital Turnover Profit Margin on Sales
a. Yes Yes c. No No
b. Yes No d. No Yes

*** Items 10 through 12 are based on the Metropolis Manufacturing Corp, which produces two products for
which the following data have been tabulated. Fixed manufacturing costs is applied at a rate of P 1.00 per
machine hour.
Per unit XY-7 BD-4
Selling price P 4.00 P 3.00
Variable manufacturing cost 2.00 1.50
Fixed manufacturing cost P .75 P .20
Variable selling cost P 1.00 P 1.00
The sales manager has had a P 160,000 increase in the budget allotment for advertising and wants to apply
the money to the most profitable product. The products are not substitutes for one another in the eyes of the
company’s customers.
 CRC-ACE/MS: Second Pre-board Exams (October 2007 batch) Page 2 of 10
10. Suppose the sales manager chooses to devote the entire P 160,000 to increased advertising for XY-7. The
minimum increase in sales unit of XY-Z required to offset the increased advertising would be
a. 640,000 units b. 160,000 units c. 80,000 units d. 128,000 units

11. Suppose the sales manager chooses to devote the entire P 160,000 to increased advertising for BD-4. The
minimum increase in sales pesos of BD-4 required to offset the increased advertising would be
a. P 160,000 b. P 320,000 c. P 960,000 d. P 1,600,000
12. Suppose Metropolis has only 100,000 machine hours that can be made available to produce XY-Z and
BD-4. If the potential increase in sales units for either product resulting from advertising is far in excess of
these production capabilities, which product should be advertised and what is the estimated increase in
contribution margin earned?
a. Product XY-Z should be produced, yielding a contribution margin of P 75,000.
b. Product XY-Z should be produced, yielding a contribution margin of P 133,333.
c. Product BD-4 should be produced, yielding a contribution margin of P 250,000.
d. Product BD-4 should be produced, yielding a contribution margin of P 187,500.

*** Items 13 through 20 are based on the following information: Carmela Industries, Inc. operates its
production department only when orders are received for one or both of its two products, two sizes of metal
discs. The manufacturing process begins with the cutting of doughnut-shaped rings from rectangular strips
of sheet metal; these rings are then pressed into discs. The sheets of metal, each 4 feet long and weighing
32 ounces, are purchased at P 1.36 per running foot. The department has been operating at a loss for the
past year as shown below.

Sales for the year P 172,000

Less: Expenses 177,200
Net loss for the department P 5,200
The following information is available:
1. Ten thousand 4-foot pieces of metal yielded 40,000 large discs, each weighing 4 ounces and selling
for P2.90 and 40,000 small discs, each weighing 2.4 ounces and selling for P1.40.

2. The corporation has been producing at less than normal capacity and has had no spoilage in the
cutting steps of the process. The skeletons remaining after the rings have been cut are sold for scrap at
P .80 per pound.

3. The variable conversion cost of each large disc is 80% of the disc’s direct material cost, and variable
conversion cost of each small disc is 75% of the disc’s direct material cost. Variable conversion costs
are the sum of direct labor and variable overhead.

4. Fixed costs were P 86,000.

13. The material net cost per ounce is

a. P .20 b. P .16 c. P .17 d. P .18

14. The prorated materials costs per unit for the large and small discs, respectively, are
a. P.64 and P 3.8 b. P .80 and P.48 c. P .68 and P .40 d. P.72 and P.43

15. The net cost of good material per metal strip is

a. P5.76 b. P 6.40 c. P 5.12 d. P 5.44

16. The amounts allocated for conversion cost for the large and small discs, respectively, are
a. P.38 and P3.6 b. P .64 and P.36 c. P.23 and P.13 d. P .46 and P .23

17. Total variable costs per unit for the large and small discs, respectively, are
a. P1.02 and P .86 b. P1.44 and P .84 c. P.91 and P.53 d. P1.18 and P .66

18. Contribution margins per unit for the large and small discs, respectively, are
a. P1.88 and P .54 b. P1.46 and P.56 c. P 1.99 and P .87 d. P 1.72 and P .74

19. If the materials cost for large and small discs is P.85 and P .51, respectively, and the normal production
capacity is 50,000 units, what is the breakeven point?
a. 45,806 b. 43,608 c. 39,908 d. 41,206

20. Refer to the data preceding Q, 13. The total contribution margins for the large and small discs,
respectively, are:
a. P 68,800 and P 29,600 c. P 58,400 and P 22,400
 CRC-ACE/MS: Second Pre-board Exams (October 2007 batch) Page 3 of 10
b. P 79,600 and P 34,800 d. P 75,200 and P 21,600

*** Items 21 and 22 are based on the Bradd Corp. which plans to sell 200,000 units of finished product in
July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in units
of finished product is 80% of the next month’s estimated sales. There are 150,000 finished units in the
inventory on June 30. Each unit of finished product requires 4 pounds of direct materials at a cost of P1.20
per pound. There are 800,000 pounds of direct materials in the inventory on June 30.
21. Bradd’s production requirement in units of finished product for the 3-month period ending September 30
is
a. P 712,025 units b. P 630,000 units c. P 664,000 units d. P 665,720 units
22. Without prejudice to the answer to the preceding question, assume Bradd plans to produce 600,000 units
of finished product in the 3-month period ending September 30, and to have direct materials inventory on
hand at the end of the 3-month period equal to 25% of the use in that period. The estimated cost of direct
materials purchases for the 3-month period ending September 30 is
a. P 2,200,000 b. P 2,400,000 c. P 2,640,000 d. P 2,880,000

*** Items 23 and 24 are based on the following information. Historically, Power Hill Products has had no
significant bad debt experience with its customers. Cash sales have accounted for 10% of total sales, and
payments for credit sales have been received as follows.
40% of credit sales in the month of the sale
30% of credit sales in the first subsequent month
25% of credit sales in the second subsequent month
5% of credit sales in the third subsequent month
The forecast for both cash and credit sales is as follows:
Month Sales
January P 95,000
February 65,000
March 70,000
April 80,000
May 85,000
23. What is the forecasted cash inflow for the Power Hill Products for May?
a. P 70,875 b. P 76,500 c. P 79,375 d. P 83,650
24. Due to deteriorating economic conditions Power Hill Products has now decided that its cash forecast
should include a bad debt adjustment of 2% of credit sales, beginning with sales for the month of April.
Because of this policy change, the total expected cash inflow related to sales made in April will
a. Be unchanged c. Decrease by P 1,440.00
b. Decrease by P 1,260.00 d. Decrease by P 1,530,00

25. Each unit of Product XK-46 requires 3 direct labor hours. Employee benefit costs are treated as direct
labor costs. Data on direct labor are as follows:
Number of direct employees 25
Weekly productive hours per employee 35
Estimated weekly wages per employee P 245
Employee benefits (related to weekly wages) 25%
The standard direct labor cost per unit of Product XK-46 is
a. P 21.00 b. P 26.25 c. P 29.40 d. P 36.75

*** Items 26 through 30 are based on the following information. Landmark Manufacturing Corp. has a
process accounting system. A monthly analysis compares actual results with both a monthly plan and a
flexible budget. Standard direct labor rates used in the flexible budget are established at the time the annual
plan is formulated and held constant for the entire year.
Standard direct labor rates in effect for the fiscal year ending June 30 and standard hours allowed for the
output in April are:
Standard DL Rate per Hour Standard DLH Allowed for Output
Labor Class III P 8.00 500
Labor Class II P 7.00 500
Labor Class I P 5.00 500
 CRC-ACE/MS: Second Pre-board Exams (October 2007 batch) Page 4 of 10
The wage rates for each labor class increased on January 1 under the terms of a new union contract
negotiated in December of the previous fiscal year. The standard wage rates were not revised to reflect the
new contract.
The actual direct labor hours (DLH) worked and the actual direct labor rates per hour experienced for the
month of April were as follows:

Actual Direct Labor Rate per hour Actual Direct Labor hours
Labor Class III P 8.50 550
Labor Class II P 750 650
Labor Class I` P 5.40 375

26. What is the total direct labor variance?

a. P 1,575 unfavorable b. P 750 unfavorable c. P 325 unfavorable d. P 500 unfavorable
27. The direct labor rate variance is
a. P 750 U b. P 825 U c. P 750 F d. P 825 F
28. The direct labor efficiency variance is
a. P 750 U b. P 625 F c. P 600 U d. P 825 U
29. What is the labor yield variance for Landmark in Aprl?
a. P 500 b. P 750 c. P 825.50 d. P 1,500
30. What is the labor mix variance for Landmark in April?
a. P 50.00 b. P 325.00 c. P 66.67 d. P 180.00

*** Items 31 and 32 are based on the following information. Booz Inc., a manufacturers of a portable radios,
purchases the components from subcontractors to use to assemble into a complete radio. Each radio
requires three units each of Part XBEZ52, which has a standard cost of P 1.45 per unit. During May 2007,
Booz experienced the following with respect to Part ZBEZ52.
Units
Purchases (P 18,000) 12,000
Consumed in manufacturing 10,000
Radios manufactured 3,000

31. During May 2007, Booz Inc. incurred a purchase price variance of
a. P 450 unfavorable b. P 450 favorable c. P 500 favorable d. P 600 unfavorable
32. During May 2007, Booz Inc. incurred a materials efficiency variance.
a. P 1,450 unfavorable b. P 1,450 favorable c. P 4,350 unfavorable d. P 4,350 favorable

*** Items33 through 37 are based on the following information. Wallmart Inc., manufactures water pumps
and uses a standard cost system. The standard factory overhead costs per water pump are based on direct
labor hours and are as follows:

Variable overhead (4 hours at P 8/hour) P 32

Fixed overhead (4 hours at P 5 hour) 20
Total overhead cost per unit P 52

* Based on a capacity of 100,000 direct labor hours per month.

The following additional information is available for the month of November.
22,000 pumps were produced although 25,000 had been scheduled for producton.
94,000 direct labor hours were worked at a total cost of P 940,000.
The standard direct labor rate is P9 per hour.
The standard direct labor time per unit is 4 hours.
Variable overhead costs were 740,000
Fixed overhead costs were P 540,000.
33. The fixed overhead spending variance for November was
a. P 40,000 unfavorable c. P 460,000 unfavorable
b. P 70,000 unfavorable d. P 240,000 unfavorable

34. The variable overhead spending variance for November was

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

35. The variable overhead efficiency variance for November was

a. P 48,000 unfavorable c. P 96,000 unfavorable
 CRC-ACE/MS: Second Pre-board Exams (October 2007 batch) Page 5 of 10
b. P 60,000 favorable d. P 200,000 unfavorable
36. The direct labor price variance for November was
a. P 54,000 unfavorable c. P 60,000 favorable
b. P 94,000 unfavorable d. P 148,000 unfavorable
37. The direct labor efficiency variance for November was
a. P 108,000 favorable c. P 60,000 favorable
b. P 120,000 favorable d. P 54,000 favorable

38. Hilton Corp. invested in a 2-year project having an internal rate of return of 12% (IRR = 12%). The
project is expected to produce cash flow from operations, net of income taxes, of P 60,000 in the first year
and P 70,000 in the second year. The present value of P 1 for one period at 12% is 0.893 and for two
periods at 12% is 0.797. How much will the project cost?
a. P 103,610 b. P 109,370 c. P 116,090 d. P 122,510
39. On January 1, a company invested in an asset with a useful life of 3 years. The company’s expected rate
of return is 10%. The cash flow and present and future value factors for the 3 years are as follows:
Year Cash Inflow from the Asset Present Value of P 1 at 10% Future Value of P 1 at 10%
1 P 8,000 .91 1.10
2 P 9,000 .83 1.21
3 P10,000 .75 1.33
All cash inflows are assumed to occur at year-end. If the asset generates a positive net present value of P
2,000, what was the amount of the original investment?
a. P20,250 b. P22,250 c. P 30,991 d. P 33,991

40. Emerald company is planning to spend P 84,000 for a new machine, to be depreciated on the straight-line
basis over 10 years with no salvage value. The related cash flow from operations, net of income taxes, is
expected to be P 10,000 a year for each of the first 6 years and P 12,000 for each of the next 4 years. What is
the payback period?
a. 4.4 years b. 7.6 years c. 7.8 years d. 8.0 years

41. Refer to No. 40 Emerald Corp. has also estimated the salvage value of the new machine at the end of year
1 to be P 64,000. Salvage value will decline by P 5,000 each year thereafter. What is the bailout payback
period?
a. 2 years b. 3 years c. 4 years d. 5 years

42. Boston Corp. purchased a new machine with an estimated useful life of 5 years with no salvage value of P
45,000. The machine is expected to produce cash flow from operations, net of income taxes, as follows:
1st year P 9,000 4th year P 9,000
nd
2 year 12,000 5th year 8,000
3rd year 15,000
Boston will use the sum-of-the-years’ digit method of depreciate the new machine in its accounting records
as follows:
1st year P 15,000 4th year P 6,000
nd
2 year 12,000 5th year 3,000
3rd year 9,000
What is the payback period?
a. 2 years b. 3 years c. 4 years d. 5 years

43. Orlando Corp. has the opportunity to invest in a 2-year project that is expected to produce cash flows
from operations, net of income taxes, of P 100,000 in the first year and P 200,000 in the second year. Orlando
requires an internal rate of return of 20%. The present value of P1 for one period at 20% is 0.833 and for two
periods at 20% is 0.694. For this project, Orlando should be willing to invest immediately a maximum of
a. P283,300 b. P 249,900 c. P 222,100 d. P 208,200

44. An investment in a new piece of equipment costing P 50,000 is expected to yield the following each year
of the equipment’s 5-year useful life:
Revenues (all cash) P 40,000
Operating costs (all cash) (18,000)
Depreciation (10,000)
Contribution to net income P 12,000
The present value of P 1 received annually for 5 years and discounted at the company’s cost of capital is
4.10 assuming that all cashflows occur at year-end. The benefit/cost ratio (profitability index) for this
piece of equipment, ignoring tax effects, is
a. .984 b. 1.200 c. 1.804 d. 3,280
 CRC-ACE/MS: Second Pre-board Exams (October 2007 batch) Page 6 of 10

*** Items 45 through 49 are based on Hinder Industries, which has developed two new products but has only
enough plant capacity to introduce one of these products this year. The company controller has gathered
the following data to assist management in deciding which product should be selected for production.

Hinder’s fixed overhead includes proportional rent and utilities, machinery depreciation, and supervisory
salaries. Selling and administrative expenses are not allocated to products.

Cost per unit: Power Drill Power Saw

Raw materials P 22.00 P 18.00
Machining at P 12/hr. 9.00 7.50
Assembly at P 10/hr. 15.00 5.00
Variable O/H at P 8/hr 18.00 9.00
Fixed O/H at P 4/hr. 9.00 4.50
Total unit cost P 73.00 P 44.00
Suggested selling price P 88.98 P 49.95
Actual research and development costs P180,000 P 95,000
Proposed Advertising and promotion costs 300,000 250,000

45. For Hinder’s power drill, the unit costs for raw materials, machining, and assembly represent
a. Conversion costs c. Committed costs
b. Relevant costs d. Prime costs
46. The difference between the P 49.95 selling price of Hinder’s power saw and its total unit cost of P 44.00
represents the unit
a. Contribution margin ratio c. Contribution
b. Gross profit d. Residual income
47. The total overhead cost of P 13.50 for Hinder’s power saw is
a. Carrying cost c. Sunk cost
b. Discretionary cost d. Mixed cost
48. Research and development cost for Hinder’s two new products are
a. Conversion costs c. Relevant costs
b. Sunk costs d. Avoidable costs
49. The costs included in Hinder’s fixed overhead are
a. Sunk costs c. Committed costs
b. Discretionary costs d. Opportunity costs

50. Direct labor cost is a

Conversion Cost Prime Cost
a. No No
b. No Yes
c. Yes Yes
d. Yes No

51. Indirect materials are a

Conversion Cost Manufacturing Cost Prime Cost
a. Yes Yes Yes
b. Yes Yes No
c. No Yes Yes
d. No No No

*** Items 52 and 53 are based on information presented in the next column, which was taken from Valerie
Corp.’s records for the fiscal year ended November 30.

Direct materials used P 300,000

Direct labor 100,000
Variable factory overhead 50,000
Fixed factory overhead 80,000
Selling and administration costs – variable 40,000
Selling and administration costs – fixed 20,000

52. If Valerie Corp. uses variable (direct) costing, the inventoriable costs for the current fiscal year are
a. P 400,000 b. P 450,000 c. P 490,000 d. P 530,000
 CRC-ACE/MS: Second Pre-board Exams (October 2007 batch) Page 7 of 10
53. Using absorption (full)costing, inventoriable costs are
a. P 400,000 b. P 450,000 c. P 530,000 d. P 590,000

54. In the profit-volume chart below, EF and GH represent the profit-volume graphs of a single-product
company for 2006 and 2007, respectively:

P
F (2006)
Do
H (2007)

0 Volume

If 2006 and 2007 unit sales prices are identical, how did total fixed costs and unit variable costs of 2007
change compared with 2006?

2007 Total Fixed costs 2007 Unit Variable Costs

a. Decreased Increased
b. Decreased Decreased
c. Increased Increased
d. Increased Decreased

*** Items 55 through 60 are based on the officers of Borromeo Corp, who are reviewing the profitability of
the company’s four products and the potential effects of several proposals for varying the product mix. An
excerpt from the income statement and other data follow:

Totals Product P Product Q Product R Product S

Sales P 62,600 P 10,000 P 18,000 P 12,600 P 22,000
Cost of goods sold 44,274 4,750 7,056 13,968 18,500
Gross profit P 18,326 P 5,250 P 10,944 P (1,368) P 3,500
Operating expenses 12,012 1,990 2,976 2,826 4,220
Income before income taxes P 6,314 P 3,260 P 7,968 P(4,194) P (720)

Units sold 1,000 1,200 1,800 2,000

Sales price per unit P 10.00 P 15.00 P 7.00 P 11.00
Variable cost of goods sold per unit P 2.50 P 3.00 P 6.50 P 6.00
Variable operating expenses per unit P 1.17 P 1.25 P 1.00 P 1.20

Each of the following proposals is to be considered independently of the other proposals. Consider only the
product changes stated in each proposal; the activity of other products remains stable. Ignore income taxes.
55. If product R is discontinued, the effect on income will be
a. P 4,194 increase c. P 1,368 increase
b. P 900 increase d. P 12,600 decrease
56. If product R is discontinued and a consequent loss of customers causes a decrease of 200 units in sales of Q,
the total effect on income will be
a. P 15,600 decrease c. P 2,044 increase
b. P 1,250 decrease d. P 2,866 increase
57. If the sales price of R is increased to P8 with a decrease in the number of units sold to 1,500, the effect on
income will be
a. P 2,199 decrease c. P 750 increase
b. P 600 decrease d. P 1,650 increase
 CRC-ACE/MS: Second Pre-board Exams (October 2007 batch) Page 8 of 10
58. The plant in which R is produced can be used to produce a new product, T. Total variable costs and expenses
per unit of T are P 8.05, and 1,600 units can be sold at P 9.50 each. If T is introduced and R is discontinued,
the total effect on income will be
a. P 3,220 increase c. P 2,320 increase
b. P 2,600 increase d. P 1,420 increase

59. Production of P can be doubled by adding a second shift, but higher wages must be paid, increasing the
variable cost of goods sold to P 3.50 for each additional unit. If the 1,000 additional units of P can be sold at P
10 each, the total effect on income will
a. P 10,00 increase c. P 5,330 increase
b. P 6,500 increase d. P 2,260 increase

60. Part of the plant in which P is produced can easily be adapted to the production of S, but changes in quantities
may make changes in sales prices advisable. If production of P is reduced to 500 units (to be sold at P 12
each), and production of S is increased to 2,500 units (to be sold at P 10.50 each), the total effect on income
will be
a. P 2,060 decrease c. P 250 increase
b. P 1,515 decrease d. P 1,765 decrease

61. Uniliver Corp. uses a standard-cost system and prepared the following budget at normal capacity for the
month of January:
Direct labor hours 24,000
Variable factory O/H 48,000
Fixed factory O/H P 108,000
Total factory O/H per DLH 6.50
Actual data for January were as follows:
Direct labor hours worked 22,000
Total factory O/H P 147,000
Standard DLH allowed for capacity attained 21,000

Using the two-way analysis of O/H variances, what is the budget (controllable)variance for January?
a. P 3,000 favorable c. P 9,000 favorable
b. P 5,000 favorable d. P 10,500 unfavorable

62. The bailout payback method

a. Is used by firms with federally insured loans.
b. Calculates the payback period using the sum of the net cash flows and the salvage value.
c. Calculates the payback period using the difference between net cash inflow and the salvage value
d. Estimates short-term profitability.

63. A firm’s optimal capital structure

a. Minimizes the firm’s tax liability.
b. Minimizes the firm’s risk.
c. Maximizes the firm’s degree of financial leverage.
d. Maximizes the price of the firm’s stock.

64. A firm seeking to optimize its capital budget has calculated its marginal cost of capital and projected rates of
return on several potential projects. The optimal capital budget is determined by
a. Calculating the point at which marginal cost of capital meets the projected rate of return, assuming that
the most profitable projects are accepted first.
b. Calculating the point at which average marginal cost meets average projected rate of return, assuming the
largest projects are accepted first.
c. Accepting all potential projects with projected rates of return exceeding the lowest marginal cost of
capital.
d. Accepting all potential projects with projected rates of return lower than the highest marginal cost of
capital.

65. The Clarence Corp. invested P 67,000 in a 4-year machine. The machine’s NPV was P 8,000 using a 15%
cost of capital. Information on cash flows and present value factors is as follows:

Expected Cash Flow, Present Value

Year Net of Taxes of P 1 @ 15%
1 P 20,600 .87
2 24,000 .76
3 21,800 .66
4 ? .57
 CRC-ACE/MS: Second Pre-board Exams (October 2007 batch) Page 9 of 10
What is the expected cash flow, net of taxes, in year 4?
a. P 8,600 b. P 16,450 c. P 24,450 d. P 42,895

*** Items 66 through 70 are based on the following: The management of Benjamin Corp. asked you to
submit an analysis of the increase in their gross profit in 2007 based on their past two-year comparative
income statements which show:
2008 2007
Sales P 1,237,500 P 1,000,000
Cost of Sales 950,000 800,000
Gross profit P 287,500 P 200,000

The only know factor given to you is the sales prices increased 12.5% beginning January 2007.

66. The increase in gross profit due to increase volume is

a. P 50,000 b. P 35,000 c. P 20,000 d. None of these

67. Gross profit declined due to increase in cost in the amount of

a. P 70,000 b. P 88,000 c. P 97,500 d. None of these

68. The increase in sales price caused an increase in gross profit by

a. P 100,000 b. P 137,500 c. P 110,000 d. None of these

69. The percent of change in volume is

a. P 12.750% b. 11.000% c. 15.125% d. None of these

70. The percent of change in cost is

a. 10.79% b. 10.000% c. 8.67% d. None of these

*** Items 71 through 74 are based on the following information. Alpha Corp. a multiple-product company,
has the following data available for gross profit analysis.
PRODUCTS
2006 A B C Total
Sales P 225,000 P 240,000 P 45,000 P 510,00
Cost of Sales 180,000 210,000 33,750 423,750
No. of units 22,500 30,000 7,500 60,000

2007 A B C Total
Sales P 360,000 P 270,000 P 30,000 P 660,000
Cost of Sales 270,000 225,000 24,000 519,000
No. of units 30,000 30,000 6,000 66,000

71. The sales price factor shows a variance of

a. P 150,000 unfavorable c. P 84,000 unfavorable
b. P 150,000 favorable d. P 84,000 favorable
72. The cost price factor shows a variance of
a. P 95,250 unfavorable c. P 42,000 unfavorable
b. P 61,500 unfavorable d. P 33,750 favorable
73. The quantity factor shows a variances of
a. P 8,625 favorable c. P 12,816 favorable
b. P 46,125 unfavorable d. P 9,075 unfavorable
74. The sales-mix factor shows a variance of
a. P 14,124 favorable c. P 4,125 favorable
b. P 4,125 unfavorable d. P 14,124 unfavorable
 CRC-ACE/MS: Second Pre-board Exams (October 2007 batch) Page 10 of 10

*** Items 75 through 76 are based on Wallace Corp., which sells Product A at a price of P 21 per unit. Wallace
cost per unit based on the full capacity of 200,000 units is as follows:

Direct materials P 4
Direct labor 5
Overhead ( 2/3 of which is fixed) 6
P 15

A special order offering to buy 20,000 units was received from a foreign distributor. The only selling costs
that would be incurred on this order would be P 3 per unit for shipping. Wallace has sufficient existing
capacity to manufacture the additional units.

75. In negotiating a price of the special order, Wallace should set the minimum selling price per nit.
a. P 14 b. P 15 c. P 16 d. P 18
76. To achieve an increase in operating income of P 40,000, Wallace should charge a selling price of
a. P 14 b. P 15 c. P 16 d. P 18

77. Selected information for Melanie Corporation is as follows:

December 31
2006 2007
Preferred stock P 180,000 P 180,000
Common stock 648,000 840,000
Retained earnings 192,000 360,000
Net income for year ended 144,000 240,000

What is Melanie’s rate of return on average stockholders’ equity for 2007?

a. P 16.0% b. 20.0% c. 23.5% d. 26.0%

78. Hanson Corp.’s current balance sheet reports the following stockholders’ equity:

5% cumulative preferred stock par value P 100 per share; 2,500 shares
issued and outstanding P 250,000
Common stock, par value P 3.50 per share, 100,000 shares issued
and outstanding 350,000
Additional paid-in capital excess of par value of common stock 125,000
Retained earnings 300,000

Dividends in arrears on the preferred stock amount to P 25,000. If Hanson’s were to be liquidated, the
preferred stockholders would received par value plus a premium of P 50,000. The book value per share of
common stock is
a. P 7.75 b. P. 7.50 c. P 7.25 d. P 7.00

*** Items 79 and 80 are based on the following information. Pizza Pie Shop has two divisions, Crusty division
sells pizza crusts to Pepperoni division which add flavorful toppings. Standard costs for Crusty are given
below.

Direct materials P 1.50 per crust

Direct labor 6.00 per hour

Crusty uses a predetermined overhead rate of P 12 per direct labor hour. One pizza crust requires 5 minutes of
direct labor. Sixty percent of the overhead cost is fixed.

79. What is the transfer price for a pizza crust based on standard variable cost?
a. P 2.00 b. P 2.40 c. P 2.60 d. P 3.00
80. What is the transfer price for a pizza crust based on standard full cost?
a. P 2.00 b. P 2.60 c. P 3.00 d. P 3.20