5

Overview
Management advisory services

1. The primary purpose of management advisory services is to
A. conduct special studies, preparation of recommendations,
development of plans and programs, and provision of advice and assistance
in their implementation.
B. provide services or to fulfill some social need.
C. improve the client's use of its capabilities and resources to achieve the
objectives of the organization.
D. earn the best rate of return on resources entrusted to its care with safety of
investment being taken into account and consistent with the firm's social and
legal responsibilities.
1. The following characterize management advisory services except

A. involve decision for the future
B. broader in scope and varied in nature
C. utilize more junior staff than senior members of the firm
D. relate to specific problems where expert help is required
2. Which of the following is not classifiable as a management advisory service by

CPA?
A. Systems design. C. Make or buy analysis.
B. Project feasibility study. D. Assistance in budget preparation.
2. Which of the following statement is false?

A. CPA’s provide management services to go around the ethical constraints as
mandated by the Accountancy Act.
B. Businesses hire management consultants to help define specific problems
and develop solutions
C. Included in the practice of consulting is the provision of confidential service in
which the identity of the client is concealed
D. CPA’s performing management services may be considered to be in the
practice of management consulting
Management accounting & financial accounting

1. Which of the following characteristics is inherent to management accounting?
A. Reporting of historical information
B. Compliance to generally accepted accounting principles
C. Contribution approach income statement
D. External users of financial report
3. The following are characteristics of financial accounting, except?

A. Reporting of historical information
B. Compliance to generally accepted accounting principles
C. Contribution approach income statement
D. External users of financial report
4 The following are inherent to either management accounting or financial

accounting:
1. External report
2. Historical information
3. Contribution approach income statement
4. Generally accepted accounting principles
5. Prospective financial statements
Which of the foregoing are related to management accounting and financial
accounting respectively?
A. B. C. D.
Management 1, 2, 5 3, 5 2, 3 3
Accounting
Financial Accounting 3, 4 1, 2, 4 1, 4, 5 1, 2, 4, 5
5. The costing method that is properly classified for both external and internal
repotting purposes is
External reporting Internal reporting

A. Activity-based Yes Yes
costing
B. Variable costing Yes No
C. Process costing No Yes
D. Standard costing Yes No
Quality Costs
6. The cost of statistical quality control in a product quality cost system is
A. training cost C. appraisal cost
B. internal failure cost D. prevention cost
Activity-based Costing
7. The last step in activity-based costing is to
A. identity the major activities that pertain to the manufacture of specific
products
B. allocate manufacturing overhead costs to activity cost pools
C. Identify the cost drivers that accurately measure each activity’s contribution
to the finished product
D. Assign manufacturing overhead costs for each activity cost pool to products
8. Designing and redesigning are activities that are classified as

A. Facility level C. Unit level
B. Batch level D. Product level
9. The examples of activities at the product level include

A. scheduling, setting up, and moving C. heating, lighting, and security
B. designing, changing, and advertising D. cutting, painting, and packaging
1. Examples of activities at the batch level of costs include

A. scheduling, setting up, and moving C.
heating, lighting, and security
B. designing, changing, and advertising D.
cutting, painting, and packaging
2. Scheduling, setting up, and moving are examples of activities that are classified
as
A. Batch level C. Unit level
B. Product level D. Facility level
10. Examples of unit level activities are

A. scheduling, setting up, and receiving C. heating, lighting, and security
B. designing, changing, and advertising D. cutting, painting, and packaging
3. An example of a nonvolume-related overhead base would be:

A. Direct materials cost C. Direct Labor cost
B. Machine hours D. Number of inspections
11.Classify the following as volume (unit) base or non-volume (activity) base:

1. Number of purchase orders issued
2. Direct labor hours
3. Number of machine hours
4. Number of set ups
5. Number of receiving reports issued
6. Direct material cost
A. B. C. D.
Volume (Unit) Base 1, 4, 5, 6 1, 4, 5 1, 2, 3, 4, 5 2, 3, 6
Non-volume (Activity) 2, 3 2, 3, 6 6 1, 4, 5
Base
12.McMd's standard cost card indicates that it takes three hours of direct labor to
produce one unit of product. A recently conducted time and motion study
revealed that it should take one hour to produce the same unit. Labor cost is
P150 per hour.
McMd's value-added, and non value-added costs would be
A. P150 and P0 C. P150 and P300
B. P0 and P150 D. P450 and P0
13.Moon Company makes two products, Alpha and Beta. Alpha is being introduced
this period, whereas Beta has been in production for 2 years. For the period
about to begin, 1,000 units of each product are to be manufactured. The only
relevant overhead item is the cost of engineering change orders. Alpha and
Beta are expected to require eight and two change orders, respectively. Alpha
and Beta are expected to require 2 and 3 machine hours, respectively. The cost
of a change order is P600.
If Moon is using direct tracing, the amount of overhead per unit that will be
assigned to Alpha and Beta, respectively, are
A. P2.40 and P3.60, respectively C. P4.80 and P1.20, respectively
B. P3.60 and P2.40, respectively D. P1.20 and P4.80, respectively
Just-in-Time Manufacturing System
14. Which of the following is not a typical characteristic of a just-in-time (JIT)
production environment?
A. Lot sizes equal to one C. Push-through system
B. Insignificant set up times and costs D. Balanced and level workloads
Cost Behavior
Variable Costs
6. Total production costs for Jordan, Inc. are budgeted at P2,300,000 for 50,000
units of budgeted output and P2,800,000 for 60,000 units of budgeted output.
Because of the need for additional facilities, budgeted fixed costs for 60,000
units are 25 percent more than budgeted fixed costs for 50,000 units. How
much is Jordan’s budgeted variable cost per unit of output?
A. P 7.50 C. P30.00
B. P16.00 D. P62.50
15.Total production costs for Carera, Inc. are budgeted at P230,000 for 50,000
units of budgeted output and P280,000 for 60,000 units of budgeted output.
Because of the need for additional facilities, budgeted fixed costs for 60,000
units are 25% more than budgeted fixed costs for P50,000 units. How much is
Carera’s budgeted variable cost per unit of output?
A. P1.60 C. P3.00
B. P1.67 D. P5.00
3. Total production costs for Laguna, Inc. are budgeted at P230,000 for 50,000 units
of budgeted output and P280,000 for 60,000 units of budgeted output. Because
of the need for additional facilities, budgeted fixed costs for 60,000 units are
25% more than budgeted fixed costs for 50,000 units. How much is Laguna’s
total budgeted variable cost at 60,000 units?
A. P96,000 C. P180,000
B. P100,200 D. P100,000
16.Mulvey Company derived the following cost relationship from a regression

analysis of its monthly manufacturing overhead cost:
C = P80,000 + P12M
Where C = monthly manufacturing overhead cost
M = machine hours
The standard error of the estimate of the regression is P6,000.
The standard time required to manufacture one six-unit case of Mulvey's angle
product is 4 machine hours. Mulvey applies manufacturing overhead to
production on the basis of machine hours and its normal annual production is
50,000 cases
Mulvey's estimated variable manufacturing overhead cost for a month in which
scheduled production is 5,000 cases would be
A. P80,000 C. P240,000
B. P320,000 D. P360,000
1. Which of the following graphs illustrates the behavior of a total variable cost? (E)
Graph 1 Graph 2
Total units produced Total units produced
Graph 3 Graph 4
Total units produces Total units produced
A. Graph 2 C. Graph 4
B. Graph 3 D. Graph 1
Fixed Costs
9. Parts Company wishes to determine the fixed portion of its maintenance expense
(a semi-variable expense), as measured against direct labor hours for the first
three months of the year. The inspection costs are fixed; the adjustments
necessitated by errors found during inspection account for the variable portion of
the maintenance costs. Information for the first quarter is as follows:
Direct Labor Hours Maintenance Costs

January 34,000 P61,000
February 31,000 58,500
March 34,000 61,000
What is the fixed portion of Parts Company’s maintenance expense, rounded to
the nearest pesos?
A. P28,330 C. P37,200
B. P32,780 D. P40,800
5. Largo Company wishes to determine the fixed portion of its maintenance
expense (a semi-variable expense), as measured against direct labor hours for
the first three months of the year. Information for the first quarter is as follows:
Direct Labor Hours Maintenance
Costs
January 25,000 P210,000
February 30,000 240,000
March 27,000 222,000
What is the fixed portion of Largo Company’s maintenance expense?
A. P60,000 C. P90,000
B. P30,000 D. P120,000
Total Costs
17.Molds Corporation has developed the following flexible budget formula for
annual indirect labor costs:
Total Cost = P300,000 + P5.00 per machine hour
Operating budgets for the current month are based upon 18,000 machine hours
of planned machine time.
Indirect labor costs included in this planning budget are:
A. P300,000 C. P 90,000
B. P390,000 D. P115,000
8. Arens Corporation has developed the following flexible budget formula for annual
indirect labor costs:
Total Cost = P480,000 + P5.00 per machine hour
Operating budgets for the current month are based upon 20,000 machine hours
of planned machine time. Indirect labor costs included in this planning budget
are:
A. P 48,333 C. P100,000
B. P580,000 D. P140,000
2. Boy & Millie Company uses an annual cost formula for overhead of P72,000 +
P1.60 for each direct labor hour worked. For the upcoming month Karla plans to
manufacture 96,000 units. Each unit requires five minutes of direct labor. Boy &
Millie’s budgeted overhead for the month is
A. P12,800 C. P 84,800
B. P18,800 D. P774,000
2. Saldua Company uses a monthly cost formula for overhead of P50,000 + P30.00
for each direct labor hour worked. For the coming year, Saldua plans to
manufacture 200,000 units. Each unit requires five minutes of direct labor.
Saldua’s total budgeted overhead for the coming year is
A. P 550,000 C. P1,200,000
B. P1,100,000 D. P 650,000
6. The following cost functions were developed for manufacturing overhead costs:
Manufacturing Overhead Costs Cost Function

Electricity P100 + P20 per direct labor
hour
Maintenance P200 + P30 per direct labor
hour
Supervisors’ salaries P10,000 per month
Indirect materials P16 per direct labor hour
If July production is expected to be 1,000 units requiring 1,500 direct labor hours,
estimated manufacturing overhead costs would be
A. P109,300 C. P76,300
B. P99,000 D. P10,366
7. El Noche, Inc. has a total of 2,000 rooms in its nationwide chain of hotels. On
the average, 70% of the rooms are occupied each day. The company’s operating
costs are P21 per occupied room per day at this occupancy level, assuming a 30-
day month. This P21 figure contains both variable and fixed cost elements.
During October, the occupancy dropped to only 45%. A total of P792,000 in
operating cost was incurred during the month.
What would be the expected operating costs, assuming that the occupancy rate
increases to 60% during November?
A. P1,056,000 C. P846,000
B. P756,000 D. P829,500
Cost-Volume-Profit Relationship
Basic Concepts
2. With the aid of computer software, managers can vary assumptions regarding
selling prices, costs, and volume and can immediately see the effects of each
change on the break-even point and profit. Such an analysis is called: (E)
A. "What if" or sensitivity analysis C. computer aided analysis
B. vary the data analysis D. data gathering
Breakeven Analysis – Single Product

Sales Amount
20.Scrambled Brain Company has fixed costs of P90,000. At a sales volume of
P300,000, return on sales is 10%; at a P500,000 volume, return on sales is 22%.
What is the break-even volume?
A. P120,000 C. P225,000
B. P200,000 D. P450,000
Units Sold
18.At a sales volume level of 2,250 units, Luzon Company’s contribution margin is
one and one-half of the fixed costs of P36,000. Contribution margin is 30%. How
many units must be sold by the company to breakeven?
A. 1,250 C. 2,580
B. 1,500 D. 2,520
8. At 40,000 units of sales, Snail Company had an operating loss of P3.00 per unit.
When sales were 70,000 units, the company had a profit of P1.20 per unit. The
number of units to breakeven is
A. 35,000 C. 52,500
B. 45,000 D. 57,647
9. Gala Company sold 100,000 units of its product at P20 per unit. Variable
costs are P14 per unit, consisting of manufacturing costs of P11 and selling costs
of P3. Fixed costs, which are incurred uniformly throughout the year, amount to
P792,000 (manufacturing costs of P500,000 and selling expenses of P292,000).
There are no beginning inventories.
If labor costs are 50% of variable costs and 20% of fixed costs, a 10% increase in
wages and salaries would increase the number of units required to breakeven to
A. 152,423 C. 175,617
B. 143,875 D. 129,938
10.Glareless Company manufactures and sells sunglasses. Price and cost data are
as follows:
Selling price per pair of sunglasses P25.00

Variable costs per pair of sunglasses:
Raw materials P11.00
Direct labor 5.00
Manufacturing overhead 2.50
Selling expenses 1.30
Total variable costs per unit P19.80
Annual fixed costs:
Manufacturing overhead P192,000
Selling and administrative 276,000
Total fixed costs P468,000
Forecasted annual sales volume (120,000 P3,000,000
pairs)
Income tax rate 40%
Glareless Company estimates that its direct labor costs will increase 8 percent
next year. How many units will Glareless have to sell next year to reach
breakeven?
A. 97,500 units C. 83,572 units
B. 101,740 units D. 86,250 units
22.Madel Company manufactures a single electronic product called Walastik.

Walastik sells for P900 per unit. In 2000, the following variable costs were
incurred to produce each Walastik device.
Direct labor P180

Direct materials 240
Factory overhead 105
Selling costs 75
Total variable costs P600
Madel is subject to 40 percent income tax rate, and annual fixed cost are
P6,600,000. Except for an operating loss incurred in the year of incorporation,
the firm has been profitable over the last five years.
In 2001, a significant change in Madel’s production technology caused a 10%
increase in annual fixed cost and a 20% unit cost increase in the direct labor
component as a result of higher skilled direct labor. However, this change
permitted the replacement of a costly imported component with a local
component. The effect was to reduce unit material costs by 25%. There has been
no change in the Walastik selling price.
The annual sales units required for Madel to breakeven are:
A. B. C. D.
2000 22,000 22,000 14,000 14,000
2001 20,840 22,407 22,407 20,840
Selling Price
8. The BEDANs is planning its annual Riverboat Extravaganza. The Extravaganza
committee has assembled the following expected costs for the event:
Dinner per person P 70
Programs and souvenir per person 30
Orchestra 15,000
Tickets and advertising 7,000
Riverboat rental 48,000
Floor show and strolling entertainment 10,000
The committee members would like to charge P300 per person for the evening’s
activities.
Assuming that only 250 persons are expected to attend the extravaganza, what
ticket price must be charged to breakeven?
A. P420 C. P350
B. P320 D. P390
Breakeven Analysis – Multiple Product
23.In calculating the break-even point for a multi-product company, which of the
following assumptions are commonly made when variable costing is used?
I. Sales volume equals production volume
II. Variable costs are constant per unit
III. A given sales mix is maintained for all volume changes
A. I and II C. II and III
B. I and III D. I, II, and III
Unit Sales
3. Phipps Co. sells two products, Arks and Bins. Last year. Phipps sold 12,000
units of Arks and 28,000 units of Bins, Related data are:
Product Unit Selling Unit Variable Unit Contribution

Price Cost Margin
Arks P120 P80 P40
Bins 80 60 20
Assuming that last year's fixed costs totaled P910,000, what was Phipps Co.'s
break-even point in units? (E)
A. 40,000 C. 35,000
B. 12,000 D. 28,000
Sales Amount
24.Bush Electronics, Inc. had the following sales results for 2004:
TV sets CD player Radios

Peso sales component 0.30 0.30 0.40
ratio
Contribution margin ratio 0.40 0.40 0.60
Bush Electronics, Inc. had fixed costs of P2,400,000.

The break even sales in pesos for Bush Electronics, Inc. are:
A. B. C. D.
TV sets P1,800,000 P1,800,000 P1,500,000 P1,531,915
CD player P1,800,000 P1,800,000 P1,500,000 P1,531,915
Radios P3,600,000 P1,600,000 P2,000,000 P2,042,553
4. The manager of Salvacion Store reviewed the following data:
Fruits Meat Canned

Products
Contribution margin ratio 40% 50% 40%
Sales mix in pesos 20% 30% 50%
Fixed costs, P1,290,000 per month.
The breakeven sales for each month is

A. P1,677,000 C. P4,500,000
B. P3,000,000 D. P6,000,000
Breakeven Analysis – Cash Basis

16.BE&H Co. is considering dropping a product. Variable costs are $6.00 per unit.
Fixed overhead costs, exclusive of depreciation, have been allocated at a rate of
$3.50 per unit and will continue whether or not production ceases. Depreciation
on the equipment is P20,000 a year. If production is stopped, the equipment can
be sold for P18,000, if production continues, however, it will be useless at the
end of 1 year and will have no salvage value. The selling price is P10 a unit.
Ignoring taxes, the minimum units to be sold in the current year to break even
on a cash flow basis is
A. 4,500 units C. 1,800 units
B. 5,000 units D. 36,000 units
11.Ms Makiling started a canteen in 2002. For this purpose a space was rented for
P4,000 per month. Two women were hired to work full time at the canteen and
six college students were hired to work 30 hours per week delivering value
meals. This level of employment has been consistent. An outside accountant
was hired for tax and bookkeeping purposes, for which Ms. Makiling pays P3,000
per month. The necessary canteen equipment and delivery car were purchased
with cash. Ms. Makiling has noticed that expenses for utilities and supplies have
been rather constant. Ms. Makiling increased her business between 2002 and
2005. Profits have more than doubled since 2002. Ms. Makiling does not
understand why profits have increased faster than volume.
A projected income statement for the year ended December 31, 2005, prepared
by the accountant, is shown below:
Sales (each P25) P950,000
Cost of food sold P285,000
Wages & fringe benefits:
Restaurant help 81,500
Delivery help 173,000
Rent 48,000
Accounting services 36,000
Depreciation:
Delivery equipment 50,000
Restaurant equipment 30,000
Utilities 23,250
Supplies 12,000 738,750
Net income before taxes P211,250
Income taxes (40%) 84,500
Net income P126,750
What is the cash flow breakeven point sales that must be sold?
A. P488,215 C. P324,750
B. P533,929 D. P269,325
Breakeven Analysis - ABC

15.Perla Company had the following information.
Activity Driver Unit Variable Cost Level of Activity

Driver
Units sold P40
Setups 1,000 80
Engineering hours 60 2,000
Other data:
(traditional)
Total fixed costs (ABC) P150,000
Unit selling price P80
What is the breakeven point using ABC?

A. 10,000 units. C. 5,000 units.
B. 15,000 units. D. 8,750 units.
Profit Planning
Selling Price
21.Glow Co. wants to sell a product at a gross margin of 20%. The cost of the
product is P2.00. The selling price should be
A. P1.60 C. P2.40
B. P2.10 D. P2.50
22. Purvis Company manufactures a product that has a variable cost of P50 per
unit. Fixed costs total P1,000,000 and are allocated on the basis of the number of
units produced. Selling price is computed by adding a 10% markup to full cost.
How much should the selling price be per unit for 100,000 units?
A. P55. C. P61
B. P60. D. P66
29.Donnelly Corporation manufactures and sells T-shirts imprinted with college

names and slogans, Last year, the shirts sold for P7.50 each, and the variable
cost to manufacture them was P2.25 per unit. The company needed to sell
20,000 shirts to break even. The net income last year was P5,040. Donnelly's
expectation for the coming year include the following:
 The sales price of the T-shirts will be P9
 Variable cost to manufacture will increase by one-third
 Fixed costs will increase by 10%
 The income tax rate of 40% will be uncharged
The selling price that would maintain the same contribution margin rate as last
year is
A. P9.00 C. P10.00
B. P8.25 D. P9.75
23.Larz Company produces a single product. It sold 25,000 units last year with the
following results:
Sales P625,000
Variable costs P375,000
Fixed costs 150,000 525,000
Income taxes 40,000
Net income P 60,000
In an attempt to improve its product in the coming year, Larz is considering
replacing a component part in its product that has a cost of P2.50 with a new
and better part costing P4.50 per unit. A new machine will also be needed to
increase plant capacity. The machine would cost P18,000 with a useful life of 6
years and no salvage value. The company uses straight-line depreciation on all
plant assets.
If Larz wishes to maintain the same contribution margin ratio after implementing
the changes, what selling price per unit of product must it charge next year to
cover the increased material costs?
A. P27.00 C. P32.50
B. P25.00 D. P28.33
Additional unit sales

25.In 2001 Lucia Company had a net loss of P8,000. The company sells one
product with a selling price of P80 and a variable cost per unit of P60. In 2002,
the company would like to earn a before-tax profit of P40,000. How many
additional units must the company sell in 2002 than it sold in 2001? Assume that
the tax rate is 40 percent.
A. 1,600 C. 2,400
B. 2,000 D. 5,400
Unit sales
36.Gorilla, Co. provides two products, M and W. M accounts for 60 percent of total
sales, variable cost as a percentage of selling price are 60% for M and 85% for
W. Total fixed costs are P225,000.
If fixed costs will increase by 30 percent, what amount of peso sales would be
necessary to generate an operating profit of P48,000?
A. P1,350,000 C. P1,135,000
B. P486,425 D. P910,000
10.Tip Company wishes to market a new product for P15.00 a unit. Fixed costs to
manufacture this product are P1,000,000 for less than 500,000 units and
P1,500,000 for 500,000 or more units. The contribution margin is 20%. How
many units must be sold to realize net income from this product of P1,000,000?
A. 266,667 C. 833,333
B. 533,333 D. 666,667
18.Lindsay Company reported the following results from sales of 5,000 units of
product A for June:
Sales P200,000
Variable costs (120,000)
Fixed costs ( 60,000)
Operating income P 20,000
Assume that Lindsay increases the selling price of product A by 10% on July. How
many units of product A would have to be sold in July to generate an operating
income of P20,000?
A. 4,000 C. 4,500
B. 4,300 D. 5,000
20.Brunei Corp. is developing a new product, surge protectors for high-voltage

electrical flows. The cost information for the product are: Direct materials,
P3.25 per unit; Direct labor, P4.00 per unit; Distribution, P0.75 per unit. The
company will also be absorbing P120,000 of additional fixed costs associated
with this new product. A corporate fixed charge of P20,000 currently absorbed
by other products will be allocated to this new product.
How many surge protectors (rounded to the nearest hundred) must Brunei sell at
a selling price of P14 per unit to increase after-tax income by P30,000?
(effective income tax rate is 40%)
A. 10,700 C. 20,000
B. 12,100 D. 28,300
41.Siberian Ski Company recently expanded its manufacturing capacity, which will
allow it to produce up to 15,000 pairs of cross-country skis of the
mountaineering model or the touring model. The Sales Department assures
management that it can sell between 9,000 pars and 13,000 pairs of either
product this year. Because the models are very similar, Siberian Ski will produce
only one of the two models.
The following information was compiled by the Accounting Department.
Per Unit (Pairs) Data

Mountaineering Touring
Selling price P88.00 P80.00
Variable costs 52.80 52.80
Fixed cost will total P369,600 if the mountaineering model is produced but will be
only P316,800 if the touring model is produced. Siberian ski is subject to a 40%
income tax rate.
If Siberian Ski Company desires an after tax net income of P24,000, how many
pairs of touring model skis will the company have to sell?
A. 13,118 C. 13,853
B. 12,529 D. 4,460
Sales amount
5. DJH Company has sales of P360,000, variable costs of P216,000, and fixed costs
of P150,000. To earn a 10% return on sates, DJH must have sales of (E)
A. P375,000 C. P440,000
B. P470,000 D. P500,000
26.Gorilla, Co. provides two products, M and W. M accounts for 60 percent of total
sales, variable cost as a percentage of selling price are 60% for M and 85% for
W. Total fixed costs are P225,000. If fixed costs will increase by 30 percent, what
amount of peso sales would be necessary to generate an operating profit of
P48,000?
A. P1,350,000 C. P1,135,000
B. P486,425 D. P910,000
32.Mount Park, Inc. had the following economic information for the year 2002:
Sales (50,000 units @ P20) P1,000,000
Variable manufacturing costs 400,000
Fixed costs 250,000
Income tax rate 40 percent
Mount Park budgets its 2003 sales at 60,000 units or P1,200,000. The company
anticipates increased competition; hence, an additional P75,000 advertising
costs is budgeted in order to maintain its sales target for 2003.
What is the amount of peso sales needed for 2003 in order to equal the after-tax
income in 2002?
A. P1,125,000 C. P1,187,500
B. P1,325,000 D. P1,387,500
27.Mount Park, Inc. had the following economic information for the year 2002:
Sales(50,000 units @ P20) P1,000,000
Variable manufacturing costs 400,000
Fixed costs 250,000
Mount Park budgets its 2003 sales at 60,000 units or P1,200,000. The company
anticipates increased competition; hence, an additional P75,000 advertising
costs is budgeted in order to maintain its sales target for 2003.
What is the amount of peso sales needed for 2003 in order to equal the after-tax
income in 2002?
A. P1,125,000 C. P1,187,500
B. P1,325,000 D. P1,387,500
26.Six-Two Convenience Store currently opens only Monday through Saturday. Six-
Two is considering opening on Sundays. The annual incremental fixed costs of
Sunday openings are estimated at P41,600. Six-Two’s gross margin on sales is 25
percent. Six-Two estimates that 60percent of its Sunday sales to customers
would be made on other days if the stores were no open on Sundays. The one-
day volume of Sunday sales that would be necessary for Six-Two to attain the
same weekly operating income as the current six-day week is
A. P6,000 C. P7,500
B. P5,000 D. P8,000
5. Six-Two Convenience Store currently opens only Monday through Saturday. Six-
Two is considering opening on Sundays. The annual incremental fixed costs of
Sunday openings are estimated at P39,000. Six-Two’s gross margin on sales is
25 percent. Six-Two estimates that 60 percent of its Sunday sales to customers
would be made on other days if the stores were not open on Sundays. The one-
day volume of Sunday sales that would be necessary for Six-Two to attain the
same weekly operating income as the current six-day week is
A. P6,000 C. P7,500
B. P5,000 D. P4,500
10. Camay Company is a grocery store that is currently open only Monday through
Saturday. Camay Company is considering opening on Sundays. The annual
incremental costs of Sunday openings are estimated at P31,200. Camay’s gross
margin on sales is 25 percent. Camay estimates that 75 percent of its Sunday
sales to customers would be made on other days if the store were not open on
Sundays.
The one-day volume of Sunday sales that would be necessary for Camay to
attain the same weekly operating as the current six-day week is
A. P2,400 C. P9,600
B. P3,200 D. P9,984
28.Donnelly Corporation manufactures and sells T-shirts imprinted with college

names and slogans. Last year, the shirts sold for P7.50 each, and the variable
cost to manufactures them was P2.25 per unit. The company needed to sell
20,000 shirts to break even. The net income last year was P5,040. Donnelly’s
expectation for the coming year include the following:
 The sales price of the T-shirts will be P9
 Variable cost to manufacture will increase by one-third
 Fixed costs will increase by 10%
 The income tax rate of 40% will be unchanged
If Donnelly wishes to earn P22,500 in net income for the coming year, the
company’s sales volume in pesos must be
A. P213,750 C. P207,000
B. P257,625 D. P229,500
25.Madden, Company has projected its income before taxes for next year as shown
below. Madden is subject to a 40% income tax rate.
Sales (160,000 units) P8,000,000

Cost of sales
Variable costs P 2,000,000
Fixed costs 3,000,000 5,000,000
Income before taxes P 3,000,000
Madden’s net assets are P36,000,000. The peso sales that must be achieved for
Madden to earn a 10 percent after tax return on assets would be
A. P8,800,000 C. P12,000,000
B. P16,000,000 D. P6,880,000
Unit variable cost

31.Story Manufacturing incurs an annual fixed cost of P250,000 in producing and
selling "Tales" Estimated unit sales for 2000 are 125,000. An after-tax income of
P75,000 is desired by management. The company projects its income tax rate at
40%. What is the maximum amount that Story can expend for variable costs per
unit and still meet its profit objective if the sale price per unit is projected at P6?
A. P3.37 C. P3.00
B. P3.59 D. P3.70
Unit Contribution Margin
28.The following relates to Gloria Corporation, which produced and sold 50,000
units during a recent accounting period:
Sales P850,000
Income tax rate 40%
Variable Fixed
Manufacturing cost 140,000 210,000
Selling & administrative expense 45,000 300,000
For the next accounting period, if production and sales are expected to be
40,000 units, the company should anticipate a contribution margin per unit of
A. P1.00. C. P3.10
B. P13.30. D. P7.30
Contribution Margin Ratio

29.Last year, the marginal contribution rate of Lamesa Company was 30%. This
year, fixed costs are expected to be P120,000, the same as last year, and sales
are forecasted at P550,000 a 10% increase over last year. For the company to
increase income by P15,000 in the coming year, the marginal contribution
margin rate must be
A. 20% C. 40%
B. 30% D. 70%
Total Fixed Costs

30.The Ship Company is planning to produce two products, Alt and Tude. Ship is
planning to sell 100,000 units of Alt at P4 a unit and 200,000 units of Tude at P3
a unit. Variable costs are 70% of sales for Alt and 80% of sales for Tude. In order
to realize a total profit of P160,000, what must the total fixed costs be?
A. P80,000 C. P240,000
B. P90,000 D. P600,000
Operating income
32.A manufacturer produces a product that sells for P10 per unit. Variable costs
per unit are P6 and total fixed costs are P12,000. At this selling price, the
company earns a profit equal to 10% of total peso sales. By reducing its selling
price to P9 per unit, the manufacturer can increase its unit sales volume by 25%.
Assume that there are no taxes and that total fixed costs and variable costs per
unit remain unchanged. If the selling price were reduced to P9 per unit, the
profit would be
A. P3,000 C. P5,000
B. P4,000 D. P6,000
33.Wilson Co. prepared the following preliminary forecast concerning product G for
next year assuming no expenditure for advertising:
Selling price per unit P 10
Units sales 100,000
Fixed costs P300,000
Based on a market study in December of this year, Wilson estimated that it could
increase the unit selling price by 15% and increase the unit sales volume by 10%
if P100,000 were spent on advertising. Assuming that Wilson incorporates these
changes in its forecast, what should be the operating income from product G?
A. P175,000 C. P205,000
B. P190,000 D. P365,000
27.Below is an income statement for Bender Co. for 2000:

Sales P400,000
Variable costs (125,000)
Contribution margin P275,000
Fixed costs (200,000)
Profit before tax P75,000
Assuming that the fixed costs are expected to remain at P200,000 for 2001, and
the sales price per unit and variable costs per unit are also expected to remain
constant, how much profit before tax will be produced if the company anticipates
2001 sales rising to 130% of the 2000 level?
A. P97,000
B. P195,000
C. P157,500
D. A prediction cannot be made from the information
34.Shoes, Unlimited operates a chain of shoe stores around the country. The stores
carry many styles of shoes that are all sold at the same price. To encourage
sales personnel to be aggressive in their sales efforts, the company pays a
substantial sales commission on each pair of shoes sold. Sales personnel also
receive a small basic salary.
The following cost and revenue data relate to Store 21 and are typical of the
company’s many sales outlets:
Selling price P 800
Variable expenses:
Invoice costs P360
Sales commission 140
500
Fixed expenses per year:
Rent P1,600,000
Advertising 3,000,000
Salaries 1,400,000
Total P6,000,000
The company is considering paying the store manager a P60 commission on
each pair of shoes sold in excess of break-even point. If this change were made,
what will be the store’s before tax profit or loss assuming 23,500 pairs of shoes
are sold in a year?
A. P(360,000) C. P840,000
B. P2,930,000 D. P1,330,000
Change in operating income

30.Machan Co.’s year-end income statement is as follows:
Sales (20,000 units) P360,000

Variable costs 220,00
0
Fixed costs 105,000
Net income P35,000
Management is unhappy with the results and plans to make some changes for
next year. If management implements a new marketing program, fixed costs are
expected to increase by P19,200 and variable costs to increase by P1 per unit.
Unit sales are expected to increase by 15 percent. What is the effect on income
if the foregoing changes are implemented?
A. decrease of P21,200 C. increase of P13,800
B. increase of P1,800 D. increase of P14,800
31.Signal Co. manufactures a single product. For 2000, the company had sales of
P90,000, variable costs of P50,000, and fixed costs of P30,000. Signal expects
its cost structure and sales price per unit to remain the same in 2001, however
total sales are expected to jump by 20%. If the 2001 projections are realized,
net income in 2001 should exceed net income in 2000 by
A. 100% C. 20%
B. 80% D. 50%
Sensitivity Analysis
Change in breakeven point
19.The following data relate to Homer Company which sells a single product:
Unit selling price P 20.00
Purchase cost per unit 11.00
Sales commission, 10% of selling price 2.00
Monthly fixed costs P80,000
The firm’s salespersons would like to change their compensation from a 10
percent commission to a 5 percent commission plus P20,000 per month in salary.
They now receive only commission.
The change in compensation plan should change the monthly breakeven point
by
A. 1,071 Increase C. 1,538 Increase
B. 1,071 Decrease D. 1,538 Decrease
Contribution margin
34.If fixed costs increase while variable cost per unit remains constant, the
contribution margin will be
A. Lower C. Unchanged
B. Higher D. Unpredictable
21.Paperbacks Publishing Co. projected the following information for next year:
Selling price per unit P500
Variable cost per unit P300
Total fixed costs P2,000,000
What is the profit when one unit more than the breakeven point is sold?
A. P500 C. P5,000,500
B. P200 D. P2,000,200
Fixed costs
4. DSP Company earned P100,000 on sales of P1,000,000. It earned P130,000 on
sales of P1,100,000. Total fixed costs are (M)
A. P 0 C. P420,000
B. P200,000 D. P900,000
35.Last month, Zamora Company had an income of P0.75 per unit with sales of
60,000 units. During the current month when the units sales are expected to be
only 45,000, there is a loss of P1.25 per unit. Both the variable cost per unit and
total costs remain constant.
The fixed costs amounted to
A. P80,000 C. P247,500
B. P360,000 D. P210,000
6. Aloha, Inc. has a total of 2,000 rooms in its nationwide chain of hotels. On the
average, 70 percent of the rooms are occupied each day. The company’s
operating costs are P21 per occupied room per day at this occupancy level,
assuming a 30-day month. This P21 figure contains both variable and fixed cost
elements. During October, the occupancy dropped to only 45 percent. A total of
P792,000 in operating cost was incurred during the month.
What would be the expected operating costs, assuming that the occupancy rate
increases to 60 percent during November?
A. P1,056,000 C. P846,000
B. P 756,000 D. P829,500
Change in fixed costs

33.The following data apply to Cross Corporation for the year 2004:
Total variable cost per unit P3.50
Contribution margin/sales 30%
Breakeven sales (present volume) P1,000,000
Cross wants to sell an additional 50,000 units at the same selling price and
contribution margin. By how much can fixed costs increase to generate a gross
margin equal to 10% of the sales value of the additional 50,000 units to be sold?
A. P50,000 C. P67,500
B. P57,500 D. P125,000
9. Santos Company is planning its advertising campaign for next year and has
prepared the following budget data based on a zero advertising expenditure:
Normal plant capacity 200,000 units
Sales 150,000 units
Selling price P25 per unit
Variable manufacturing costs P15 per unit
Fixed manufacturing costs P800,000
Fixed selling and adm costs P700,000
An advertising agency claims that an aggressive advertising campaign would
enable Santos to increase its unit sales by 20%. What is the maximum amount
that Santos Company can pay for advertising and have an operating profit of
P200,000 next year?
A. P100,000 C. P300,000
B. P200,000 D. P550,000
37.The Rizal Marketing Co., is expecting an increase of fixed costs by P78,750 upon
moving their place of business to the downtown area. Likewise it is anticipating
that the selling price per unit and the variable expense will not change. At
present, the sales volume necessary to breakeven is P750,000 but with the
expected increase in fixed costs, the sales volume necessary to breakeven would
go up to P975,000. Based on these projections, what would be the total fixed
costs after the increase of P78,750?
A. P341,250 C. P183,750
B. P262,500 D. P300,000
38.MS operates a chain of shoe stores around the metropolitan city. MS stores carry
many styles of shoes that are all sold at the same price. To encourage sales
personnel to be aggressive in their sales efforts, the company pays a substantial
sales commissions on each pair of shoes sold. Sales personnel also receive a
minimum basic salary.
The following cost and revenue data typical of the company’s many sales
outlets:
Selling price P800
Variable expenses:
Invoice costs P360
Sales commission 140
P500
Fixed expenses per year:
Rent P1,600,000
Salaries 1,400,000
Total P6,000,000
The company is considering paying the store manager a P60 commission on
each pair of shoes sold in excess of break-even point. If this change were made,
what will be the store’s before tax profit or loss assuming 23,000 pairs of shoes
are sold in a year?
A. P 720,000 C. P 920,000
B. P(480,000) D. P(680,000)
7. Candyman Company is a wholesale distributor of candy. The company services

grocery, convenience, and drug stores in Metro Manila. Small but steady growth
in sales has been achieved by the company over the past few years while candy
prices have been increasing. The company is formulating its plans for the
coming fiscal year. Presented below are the data used to project the current
year’s after-tax net income of P110,400.
Average selling price P4.00 per box
Average variable costs
Cost of candy P2.00 per box
Selling expenses 0.40 per box
Total P2.40 per box
Annual fixed costs
Selling P160,000
Administrative 280,000
Expected annual sales volume (390,000 boxes) P1,560,000
Manufacturers of candy have announced that they will increase prices of their
products an average of 15% in the coming year due to increases in raw material
(sugar, cocoa, peanuts, etc.) and labor costs. Candyman Company expects that
all other costs will remain at the same rates or levels as the current year.
Candyman is subject to 40 percent tax rate.
If net income after taxes is to remain the same after the cost of candy increases
but no increase in the sales price is made, how many boxes of candy must
Candyman sell?
A. 480,000 C. 503,225
B. 423,385 D. 443,871
Indifference Point
Units sold
40.Dulce, Inc. owns and operates a chain of food centers. The management is
considering installing machines that will make popcorn on the premises. These
machines are available in two different sizes with the following details.
Economy Regular
Annual capacity 20,000 50,000
Costs: Annual machine rental P60,000.00 P82,500.00
Popcorn cost per box 3.90 3.90
Cost of each box 0.80 0.80
Other variable cost per box 6.60 4.20
The level of output in boxes at which the Economy and the Regular would earn
the same profit (loss) is
A. 20,000 boxes C. 9,375 boxes
B. 15,000 boxes D. 12,500 boxes
13.The following data relate to Homer Company which sells a single product:
Unit selling price P 20.00
Purchase cost per unit 11.00
Sales commission, 10% of selling price 2.00
Monthly fixed costs P80,000
The firm’s salespersons would like to change their compensation from a 10
percent commission to a 5 percent commission plus P20,000 per month in salary.
They now receive only commissions.
At what sales volume would the two compensation plans be indifferent?
A. 12,500 C. 20,000
B. 22,222 D. 22,860
Sales amount
39.BM Motors Inc. employs 40 sales personnel to market its line of luxury
automobiles. The average car sells for P1,200,000 and a 6% commission is paid
to the salesperson. BM Motors is considering a change to a commission
arrangement that would pay each salesperson a salary of P24,000 per month
plus a commission of 2% of the sales made by that salesperson.
The amount of total car sales at which BM Motors would be indifferent as to
which plan to select is
A. P22,500,000 C. P24,000,000
B. P30,000,000 D. P12,000,000
10. Blue Ski Company recently expanded its manufacturing capacity to allow it to
produce up to 15,000 pairs of cross-country skis of either the mountaineering
model or the touring model. The sales department assures management that it
can sell between 9,000 and 13,000 pairs (units) of either product this year.
Because the models are very similar, Blue Ski will produce only one of the two
models. The information below was compiled by the accounting department.
Mountaine Touring
ering
Selling price per unit P880.00 P800.00
Variable costs per unit P528.00 P528.00
Fixed costs will total P3,696,000 if the mountaineering model is produced but will
be only P3,168,000 if the touring model is produced. Blue Ski is subject to a
40% income tax rate.
The total sales revenue at which Blue Ski Company would make the same profit
or loss regardless of the ski model it decided to produce is
A. P8,800,000 C. P4,224,000
B. P9,240,000 D. P6,864,000
Margin of Safety
9. The following information pertains to Dove Corporation for the year ending
December 31, 2000:
Budgeted sales P1,000,000
Breakeven sales 700,000
Budgeted contribution margin 600,000
Cashflow breakeven 200,000
Dove’s margin of safety is
A. P300,000 C. P500,000
B. P400,000 D. P800,000
Breakeven point
42.Russini, Inc. had the following economic data for 2004:
Net sales P400,000
Margin of safety P 40,000
What is Russini's breakeven point in 2004?
A. P360,000 C. P288,000
B. P320,000 D. P 80,000
Current sales
6. If a business had a margin of safety ratio of 20%. variable costs of 75% of sales,
fixed costs of P240,000, a break-even point of P960,000 and operating income of
P60,000 for the current year, what are the current year's sales? (M)
A. P1,200,000 C. P1,260,000
B. P1,040,00 D. P1,020,000
6. Pansipit Company had a 25 percent margin of safety. Its after-tax return on sales
is 6 percent, and tax rate of 40 percent. If fixed costs amount to P320,000, how
much sales did Pansipit make for the year?
A. P1,066,667 C. P1,000,000
B. P1,280,000 D. P 800,000
Fixed costs
7. Lemery Corporation had sales of P120,000 for the month of May. It has a
margin of safety ratio of 25 percent, and after-tax return on sales of 6 percent.
The company assumes its sales and fixed costs constant every month. If the tax
rate is 40 percent, how much is the annual fixed costs? (M)
A. P36,000 C. P432,000
B. P90,000 D. P360,000
Operating Leverage
43.A very high operating leverage indicates that a firm
A. has high fixed cost C. has high variable costs
B. has high net income D. is operating close to its breakeven point
45.Firm D and Finn S are competitors within the same industry. Firm D produces
its product using large amounts of direct tabor. Firm S has replaced direct labor
with investment in machinery. Projected sales for both firms are fifteen percent
less than in the prior year. Which statement regarding projected profits is true?
A. Firm D will lose more profit than Firm S.
B. Firm S will lose more profit than Firm D.
C. Firm D and Firm S will lose the same amount of profit.
D. Neither Firm D nor Firm S will lose profit.
44.The Didang Company has an operating leverage of 2. Sales for 2001 are
P2,000,000 with a contribution margin of P1,000,000. Sales are expected to be
P3,000,000 in 2002. Net income for 2002 can be expected to increase by what
amount over 2001?
A. P250,000 C. P500,000
B. 200 percent D. 40 percent
46.Signal Co. manufactures a single product. For 2000, the company had a sales of
P90,000, variable costs of P50,000, and fixed costs of P30,000. Signal expects its
cost structure and sales price per unit to remain the same in 2001, however total
sales are expected to jump by 20%. If the 2001 projections are realized, net
income in 2001 should exceed net income in 2000 by
A. 100% C. 20%
B. 80% D. 50%
Absorption Costing & Variable Costing

Variable Costing
47.Which of the following statements is true for a firm that uses variable (direct)
costing?
A. The cost of a unit of product changes because of changes in the number of
units manufactured
B. Profits fluctuate with sales
C. An idle facility variation is calculated
D. Product costs include “direct” (variable) administrative costs
48.Which of the following is not true of variable costing?
A. Profits may increase though sales decrease
B. Profits fluctuate with sales
C. The cost of the product consists of all variable production costs
D. The income statement under variable costing does not include overhead
volume variance.
21.The following information was extracted from the first year of absorption-based
accounting records of NOLI Co.
Total fixed costs incurred .P100,000
Total variable costs incurred 50,000
Total period costs incurred .70,000
Total variable period costs incurred 30,000
Units produced 20,000
Units sold 12,000
Unit sales Price P 12
Based on variable costing, if NOLI Company had sold 12,001 units instead of
12,000, its income before taxes would have been
A. P 9.50 higher C. P8.50 higher
B. P11.00 higher D. P8.33 higher
49.Coo Company manufactures a single product using standard costing. Variable

production costs; are P12 and fixed production costs are P125,000. Coo uses a
normal activity of 12,500 units to set its standard costs. Coo began the year with
1,000 unite in inventory, produced 11,000 units, and sold 11,500 units.
The standard cost of goods sold under variable costing would be
A. P115,000 C. P242,000
B. P138,000 D. P253,000
Absorption Costing
15. When a firm prepares financial reports by using absorption costing
A. profits will always increase with increase in sales
B. profits will always decrease with decreases in sales
C. profits may decrease with increased sales even if there is no change in selling
prices and costs
D. decreased output and constant sales result in increased profits
18.West Co.’s 2000 manufacturing costs were as follows:
Direct materials and direct labor P 700,000
Other variable manufacturing costs 100,000
Depreciation of factory building and manufacturing equipment 80,000
Other fixed and manufacturing overhead 18,000
What amount should be considered product cost for external reporting purposes?
A. P 700,000 C. P880,000
B. P800,000 D. P898,000
16. Toshiba Company incurred the following costs in manufacturing desk calculators:
Direct materials . P70
Indirect materials (variable) 20
Direct labor 40
Indirect labor (variable) 30
Other variable factory overhead 50
Fixed factory overhead 140
Variable selling expenses 100
Fixed selling expenses 70
During the period, the company produced and sold 1,000 units.
What is the inventory cost per unit using absorption costing?
A. P520 C. P420
B. P350 D. P310
50.Colger Company manufacture a single product using standard costing. Variable

production costs are P12 and fixed production costs are P125,000. Colger uses a
normal activity of 12,500 units to set its standard costs. Colger began the year
with 1,000 units in inventory, produced 11,000 units, and sold 11,500 units. The
standard costs of goods sold under absorption costing would be
A. P115,000 C. P242,000
B. P132,000 D. P253,000
51.The Trinkets Company estimated the following data for the coming year:
Fixed manufacturing costs P565,000
Variable production costs per peso of sales
Materials P0.125
Direct labor 0.150
Variable overhead 0.075
Variable selling costs per peso of sales 0.150
Trinkets estimates its sales for the coming year to be P2,000,000.
The expected costs of goods sold for the coming year is
A. P1,265,000 C. P1,115,000
B. P1,565,000 D. P700,000
52.Alma Company budgeted that factory overhead for 2004 and 2005 would be
P60,000 for each year. The predicted and actual activity for 2004 and 2005 were
30,000 and 20,000 direct labor hours, respectively.
2004 2005
Sales in units 25,000 25,000
Selling price per unit P10 P10
Direct materials and direct labor per unit P5 P5
The company assumes that the long-run production level is 20,000 direct labor
hours per year. The actual factory overhead cost for the end of 2004 and 2005
was P60,000. Assume that it takes one direct labor hour to make one finished
unit.
When the annual estimated factory overhead rate is used, the gross profits for
2004 and 2005, respectively, are
A. P75,000 and P75,000 C. 75,000 and P55,000
B. P125,000 and P125,000 D. P75,000 and P50,000
14.Apo Company’s variable costing income statement for August appears below:
Sales (P15 per unit) P600,000
Less variable costs:
Variable cost of goods sold:
Beginning inventory P 72,000
Add variable cost of goods manufactured 315,000
Goods available for sale 387,000
Less ending inventory 27,000
Variable cost of goods sold 360,000
Variable selling expenses 80,000
Total variable costs 440,000
Contribution margin 160,000
Fixed costs:
Fixed manufacturing P 105,000
Fixed selling and administrative 35,000
Total fixed costs 140,000
Net income P 20,000
The company produces 35,000 units each month. Variable production costs per
unit and total fixed costs have remained constant over the past several months.
Using the absorption costing method, the peso value of the company’s inventory
on August 31 and the absorption income, respectively, would be
A. B. C. D.
Inventory Value P27,000 P27,000 P36,000 P36,000
Absorption P35,000 P 5,000 P 5,000 P35,000
Income
54.Nirvana Co. employs a normal (nonstandard) absorption cost system. The

information below is from the financial records of the company for the year.
 Total manufacturing costs were P2,500,000
 Costs of goods of manufactured was P2,425,000
 Applied factory overhead was 30 percent of total manufacturing costs
 Factory overhead was applied to production at a rate of 80% of direct
labor cost
 Work-in-process inventory at January 1 was 75% of work-in-process
inventory at December 31
What are the amounts/value of the following cost elements and inventory?
Direct labor Direct materials Work-in-process

inventory
A. P750,000 P750,000 P225,000
B. P937,500 P812,500 P225,000
C. P937,500 P812,500 P300,000
D. P750,000 P750,000 P300,000
Variable & Absorption Costing

55.Lord Industries manufactures a single product. Variable production costs are P10
and fixed production costs are P75,000. Lord uses a normal activity of 10,000
units to set its standard costs. Lord began the year with no inventory, produced
11,000 units and sold 10,500 units. The volume variance under each product
costing are:
A. B. C. D.
Under Absorption P3,750 P3,750 P7,500 P7,500
Costing
Under Variable 0 7,500 3,750 0
Costing
56.Southseas Corp. uses a standard cost system. The standard cost per unit of one
of its products are as follows:
Direct Materials P4.00
Direct labor 6.00
Factory overhead
Variable 3.00
Fixed (based on a normal capacity of 10,000 units) 2.00
Total 15.00
Beginning inventory 2,000 units

Production 8,000 units
Units sold (selling price P50) 7,000 units
Actual costs:
Direct materials P35,000
Direct labor 50,000
Variable overhead 23,000
Fixed 18,000
Variable selling and adm. 60,000
Fixed selling and adm. 35,000
Variances are closed to cost of sales monthly
How much are the net income under absorption costing and variable costing
methods?
A. B. C. D.
Absorption P144,000 P143,000 P144,000 P142,000
Variable P143,000 P144,000 P142,000 P144,000
Variable vs. Absorption Costing

8. Absorption costing differs from variable costing in that (M)
A. standards can be used with absorption costing/ but not with variable costing.
B. absorption costing inventories are more correctly valued,
C. production influences income under absorption costing, but not under
variable costing.
D. companies using absorption costing have lower fixed costs.
12.A manufacturing firm presently has total sales of P1,000,000. If its sales rise, its
A. net income based on variable costing will go up more than its net
income based on absorption costing.
B. net income based on absorption costing will go up more than its net
income based on variable costing.
C. fixed costs will also rise.
D. per unit variable costs will rise.
9. Which of the following is(are) closely related to variable costing than to

absorption costing? (M)
1. Predetermined fixed overhead 5. Gross margin
2. Unit sales 6. Volume variance
3. Production units 7. Cost behavior
4. Contribution margin 8. Management accounting
A. 1, 2, 4, 6, 7, 8 C. 1, 3, 4, 7, 8
B. 2, 4, 7, 8 D. 1, 3, 5, 6
57.The level of production affects income; under which of the following methods?
A. Absorption costing C. both absorption and variable costing
B. variable costing D. neither absorption nor variable costing
10.Under which inventory costing method could increases or decreases in income

from operations be misinterpreted to be the result of operating efficiencies or
inefficiencies? (M)
A. Variable costing C. Incremental costing
B. Absorption costing D. Differential costing
Reconciliation of Variable & Absorption Costing Income

11.York Company had P200,000 income using absorption costing. York has no
variable manufacturing costs. Beginning inventory was P15,000 and ending
inventory was P22,000. Income under variable costing would have been (M)
A. P178,000 C. P193,000
B. P200,000 D. P207,000
58.Simple Corp. produces a single product. The following cost structure applied to
their first year of operations, 2000:
Variable costs:
SG&A P2.00 per unit
Production 4.00 per unit
Fixed Costs (total cost incurred for the year)
SG&A P14,000
Production P20,000
Assume that during 2000 Simple Corp. manufactured 5,000 units and sold 3,800
There was no beginning or ending work-in-process inventory. How much larger or
smaller would Simple Corp.'s income be if it uses absorption rather than variable
costing?
A. The absorption costing income would be P6,000 larger
B. The absorption costing income would be P6,000 smaller
C. The absorption costing income would be P4,800 larger
D. The absorption costing income would be P4,000 smaller
59.The following information has been extracted from P Co.’s financial records for its
first year of operations:
Units produced 10,000
Units sold 7,000
Variable cost per unit:
Direct materials P8
Direct labor 9
Factory overhead 3
SG&A 4
Fixed costs:
Manufacturing overhead P70,000
SG&A 30,000
Based on absorption costing, P Co.’s income in its first year of operations will be
A. P21,000 higher than it would be under variable costing
B. P70,000 higher than it would be under variable costing
C. P30,000 higher than it would be under variable costing
D. Higher than it would be under variable costing, but the exact difference
cannot be determinable from this information
60.Valyn Corporation employs an absorption costing system for internal

reporting purposes; however, the company is considering using variable costing.
Data regarding Valyn's planned and actual operations for the 2001 calendar year
are presented below.
Planned Actual
activity activity
Beginning finished goods 35,000 35,000
inventory in units
Sales in units 140,000 125,000
Production in units 140,000 130,000
The planned per unit cost figures shown in the next schedule were based on the
estimated production and sale of 140,000 units in 2001. Valyn uses a
predetermined manufacturing overhead rate for applying manufacturing
overhead to its product; thus, a combined manufacturing overhead rate of P9.00
per unit was employed for absorption costing purposes in 2001. Any over-or
under applied manufacturing overhead is closed to the cost of goods sold
account at the end of the repotting year.
Planned costs Incurred
Per unit Total Costs
Direct materials P12.00 P1,680,0 P1,560,0
00 00
Direct labor 9.00 1,260,00 1,170,00
0 0
Variable manufacturing 4.00 560,000 520,000
overhead
Fixed manufacturing 5.00 700,000 715,000
overhead
Variable selling expenses 8.00 1,120,00 1,000,00
0 0
Fixed selling expenses 7.00 980,000 980,000
Variable administrative 2.00 280,000 250,000
expenses
Fixed administrative 3.00 420,000 425,000
expenses
Total P50.00 P7,000,0 P6,620,0
00 00
The 2001 beginning finished goods inventory for absorption costing purposes
was valued at the 1998 planned unit manufacturing cost, which was the same as
the 2001 planned unit manufacturing cost. There are no work-in-process
inventories at either the beginning or the end of the year. The planned and
actual unit selling price for 2001 was P70.00 per unit
The difference between Valyn Corporations 2001 operating income calculated on
the absorption costing basis and calculated on the variable costing basis was
A. P65,000 C. P40,000
B. P25,000 D. P90,000
Standard Costing & Variance Analysis

Basic Concepts
12.Normal costing and standard costing differ in that (M)
A. the two systems can show different overhead budget variances.
B. only normal costing can be used with absorption costing.
C. the two systems show different volume variances if standard hours do not
equal actual hours.
D. normal costing is less appropriate for multiproduct firms.
62.Which of the following is a difference between a static budget and a flexible
budgets?
A. A flexible budget includes only variable costs; a static budget includes only
fixed costs.
B. A flexible budget includes all costs, a static budget includes only fixed costs.
C. A flexible budget gives different allowances for different levels of activity, a
static budget does not
D. There is no difference between the two.
Standard Setting
63.Which of the following statements about the selection of standards is true?
A. Ideal standards tend to extract higher performance levels since they
give employees something to live up to.
B. Currently attainable standards may encourage operating inefficiencies.
C. Currently attainable standards discourage employees from achieving their full
performance potential.
D. Ideal standards demand maximum efficiency which may leave workers
frustrated, thus causing a decline in performance.
64.The best basis upon which costs standards should be set to measure controllable
production inefficiencies is
A. Engineering standards based on ideal standards
B. Normal capacity
C. Recent average historical performance
D. Engineering standards based on attainable performance
65.To measure controllable production inefficiencies, which of the following is the

best basis for a company to use in establishing the standard hours allowed for
the output of one unit of product?
A. Average historical performance for the last several years.
B. Engineering estimates based on ideal performance.
C. Engineering estimates based on attainable performance.
D. The hours per unit that would be required for the present workforce to
satisfy expected demand over the long run.
Direct materials
14.Dahl Company, a clothing manufacturer uses a standard costing system. Each
unit of a finished product contains 1.6 yards of cloth. However there is
unavoidable waste of 20% calculated on input quantities, when the cloth is cut
for assembly. The cost of the cloth is P3 per yard. The standard direct material
cost for cloth per unit of finished product is: (M)
A. P4.80 C. P7.00
B. P6.00 D. P7.50
16.Each finished unit of Spring contains 60 pounds of raw material. The

manufacturing process must provide for a 20% waste allowance. The raw
material can be purchased for P2.50 a pound under terms of 2/10, n/30. The
company takes all cash discounts. The standard direct material cost for each
unit of Spring is
A. P180.00 C. P183.75
B. P187.50 D. P176.40
17.Agusan Company uses a standard costing system in connection with

manufacture of a “one size fits all” article of clothing. Each unit of finished
product contains 2 yards of direct material. However, a 20% direct material
spoilage calculated on input quantities occurs during the manufacturing process.
The cost of the direct material is P150 per yard. The standard direct material
cost per unit of finished product is
A. P240 C. P360
B. P300 D. P375
66.T Company purchased 340,000 pounds of material at a cost of P510,000. The

materials price variance was unfavorable by P34,000. During the year, 300,000
pounds of this material was requisitioned for production. The materials quantity
variance was unfavorable by P11,200. The standard cost of materials that should
have been used in production was
A. P430,200 C. P555,200
B. P551,500 D. 408,800
67.Derby Co. uses a standard costing system in connection with the manufacture of
a line of T-shirts. Each unit of finished products contains 2 yards of direct
material. However, a 20 percent direct material spoilage calculated on input
quantities occurs during the manufacturing process. The cost of the direct
materials is P120 per yard.
The standard direct material cost per unit of finished products is
A. P192 C. P240
B. P288 D. P300
Variable Overhead
21.The per-unit standard cost for variable overhead is normally based on which of
the following:
A. The standard quantity of an input factor used in a unit of product.
B. The actual variable overhead cost incurred at the achieved level of
production.
C. The budgeted total cost for variable overhead divided by the number of units
expected to be produced.
D. The ratio of fringe benefits to the basic cost of labor.
Total Overhead
68.Relevant Company had the following flexible budget for 2003 at 100 percent
capacity of 30,000 direct labor hours.
Direct labor 600,000
Variable manufacturing overhead 360,000
Fixed manufacturing overhead 288,000
What is the total manufacturing overhead application rate id the Relevant
Company has to operate at 80 percent of the stated capacity?
A. P24.00 C. P24.60
B. P27.00 D. P21.60
69. ABC Company is preparing a flexible budget for 2004 and the following
maximum capacity estimates for the manufacturing division are available:
Direct labor hours 60,000 hours
Variable factory overhead P600,000
Fixed manufacturing overhead P300,000
Assume that ABC’s expected capacity is 80% of maximum capacity. What would
be the total factory overhead rate, based on direct labor hours, in a flexible
budget at expected capacity?
A. P18.75 C. P16.25
B. P14.25 D. P15.00
19.Serafin Company is preparing a flexible budget for 2004 and the following
maximum capacity estimates for Assembly Department are available:
Direct labor hours 80,000 hours
Fixed manufacturing overhead P300,000
Assume that Serafin’s expected capacity is 75% of maximum capacity. What
would be the total factory overhead rate, based on direct labor hours, in a
flexible budget at expected capacity?
A. P13.00 C. P11.75
B. P15.67 D. P11.00
Materials Variance
Price variance
70.Information on Energy’s direct material costs for October is as follows:
Actual quantity of direct materials purchased and used30,000 lbs.
Actual cost of direct materials P92,000
Unfavorable direct materials usage variance P 3,000
Standard quantity of direct materials allowed for May production
29,000 lbs
For the month of October, Energy’s direct materials price variance was:
A. P3,000 favorable C. P2,000 unfavorable
B. P2,000 favorable D. P2,000 favorable
11.Information on Mirriam’s direct material costs for May is as follows:

Actual quantity of direct materials purchased and used 30,000 lbs.
Actual cost of direct materials P84,000
Unfavorable direct materials usage variance P 3,000
Standard quantity of direct materials allowed for May production 29,000
lbs
For the month of May, Mirriam’s direct materials price variance was:
B. P2,800 unfavorable D. P6,000 favorable
Quantity Variance
15.Cox Company's direct material costs for the month of January were as follows:
Actual quantity purchased 18,000 kilograms
Actual unit purchase price P 3.60 per kilogram
Materials price variance unfavorable (based on purchases)P 3,600
Standard quantity allowed for actual production16,000 kilograms
Actual quantity used 15,000 kilograms
For January there, was a favorable direct material quantity variance of: (M)
A. P3,360 C. P3,400
B. P3,375 D. P3,800
Standard quantity
71.Ramie has a standard price of P5.50 per pound for materials. July's results
showed an unfavorable material price variance of P44 and a favorable quantity
variance of P209. If 1,066 pounds were used in production, what was the
standard quantity allowed for materials?
A. 1,104 C. 1,074
B. 1,066 D. 1,100
18.The Bohol Company uses standard costing. The following data are available for
October:
Actual quantity of direct materials used 23,500 pounds
Standard price of direct materials P2 per pound
Material quantity variance P1,000 unfavorable
The standard quantity of material allowed for October production is
A. 23,000 lbs C. 24,500 lbs
B. 24,000 lbs D. 25,000 lbs
Units produced
72.Silver Company has a standard of 15 parts of Component R costing P1.50 each.
Silver purchased 14,910 units of R for P22,145. Silver generated a P220
favorable price variance and a P3,735 favorable usage variance. If there were no
changes in the component of inventory, how many units of finished product were
produced?
A. 994 units C. 1,725 units
B. 1,160 units D. 828 units
Mix & Yield Variance

73.Xtra Klean manufactures a cleaning solvent. The company employs both skilled
and unskilled workers. Skilled workers class C are paid P12 per hour, while
unskilled workers class D are paid P7 per hour. To produce one 55-gallon drum of
solvent requires 4 hours of skilled labor and 2 hours of unskilled labor. The
solvent requires 2 different materials: A and B. The standard and actual material
information is given below:
Standard:
Material A: 30.25 GALLONS @ P1.25 per gallon
Material B: 24.75 gallons @ P2.00 per gallon
Actual:
Material A: 10,716 gallons purchased and used @ P1.50 gallon
Material B: 17,484 gallons purchased and used @ P1.90 per gallon
Skilled labor hours: 1,950 @ P11.90 per hour
Unskilled labor hours: 1,300 @ P7.15 per hour
During the current month Xtra Klean manufactured five hundred 55-gallon
drums. (Round all answers to the nearest whole peso)
What are the total materials mix variance and material yield variance?
A. B. C. D.
Mix P3,596 U P3,596 F P4,864 F P4,864 U
Yield P1,111 U P1,111 F P2,670 F P2,670 U
Labor Variance
Labor rate variance
74.The flexible budget for the month of May 2002 was for 9,000 units with direct
material at P15 per unit. Direct labor was budgeted at 45 minutes per unit for a
total of P81,000. Actual output for the month was 8,500 units with P127,500 in
direct material and P77,775 in direct labor expense. Direct labor hours of 6,375
were actually worked during the month. Variance analysis of the performance for
the month of May would show a(n)
A. favorable material quantity variance of P7,500
B. unfavorable direct labor efficiency variance of P1,275
C. unfavorable material quantity variance of P7,500
D. unfavorable direct labor rate variance of P1,275
Actual hours
16.The standards for direct labor for a product are 2.5 hours at P8 per hour. Last
month, 9,000 units of the product were made and the labor efficiency variance
was P8,000 F. The actual number of hours worked during the past period was:
(M)
A. 23,500 C. 20,500
B. 22,500 D. 21,500
75.Stars Company uses a standard cost system. Information about its direct labor
costs for Product Mars for the month of April follows:
Standard hours allowed for actual production 1,500
Actual hourly rate paid P61.00
Standard hourly rate P60.00
Labor efficiency variance, Favorable P6,000
How many direct labor hours were actually worked during the month of April?
A. 1,400 C. 1,498
B. 1,402 D. 1,600
76. Information on Ulan Company’s direct labor costs is as follows:

Standard direct labor rate P7.50
Actual direct labor rate P7.00
Standard direct labor hours 20,000
Direct labor usage variance – unfavorable P8,400
What were the actual hours worked, rounded to the nearest hour?
A. 21,914 C. 21,120
B. 20,714 D. 21,200
12.Information on Rita Company’s direct labor costs is as follows:

Standard direct labor rate P 3.75
Actual direct labor rate P 3.50
Standard direct labor hours 10,000
Direct labor usage variance – unfavorable P 4,200
What were the actual hours worked, rounded to the nearest hour?
A. 11,914 C. 11,120
B. 10,714 D. 11,200
Standard hours allowed

13.The Carrera Corporation makes a variety of leather goods. It uses standards
costs and a flexible budget to aid planning and control. Budgeted variable
overhead at a 45,000-direct labor hour level is P27,000.
During April material purchases were P241,900. Actual direct-labor costs
incurred were P140,700. The direct-labor usage variance was P5,100
unfavorable. The actual average wage rate was P0.20 lower than the average
standard wage rate.
The company uses a variable overhead rate of 20% of standard direct-labor cost
for flexible budgeting purposes. Actual variable overhead for the month was
P30,750.
What were the standard hours allowed during the month of April?
A. 50,250 C. 48,550
B. 58,625 D. 37,520
Standard rate
77.Anne had a P750 unfavorable direct labor rate variance and an P800 favorable
efficiency variance. Anne paid P7,150 for 800 hours of labor. What was the
standard direct labor wage rate?
A. P8.94 C. P7.94
B. P8.00 D. P7.80
Two-Way Overhead Variance

Budget or Controllable Variance
22.Which of the following are considered controllable variance?
A. B. C. D.
VOH Spending Yes No No Yes
Total Overhead Yes No Yes Yes
Budget
Volume Yes Yes No No
78.If actual overhead is P14,000, overhead applied is P13,400, and overhead

budgeted for the standard hours allowed is P15,600, then the overhead
controllable variance is
A. P600 F C. P1,600 F
B. P2,200 U D. P1,600 U
17.The standard costs and actual costs for factory overhead for the manufacture of
2,500 units of actual production are as follows:
Standard cost
Fixed overhead (based on 10,000 hours)3 hours @ P.80 per hour
Variable overhead 3 hours @ P2 per hour
Actual cost
Total variable cost P18,000
Total fixed cost P8,000
The amount of the factory overhead controllable variance is (M)
A. P2,000 unfavorable C. P0
B. P3,000 favorable D. P3,000 unfavorable
15.GMA Company employs a standard absorption system for product costing. The
standard cost of its product is as follows:
Direct materials P14.50
Direct labor (2 direct labor hours at P8) 16.00
Manufacturing overhead ( 2 DLH at P11) 22.00
The manufacturing overhead rate is based upon a normal activity level of
600,000 direct labor hours. Joker planned to produce 25,000 units each month
during the year. The budgeted annual manufacturing overhead is:
Variable P3,600,000
Fixed 3,000,000
During November, GMA produced 26,000 units. GMA used 53,500 direct labor
hours in November at a cost of P433,350. Actual manufacturing overhead for
the month was P250,000 fixed and P325,000 variable.
The manufacturing overhead controllable variance for November is
A. P13,000 unfavorable C. P3,000 favorable
79.Calma Company uses a standard cost system. The following budget, at normal
capacity, and the actual results are summarized for the month of December:
Direct labor hours 24,000
Variable factory OH P 48,000
Fixed factory OH P108,000
Total factory OH per DLH P 6.50
Actual data for December were as follows:

Direct labor hours worked 22,000
Total factory OH P147,000
Standard DLHs allowed for capacity attained 21,000
Using the two-way analysis of overhead variance, what is the controllable
variance for December?
A. P3,000 Favorable C. P 9,000 Favorable
B. P5,000 Favorable D. P10,500
Unfavorable
Volume Variance
13.The unfavorable volume variance may be due to all but which of the following
factors? (M)
A. failure to maintain an even flow of work
B. machine breakdowns
C. unexpected increases in the cost of utilities
D. failure to obtain enough sales orders
20.How will a favorable volume variance affect net income under each of the
following methods?
A. B. C. D.
Absorption Reduce Reduce Increase Increase
Variable No effect Increase No effect Reduce
80.The fixed overhead application rate is a function of a predetermined "normal"

activity level. If standard hours allowed for good output equal this predetermined
activity level for a given period, the volume variance will be
A. zero
B. favorable
C. unfavorable
D. either favorable or unfavorable, depending on the budgeted overhead
18.The standard factory overhead rate is P7.50 per machine hour (P6.20 for variable
factory overhead and P1.30 for fixed factory overhead) based on 100% capacity
of 80,000 machine hours. The standard cost and the actual cost of factory
overhead for the production of 15,000 units during August were as follows:
Actual:
Fixed factory overhead 104,000
Standard hours allowed for units produced:
60,000 hours at P7.50 450,000
What is the amount of the factory overhead volume variance? (M)
A. P12,000 unfavorable C. P14,000 unfavorable
81.Hero Company uses a flexible budget system and prepared the following
information for the year:
Percent of Capacity 80 90 Percent
Direct labor hours 24,000 27,000
Variable factory overhead P P 60,750
Fixed factory overhead P108,00
54,000 P 108,000
Total factory overhead rate per P6.750 P6.25
DLHoperated at 80 percent of capacity during the year, but applied factory
Hero
overhead based on the 90 percent capacity level.
Assuming that actual factory overhead was equal to the budgeted amount of
overhead, how much was the overhead volume variance for the year?
82.Meteor Company employs a standard absorption system for product costing.

The standard cost of its product is as follows:
Direct labor (2 direct labor hours at P9) 18.00
Manufacturing overhead ( 2 DLH at P12) 24.00
The manufacturing overhead rate is based upon the annual normal activity level
of 600,000 direct labor hours. Meteor planned to produce 25,000 units each
month during the year. The budgeted annual manufacturing overhead is:
Variable P4,200,000
Fixed 3,000,000
During November, Meteor produced 26,000 units. Meteor used 53,500 direct
labor hours in November at a cost of P433,350. Actual manufacturing overhead
for the month was P250,000 fixed and P325,000 variable.
The manufacturing overhead volume variance for November is
Budgeted Overhead
83.Karla Company use an annual cost formula for overhead of P72,000 + P1.60 for
each direct labor hour worked. For the upcoming mouth Karla plans to
manufacture 96,000 units. Each unit requires five minutes of direct labor. Karla's
budgeted overhead for the month is
A. P12,800 C. P84,800
B. P18,800 D. P774,000
Budgeted fixed costs
84.CTV Company has a standard feed cost of P6 per unit. At an actual production
of 8,000 units a favorable volume variance of P 12,000 resulted. What were total
budgeted fixed costs?
A. P36,000 C. P60,000
B. P48,000 D. P75,000
23.The Arayat Company makes and sells a single product and uses standard
costing. During January, the company actually used 8,700 direct labor-hours
(DLHs) and produced 3,000 units of product. The standard cost card for one unit
of product includes the following:
Variable factory overhead: 3.0 DLHs @ P4.00 per DLH.
Fixed factory overhead: 3.0 DLHs @ P3.50 per DLH
For January, the company incurred P22,000 of actual fixed overhead costs and
recorded a P875 favorable volume variance.
The budgeted fixed overhead overhead cost for January is
A. P31,500 C. P32,375
B. P30,625 D. P33,250
Normal Capacity
85.South Company has total budgeted fixed costs of P75,000. Actual production of
19,500 units resulted in a P3,000 favorable volume variance. What normal
capacity was used to determine the fixed overhead rate?
A. 16,500 C. 20,313
B. 18,750 D. 20,325
Questions 86 & 87 are based on the following information.

Lucky Company sets the following standards for 2003:
Direct labor cost (2 DLH @ P4.50) P9.00
Manufacturing overhead (2 DLH @ P7.50) 15.00
Lucky Company plans to produce its only product equally each month. The annual
budget for overhead costs are:
Fixed overhead P150,000
Normal activity in direct labor hours 60,000
In March, Lucky Company produced 2,450 units with actual direct labor hours used
of 5,050. Actual overhead costs for the month amounted to P37,245 (Fixed
overhead is as budgeted.)
86.The amount of overhead volume variance for Lucky Company is

A. P250 unfavorable C. P750 unfavorable
B. P500 unfavorable D. P375 unfavorable
87.The controllable overhead variance was

A. P505 favorable C. P245 favorable
B. P505 unfavorable D. P245 favorable
Three-Way Overhead Variance

88.The following data are the actual results for Bustos Company for the month of
May:
Actual output 4,500 units
Actual variable overhead P360,000
Actual fixed overhead P108,000
Actual machine time 14,000 MH
Standard cost and budget information for Bustos Company follows:
Standard variable overhead rate P6.00 per MH
Standard quantity of machine hours 3 hours per unit
Budgeted fixed overhead P777,600 per year
Budgeted output 4,800 unit per month
The overhead efficiency variance is
A. P3,000 Favorable C. P5,400 Favorable
B. P3,000 Unfavorable D. P5,400 Unfavorable
26.The Suez Company has standard variable costs as follows:

Materials, 3 pounds at P4.00 per pound P12.00
Labor, 2 hours P10.00 per hour 20.00
Variable overhead, P7.50 per labor hour 15.00
Total P47.00
During September Suez Company produced 6,000 units, using 11,560 labor
hours at a total wage of P113,870 and incurring P88,600 in variable overhead.
The variable overhead variances are:
A. B. C. D.
Spending P1,900 F P1,900 U P1,400 F P1,400 U
Efficiency P3,300 U P3,300 F P1,900 F P1,900 F

Richard Company employs a standard absorption system for product costing. The
standard cost of its product is as follows:
Raw materials P14.50
Direct labor (2 DLH x P8) 16.00
Manufacturing overhead (2 DLH x P11) 22.00
Total standard cost P52.50
The manufacturing overhead rate is based upon a normal activity level of 600,000
direct labor hours. Richard planned to produce 25,000 units each month during the
year. The budgeted annual manufacturing overhead is:
Variable P3,600,000
Fixed 3,000,000 P6,600,000
During November, Richard produced 26,000 units. Richard used 53,500 direct labor
hours in November at a cost of P433,350. Actual manufacturing overhead for the
month was P260,000 fixed and P315,000 variable. The total manufacturing
overhead applied during November was P572,000.
24.The fixed manufacturing overhead volume variance for November is

B. P10,000 unfavorable D. P22,000 favorable
25.The total variance related to efficiency of the manufacturing operation for

November is
B. P12,000 unfavorable D. P11,000 unfavorable
Three-Way Overhead Variance (Variable OH Spending, Fixed OH Budget, Volume)

89.Arlene had an P18,000 unfavorable volume variance, a P25,000 unfavorable
variable overhead spending variance, and P2,000 total under applied overhead.
The fixed overhead budget variance is
Four-Way Overhead Variance

Variable overhead spending variance
18. Baltimore, Inc. analyzes manufacturing overhead in the production of its only
one product, Blu. The following set of information applies to the month of May,
2003:
Budgeted Actual
Units produced 40,000 38,000
Variable manufacturing overhead P4/DLH P16,400
Fixed manufacturing overhead P20/DLH P88,000
Direct labor hours 6 4,200 hours
minutes/unit
How much was the variable overhead spending variance?

A. P400 Favorable C. P1,200 Favorable
B. P400 Unfavorable D. P1,200 Unfavorable

The Clark Company makes a single product and uses standard costing. Some data
concerning this product for the month of May follow:
Labor rate variance P7,000 F
Labor efficiency variance P12,000 F
Variable overhead efficiency variance P4,000 F
Number of units produced 10,000
Standard" labor rate per direct labor hour P12
Standard variable overhead rate per direct labor hour: P4
Actual labor hours used: 14,000
Actual variable manufacturing overhead costs: P58,290
19.The variable overhead spending variance for May was: (M)

A. P2,290 F C. P2,290 U
B. P1,710 F D. P1,710 U
20.The standard hours allowed to make one unit of finished product are: (M)
A. 1.0 C. 1.5
B. 1.2 D. 1.3
Variable overhead efficiency variance

90.Franklin Glass Works, production budget for the year ended November 30,
2001 was based on 200,000 units. Each unit requires two standard hours of labor
for completion. Total overhead was budgeted at P900,000 for the year, and the
fixed overhead rate was estimated to be P3.00 per unit. Both fixed and variable
overhead are assigned to the product on The basis of direct labor hours. The
actual data for the year ended November 30,2001 are presented below.
Actual production in units 198,000
Actual direct labor hours 440,000
Actual variable overhead P 352,000
Actual freed overhead P 575,000
Franklin's variable overhead efficiency variance for the year ended November
30, 2001 is
Fixed overhead spending variance

91. Long Company analyzes its manufacturing overhead in the production of its
only one product, Shorts. The following set of information applies to the month
of January 2004:
Budgeted Actual
Units produced 40,000 38,000
Variable manufacturing overhead P4/DLH P16,400
Fixed manufacturing overhead P20/DLH P85,000
Direct labor hours 6 4,000
minutes/u hours
nit
What is the fixed overhead spending variance?
A. P5,000 Favorable C. P1,600 Unfavorable
B. P1,600 Favorable D. P5,000 Unfavorable
17.Bravo Corporation’s master budget calls for the production of 5,000 units of
product monthly. The annual master budget includes indirect labor of P144,000
annually. Bravo considers indirect labor to be a variable cost. During the month
of April, 4,500 units of product were produced, and indirect labor costs of
P10,100 were incurred. A performance report utilizing flexible budgeting would
report a budget variance for indirect labor of

A. P1,900 Unfavorable C. P700 Unfavorable
B. P1,900 Favorable D. P700 Favorable
Applied fixed manufacturing overhead

92.Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct
labor hours were budgeted. If the fixed overhead volume variance was P12,000
favorable and the fixed overhead spending variance was P16,000 unfavorable,
fixed manufacturing overhead applied must be
A. P516,000 C. P504,000
B. P512,000 D. P496,000
Comprehensive
Questions 93 thru 95 are based on the following information.
The Lustre Company produces its only product. Kool Chewing Gum. The standard
overhead costs for one pack of the product follows:
Fixed overhead (1.50 hours at P18.00) P27.00
Variable overhead (1.50 hours at P10.00) 15.00
Total application rate P42.00
Lustre uses expected volume of 20,000 units. During the year, Lustre used 31,500
direct labor hours for the production of 20,000 units. Actual overhead costs were
P545,000 fixed and P308,700 variable.
93.The amount of variable overhead spending variance is

94.The total overhead controllable variance is

95.The overhead efficiency variance is

Gross Profit Variation Analysis
96.Vicki Division operates as a revenue center and sells only one product. Data for
May 2000 are as follows:
Actual Expected
Sale in units 10,000 9,500
Selling price per unit P11 P10
Variable expense per unit P6
What are the price variance and price volume variance?
A. B. C. D.
Sales Price P10,000 F P5,000 F P5,000 U P10,000 U
Variance
Price Volume P5,000 F P10,000 U P10,000 F P5,000 U
Variance
Master Budget
Basic Concepts
97.The basic difference between a master budget and a flexible budget is that a
A. Flexible budget considers only variable costs but a master budget considers
all costs.
B. Flexible budget allows management latitude in meeting goals whereas a
master budget is based on a fixed standard.
C. Master budget is for an entire production facility but a flexible budget is
applicable to single department only.
D. Master budget is based on one specific level of production and a flexible
budget can be prepared for any production level within a relevant range
98.Zero-base budgeting requires managers to

A. Justify expenditures that are increases over the prior period’s budget amount
B. Justify all expenditures, not just increases over last year’s amount.
C. Maintain a full-year budget intact at all times.
D. Maintain a budget with zero increases over the prior period.
99.A systematized approach known as zero-based budgeting

a Presents the plan for only one level of activity and does not adjust to changes
in the level of activity.
B. Presents a statement of expectations for a period of time but does not
present a firm commitment.
C. Divides the activities of individual responsibility centers into a series of
packages which are ranked ordinally.
D. Classifies budget requests by activity and estimates the benefits arising from
each activity.
23.Budget slack is a condition in which

A. Demand is low at various times of the year
B. Excess machine capacity exists in some areas of the plant
C. There is an intentional overestimate of expenses or an underestimate of
revenues
D. Managers grant favored employees extra time-off
100. When preparing the series of annual operating budgets, management usually
starts the process with the
A. Cash budget C. Sales budget
B. Production budget D. Capital budget
Production Budget
101. Isabelle, Industries plans to sell 200,000 units of Batik products in October
and anticipates a growth in sales of 5 percent per month. The target ending
inventory in units of the product is 80 percent of the next month’s estimated
sales. There are 150,000 units in inventory as of the end of September. The
production requirement in units of Batik for the quarter ending December 31
would be
A. 670,560 C. 665,720
B. 691,525 D. 675,925
Purchasing Budget
102. The Jung Corporation's budget calls for the following production:
Quarter 1 45,000 units
Each unit of product requires three pounds of direct material. The company's
policy is to begin each quarter with an inventory of direct materials equal to 30%
of that quarters direct material purchase requirements. Budgeted direct
materials purchases for the third quarter would be
A. 114,600 pounds C. 38,200 pounds
B. 89,400 pounds D. 29,800 pounds
25.Plainfield Company prepares its budgets on annual basis. The following
beginning and ending inventory unit levels are planned for the fiscal year of June
1, 2002 through May 31, 2003.
June 1, 2002 May 31, 2003

Raw material* 40,000 50,000
Work-in-process 10,000 10,000
Finished goods 80,000 50,000
*Two (2) units of raw material are needed to produce each unit of finished
product.
If 500,000 finished units were to be manufactured during the 2000-2001 fiscal
year by Plainfield Company, the units of raw material needed to be purchased
would be
A. 1,000,000 units C. 1,010,000 units
B. 1,020,000 units D. 990,000 units
Cash Budget
105. At the beginning of the current month, Rose had P100,000. Cash
disbursements were P2,600,000 and cash collections were P2,850,000. Rose
invests all excess cash in a money market fund and has a line of credit to cover
cash deficiencies.
If Rose wishes to start the next month with P150,000, Rose must
A. invest P200,000 C. invest P350,000
B. borrow P400,000 D. do nothing
103. The Mango Company is preparing its cash budget for the month of May. The
following information is available concerning its accounts payable:
Estimated credit sales for May P200,000
Actual credit sales for April 150,000
Estimated collections in May for credit sales in May 20%
Estimated collections in May for credit sales in April 70%
Estimated collections in May for credit sales prior to AprilP12,000
Estimated write-offs in May for uncollectible credit sales 8.000
Estimated provision for bad debts in May for credit sales in May 7,000
What are the estimated cash receipts from accounts receivable collections in
May?
A. P142,000 C. P150,000
B. P149,000 D. P157,000
26. The Queen Company has the following historical pattern on its credit sales.
 percent collected in month of sale
 percent collected in the first month after sale
 percent collected in the second month after sale
 percent collected in the third month after sale
 percent uncollectible
The sales on open account have been budgeted for the last six months of 2003
are shown below:
July P 60,000
August 70,000
September 80,000
October 90,000
November 100,000
December 85,000
The estimated total cash collections during the fourth calendar quarter from
sales made on open account during the fourth calendar quarter would be
A. P172,500 C. P230,000
B. P265,400 D. P251,400
104. The Magic Company is preparing its cash budget for the month ending
January 31. The following information pertains to Peace’s past collection
experience from its credit sales:
Current month’s sales 12%
Prior month’s sales 75%
Sales two months prior to current month 6%
Sales three months prior to current month 4%
Cash discounts (2/30, net/90) 2%
Doubtful accounts 1%
Credit sales:
January – estimated P2,000,000
December 1,800,000
November 1,600,000
October 1,900,000
How much is the estimated credit to Accounts Receivable as a result of
collections expected during January?
A. P1,730,200 C. P1,762,000
B. P1,757,200 D. P1,802,000
106. The Mango Company is preparing its cash budget for the month of May. The
following information is available concerning its accounts payable:
Estimated credit sales for May P200,000
Actual credit sales for April 150,000
Estimated collections in May for credit sales in May 25%
Estimated collections in May for credit sales in April 70%
Estimated collections in May for credit sales prior to AprilP15,000
Estimated write-offs in May for uncollectible credit sales 8,000
Estimated provision for bad debts in May for credit sales in May 7,000
What are the estimated cash receipts from accounts receivable collections in
May?
A. P142,000 C. P157,000
B. P149,000 D. P170,000
Responsibility Accounting & Transfer Pricing

Basic Concepts
27. What term identifies an accounting system in which the operations of the
business are broken down into reportable segments and the control functions of
a foreperson, sales managers, or supervisor is emphasized?
A. Responsibility accounting C. Control accounting
B. Operations-research accounting D. Budgetary accounting
107. Controllable costs are

A. Costs that are likely to respond to the amount of attention devoted to them
by a specified manager.
B. Costs that are governed mainly by past decisions that established the present
levels of operating and organizational capacity and that only change slowly in
response to small changes in capacity
C. Costs that will be unaffected by current managerial decisions.
D. Costs that fluctuate in total in response to small change in the rate of
utilization of capacity.
108. The CEO of a rapidly growing high-technology firm has exercised centralized
authority over all corporate functions. Because the company now operates in
four geographically dispersed locations, the CEO is considering the advisability
of decentralizing operation control over production and sales. Which of the
following conditions probably would result from and be a valid reason for
decentralizing?
A. Greater local control over compliance with government regulations.
B. More efficient use of headquarters staff officials and specialists.
C. Quicker and better operating decisions.
D. Greater economies in purchasing.
109. The least complex segment of area of responsibility for which costs ate
allocated is a(n)
A. profit center C. contribution center
B. investment center D. cost center
110. Which of the following does not apply to the content of managerial reports?
A. Reporting standard is relevant to the decision to be made
B. May extend beyond double-entry accounting system
C. Pertains to subunits of the entity and may be very detailed
D. Pertains to the entity as a whole and is highly aggregated.
29.The best measure of managerial efficiency in the use of investments in assets is:
(M)
A. rate of return on stockholders’ equity C. income from operations
B. investment turn over D. inventory turnover
Return on Investment
111. If the investment turnover decreased by 10 percent and ROS
decreased by 30 percent, the ROI would
A. increase by 30% C. decrease by 37%
B. decrease by 10% D. decrease by 33.3%
112. The following information pertains to Pluto Company's Satellite Division for
2004:
Sales P311,000
Variable cost. 250,000
Traceable fixed costs 50,000
Average invested capital 40,000
Imputed interest rate 10%
Satellite's return on investment was
A. 10.00% C. 27.50%
B. 13.33% D. 30.00%
30.The following data relate to the Happy Division of Euphoria Company:
Sales P10,000,000
Variable costs 3,000,000
Direct fixed costs 5,000,000
Invested capital 8,000,000
Allocated actual interest costs 800,000
Capital charge 12%
The divisional return on investment is:
A. 15 percent C. 25 percent
B. 13 percent D. 20 percent
31.Two divisions of Halloway Company (Divisions X and Y) have the same profit
margins. Division X's investment turnover is larger than that of Division Y (1.2 to
1.0). Income from operations for Division X is P50,000, and income from
operations for Division Y is P38,000. Division X has a higher return on investment
than Division Y by: (M)
A. using income from operations as a performance measure
B. comparing income from operations
C. applying a negotiated price measure
D. using its assets more efficiently in generating sales
Residual Income
32.Stevenson Corporation had P550,000 in invested assets, sales of P660,000,
income from operations amounting to P99,000, and a desired minimum rate of
return of 15%, The residual income for Stevenson is: (E)
A. P0 C. P14,850
B. P17,820 D. P16,500
113. Scotch Co. has the following results for the year:
Sales P740,000
Variable expenses 260,000
Fixed expenses 300,000
Total divisional assets average P1,000,000. The company’s minimum required
rate of return is 14 percent.
The residual income and return on investment for Scotch are:
A. B. C. D.
Residual Income P36,000 P40,000 P36,000 P40,000
Return on 36% 18% 18% 36%
Investment
114. Ylagan Company is a highly decentralized company. It evaluates the

performance of each segment using both the Return on Investments, as well as
Residential Income provided by each segment. Ylagan Company requires each
segment to provide at least 20 percent return on all its investments.
The following data are typical of the operations of North Division, one of the
leading segments of Ylagan Company.
Sales P24,000,000
Variable costs 10,000,000
Fixed costs 8,000,000
Share on headquarters’ costs 3,000,000
Average investment 25,000,000
What are the North’s Return on Investments and Residual Income,
respectively?
A. 12.00 percent and P(2,000,000) C. 24.00 percent and P1,000,000
B. 12.00 percent and P1,000,000 D. 24.00 percent and P(2,000,000)
115. The Global Division of Sun Company expects the following result for 2004:
Unit sales 70,000
Unit selling price P 10
Unit variable cost P 4
Total investment P500,000
The minimum required ROI is 15 percent, and divisions are evaluated on residual
income. A foreign customer has approached Global’s manager with an offer to
buy 10,000 units at P7 each. If Global accepts the order, it would not lose any of
the 70,000 units at the regular price. Accepting the order would increase fixed
costs by P10,000 and investment by P40,000.
What is the minimum price that Global could accept for the order and still
maintain its expected residual income?
A. P5.00 C. P4.75
B. P5.60 D. P9.00
116. The following data ate available for the South Division of Banawe Company
and the single product it makes:
Unit setting price P20
Variable cost per unit P12
Annual fixed costs P280,000
Average operating assets P1,500,000
If South wants a residual income of P50,000 and the minimum required rate of
return is 10%, the annual turnover will have to be:
A. 0.32 C. 1.25
B. 0.80 D. 1.50
117. The following information relates to two projects of Rica Corporation.
Project A Project B
Operating income P2,500,000 P600,000
Residual income P 500,000 P200,000
ROI 10% 12%
Return on residual investment 2% 4%
A bonus of P 50,000 will be paid to the manager whose project contributed most
to the performance of the firm. The P50,000 bonus should go to the manager of
A. Project A because the residual income is higher
B. Project E because the return on investment is higher
C. Project A because it was a larger, mote complex project
D. Project B because the return on residual investment is higher
32.Division Alpha is considering a project that will earn a rate of return which is
greater than the imputed interest charge for invested capital, but less than the
division’s historical return on invested capital. Division Beta is considering a
project that will earn a rate of return which is greater than the division’s
historical return on invested capital, but less than the imputed interest charge
for invested capital. If the objective is to maximize residual income, should
these divisions accept or reject their projects?
A. B. C. D.
Alpha Accept Reject Reject Accept
Beta Accept Accept Reject Reject
Segment Reporting
118. Stellar Industries has two divisions: North Division and South Division.
Information relating to the divisions for the year just ended is as follows:
North South
Units produced and sold 30,000 40,000
Selling price per unit P 8.00 P 15.00
Variable expenses per unit P 3.00 P 5.00
Direct fixed expanse P48.000 P110,000
Common fixed expenses P40,000 P 40,000
Common fixed expenses have been allocated equally to each of the two
division.
Stellar's contribution and segment margin for North Division are:
A. P150,000 and P102,000 C. P150,000 and P72,000
B. P400,000 and P290,000 D. P400,000 and P250,000
Transfer Pricing
119. To avoid waste and maximize efficiency when transferring products among
segments is a competitive economy, a large diversified entity should base
transfer prices on
A. Bargained price C. Market price
B. Dual transfer price D. Full cost
30.The worst transfer-pricing method is to base the prices on (M)

A. market prices C. budgeted total costs.
B. budgeted variable costs D. actual total costs.
120. Universal Company has intracompany service transfers from Internal Division,
a cost center to World Division, a profit center. Under stable economic
conditions, which of the following transfer prices is likely to be most conducive to
evaluating whether both divisions have met their responsibilities?
A. Actual cost C. Market price
B. Standard variable cost D. Negotiated price
121. An appropriate transfer price between two divisions of the Star Corporation
can be determined from the following data:
Fabrication Division
Market price of subassembly P50
Variable cost of subassembly P20
Excess capacity (in units) 1,000
Assembling Division
Number of units needed 900
What is the natural bargaining range for the two divisions?
A. Between P20 and P50 C. Any amount less than P50
B. Between P50 and P70 D. P50 is the only acceptable price
122. Clara Industries is a decentralized company that evaluates its divisions

based on ROI. The Ibarra Division has the capacity to make 1,000 units of a
component. The Ibarra Division's variable costs are P40 per unit. Ibarra can sell
all that it produces for P100 each.
The Simoun Division can use the component in one of its products. The Simoun
Division would incur P50 of variable costs to convert the component into its own
product which sells for P160. Simoun needs 100 units.
What are the minimum transfer price that Ibarra is willing to accept and the
maximum price that Simoun is willing to pay for the goods?
A. B. C. D.
Ibarra’s Minimum P40 P40 P100 P100
Price
Simoun’s Maximum P100 P110 P110 P100
Price
Excess Capacity
33.Materials used by Aro-Products Inc. in producing Division 3's product are
currently purchased from outside suppliers at a cost of P5 per unit. However, the
same materials are available from Division 6. Division 6 has unused capacity and
can produce the materials needed by Division 3 at a variable cost of P3 per unit.
A transfer price of P3.20 per unit is established, arid 40,000 units of material are
transferred, with no reduction in Division 6’s current sales. How much would Aro-
Products total income from operations increase? (M)
A. P32,000 C. P80,000
B. P72,000 D. P8,000
30.Pasig Division of River Company sells 80,000 units of part Z to the outside
market. Part Z sells for P10.00 and has a variable cost of P5.50 and a fixed cost
per unit of P2.50. Pasig has a capacity to produce 100,000 units per period.
Marikina Division currently purchases 10,000 units of part Z from Pasig for
P10.00. Marikina has been approached by an outside supplier who is willing to
supply the former part Z for P9.00. What are the effects on River’s overall profit
if:
Marikina Buys Outside at Marikina Buys from Pasig at

P9.00 P9.00
A. No change P35,000 decrease in profit
B. P35,000 decrease in profit P35,000 increase in profit
C. P35,000 decrease in profit No change
D. P35,000 increase in profit No change
Partial Excess Capacity

123. Plastic Division makes and sells a single product. Presently it sells 12,000
units per year to outside customers at P24 per unit. The annual capacity is
20,000 units and the variable cost to make each unit is P16. All selling expenses
are fixed. Light Division would like to buy 10,000 units a year from Plastic
Division. The unit price that Plastic Division should charge Light Division,
according to the transfer pricing formula, is
A. P24.00 C. P17.60
B. P21.40 D. P16.00
Full Capacity
124. The High Division of Para Company produces a high quality kite. Unit
production costs (based on capacity production of 100,000 units per year) follow:
Direct materials P 60
Direct labor 25
Overhead (20% variable) 15
Other information
Sales price 120
Selling expenses (15% variable) 20
The High Division is producing and selling at capacity.
What is the minimum selling price that the division would consider as a “transfer
price” to the Recreation Division on which no variable period costs would be
incurred?
A. P120 C. P 91
B. P 88 D. P117
31.The Red Division of Colour Company produces a high quality marker. Unit
production costs (based on capacity production of 100,000 units per year) follow:
Direct labor 25
Overhead (20% variable) 15
Other information
Sales price 120
The Red Division is producing and selling at capacity.
What is the minimum selling price that the division would consider as a “transfer
price” to the Violet Division on which no variable period costs would be incurred?
A. P120 C. P 91
B. P 88 D. P117
Questions 32 and 33 are based on the following information.

Blade Division of Dana Company produces hardened steel blades. One-third of the
Blades Division’s output is sold to the Lawn Products Division of Dana; the
remainder is sold to outside customers. The Blade Division’s estimated sales and
standard costs data for the fiscal year ending June 30 are as follows:
Lawn Products Outsiders

Sales P15,000 P40,000
Variable costs (10,000) (20,000)
Fixed costs (3,000) (6,000)
Gross |margin P 2,000 P14,000
Unit sales 10,000 20,000
The Lawn Products Division has an opportunity to purchase 10,000 identical quality
blades from an outside supplier at a cost of P1.25 per unit on a continuing basis.
Assume that the Blade Division cannot sell any additional products to outside
customers.
32.Should Dana allow its Lawn Products Division to purchase the blades from the
outside supplier, and why?
A. Yes, because buying the blades would save Dana Company P500.
B. No, because making the blades would save Dana Company P1,500.
C. Yes, because buying the blades would save Dana Company P2,500.
D. No, because making the blades would save Dana Company P2,500
33.Assume the Blade Division is now at capacity and sufficient demand exist to sell
all production to outsiders at present prices. What is the differential cost
(benefit) of producing the blade internally?
A. P2,500 benefit C. P7,500 cost
B. P0 differential cost D. P10,000 cost
Decision
125. Barangay Division of Community Company sells 80,000 units of part Z to the
outside market. Part Z sells for P10.00 and has a variable cost of P150 and a
fixed cost per unit of P2.50. Barangay has a capacity to produce 100,000 units
per period. Municipal Division currently purchases 10,000 units of part Z from
Barangay for P10.00. Municipal has been approached by an outside supplier who
is willing to supply the former part Z for P9.00. What are the effects on
Community Company's overall profit if:
Municipal buys outside at Municipal buys from

P9.00 Barangay at P9.00
A. No change P35,000 decrease in profit
B. No change P35,000 increase in profit
C. P35,000 decrease in profit No change
D. P35,000 increase in profit P35,000 decrease in profit
Product Pricing
126. In a cost-based pricing system the markup should cover
I. Selling and administrative expenses
II. Desired profit
III. Manufacturing cost
A. I, II, and III C. I and III only
B. I and II only D. II and III only
Relevant Costing
Basic Concepts
21.A cost that will not be affected by later decisions is termed a(n): (E)
A. historical cost C. sunk cost
B. differential cost D. replacement cost
127. The Auto Division of Fly Insurance employs three claims processors capable
of processing 5,000 claims each. The division currently processes 12,000 claims.
The manager has recently been approached by two sister divisions. Division A
would like the auto division to process approximately 2,000 claims. Division B
would like the auto division to process approximately 5,000 claims. The Auto
Division would be compensated Division A or Division B for processing these
claims. Assume that these are mutually exclusive alternatives. Claims processor
salary cost is relevant for
A. division A alternative only
B. division B alternative only
C. both Division A and Division B alternatives
D. neither Division A nor Division B alternatives
128. For the year ended December 31, 2004, Earth Company incurred direct costs
of P500,000 based on a particular course of action during the year. If a different
course of action had been taken, direct costs would have been P400,000. In
addition, Earth's 2004 fixed costs were P90,000. the incremental cost was
A. P10,000 C. P100,000
B. P90,000 D. P190,000
Opportunity Cost
129. The potential benefit that may be obtained from following an alternative
course of action is called
A. Opportunity benefit C. Relevant cost
B. Opportunity cost D. Sunk cost
31.An important concept in decision making is described as “the contribution to

income that is forgone by not using a limited resources in its best alternative
use.” This concept is called
A. Marginal cost C. Potential cost
B. Incremental cost D. Opportunity cost
130. Luzon Fabricators, Inc. estimates that 60,000 special components will be used
in the manufacture of a specialty steel window for the whole next year. Its
supplier quoted a price of P60 per component. Luzon prefer to purchase 5,000
units per month, but its supplier could not guarantee this delivery schedule. In
order to ensure availability of these components, Luzon is considering the
purchase of all 60,000 units at the beginning of the year. Assuming Luzon can
invest cash at 8%, the company’s opportunity cost of purchasing the 60,000
units at the beginning of the year is
A. P132,000 C. P150,000
B. P144,000 D. P264,000
Profit Maximization
131. Fe Company has only 25,000 hours of machine time each month to
manufacture its two products. Product X has a contribution margin of P50 and
Product Y has a contribution margin of P64. Product X requires 5 machine hours
and Product Y, 8 hours. If Fe wants to dedicate 80% of its machine time to the
product that will provide the most income, Fe will have a total monthly
contribution margin of
A. P250,000 C. P210,000
B. P240,000 D. P200,000
23.Niva Co. Manufactures three products: Bales; Tales and Wales. The selling prices
are: 55; 78; and 32 respectively. The variable costs for each product are: 20; 50:
and 15, respectively. Each product must go through the same processing in a
machine that is limited to 2,000 hours per month. Bales take 7 hours to process,
Tales take 4 hours, and Wales take 1 hour.
Assuming that Niva Co. can sell ail of the products they can make, what is the
maximum contribution margin they can earn per month? (E)
A. P64,000 C. P56,000
B. P70,000 D. P34,000
30.The Hingis Corporation manufactures two products: X and Y. Contribution

margin per unit is determined as follows:
Product Xf Product Y
Revenue P130 P80
Variable costs 70 P38
Contribution margin P 60 P42
Total demand for X is 16,000 units and for Y is 8,000 units. Machine hours is a
scarce resource. 42,000 machine hours are available during the year. Product X
requires 6 machine hours per unit while product Y requires 3 machine hours per
unit.
How many units of X and Y should Hingis Corporation produce?
A. B. C. D.
Product X 16,000 8,000 7,000 3,000
Product Y -0- 4,000 -0- 8,000
132. Geary Manufacturing has assembled the following data pertaining to two
popular products.
Blender Electric mixer

Direct materials P6 P11
Direct labor 4 9
Factory overhead @ P16 per hour 16 32
Cost if purchased from an outside 20 38
supplier
Annual demand (units) 20,000 28,000
Past experience has shown that the fixed manufacturing overhead component
included in the cost per machine hour averages P10. Geary has a policy of filling,
all sales orders, even if it means purchasing units from outside suppliers.
If 50,000 machine hours are available, and Geary Manufacturing desires to follow
an optimal strategy, it should
A. produce 25,000 electric mixers, and purchase all other units as needed
B. produce 20,000 blenders and 15,000 electric mixers, and purchase all other
units as needed
C. produce 20,000 blenders and purchase all other units as needed
D. produce 28,000 electric mixers and purchase all other units as needed
133. The Pato Company produces three products with the following costs and
selling prices:
A B C
Selling price per unit P16 P21 P21
Variable cost per unit 7 11 13
Contribution margin per P9 P10 P8
unit
Direct labor hours per unit 1 1.5 2
Machine hours per unit 4.5 2 2.5
In what order should the three products be produced if either the direct labor-
hours or the machine hours are the company's production constraint?
A. B. C. D.
Direct labor hours A,B,C B,C,A B,C,A A,B,C
Machine hours B,C,A B,C,A A,C,B A,C,B
24.Bear Valley produces three products: A, B, and C, One machine is used to

produce the products, The contribution margins, sales demands, and time on the
machine (in minutes) are as follows:
Demand CM Time on machine

A 100 P25 10
B 80 18 5
C 150 30 10
There are 2400 minutes available on the machine during the week. How many
units should be produced and sold to maximize the weekly contribution? (E)
A. B. C. D.
A 100 50 90 100
B 80 80 0 80
C 150 150 150 100
Sell as is or Process Further

134. Indicate which of the following costs would be avoided if a segment is
eliminated.
1. variable manufacturing costs
2. direct fixed costs
3. common fixed costs
4. variable selling costs
5. direct listed selling costs
6. common fixed setting costs
A. 2, 3, 5, 5 C. 2, 3, 4, 5
B. 1, 2, 4, 3 D. 1, 4, 5, 6
22.Jones Co. can further process Product B to produce Product C. Product B is

currently selling for P30 per pound and costs P28 per pound to produce. Product
C would sell for P60 per pound and would require an additional cost of P24 per
pound to produce. What is the differential cost of producing Product C? (E)
A. P30 per pound C. P28 per pound
B. P24 per pound D. P 6 per pound
135. The cost to manufacture an unfinished unit is P40 (P30 variable and P10
fixed). The selling price per unit is P50. The company has unused production
capacity and has determined that units could be finished and sold for P65 with
an increase in variable costs of 40%. What is the additional net income per unit
to be gained by finishing the unit?
A. P3 C. P15
B. P10 D. P12
136. Ottawa Corporation produces two products from a joint process. Information
about the two joint products follows:
Product Product Y
X
Anticipated production 2,000 4,000 lbs
lbs
Selling price lb at split-off P30 P16
Additional processing costs/lb after Split-off (all P15 P30
variable)
Selling prices/lb after further processing F40 P50
The cost of the joint process is P85,000.

Ottawa currently sells both products at the split-off point. If Ottawa makes
decisions which maximizes profit, Ottawa's profit will increase by
A. P16,000 C. P50,000
B. P4,000 D. P10,000
137. BEA Industries produces two products. Information about the products is as
follows:
Item 38B Item 40F

Units produced and sold 1,000 4,000
Selling price per unit P 25 P 20
Variable expenses per unit P 15 P12
The company's fixed costs totaled P40,000, of which P8,000 can be avoided if
Item 38B is dropped and P25,000 can be avoided if Item 40F is dropped. Product
margin for Item 40F is
A. P3,200 C. P(2,000)
B. P7,000 D. P10,000
38.Green Company’s unit cost of manufacturing and selling a given item at an

activity level of 10,000 units per month are:
Manufacturing costs
Direct materials P24
Direct labor 8
Variable overhead 5
Fixed overhead 6
Selling expenses
Variable 11
Fixed 8
The company has an inventory of 3,000 of this item left over from last year’s
model. These must be sold through regular channels at reduced prices. The
inventory will be valueless unless sold this way. What unit cost is relevant for
establishing the minimum selling price of these 3,000 units?
A. P11 C. P48
B. P37 D. P62
Special Order
27.Pueblo Company sells a product for P60. Variable cost is P32. Pueblo could
accept a special order for 1,000 units at P46. If Pueblo accepted the order, how
many units could it lose at the regular price before the decision became unwise?
(M)
A. 1,000 C. 200
B. 500 D. 2,000
24.Climate Co. has considerable excess manufacturing capacity. A special job

order’s cost sheet includes the following applied manufacturing overhead costs:
Fixed costs .P21,000
Variable costs . 33,000
The fixed costs include a normal P3,700 allocation for in-house design costs,
although no in-house design will be done. Instead the job will require the use of
external designers costing P7,750. What is the total amount to be included in
the calculation to determine the minimum acceptable price for the jobs?
A. P36,700 C. P54,000
B. P40,750 D. P58,050
25.KC Industries manufactures a product with the following costs per unit at the
expected production of 30,000 units.
Direct materials .P 4
Direct labor . 12
Variable manufacturing overhead . 6
Fixed manufacturing overhead . 8
The company has the capacity to produce 40,000 units. The product regularly
sells for P40. A wholesaler has offered to pay P32 a unit for 2,000 units.
If the firm is at capacity and the special order is accepted, the effect on
operating income would be
A. a P20,000 increase C. a P4,000 increase
B. a P16,000 decrease D. P0
28.Dary Co, Produces a single product. It’s normal selling price is P28 per unit. The
variable costs are P18 per unit. Fixed costs are P20,000 for a normal production
run of 5,000 units per month. Dary received a request for a special order that
would not interfere with normal sales. The order was for 1,500 units and a
special price of P17.50 per unit. Dary Co. has the capacity to handle the special
order, and for this order a variable selling cost of P2 per unit would be
eliminated. If the order is accepted, what would be the impact on net income?
(M)
A. decrease of 750 C. increase of P2,250
B. decrease of P3,750 D. increase of P1,500
37.Fiesta Company’s unit cost of manufacturing and selling a given item at an

activity level of 10,000 units per month are:
Manufacturing costs
Direct materials P39
Direct labor 6
Variable overhead 8
Fixed overhead 9
Selling expenses
Variable 30
Fixed 11
The company desires to seek an order for 5,000 units from a foreign customer.
The variable selling expenses will be reduced by 40%, but the fixed costs for
obtaining the order will be P20,000. Domestic sales will not be affected by the
order.
The minimum break-even price per unit to be considered on this special sale is
A. P71 C. P69
B. P75 D. P84
Make or Buy
138. For the past 12 years, the Blue Company has produced the small electric
motors that fit into its main product line of dental drilling equipment. As material
costs have steadily increased, the controller of the Blue Company is reviewing
the decision to continue to make the small motors and has identified the
following facts:
1. The equipment used to manufacture the electric motors has a book value of
P150,000.
2. The space now occupied by the electric motor manufacturing department
could be used to eliminate the need for storage space now being rented.
3. Comparable units can be purchased from an outside supplier for P59.75
4. Four of the persons who work in the electric motor manufacturing department
would be terminated and given eight weeks severance pay
5. A P10,000 unsecured note is still outstanding on the equipment used in the
manufacturing process.
Which of the items above are relevant to the decision that the controller has to
make?
A. 1, 3, and 4 C. 2, 3, 4, and 5
B. 2, 3, and 4 D. 1, 2, 4, and 5
144. AFM, Inc. manufactures jet engines for an aircraft assembler on a cost –plus
basis. The cost of a particular jet engine that the company manufactures is
shown below:
Direct materials P20,000,000

Direct labor 15,000,000
Overhead:
Supervisor’s salary 2,000,000
Fringe benefits on direct labor 1,500,000
Depreciation 1,200,000
Rent 1,100,000
Total P40,800,000
If 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 the engine, the minimum unit price that AFM Inc should bid is
A. P38,500,000 C. 36,500,000
B. P40,800,000 D. 39,700,000
139 Buena Corporation operates a plant with a productive capacity to

manufacture 10,000 units of its product a year. The following information
pertains to the production costs at capacity:

Fixed costs 120,000
Total costs P200,000
A supplier has offered to sell 8,000 units to Buena annually. Assume no change
in the fixed costs.
What is the price per unit that makes Buena indifferent between the “Make” and
“Buy” options?
A. P8 C. P20
B. P12 D. P10
25.Medford Corporation operates a plant with a productive capacity to manufacture

20,000 units of its product a year. The follow information pertains to the
production costs at capacity:
Fixed costs 240,000
Total costs P400,000
A supplier has offered to sell 4,000 units to Medford annually. Assume no change
in the fixed costs. What is the price per unit that makes Medford indifferent
between the "make" and "buy" options? (E)
A. P8 C. P20
B. P12 D. P40
140. Elly Industries is a multi-product company that currently manufacture 30,000

units of Part MR24 each month for use in production. The facilities now being
used to produce Part MR24 have a fixed monthly costs of P150,000 and a
capacity to produce 84,000 units per month. If Elly were to buy Part MR24 from
an outside supplier, the facilities would be idle, but its fixed costs would continue
at 40 percent of their present amount. The variable production costs of Part
MR24 are P11 per unit.
If Elly Industries is able to obtain Part MR24 each month, it would realize a net
benefit by purchasing Part MR24 from an outside supplier only if the supplier’s
unit price is less than
A. P14.00 C. P16.00
B. P11.00 D. P13.00
141. The following are details of the monthly unit cost to manufacture and sell a
particular product for Grace Company:
Manufacturing Costs:
Direct labor 4.00
Variable indirect 2.00
Fixed indirect 1.50
Marketing Costs:
Variable 2.00
Fixed 1.00
Grace must decide to continue making the product or buy it from an outside
supplier. The supplier has 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 25% if the
company were to accept the proposal. What is the maximum amount per unit
that Grace can pay the suppliers without decreasing its operating income?
A. P 9.50 C. P 9.00
B. P10.50 D. P11.00
142. Savage Industries is a multi-product company that currently manufactures

30,000 units of Part QS42 each month for use in production. The facilities now
being used to produce Part QS42 have fixed monthly cost of P150,000 and a
capacity to produce 84,000 units per month. If Savage were to buy Part QS42
from an outside supplier, the facilities would be idle, but its fixed costs would
continue at 40 percent of their present amount. The variable production costs of
Part QS42 are P11 per unit.
If Savage Industries is able to obtain Part QS42 from an outside supplier at a unit
purchase price of P12,875, the monthly usage at which it will be indifferent
between purchasing and making Part QS42 is
A. 30,000 units C. 80,000 units
B. 32,000 units D. 48,000 units
143. Classic Company currently manufactures all components parts used in the
manufacture of various hand tools. A steel handle is used in three different tools.
The 2001 budget for 20,000 handles has the following unit cost:
Direct material P6.00

Direct labor 4.00
Fixed overhead 2.00
Total unit cost P13.00
Modern Steel has offered to supply 20,000 handles to Classic for P12.50 each
delivered. If Classic Co. currently has idle capacity that cannot be used,
accepting the offer will
A. Decrease the handle unit cost by P0.50 C. Decrease the handle unit
cost by P1.50
B. Increase the handle unit cost by P1.50 D. Increase the handle unit cost by
P0.50
26.The Connell Company uses 5,000 units of part 501 each year. The cost of
manufacturing one unit part 501 at this volume is as follows:
Direct materials .. P2.50
Direct labor . 3.50
Fixed overhead . 1.00
Total. P8.50
An outside supplier has offered to sell Connell unlimited quantities of part 501 at
a unit cost of P7.75. If Connell accepts this offer, it can eliminate 50 percent of
the fixed costs assigned to part 501. Furthermore, the space devoted to the
manufacture of part 501 would be rented to another company for P6,000 per
year. If Connell accepts the offer of the outside supplier, annual profits will
A. Increase by P13,500 C. increase by P11,000
B. increase by P7,250 D. increase by P1,250
26.A business is operating at 90% of capacity and is currently purchasing a part

used in its manufacturing operations for P15 per unit. The unit cost for the
business to make the part is P20, including fixed costs, and P12, not including
fixed costs. If 30,000 units of the part are normally purchased during the year
but could be manufactured using unused capacity, what would be the amount of
differentials cost increase or decrease from making the part rather than
purchasing it? (M)
A. P150,000 cost increase C. P150,000 cost increase
B. P90,000 cost decrease D. P90,000 cost increase
33.The Rural Cooperative, Inc. produces 1,000 units of Part M per month. The total
manufacturing costs of the part are as follows:
Direct labor 5,000
Fixed overhead 30,000
Total manufacturing cost P50,000
An outside supplier has offered to supply the part at P30 per unit. It is estimated
that 20% of the fixed overhead assigned to Part M will no longer be incurred if
the company purchases the part from the outside supplier. If Rural Cooperative
purchases 1,000 units of Part M from the outside supplier per month, then its
monthly operating income will
A. decrease by P4,000 C. decrease by P14,000
B. increase by P4,000 D. increase by P14,000
14.The Reno Company manufactures Part No. 498 for use in its production cycle.
The cost per unit for 20,000 units of part No. 498 are as follows:
Direct materials P6
Direct labor 30
Variable overhead 12
Fixed overhead applied 16
P64
The Tray Company has offered to sell 20,000 units of part No. 498 to Reno for
P60 per unit. Reno will make the decision to buy the part from Tray if there is a
savings of P25,000 for Reno. If Reno accepts Tray’s offer, P9 per unit of the fixed
overhead applied would be totally eliminated. Furthermore, Reno has determined
that the released facilities could be used to save relevant costs in the
manufacture of part No. 575. In order to have a savings of P25,000, the amount
of the relevant costs that would be saved by using the released facilities in the
manufacture of part No. 575 would have to be
A. P80,000 C. P125,000
B. P85,000 D. P140,000
34.Bulacan Company manufactures part G for use in its production cycle. The costs
per unit for 10,000 units of part G are as follows:
Direct labor 15
Variable overhead 6
Fixed overhead 8
Total P32
Pampanga Company has offered to sell Bulacan 10,000 units of part G for P30
per unit. If Bulacan accepts Pampanga’s offer, the released facilities could be
used to save P45,000 in relevant costs in the manufacture of part H. In addition,
P5 per unit of the fixed overhead applied to part G would continue.
What alternative is more desirable and by what amount?
A. B. C. D.
Alternative Manufacture Manufacture Buy Buy
Amount P10,000 P15,000 P15,000 P10,000
Keep-or-Drop a Segment
27.Indicate which of the following costs would be avoided if a segment is
eliminated.
1. variable manufacturing costs 4. variable selling costs
2. direct fixed costs 5. direct fixed selling costs
3. common fixed costs 6. common fixed selling costs
A. 2, 3, 5, 6 C. 2, 3, 4, 5
B. 1, 2, 4, 5 D. 1, 4, 5, 6
32.Banahaw Company plans to discontinue a department that has a contribution

margin of P240,000 and P480,000 in fixed costs. Of the fixed costs, P210,000
can be avoided. The effect of this discontinuance on Banahaw’s overall net
operating income would be a(an)
A. decrease of P30,000 C. decrease of P10,000
B. increase of P30,000 D. increase of P10,000
34.Mina Co. mines three products. Gold Ore sells for P1,000,000 per ton,
variable costs are P600,000 per ton, and fixed mining costs are P6,000,000. The
segment margin for 2003 was P(1,200,000). The management of Mina Co. was
considering dropping the mining of Gold Ore. Only one-half of the fixed
expenses are direct and would be eliminated if the segment was dropped. If
Gold Ore were dropped, net income for Arayat Mining would
A. Increase by P2,000,000 C. Increase by P1,200,000
B. Decrease by P2,000,000 D. Decrease by
P1,200,000
28.BEA Industries produces two products. Information about the products is as

follows:
Item 38B Item 40F
Units produced and 1,000 4,000
sold
Selling price per unit P 25 P 20
Variable expenses per P 15 P 12
unit
The company’s fixed costs totaled P40,000, of which P8,000 can be avoided if
Item 38B is dropped and P25,000 can be avoided if Item 40F is dropped.
Product margin for Item 40F is
A. P3,200 C. P(2,000)
B. P7,000 D. P10,000
Capital Budgeting
Basic Concepts
145. When compared Net Present Value method to Internal Rate of Return in terms
of reinvestment of cash flows, NPV is better than IRR. What are the reinvestment
rate for each method?
Net Present Value Method Internal Rate of Return

Method
A. Discount Rate Discount Rate
B. Discount Rate IRR
C. IRR IRR
D. IRR Discount Rate
Accounting Rate of Return

Net investment
39.The Zambales Company is planning to purchase a new machine which it will
depreciate, for book purposes, on a straight-line basis over a ten-year period
with no salvage value and a full year’s depreciation taken in the year of
acquisition. The new machine is expected to produce cash flow from operations,
net of income taxes, of P175,000 a year in each of the next ten years. The
accounting (book value) rate of return on the average investment is expected to
be 15%. How much will the new machine cost?
A. P1,000,000 C. P1,666,667
B. P 700,000 D. P1,800,000
Differential income
146. Maxwell Company has an opportunity to acquire a new machine to replace
one of its present machines. The new machines would cost P90,000, have a five-
year life, and no estimated salvage value. Variable operating costs would be
P100,000 per year. The present machine has a book value of P50,000 and a
remaining life of five years. Its disposal value now is P5,000, but it would be zero
after five years. Variable operating costs would be P125,000 per year. Ignore
present value calculations and income taxes.
Considering the five years in total, what would be the difference in profit before
income taxes by acquiring the new machine as opposed to retaining the present
one?
A. P10,000 decrease C. P35,000 increase
B. P15,000 decrease D. P40,000 increase
Operating cash flow before tax

37.The Mutya ng Pasig Company, a calendar company, purchased a new machine
for P280,000 on January 1. Depreciation for tax purposes will be P35,000
annually for eight years. The accounting (book value) rate of return (ARR) is
expected to be 20% on the initial increase in required investment. On the
assumption of a uniform cash inflow, this investment is expected to provide
annual cash flow from operations, before 30 percent income taxes, of
A. P80,000 C. P115,000
B. P91,000 D. P175,000
ARR based on average investment

41.Water Lily Foundation (WLF), a tax-exempt organization, invested P200,000 in a
five-year project at the beginning of the year. WLF estimates that the annual
cash savings from this project will amount to P65,000. Tax and book
depreciation on the project will be P40,000 per year for five years. On
investments of this type, WLF’s desired adjusted rate of return is 12%.
Information on present value factors is as follows:
At At At
12% 14% 16%
Present value of P1 for 5 periods 0.57 0.52 0.48
Present value of an annuity of 1 for 5 3.6 3.4 3.3
periods
For the project’s first year, WLF’s accounting rate of return, based on the
project’s average book value would be
A. 14.4% C. 12.5%
B. 13.9% D. 25.0%
Cash Flows
Net Investment
147. Big City Motors is trying to decide whether it should keep its existing cash
washing machine or purchase a new one that has technological advantages
(which translate into cost savings) over the existing machine. Information on
each machine follows:
Existing New Machine

Machine
Original cost P9,000 P20,000
Accumulated depreciation 5,000 0
Annual cash operating costs 9,000 4,000
Current salvage value in 10 years 2,000 1,000
Remaining life 10 years 10 years
The incremental cost to purchase the new machine is

A. P11,000 C. P13,000
B. P20,000 D. P18,000
148. Gray Company is considering replacing a machine with a book value of

P200,000, a remaining useful-life of 5 years, and annual straight-line
depreciation of P40,000. The existing machine has a current market value of
P200,000. The replacement machine would cost P350,000, have a 5-year life,
and save P50,000 per year in cash operating costs. If the replacement machine
would be depreciated using the straight-line method and the tax rate is 40%,
what would be the net investment required to replace to the existing machine?
A. P90,000 C. P150,000
B. P210,000 D. P350,000
Operating Cash Flow After Tax

34.Which of the following is NOT relevant in calculating annual net cash flows for an
investment? (M)
A. Interest payments on funds borrowed to finance the project.
B. Depreciation on fixed assets purchased for the project.
C. The income tax rate.
D. Lost contribution margin if sales of the product invested in will reduce sales of
other products.
149. The Hills Company, a calendar year company, purchased a new

machine for P280,000 on January 1. Depreciation for tax purposes will be
P35,000 annually for eight years. The accounting (book value) rate of return
(ARR.) is expected to be 15% on the initial increase in required investment. On
the assumption of a uniform cash inflow, this investment is expected to provide
annual cash flow from operations, net of income taxes, of
A. P35,000 C. P42,000
B. P40,250 D. P77,000
150. A company is considering replacing a machine with one that will save
P40,000 per year in cash operating costs and have P10,000 more depreciation
expense per year than the existing machine. The tax rate is 40%. Buying the
new machine will increase annual net cash flows of the company by
A. P28,000 C. P18,000
B. P24,000 D. P6,000
151. Alpha Company is considering replacing a machine with a book value of

P100,000, a remaining useful life of 4 years, and annual straight-line
P80,000. The replacement machine would cost P160,000, have a 4year life, and
save P50,000 per year in cash operating costs. If the replacement machine
would be depreciated using the straight-line method and the tax rate is 40%,
what would be the increase in annual income taxes and annual net cash flow if
the company replaces the machine?
A. B. C. D.
Income Tax P14,000 P14,000 P 4,000 P 4,000
Net Cash Flow 36,000 46,000 46,000 36,000
End-of-life Cash Flow

152. Acme is considering the sale of any of the two machines, Machine A or
Machine B. Machine A has a book value of P50,000, 3 years remaining it its
useful life with P15,000 annual straight-line depreciation. Its market value is
P75,000. Machine B has a book value of P75,000, 3-years remaining in its life,
with P25,000 annual straight-line depreciation. Its current market value is
P50,000. What are the cash flows from selling any of the two machines if the tax
rate is 40%?
A. B. C. D.
Machine A P65,000 P65,000 P45,000 P45,000
Machine B P40,000 P60,000 P60,000 P40,000
Comprehensive
153. Bata Company is considering replacing a machine with a book value of
P100,000, a remaining useful life of 5 years, and annual straight-line
P100,000. The replacement machine would cost P150,000, have a 5-year life,
and save P50,000 per year in cash operating costs. If the replacement machine
would be depreciated using the straight-line method arid the tax rate is 40%,
what would be the economic values relevant to me decision?
A. B. C. D.
Net Investment P50,00 P50,00 P150,0 P150,00
0 0 00 0
Net Incremental Cash Flow P34,00 P42,00 P34,00 P42,000
0 0 0
Net Incremental Annual P16,00 P16,00 P3,00 P8,000
Income Taxes 0 0 0

Brown Company is considering to replace its old equipment with a new one. The old
equipment had a net book value of P100,000, 4 remaining useful life with P25,000
depreciation each year. The old equipment can be sold at P80,000. The new
equipment costs P160,000, have a 4-year life. Cash savings on operating expenses
before taxes amount to P50,000 per year.
154. What is the amount of investment in the new equipment?
A. P160,000 C. P72,000
B. P80,000 D. P68,000
155. How much annual after-tax cash savings (inflow) would the new equipment
provide?
A. P36,000 C. P37,200
B. P46,000 D. P14,000
Payback Period
36.Which of the following is(are) closely relevant to Payback Method? (M)
A. Intermediate cash flows are reinvested at zero percent.
B. The use of cash inflows instead of profit.
C. Avoidance of too much risk of uncertainty.
D. Explicit considerations of timing of cash flows.
E. Prevention of excessive liquidity problems.
F. Cost of capital
A. All of these C. A, B, C, E
B. A, C, E, F D. B, C, E
35.The relationship between payback period and IRR is that (E)

A. a payback period of less than one-half the life of a project will yield an IRR
lower than the target rate.
B. the payback period is the present value factor for the IRR.
C. a project whose payback period does not meet the company's cutoff rate for
payback will not meet the company's criterion for IRR.
D. none of the above
156. Energy Company is planning to spend P84,000 for a new machine, to be

depreciated on the straight-line basis over ten years with no salvage value. The
related cash flow from operations, net of income taxes, is expected to be
P10,000 a year for each of the first six years and P12,000 for each of the next
four years. What is the payback period?
A. 4.4 years C. 7.8 years
B. 7.6 years D. 8.0 years
157. Salve Company is considering an investment in a new cheese-cutting

machine to replace its existing cheese cutter. Information on the existing
machine and the replacement machine follow:
Cost of the new machine P100,000
Net annual savings in operating costs 20,000
Salvage value now of the old machine 10,000
Salvage value of the old machine in 8 years 0
Salvage value of the new machine in 8 years 20,000
Estimated life of the new machine 8 years
What is the expected payback period for the new machine?
158. Biloxi Beluga is considering an investment in a new cheese-cutting

machine to replace its existing cheese cutter. Information on the existing
machine and the replacement machine follow.
Cost of the new machine P40,000
Net annual savings in operating costs 9,000
Salvage value now of the old machine 6,000
Salvage value of the old machine in 8 years 0
Salvage value of the new machine in 8 years 5,000
Estimated life of the new machine 8 years
What is the expected payback period for the new machine?
Bailout Period
159. A project costing P1,800,000 is expected to produce the following annual
cash flows (after tax) and salvage value:
Year Net cash inflow Salvage value

1 500,000 800,000
2 500,000 600,000
3 600,000 500,000
4 800,000 400,000
5 700,000 300,000
What is the bailout period for the project?

A. 3.25 yrs C. 2.73 yrs
B. 2.5 yrs D. 2.4 yrs
Discounted Cash Flow

160. If Sol Company expects to get a one-year loan to help cover the initial
financing of capital project, the analysis of the project should
A. offset the loan against any investment in inventory or receivable required by
the project
B. show the loan as an increase in the investment
C. show the loan as a cash outflow in the second year of the project’s life
D. ignore the loan
161. Why do the NPV method and the IRR method sometimes produce different
rankings of mutually exclusive investment projects?
A. The NPV method does not assume reinvestment of cash flows while the
IRR method assumes the cash flows will be reinvested at the internal rate of
return.
B. The NPV method assumes a reinvestment rate equal to me discount rate
while the IRR method assumes a reinvestment rate equal to the internal rate
of return.
C. The IRR method docs riot assume reinvestment of the cash flow while the
NPV assumes the reinvestment rate is equal to the discount rate.
D. The NPV method assumes a reinvestment rate equal to the bank loan interest
rate while the IRR method assumes a reinvestment rate equal to the discount
rate.
162. The advantage of the Net Present Value method over the Internal Rate of
Return method for screening investment projects is that it:
A. does not consider the time value of money
B. implicitly assumes that the company is able to reinvest cash flows from the
project at the company’s discount rate
C. implicitly assumes that the company is able to reinvest cash flows from the
project at the internal rate of return
D. fails to consider the timing of cash flows
163. Which of the following combinations is possible?
Profitability Index NPV IRR

A. Greater than 1 Positive Equal cost of
capital
B. Greater than 1 Negative Less than cost of
capital
C. Less than 1 Negative Less than cost of
capital
D. Less than 1 Positive Less than cost of
capital
38.B Company is considering two alternative ways to depreciate a proposed

investment. The investment has an initial cost of P100,000 and an expected 5
year life. The two alternative depreciation schedules follow:
Method 1 Method 2
Year 1 depreciation P40,000 P20,000
Year 5 depreciation P 0 P20,000
Present value of annuity of 1 for 5 periods at 10% , 3.79079.
Present value of 1, end of periods:
Period 1 2 3 4 5
PV of 1 0.90909 0.82645 0.75131 0.68301 0.62
092
Assuming that the company faces a marginal tax rate of 40%, and has a cost of
capital of 10%, what is the net advantage (in present value) in using one method
over the other one in computing depreciation?
A. P7,196 C. P2,879
B. P0 D. P6,342
165. Silliman Corporation purchased a new machine for P450,000. The new
machine has an estimated useful life of five years with no salvage value. The
machine is expected to produce cash flows from operations, net of 40 percent
income taxes, as follows:
First year P160,000
Second year 140,000
Third year 180,000
Fourth year 120,000
Fifth year 100,000
Silliman will use the sum-of-the-years-digits’ method to depreciate the new
machine as follows:
First year P150,000
Second year 120,000
Third year 90,000
Fourth year 60,000
Fifth year 30,000
The present value of 1 for 5 periods at 12 percent is 3.60478. The present
values of 1 at 12 percent at end of each period are: End of: Period 1 – 0.8928,
Period 2 - 0.79719, Period 3 - 0.71178, Period 4 - 0.63552, Period 5 -
0.56743
The net advantage (in present value) of using the Sum-of-the-Years’-Digits
method over the straight-line method at a discount rate of 12 percent is
A. P14,620 C. P 7,340
B. P12,188 D. P 9,750
Net Present Value

40.The King of Hearts, Inc. is considering to replace its old equipment with a more
efficient one. The old equipment was purchased two years ago for P720,000.
Though the old equipment will be used for eight years, the company elected to
depreciate it ever 6 years. If the company would keep and use the old
equipment during its remaining useful life, the annual cash operating expenses
will be P640,000. The old equipment can be sold for P380,000.
The new equipment costs the company P900,000. The new equipment will be
depreciated over its useful life of six years without any salvage value. The use of
the new equipment will decrease the company's cash operating expenses by
P175,000, The company is consistently using straight-line method of
depreciation with 32% income tax. The company uses 16% cost of capital.
The purchase of the new equipment will result to net present value of: (D)
A. P127,351 C. P19,901
B. P(14,143) D. P11,922
Profitability Index
166. A project has a NPV of P15,000 when the cutoff rate is 10%. The annual cash
flows are P20,505 on an investment of P50,000. The profitability index for tins
project is
A. 1.367 C. 2.438
B. 3.333 D. 1.300
41.Sulu Company is considering to acquire a machine in order to reduce its direct

labor costs. This machine shall last for 4 years with no salvage value. His initial
analysis indicated that the time-adjusted rate of return is 15 percent. At 12
percent (cost of capital to finance the purchase of the machine), the company
expects net present value of P5,470,80.
The present value of 1 for four periods at 12 percent is 3.03735 and at 15
percent is 2.85499.
Ignoring income tax considerations, the profitability index is (D)
A. 1.064 C. 1.047
B. 1.183 D. 1.250
Internal Rate of Return

37.A weakness of the internal rate of return method for screening investment
projects is that it: (E)
A. does not consider the time value of money
B. implicitly assumes that the company is able to reinvest cash flows from the
project at the company's discount rate
C. implicitly assumes that the company is able to reinvest cash flows from the
project at the internal rate of return
D. fails to consider the timing of cash flows
Net Investment
167. The Forest Company is planning to invest in a machine with a useful life of
five years and no salvage value. The machine is expected to produce cash flow
from operations, net of income taxes, of P20,000 in each of the five years.
Forest's expected rate of return is 10%. Information on present value and future
amount factors is as follows.
PERI0D
1 2 3 4 5
Present value of P1 at 10% . .826 .751 .683 .621
9
0
9
Present value of an annuity of P1 . 1.73 2.48 3.17 3.79
at 10% 9 6 7 0 1
0
9
Future amount of P1 at 10% 1.1 1.21 1.33 1.46 1.61
0 0 1 4 1
0
Future amount of an annuity of 1.0 2.10 3.31 4.64 6.10
P1 at 10% 0 0 0 1 5
How much will the machine cost?

A. P32,220 C. P 75,820
B. P62,100 D. P122,100
168. Gene, Inc. invested in a machine with a useful life of six years and no salvage
value. The machine was depreciated using the straight-line method. It was
expected to produce annual cash inflow from operations, net of income taxes, of
P2,000. The present value of an ordinary annuity of P1 for six periods at 10% is
4.355. The present value of P1 for six periods at 10% is 0.5464. Assuming that
Gene used a time adjusted rate of return of 10%, what was the amount of the
original investment?
A. P5,640 C. P9,000
B. P8,710 D. P11,280
169. Fordem Co. is considering an investment in a machine that would reduce

annual labor costs by P30,000. The machine has an expected life of 10 years
with no salvage value. The machine would be depreciated according to the
straight-line method over its useful life. The company’s marginal tax rate is 30%.
Assume that the company will invest in the machine of it generates a pre-tax
internal rate of return of 16%. What is the maximum amount the company can
pay for the machine and still meet the internal rate of return criterion?
A. P180,000 C. P187,500
B. P210,000 D. P144,996
Unit sales
42.King of Kings Company has been renting equipment during peak season in
addition to its own equipment in handling standard materials. The rental cost
averages P9,000 a year. The company's Investment Committee is evaluating the
possibility of buying additional equipment at a cost of P225,000 with an
estimated useful life of 5 years and with no salvage value at the end of 5 years.
The committee estimates that it can save P0.25 per unit of material by using its
own equipment. Also, it estimates that 270,000 units can be handled \n each of
the 5 years, A 15% discounted rate of return is considered appropriate, ignoring
income tax. Present value of annuity of 1, at 15% for 5 years, is 3,352.
What is the approximate number of units at which the investment can just meet
the 15% return requirement? (D)
A. 232,496 C. 304,496
B. 268,496 D. 256,428
Selling price
42.Moorman Products Company is considering a new product that will sell for P100
and have a variable cost of P60. Expected volume is 20,000 units. New
equipment costing P1,500,000 and having a five-year useful life and no salvage
value is needed, and will be depreciated using the straight-line method. The
machine has cash operating costs of P20,000 per year. The firm is in the 40
percent tax bracket and has cost of capital of 12 percent. The present value of
1, end of five periods is 0.56743; present value of annuity of 1 for 5 periods is
3.60478.
Suppose the 20,000 estimated volume is sound, but the price is in doubt. What
is the selling price (rounded to nearest peso) needed to earn a 12 percent
internal rate of return?
A. 81.00 C. P70.00
B. 86.00 D. P90.00
Operating Cash Flow Before Tax

170. Payback Company is considering the purchase of a copier machine for
P42,825. The copier machine will be expected to be economically productive for
4 years. The salvage value at the end of 4 years is negligible. The machine is
expected to provide 15 percent internal rate of return. The company is subject to
40 percent income tax rate.
The present value of an ordinary annuity of 1 for 4 periods is 2.85498.
In order to realize the IRR of 15 percent, how much is the estimated before-tax
cash inflows to be provided b the machine?
A. P17,860 C. P25,000
B. P15,000 D. P35,700
Investment Decisions
171. Investors, Inc. uses a 12% hurdle rate for all capital expenditures and
has done the following analysis for four projects for the upcoming year:
Project 1 Project 2 Project 3 Project 4

Initial cash outlay P200,000 P298,000 P248,000 P272,000
Annual net cash
inflows
Year 1 P65,000 P100,000 P80,000 P95,000
Year 2 70,000 135,000 95,000 125,000
Year 3 80,000 90,000 90,000 90,000
Year 4 40,000 65,000 80,000 60,000
Net present value (3.798) 4,276 14,064 14,662
Profitability index 98% 101% 106% 105%
Internal rate of 11% 13% 14% 15%
return
Which project(s) should Investors, Inc. select during the upcoming year under
each budgeted amount of funds?
No Budget P600,000 Available P300,000 Available

Restriction Funds Funds
A. Projects 2, 3, & Projects 3 & 4 Projects 3
4
B. Projects 1, 2, & Projects 2, 3 & $ Projects 3 & 4
3
C. Projects 1, 3 & Projects 2 & 3 Projects 2
4
D. Projects 3 & 4 Projects 2 & 4 Projects 2 & 4
Financial Statement Analysis

Horizontal Analysis
172. Sales for a three year period are: Year 1, P4.0 million, Year 2, P4.6
million, and Year 3, P5.0 million. Using year 1 as the base year, the respective
percentage increase in sales in year 2 and 3 are
A. 115% and 125% C. 115% and 130%
B. 115% and 109% D. 87% and 80%
Liquidity & Activity Ratios

37.Which ratio is most helpful in appraising the liquidity of current assets?
A. current ratio C. debt ratio
B. acid-test ratio D. accounts receivable
turnover
173. The days sales-in-receivable ratio will be understated if the company

A. Uses a natural business year for its accounting period
B. Uses a calendar year for its accounting period
C. Uses average receivable in the ratio calculation
D. Has high sales at the end of the year
174. Baguio Company's accounts receivable were P600,000 at the

beginning of the year and P800,000 at the end of the year. Cash sales for the
year were P300,000. The accounts receivable turnover for the year was 5 times.
Baguio Company's total sales for the year were:
A. P 800,000 C. P3,300,000
B. P1,300,000 D. P3,800,000
40.The following financial data have been taken from the records of Lotion
Company:
Accounts receivable P200,000
Accounts payable 80,000
Bonds payable, due in 10 years 500,000
Cash 100,000
Interest payable, due in three months 25,000
Inventory 440,000
Land 800,000
Notes payable, due in six months 250,000
What will happen to the ratios below if Lotion Company uses cash to pay 50
percent of its accounts payable?
A. B. C. D.
Current Ratio Increase Decrease Increase Decrease
Acid-test Increase Decrease Decrease Increase
Ratio
Profitability Ratios
175. Selected financial data for May on Company appear below:
Account Balances
Beginning of Year End of Year
Preferred stock P125,000 P125,000
Common stock 300,000 400,000
Retained earnings 75,000 185,000
During the year, the company paid dividends of P10,000 on its preferred stock.
The company's net income for the year was P120,000. The company's return on
common stockholders' equity for the year is closest to:
A. 17% C. 23%
B. 19% D. 25%
Solvency Ratios
176. A firm’s financial risk is a function of how it manages and maintains its debt.
Which one of the following sets of ratios characterizes the firm with the greatest
amount of financial risk?
A. High debt-to-equity ratio, high interest coverage ratio, volatile return on
equity
B. High debt-to-equity ratio, high interest coverage ratio, stable return on equity
C. Low debt-to-equity ratio, low interest coverage ratio, volatile return on equity
D. High debt-to-equity ratio, low interest coverage ratio, volatile return on equity
38.The times interest earned ratio of Maxi Company is 4.5 times. The interest
expense for the year was P20,000, and the company’s tax rate is 40%. The
company’s net income is:
A. P22,000 C. P54,000
B. P42,000 D. P66,000
Other Ratios
177. Recto Co. has a price earnings ratio of 7, earnings per share of P2.20, and a
pay out ratio of 80%. The dividend yield is
A. 80.0% C. 11.4%
B. 39.3% D. 31.4%
178. The following were reflected from the records of War Freak Company:
Earnings before interest and taxes P1,250,000
Interest expense 250,000
Preferred dividends 200,000
Payout ratio 40 percent
Shares outstanding throughout 2003
Preferred 20,000
Common 25,000
Price earnings ratio 5 times
The dividend yield ratio is
A. 0.50 C. 0.12
B. 0.40 D. 0.08
39.The Delta Company projects the following for the upcoming year:
Earnings before interest and taxes P40 million
Interest expense P 5 million
Preferred stock dividends P 4 million
Common stock dividend payout ratio 20%
Average number of common shares outstanding 2 million
Effective corporate income tax rate 40%
The expected dividend per share of common stock is
A. P1.70 C. P2.10
B. P1.86 D. P1.00
39.Strada Corporation was organized on January 1 with the following capital

structure:
 10% cumulative preferred stock, par and liquidation value of P110;
authorized, issued and outstanding 2,000 shares – P200,000
 Common stock, par value, P5; authorized 40,000 shares;
 Issued and outstanding 20,000 shares – 100,000
Adventure’s net income for the first year ended December 31 was P1,880,000,
but no dividends were declared. How much was Adventure’s book value per
common share at December 31?
A. P97 C. P99
B. P98 D. P120
41.The Dawson Corporation projects the following for the year 2003.
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 2 million
Effective corporate income tax rate 40%
The expected common stock dividend per share by Dawson Corporation for
1995 is
A. P2.34 C. P1.80
B. P2.70 D. P2.10
Integrated Ratios
28.Calumpang Company has a total assets turnover of 0.30 and a profit margin of
10 percent. The president is unhappy with the current return on assets, and he
thinks it could be doubled. This could be accomplished (1) by increasing the
profit margin to 12 percent, and (2) by increasing the total assets turnover.
What new asset turnover ratio, along with the 12 percent profit margin, is
required to double the return on assets?
A. 25% C. 50%
B. 36% D. 60%
179. JayR has debt ratio of 0.50, a total asset turnover of 0.25, and a profit margin
of 10%. The president is unhappy with the current return on equity, and he
thinks it could be doubled. This could be accomplished: (1) by increasing the
profit margin to 14%; and, (2) by increasing debt utilization. Total asset turnover
will not change.
What new debt ratio, along, with 14% profit margin is required to double the
return on equity?
A. 0.75 C. 0.65
B. 0.70 D. 0.55
180. Glo expects sales for 2002 to be P2,000,000, resulting in a return on sales of
10%. The dividend payout rate is 60%. Beginning stockholders’ equity was
P850,000 and current liabilities are projected to be P300,000 at the end of 2002.
What are the total equities available if the ratio of long-term debt to
stockholders’ equity is 60%?
A. P1,788,000 C. P2,046,000
B. P1,980,000 D. P858,000
40.Assume you are given the following relationships for the Marhya Company:
Sales/total assets 1.5X
Return on assets (ROA) 3%
Return on equity (ROE) 5%
The Marhya Company’s debt ratio is
A. 40% C. 35%
B. 60% D. 65%
181. Selected data from Shyr Company’s year-end financial statements are
presented below. The difference between average and ending inventory is
immaterial.
Current ratio 2.0
Quick ratio 1.5
Current liabilities P120,000
Inventory turnover (based on cost of sales) 8 times
Gross profit margin 40%
Shyr’s net sales from the year were
A. P800,000 C. P480,000
B. P1,200,000 D. P672,000
182. Salami Company has a total assets turnover of 0.30 and a profit margin of 10
percent. The president is unhappy with the current return on assets, and he
thinks it could be doubled. This could be accomplished (1) by increasing the
profit margin to 15 percent, and (2) by increasing the total assets turnover. What
new asset turnover ratio, along with the 15 percent profit margin, is required to
double the return on assets?
A. 35% C. 40%
B. 45% D. 50%
42.Delo Co. has a debt ratio of 0.50, a total assets turnover of 0.25, and a profit
margin of 10%. The president is unhappy with the current return on equity, and
he thinks it could be doubled. This could be accomplished (1) by increasing the
profit margin to 14% and (2) increasing debt utilization. Total assets turnover
will not change. What new debt ratio, along with the 14% profit margin, is
required to double the return on equity?
A. 0.75 C. 0.65
B. 0.70 D. 0.55
Working Capital Finance

Working Capital Financing Policy
Conservative Financing Policy
183. As a company becomes more conservative with respect to working capital
policy, it would tend to have a(n).
A. Increase in the ratio of current liabilities to noncurrent liabilities.
B. Decrease in the operating cycle
C. Increase in the operating cycle
D. Increase in the ratio of current assets to noncurrent liabilities
Aggressive Financing Policy

184. Jekel Company follows and aggressive financing policy in its working capital
management while Michael Corporation follows a conservative financing policy.
Which one of the following statements is correct?
A. Jekel has low ratio of short-term debt to total debt while Michael has a high
ratioof short-term debt to total debt
B. Jekel has a low current ratio while Michael has a high current ratio
C. Jekel has less liquidity risk while Michael has more liquidity risk
D. Jekel finances short-term assets with long-term debt while Michael finances
short-term assets with short-term debt.
185. Nutty Co. has total fixed assets of P100,000 and no current liabilities. The
table below displays its wide variation in current asset components.
1st 2nd 3rd 4th

Quarter Quarter Quarter Quarter
Cash P16,000 P10,000 P11,000 P18,000
Accounts 70,000 30,000 40,000 90,000
receivable
Inventory 20,000 60,000 70,000 10,000
Total P106,000 P100,000 P121,000 P118,000
If Nutty’s policy is to finance all fixed assets and half the permanent current
assets with long-term financing and rest with short time-financing, what is the
maximum level of short-term financing?
A. P68,000 C. P150,000
B. P50,000 D. P71,000
Cash Management
Optimal cash conversion size
186. Gear Inc. has a total annual cash requirement of P14,700,000 which are to be
paid uniformly. Gear has the opportunity to invest the money at 24% per annum.
The company spends, on the average, P40 for every cash conversion to
marketable securities.
What is the optimal cash conversion size?
A. P50,000 C. P80,000
B. P62,500 D. P70,000
187. Morr Co. has a total annual cash requirement of P9,075,000 which are to be
paid uniformly. Morr has the opportunity to invest the money at 24% per annum.
The company spends, on the average, P40 for every cash conversion to
marketable securities.
What is the optimum average cash balance?
A. P60,000 C. P43,000
B. P55,000 D. P27,500
Total cost of keeping cash

188. Ocampo Co. estimates its total annual cash requirements at about P600,000.
It costs the company P25 to convert cash from marketable securities and vice
versa. Ocampo’s yield on its temporary investments is 12%. What is the total
costs of keeping Ocampo’s cash?
A. P2,846 C. P6,000
B. P1,897 D. P3,242
Lockbox System
189. The Alabang Company has a daily average collection of checks of P250,000.
It takes the company 4 days to convert the checks to cash. Assume a lockbox
system would have a net cost of P25,000 per year, but any additional funds
made available could be invested to net 8 percent per year. Should Alabang
adopt the lockbox system?
A. Yes, the system would free P250,000 in funds
B. Yes, the benefits of the lock-box system exceed the costs
C. No, the benefit is only P10,000
D. No, the firm would lose P5,000 per year if the system were used
Receivables Management
Credit policy
190. It is held that the level of accounts receivable that a firm has or holds reflects
both the volume of a firm’s sales on account and a firm’s credit policies. Which
one of the following items is not considered as part of a firm’s “credit policy”?
A. The maximum risk group to which credit should be extended.
B. The extent (in terms of money) to which a firm will go to collect an account.
C. The length of time for which credit is extended.
D. The size of the discount that will be offered.
Incremental investment in receivables

191. Lipa Company currently has annual sales of P2,000,000. Its average
collection period is 40 days, and bad debts are 5 percent of sales. The credit and
collection manager is considering instituting a stricter collection policy, whereby
bad debts would be reduced to 2 percent of total sales, and the average
collection period would fall to 30 days. However, sales would also fall by an
estimated P250,000 annually. Variable costs are 60 percent of sales and the cost
of carrying receivables is 12 percent. Assume a tax rate of 40 percent and 360
days per year.
What would be the incremental investment in receivables if the change were
made?
A. P(16,667) C. P(48,611)
B. P(27,167) D. P(45,833)
Increase in accounts receivable

192. Matang-Lawin’s budgeted sales for the coming year are P48,000,000 of which
80% are expected to be credit sales at a terms of n/30. Matang-Lawin estimates
that a proposed relaxation of credit standards would increase credit sales by 30
percent and increase the average collection period from 30 days to 45 days.
Based on a 360-day year, the proposed relaxation of credit standards would
result in an expected increase in the accounts receivable balance of
A. P3,440,000 C. P3,040,000
B. P1,440,000 D. P960,000
193. Relax Company’s budgeted sales for the coming year are P40,500,000 of
which 80% are expected to be credit sales at terms of n/30. Relax estimates that
a proposed relaxation of credit standards will increase credit sales by 20% and
increase the average collection period from 30 days to 40 days. Based on a 360-
day year, the proposed relaxation of credit to standards will result in an expected
increase in the average accounts receivable balance of
A. P540,000 C. P900,000
B. P2,700,000 D. P1,620,000
194. Real Company’s budgeted sales for the coming year are P50,000,000 of
which 75% are expected to be credit sales at terms of n/30. Real estimates that
a proposed relaxation of credit standards will increase credit sales by 20% and
increase the average collection period from 30 days to 40 days. Based on a 360-
day year, the proposed relaxation of credit standards will increase average
accounts receivable balance by:
A. P1,200,000 C. P1,875,000
B. P3,125,000 D. P5,000,000
Inventory Management
Economic Order Quantity
195. Gerstein Company manufactures a line of deluxe office fixtures. The
annual demand for its miniature oak file is estimated to be 5,000 units. The
annual cost of carrying one unit in inventory is P10, and the cost to initiate a
production run is P1,000. There are no miniature oak files on hand, and Gerstein
has scheduled four equal production runs of the miniature oak file for the coming
year, the first of which is to be rum immediately. Gerstein has 250 business days
per year. Assume that sales occur uniformly throughout the year and that
production is instantaneous.
The number of production runs per year of the miniature oak files that would
minimize the sum of carrying costs and setup costs for the coming year is
A. 7 C. 4
B. 2 D. 5
196. Gleim Company, which manufactures a line of appliances, has an annual

demand for its HD washing machine estimated at 7,500 units. The annual cost of
carrying one unit of inventory is P200, and the cost to initiate a production run is
P5,000. There are no HD washing machine on hand, and Gleim has scheduled 5
equal production runs of HD washing machines for the coming year. Gleim has
250 business days per year. Assume that sales occur uniformity throughout the
year and that production is instantaneous.
If Gleim does not maintain a safety stock, the estimated total carrying costs and
total set-up costs for the coming year are:
A. B. C. D.
Carrying Costs P150,000 P300,000 P150,000 P300,000
Set-up Costs 25,000 25,000 5,000 5,000
Annual cost of keeping inventory

197. The Cindy Fashion uses about 200,000 yards of a particular fabric each year.
The fabric costs P150 per yard. The current policy is to order the fabric 8 times a
year. Incremental ordering costs ate about P900 per order, and incremental
carrying costs are about P0.75 per yard, much of which represents the
opportunity cost of the funds tied up in inventory. How much total annual costs
are associated with the current inventory policy?
A. P16,575 C. P25,950
B. P18,750 D. P9,200
Opportunity cost
198. Luzon Fabricators, Inc. estimates that 60,000 special components will be used
in the manufacture of a specialty steel window for the whole next year. Its
supplier quoted a price of P60 per component. Luzon prefer to purchase 5,000
units per month, but its supplier could not guarantee this delivery schedule. In
order to ensure availability of these components, Luzon is considering the
purchase of all 60,000 units at the beginning of the year. Assuming Luzon can
invest cash at 8%, the company’s opportunity cost of purchasing the 60,000
units at the beginning of the year is
A. P132,000 C. P150,000
B. P144,000 D. P264,000
Service level
199. The sales office of Hermit Company has developed the following probability
distributed for daily sales of a perishable product.
X (Units Sold) P(Sales-X)
200 0.2
250 0.5
300 0.2
350 0.1
The product is restocked at the start of each day. If the company desires a 90%
service level in satisfying sales demand, the initial stock balance for each day
should be
A. 245 C. 315
B. 300 D. 220
Safety Stock & Reorder Point

200. When a specified level of safety stock is carried for an item in inventory, the
average inventory level for that item
A. decreased by the amount of the safety stock
B. is one-half the level of the safety stock
C. Increases by one-half the amount of the safety stock
D. Increases by the amount of the safety stock
201. The Glimpse Corporation purchases 60,000 headbands per year. The average
purchase lead time is 20 working days. Maximum lead time is 27 working days.
The corporation works 240 days per year. The appropriate safety stock level and
the reorder point for the company are:
A. B. C. D.
Safety Stock 1,750 1,750 1,167 1,167
Reorder Point 6,750 5,250 6,750 5,250
Stockout Cost
202. Which of the following items is irrelevant for a company that is attempting to
minimize the cost of the stockout?
A. Cost of placing an order C. Storage cost of inventory
B. Contribution margin on lost sales D. Size of the safety stock
Optimal Safety Stock Level

203. Each stockout of a product sold by FM Co. costs P1,750 per occurrence. The
company’s carrying cost per unit of inventory is P5 per year, and the company
orders 1,500 units of product 20 times a year at a cost of P100 per order. The
probability of a stockout at various levels of safety stock are:
Units of Safety Stock Probability of Stockout

0 0.50
100 0.30
200 0.14
300 0.05
The optimal safety stock level for the company based on the units of safety
stock level above is
A. 0 units C. 300 units
B. 100 units D. 400 units
Trade Credit
204. If a firm purchases raw materials from its supplier on a 2/10, n/50 term, the
equivalent annual interest (using 360-day year) of giving up a cash discount and
making payment on the 60th day is
A. 14.73% C. 14.69%
B. 18.37% D. 12.29%
205. If a retailer’s term of trade are 3/10, net 45 with supplier, what is the cost on
an annual basis of not taking the discount? Assume a 360-day year.
A. 24.00% C. 24.74%
B. 37.11% D. 31.81%
206. Calvin Lopez regularly purchases from Jackson at terms of 3/10, n/45. What is
the simple nominal cost of foregoing the discount if Calvin pays on the 55 th day?
A. 24.74% C. 20.24%
B. 31.81% D. 24.49%
207. If a firm purchases raw materials from its supplier on a 3/10, n/50 term, the
approximate annual interest rate (using 360-day year) of giving up a cash
discount and making payment on the 60th day is
A. 22.27 percent C. 18.37 percent
B. 27.84 percent D. 14.69 percent
Short-term Financing
208. The Dean Company has an outstanding 1 year bank loan of P800,000 at a
stated interest rate of 8%. In addition, Dean is required to maintain a 20%
compensating balance in its checking account. Assuming Dean would normally
maintain a zero balance in its checking account , the effective interest rate on
the loan is
A. 8.0% C. 11.11%
B. 10.0% D. 6.4%
209. Alice Company borrows from a bank a certain loan at a stated discount rate
of 12 percent per annum. The bank requires 10 percent of loan as compensating
balance in its new checking account. The loan is payable at the end of 6 months.
The effective interest rate if this loan is
A. 28.21% C. 14.29%
B. 27.27% D. 15.38%
210. Bratas Company is negotiating for a 4-month discounted loan for P200,000 at
12% per annum. The negotiated loan requires a 20% compensating balance.
What is the effective interest rate of the loan?
A. 17.65% C. 15.59%
B. 15.79% D. 15.00%
Cost of Capital
Cost of Debt
211. The Medium Company’s bonds have 10 years remaining to maturity. Interest
is paid annually; the bonds have a P1,000 face value; and the coupon interest
rate is 9 percent.
What is the estimated yield to maturity of the bonds at their current market price
of P900?
Dividend Growth Model
212. The dividends and stock price of Mikey Company are expected to grow at 7
percent per year after this year. Mickey’s common stock sells for P25 per share,
its last dividend was P2.50 and the company will pay P2.675 at the end of the
current year. Mickey should pay P2.50 flotation cost.
What is the expected returns on retained earnings for Mickey Company?
213. The Mint’s Company’s last dividend was P4.50; its growth rate is 6 percent
and the stock now sells for P60. Flotation cost is P5.00
What is Mint Company’s cost of new common stock?
214. Miladym Inc. paid cash dividend to its common shareholders over the past
twelve months of P2.20 per share. The current market value of the common
stock is P40 per share and investors are anticipating the common dividend to
grow at a rate of 6% per annum. The cost to issue new common stock will be 5
percent of the market value. The cost of retained earnings and new common
stock, respectively, are
A. B. C. D.
Retained earnings 12.14% 11.83% 11.79% 12.14%
Common stock 11.83% 12.14% 12.14% 11.79%
Capital Asset Pricing Model

215. The Capital Asset Pricing Model (CAPM) computes the expected return on a
security by adding the risk-free rate of return to the incremental yield of the
expected market return which is adjusted by the company's beta. What is MNO's
expected rate of return if the equity market is expected to earn 12 percent; the
treasury bonds are currently yielding 5 percent. The beta coefficient for MNO is
estimated to be 0.60. MNO is subject to an effective corporate income tax rate of
40 percent.
216. Based on the following data, compute the market return for Box’s stock:
Required return on Box common 15 percent
Beta coefficient 1.5
Risk-free rate 9.0 percent
b. 18.0 percent D. 16.0 percent
Weighted-Average Cost of Capital

217. A firm maintains a debt/equity ratio of 1.0. The debt consists of bonds with a
before tax cost of 9%. The equity consists of common stock with a cost of 18%.
The marginal corporate tax rate is 40%. What is the weighted average cost of
capital?
A. 8.1% C. 10.8%
B. 9.9% D. 11.7%
Marginal Cost of Capital

218. Raiders, Inc. just paid P3.00 cash dividend per share. Over the past 5 years,
Raiders’ dividends averaged an 8 percent growth. The common share of Raiders
currently sells at P62.50; flotation cost on common shares is P2.50 per share.
What is the marginal cost of capital for new issues of common shares?
219. The Beta Corporation asks you to determine its marginal cost of capital.
Beta’s current capital structure consists of 45 percent debt, 15 percent preferred
stock and 40 percent common equity. The separate marginal costs of the
various components of the capital structure are as follows: debt, after-tax 5.0
percent; preferred stock, 9 percent; retained earnings, 12 percent; and new
common stock, 13.5 percent. If Beta has P15 million investible retained
earnings, and Beta has an opportunity to invest in an attractive project that
costs P60 million, what is the marginal cost of capital of Beta Corporation?
A. 8.40 percent C. P9.00 percent
B. 8.63 percent D. P9.88 percent
230. The Cardinal Company sets the following capital structure for 2003:
Debt 50.0%
Preferred equity 10.0%
Common Equity 40.0%
The company is planning to invest in a project that requires the company
P4,000,000 costs.
At the size of the new funds required, the estimated individual marginal cost
of capital are:
Debt (after tax) 9.00 percent
Preferred 12.50 percent
Retained earnings 14.00 percent
Common shares 15.00 percent
What are the marginal weighted average cost of capital for Cardinal Company if
it has available retained earnings of P600,000 and P1,600,000 respectively?
Available Retained Earnings

P600,000 P1,600,000
A. 11.75% 11.35%
B. 11.60% 11.35%
C. 11.75% 11.75%
D. 11.55% 11.55%
Retained Earnings Breakpoint

231. Resi, Inc. expects net income of P800,000 for the next fiscal year. Its targeted
and current capital structure is 40% debt and 60% common equity, The director
of capital budgeting has determined that the optimal capital spending for next
year is P1,200,000. If Resi follows a strict residual dividend policy, what is the
expected dividend payout ratio for next year?
A. 80.0% C. 40.0%
B. 66.7% D. 10.0%
Quantitative Methods
Linear Programming
232. Anderson Co. manufactures two different products, A and B. The company
has 100 pounds of raw materials and 300 direct labor hours available for
production. The time requirement and contribution margins per unit are as
follows:
A B
Raw materials per unit (lbs) 1 2
Direct labor hours per unit 4 2
Contribution margin per unit P4 P5
The objective function for maximizing profits and the equation for the constrain
on raw materials are:
Objective Function Constraint on raw materials

A. Max P1A + P2B 4A + 2B=100
B. Max P4A + P5B 1A + 2B=100
C. Max P4A + P2B 4A + 5B=100
D. Min P4A + P5B 4A + 5B=300
PERT-CPM
233. AGL Builders uses the critical path method to monitor construction jobs. The
company is currently 2 weeks behind schedule on Job 501, which is the subject
to P10,500 per week completion penalty. Path A-B-C-F-G-H-I has a normal
completion time of 20 weeks, and critical path A-D-E-F-G-H-I has a normal
completion time of 22 weeks. The following activities can be crashed
Activities Cost to Crash 1 Cost to Crash 2

week weeks
BC P8,000 P15,000
DE P10,000 P19,600
EF P8,800 P18,500
AGL desires to reduce the normal completion time of Job 501 and, at the same
time, report the highest possible income for the year. AGL should crash
A. Activity BC 1 week and activity EF 1 week
B. Activity BC 2 weeks
C. Activity EF 2 weeks
D. Activity DE 1 week and activity EF 1 week
234. Castle Building Company uses the critical path method to monitor
construction jobs. The company is currently 2 weeks behind schedule on Job
WW, which is subject to a P10,500-per-week completion penalty. Path A-B-C-F-G-
H-I has a normal completion time of 20 weeks, and critical path A-D-E-F-G-H-I
has a normal completion time of 22 weeks.
The following activities can be crashed.
Activities Cost to Crash 1 Week Cost to Crash 2

Weeks
B-C P 8,000 P15,000
D-E 10,000 19,600
E-F 8,800 19,500
Castle desires to reduce the normal completion time of Job WW and, at the same
time, report the highest possible income for the year. Castle should crash
A. activity B-C 1 week and activity EF 1 week
B. activity B-C 2 weeks
C. activity D-E 1 week and activity B-C 1 week
D. activity D-E 1 week and activity E-F 1 week
Probabilities
235. CTV Company has three sales departments. Department FA process about 50
percent of CTV’s sales, Department TA about 30 percent, and Department PA
about 20 percent. In the past, Departments FA, TA, and PA had error rates of
about 2 percent, 5 percent, and 2.5 percent, respectively. A random audit of the
sales records yields a recording error of sufficient magnitude to distort the
company’s results. The probability that Department FA is responsible for this
error is
A. .50 C. .02
B. .33 D. .25
Expected Value
236. The following table represents payoffs for farm products for three different
sales levels. Which one of the products would be illogical if only three products
can be produced?
Demand Product A Product B Product C Product D

Sales 1 (10,000) 6,000 8,000 (12,000)
Sales 2 26,000 19,000 22,000 17,000
Sales 3 31,000 38,000 33,000 37,000
A. Product A C. Product C
B. Product B D. Product D
237. MOYMOY, Inc. has been operating the concession stands at the university
football stadium. The university has had successful football teams for many
years; as a result the stadium is always full. The university is located in an area
that suffers no rain during the football season. From time to time, MOYMOY has
found itself very short of hotdogs and at other times it has had many left. A
review of the records of sales of the past five seasons revealed the following
frequency of hot dogs sold:
Total Games
10,000 hot dogs 5 times
50 total
games
Hotdogs sell for P5.00 and cost MOYMOY P3 each. Unsold hotdogs are given to a
local orphanage without charge.
You have started and completed constructing a payoff table (conditional profits)
as follows:
Stocking Actions
Demand 10,000 20,000 30,000 40,000
10,000 P20,000 P(10,000) P(40,000) P(70,000)
20,000 20,000 40,000 10,000 (20,000)
30,000 20,000 40,000 60,000 30,000
40,000 20,000 40,000 60,000 80,000
What are the expected payoff of stocking 30,000 hotdogs and the expected
value of perfect information?
A. B. C. D.
Payoff of stocking P18,000 P40,000 P40,000 P18,000
40,000
EV of Perfect P18,000 P18,000 P40,000 P40,000
Information

A beverage stand can sell either softdrinks or coffee on any given day. If the stand
sells softdrinks and the weather is hot, it will make P2,500; if the weather is cold,
the profit will be P1,000. If the stand sells coffee and the weather is hot, it will make
P1,900; if the weather is cold, the profit will be P2,000. The probability of cold
weather on a given day at this time is 60%.
238. The expected payoff if the vendor has perfect information is

A. P3,900 C. P1,360
B. P2,200 D. P1,960
239. The expected payoff for selling coffee is

A. P1,360 C. P3,900
B. P2,200 D. P1,960
Decision Tree
240. Express Co. is developing a silver mine at a cost of P5 million. There is a 20%
probability that silver worth of P15 million can be sold. There is a 20% probability
that the silver will only be worth P500,000. What is the maximum Express would
be willing to spend to develop the mine?
A. P10,000,000 C. P3,100,000
B. P5,000,000 D. P0
Learning Curve
241. Soft, Inc. has a target total labor cost of P1,500 for the first four batches of a
product. Labor is paid P10 an hour. If Soft expects an 80% learning curve, how
many hours should the first batch take?
A. 150 hours. C. 96.0 hours
B. 58.6 hours D. 24.0 hours
242. Taal Company manufactures specialty components for the electronics

industry in a highly labor intensive environment. May on Company has asked
Taal to bid on a component that Taal made for May on last month. The previous
order was for 80 units and required 120 hours of direct labor to manufacture.
Mayon would now like 240 additional components. Taal experiences an 80%
learning curve on all of its jobs. The number of direct labor hours needed for Taal
to complete 240 additional components is
A. 360.0 C. 307.2
B. 187.2 D. 76.8
243. Moss Point Manufacturing recently completed and sold an order of 50 units
that had the following costs:
Direct materials P 1,500
Direct labor (1,000 hours @ P8.50) 8,500
Variable overhead (1,000 hours at P4.00) *4,000
Fixed overhead **1,400
*Appiied on the basis of direct labor hoars.
**Applrcd at the rate of 10% of variable cost
The company has now been requested to prepare a bid for 150 units of fee some
product
If an 80 percent learning curve is applicable, Moss Point's total cost on this order
would be estimated at
A. P26,400 C. P37,950
B. P31,790 D. P38,500
244. Moss Point Manufacturing recently completed and sold an order of 50 units
that had the following costs:
Direct labor (1,000 hours @ P8.50) 8,500
Variable overhead (1,000 hours at P4.00) *4,000
Fixed overhead **1,400
P15,400
*Applied on the basis of direct labor hours.
**Applied at the rate of 10% of variable costs.
The company has now been requested to prepare a bid for 350 units of the same
product.
If an 80 percent learning curve is applicable, Moss Point’s total costs on this
order would be estimated at
A. P26,400 C. P37,950
B. P31,790 D. P54,120
Information Systems
245. Which of the following is not a characteristic of a batch processing system?
A. The collection of like transactions which are sorted and processed
sequentially against a master file
B. Keypunching of transactions, followed by machine processing
C. The production of numerous printouts
D. The posting of transaction, as it occurs, to several files without intermediate
printouts.
246. The batch processing of business transactions can be the appropriate mode
when
A. the sequence of master file records is not relevant
B. timeliness is a major issue
C. a single handling of the data is desired
D. economy of scale can be gained because of high volume of transactions
43.The least risky strategy for converting from a manual to a computerized

accounts receivable system would be a
A. direct conversion C. parallel conversion
B. pilot conversion D. data base conversion
247. The real-time processing system of business transactions cannot be the

appropriate mode when
A. Economy of scale can be gained because of high volume of transactions
B. Timeless is a major issue
C. A single handling of data is desired
D. Master file data are accessed randomly
248. Which of the following comprises all of the data components of the data
processing cycle?
A. Batching, processing, output.
B. Collection, refinement, processing, maintenance, output.
C. Input, classifying, Batching, verification, transmission
D. Collection, refinement, storing, output.
249. All activity related to a particular application in a manual system is recorded

in a journal. The name of the corresponding item in a computerized system is a
A. master file C. transaction file
B. year-to-date file D. current balance file
250. The process of monitoring, evaluating and modifying a system as needed is
referred to as system
A. Design C. Review
B. Analysis D. Maintenance
5. The proper sequence of activities in the systems development life cycle is
A. Design, analysis, implementation, and operation.
B. Design, implementation, analysis, and operation.
C. Analysis, design, implementation, and operation.
D. Programming, analysis, implementation, and operation.
251. The process of developing specifications for hardware, software,

personnel hours, data resources, and information products required to develop a
system is referred to as
A. systems analysis C. systems design
B. systems feasibility D. systems maintenance
252. The process of monitoring, evaluating, and modifying a system as needed is

referred to as systems
A. Analysis C. Maintenance
B. Design D. Implementation
253. An integrated set of computer programs that facilitates the creation,

manipulation, and querying of integrated files is called
A. A translator C. An operating system
B. A Database management system D. A flat file system
254. One of the first steps in the creation of a database is to

A. define common variables and fields used throughout the firm
B. increase the secondary storage capacity,
C. obtain software that will facilitate data retrieval.
D. integrate the accounting system into the data base.
255. A system with several computers that are connected for communication and
data transmission purposes but that permits each computer to process its own
data is a
A. distributed data processing network C. decentralized network
B. centralized network D. multidrop network
256. A major advantage of obtaining a package of application software from

software vendor is
A. The likelihood of reducing the time span from planning to implementation
B. The ability to more easily satisfy the unique needs of users
C. Greater operating efficiency from the computer
D. The assurance the programs will be written in a high-level language.
257. A major advantage of obtaining a package of applications programs from a

software vendor is
A. the likelihood of reducing the time span from planning to
implementation.
B. the ability to more easily satisfy the unique needs of users
C. greater operating efficiency from the computer
D. the assurance that the programs will be written in a high-level
language
258. The least risky strategy for converting from a manual to a

computerized accounts receivable system would be a
A. direct conversion C. pilot conversion
B. parallel conversion D. database conversion
259. Turnaround document

A. Generally circulate only within the computer center
B. Can be read and processed only by the computer
C. Are generated by the computer and eventually return to it
D. Are only used internally in an organization
4. Of the following, the greatest advantage of a database architecture is
A. Data redundancy can be reduced.
B. Conversion to a database system is inexpensive and can be accomplished

quickly.
C. Multiple occurrences of data items are useful for consistency checking.
D. Backup and recovery procedures are minimized.
Situational
Cost-Volume-Profit Analysis
Questions 260 through 265 are based on the following:
Pullman Company is a small but growing manufacturer of telecommunications
equipment. The company has no sales force of its own; rather, it relies completely
on independent sales agents to market its products. These agents are paid a
commission of 15% of selling price for all items sold.
Maui Soliman, Pullman’s controller, has just prepared the company’s budgeted
income statement for next year. The statement follows:
Pullman Company
Budgeted Income Statement
For the Year Ended December 31
Sales P16,000,000
Manufacturing costs:
Variable P7,200,000
Fixed overhead 2,340,000 9,540,000
Gross margin 6,460,000
Selling and administrative costs:
Commissions to agents 2,400,000
Fixed marketing costs *120,000
Fixed administrative costs 1,800,000 4,320,000
Net operating income 2,140,000
Less fixed interest cost 540,000
Income before income taxes 1,600,000
Less income tax (30%) 480,000
Net income P 1,120,000
*Primarily depreciation on storage facilities
As Maui handed the statement to Kim Viceroy, Pullman’s president, she commented,
“I went ahead and used the agents’ 15% commission rate in completing these
statements, but we’ve just learned that they refuse to handle our products next
year unless we increase the commission rate to 20%.”
“That’s the last straw,” Kim replied angrily. “Those agents have been demanding
more and more, and this time they’ve gone too far. How can they possibly defend a
20% commission rate?”
“They claim that after paying for advertising, travel, and the other costs of
promotion, there’s nothing left over for profit,” replied Maui.
“I say it’s just plain robbery,” retorted Kim. “And I also say it’s time we dumped
those guys and got our own sales force Can you get your people to work up some
cost figures for us to look at?”
“We’ve already worked them up,” said Maui. “Several companies we know about
pay a 7.5% commission to their own salespeople, along with a small salary. Of
course, we would have to handle all promotion costs, too. We figure our fixed costs
would increase by P2,400,000 per year, but that would be more than offset by the
P3,200,000 (20% x P16,000,000) that we would avoid on agents’ commissions.”
The breakdown of the P2,400,000 cost figure follows:
Salaries:
Sales manager P 100,000
Salespersons 600,000
Travel and entertainment 400,000
Total P2,400,000
“Super,” replied Kim. “And I note that the P2,400,000 is just what we’re paying the
agents under the old 15% commission rate.”
“It’s even better than that,” explained Maui. “We can actually save P75,000 a year
because that’s what we’re having to pay the auditing firm now to check out the
agents’ reports. So our overall administrative costs would be less.”
“Pull all of these number together and we’ll show them to the executive committee
tomorrow,” said Kim. “With the approval of the committee, we can move on the
matter immediately.”
260. What is the breakeven point in pesos for next year assuming that the agents’
commission rate remains unchanged at 15%?
A. P10,650,000 C. P 9,000,000
B. P12,000,000 D. P10,750,000
261. What is the breakeven point in pesos for next year assuming that the agents’
commission rate is increased to 20%?
A. P13,171,000 C. P13,714,286
B. P15,000,000 D. P12,750,000
262. What is the breakeven point in pesos for next if the company employs its own
sales force?
A. P15,000,000 C. P13,090,909
B. P12,954,545 D. P15,157,895
263. Assume that Pullman Company decides to continue selling through agents
and pays the 20% commission rate. The volume of sales that would be required
to generate the same net income as contained in the budgeted income
statement for next year would be:
A. P18,285,714 C. P19,225,000
B. P18,368,421 D. P20,414,714
264. The volume of sales at which net income would be equal regardless of
whether Pullman Company sells through agents (at a 20% commission rate) or
employs its own sales force:
A. P11,625,000 C. P19,200,000
B. P12,000,000 D. P18,600,000
265. At a sales volume level of 2,250 units, Luzon Company’s contribution margin
is one and one-half of the fixed costs of P36,000. Contribution margin is 30%
How many units must be sold by the company to breakeven?
A. 1,250 C. 2,2580
B. 1,500 D. 2,520
Questions 45 through 50 are based on the following information:

San Carlos operates a general hospital but rents space and beds to separate entities
for specialized treatment such as pediatrics, maternity, psychiatric, etc. San Carlos
charges each separate entity for common services to its patients like meals and
laundry and for all administrative services such as billings, collections, etc. All
uncollectible accounts are charged directly to the entity. Space and bed rentals are
fixed for the year.
For the entire year ended June 30, the Pediatrics Department at San Carlos Hospital
charged each patient an average of P650 per day, had a capacity of 60 beds,
operated 24 hours per day for 365 days, and had revenue of P10,676,250.
Expenses charged by the hospital to the Pediatrics Department for the year ended
June 30 were:
Basis of Allocation
Patient Days Bed Capacity
Dietary P 328,500
Janitorial P 118,400
Laundry 197,100
Lab, other than direct charges to 410,625
patients
Pharmacy 410,625
Repairs and maintenance 65,700 66,045
General administrative services 1,218,780
Rent 2,546,710
Billings and collections 689,850
Bad debt expense 246,375
Others 114,975 240,315
Total P2,463,750 P4,190,250
The only personnel directly employed by the Pediatrics Department are supervising
nurses, nurses, and aides. The hospital has minimum personnel requirements
based on total annual patient days. Hospital requirements beginning at the
minimum, expected level of operation follow:
Annual Patient Aides Nurses Supervising Nurses

Days
10,000 – 14,000 21 11 4
14,001 – 17,000 22 12 4
17,001 – 23,725 22 13 4
23,726 – 25,550 25 14 5
25,551 – 27,375 26 14 5
27,376 – 29,200 29 16 6
The staffing levels above represent full-time equivalents, and it should be assumed
that the Pediatrics Department always employs only the minimum number of
required full-time equivalent personnel.
Annual salaries for each class of employee follow: supervising nurses, P180,000;
nurses, P130,000; and aides, P50,000. Salary expense for the year ended June 30
for supervising nurses, nurses, and aides was P720,000, P1,560,000, and
P1,100,000, respectively.
The Pediatrics Department operated at 100% capacity during 111 days of the past
year. It is estimated that during 90 of these capacity days, the demand average 17
patients more than capacity and even went as high as 20 patients more on some
days. The hospital has an additional 20 beds available for rent for the coming fiscal
year.
45.The contribution margin per patient day is

A. P400.00 C. P500.00
B. P450.00 D. P525.00
46.How many patient days are necessary to cover fixed costs for bed capacity and
for supervisory nurses?
A. 9,500 C. 10,250
B. 9,820 D. 12,000
47.The number of patient days needed to cover total costs is
A. 14,780 C. 15,820
B. 15,140 D. 16,080
48.If the Pediatrics Department rented an additional 20 beds and all other factors
remain the same as in the past year, what would be the increase in revenue?
A. P994,500 C. P1,054,500
B. P877,500 D. P 897,500
49.Continuing to consider the 20 additional rented beds, the increase in total

variable cost applied per patient day is
A. P229,350 C. P229,650
B. P229,500 D. P239,350
50.What is the increased fixed cost applied for bed capacity, given the increased
number of beds?
A. P1,396,750 C. P1,470,000
B. P1,187,238 D. P1,520,000
Questions 41 through 45 are based on the following:

Anilao Ski Company recently expanded its manufacturing capacity to allow it to
product up to 15,000 pairs of cross-country skis of either the mountaineering model
or the touring model. The sales department assures management that it can sell
between 9,000 and 13,000 pairs (units) of either product this year. Because the
models are very similar, Anilao Ski will produce only one of the two models. The
information below was compiled by the accounting department.
Mountaineering Touring
Selling price per unit P88.00 P80.00
Variable cost per unit 52.00 52.80
Fixed costs will total P369,600 if the mountaineering model is produced but will be
only P316,800 if the touring model is produced. Anilao Ski Company is subject to a
40% income tax rate.
41.If Anilao Ski Company desires an after-tax net income of P24,000, how many
pairs of touring model skis will the company have to sell?
A. 13,118 C. 13,853
B. 12,529 D. 4,460
42.The total sales revenue at which Anilao Ski Company would make the same
profit or loss regardless of the ski model it decided to produce is
A. P880,000 C. P924,000
B. P422,400 D. P686,400
43.How much would the variable cost per unit of the touring model have to change
before it had the same breakeven point in units as the mountaineering model?
A. P2.68/unit increase C. P5.03/unit decrease
B. P4.53/unit increase D. P2.97/unit decrease
44.If the variable cost per unit of touring skis decreases by 10%, and the total fixed
cost of touring skis increases by 10%, the new breakeven point will be
A. 10,730 pairs
B. 13,007 pairs
C. 12,812 pairs
D. Unchanged from 11,648 pairs because the cost changes are equal and
offsetting
45.If the Anilao Ski Company sales department could guarantee the annual sale of
12,000 skis of either model, Anilao would
A. Produce touring skis because they have a lower fixed cost.
B. Produce only mountaineering skis because they a lower breakeven point.
C. Produce mountaineering skis because they are more profitable.
D. Be indifferent as to which model is sold because each model has the same
variable cost per unit.

Calamba Hospital operates a general hospital but rents space and beds to separate
entities fro specialized treatment such as pediatrics, maternity, psychiatrics, etc.
Calamba charges each separate entity for common services to its patients like
meals and laundry and for all administrative services such as billings, collections,
etc. All uncollectible accounts are charged directly to the entity. Space and bed
rentals are fixed for the year.
For the entire year ended June 30, the Pediatrics Department at Calamba Hospital
charged each patient an average of P65 per day, had a capacity of 60 beds,
operated 24 hours per day for 365 days, and had revenge of P1,138,800.
Expense charged by the hospital to the Pediatrics Department for the year ended
June 30 were:
Basis of Allocation
Patients Days Bed Capacity
Dietary P42,952
Janitorial P12,800
Laundry 28,000
Lab. Other than direct charges to 47,800
patients
Pharmacy 33,800
Repairs and maintenance 5,200 7,140
General administrative services 131,760
Rent 275,320
Billings and collections 40,000
Bad debt expense 47,000
Other 18,048
P262,800 P453,000
The only personnel directly employed by the Pediatrics Department are supervising
nurses, nurses, and aides. The hospital has minimum personnel requirements based
on total annual patient days. Hospital requirements beginning at the minimum,
expected level of operation follow:
Annual Patient Aides Nurses Supervising

Days Nurses
10,000 – 14,000 21 11 4
14,001 – 17,000 22 12 4
17,001 – 23,725 22 13 4
23,726 – 25,550 25 14 5
25,551 – 27,375 26 14 5
27,376 – 29,200 29 16 6
The staffing levels above represent full-time equivalents, and it should be assumed
that the Pediatrics Department always employs only the minimum number of
required full-time equivalent personnel.
Annual salaries for each class of employee follow: supervising nurses, P18,000;
nurses, P13,000; and aides, P5,000. Salary expense for the year ended June 30 for
supervising nurses, nurses and aides was P72,000, P169,000 and P111,000,
respectively.
The Pediatrics Department operated at 100% capacity during 111 days of the past
year. It is estimated that during 90 of these capacity days, the demand average 17
patients more than capacity and even went as high as 20 patients more on some
days. The hospital has an additional 20 beds available for rent for the coming fiscal
year.
266. The variable expense per patient day is

A. P15.08 C. P15.00
B. P12.50 D. P50.00
267. The contribution margin per patient day is

A. P49.92 C. P50.00
B. P52.50 D. P52.00
268. How many patient days are necessary to cover fixed costs for bed capacity
and for supervisory nurses?
A. 9,500 C. 12,500
B. 11,500 D. 10,500
269. The number of patient days needed to cover total costs is

A. 14,200 C. 15,820
B. 15,200 D. 14,220
270. If the Pediatrics Department rented an additional 20 beds and all other
factors remain the same as in the past year, what would be the increase in
revenue?
A. P99,450 C. P105,450
B. P87,750 D. P89,750
271. Continuing to consider the 20 additional rented beds, the increase in total
variable cost applied per patient day is
A. P22,935 C. P22,965
B. P22,950 D. P23,935
272. What is the increased fixed cost applied for bed capacity, given the increased
number of beds?
A. P151,000 C. P147,000
B. P173,950 D. P152,000

Ms. Casserole started a pizza restaurant in 1998. For this purpose a building was
rented for P400 per month. Two women were hired to work full time at the
restaurant and six college students were hired to work 30 hours per week delivering
pizza. This level of employment has been consistent. An outside accountant was
hired for tax and bookkeeping purposes, for which Ms. Casserole pays P300 per
month. The necessary restaurant equipment and delivery cars were purchased with
cash. Ms. Casserole has noticed that expenses for utilities and supplies have been
rather constant. Ms. Casserole increased her business between 1998 and 2001.
Profits have more than doubled since 1998. Ms. Casserole does not understand why
profits have increased faster than volume.
A projected income statement for the year ended December 31, 2002, prepared by
the accountant is shown below.
Sales P95,000
Cost of food sold P28,500
Wages & fringe benefits:
Restaurant help 8,150
Delivery help 17,300
Rent 4,800
Accounting services 3,600
Depreciation:
Delivery equipment 5,000
Restaurant equipment 3,000
Utilities 2,325
Supplies 1,200 73,875
Income taxes (40%) 8,450
Net income P12,675
273. What is the tax shield on the non-cash fixed costs?

A. P3,200 C. P3,400
B. P14,950 D. P5,400
274. What is the breakeven point in number of pizzas that must be sold?
A. 25,929 C. 18,150
B. 23,569 D. 42,114
275. What is the cash flow breakeven point in number of pizzas that must be sold?
A. 19,529 C. 12,990
B. 21,284 D. 10,773
Questions 276 through 280 should be answered independent of each other. They
should be answered based the following most recent income statement for OPMACO
COMPANY that appears below:
OPMACO Company
Income Statement
For the Year Ended December 31
Sales 45,000 units @ P10 P450,00
0
Less cost of goods sold:
Direct labor 78,300
Manufacturing overhead 98,500 266,800
Gross margin 183,200
Less operating expenses:
Selling expenses:
Variable:
Sales commissions P27,000
Shipping 5,400 32,400
Fixed (advertising, salaries) 120,000
Administrative:
Variable (billing and other) 1,800
Fixed (salaries and other) 48,000 202,200
Net loss P(19,000
)
All variable expenses in the company vary in terms of unit sold, except for sales
commissions, which are based on peso sales. Variable manufacturing overhead
is 30 centavos per unit. There were no beginning or ending inventories. OPMACO
Company's plant has a capacity of 75,000 units per year.
The company has been operating at a loss for several years. Management is
studying several possible courses of action to determine what should be done to
make next year profitable.
276. For next year, the vice president would like to reduce the unit setting price by
20%. She is certain that this would fill the plant to capacity. What would be the
profit if the plan is implemented?
A. P 2,750 C. P 1,250
B. P(6,250) D. P(4,000)
277. For next year, the sales manager would like to increase the unit selling price
by 20%, increase the sales commission to 9% of sales, and increase advertising
by P100,000. Based on marketing studies, he is confident this would increase
sales by one-third. What would be the profit under this plan?
A. P50,200 C. P108,000
B. P79,000 D. P 800
278. The president believes it would be a mistake to change the unit selling price.
Instead, he wants to use less costly materials in manufacturing units of products,
thereby reducing unit costs by P0.70. How many units would have to be sold
next year to earn a target profit of P30,200?
A. 51,220 C. 44,780
B. 48,000 D. 32,000
279. OPMACO Company's board of directors believes that the company's problem
lies in inadequate promotion. By how much can advertising be increased and still
allow the company to earn a target return of 4.5% on sales of 60,000 units?
A. P 32,000 C. P39,200
B. P152,000 D. P59,000
280. The company has been approached by an overseas distributor who wants to
purchase 9,500 units on a special price basis. There would be no sales
commission on these units. However, shipping costs would be increased by 50%
and variable administrative costs would be reduced by 25%. In addition, a
P5,700 special insurance fee would have to be paid by OPMACO Company to
protect the goods in transit. Regular business would not be disturbed by this
special order.
What unit price would have to be quoted on the 9,500 units by OPMACO
Company to allow the company to earn a profit of P14,250 on total operations?
A. P8.35 C. P7.35
B. P6.35 D. P9.35
Questions 43 through 47 are based on the following information.

The Statement of Income of Sana, Inc., which represents the operating results for
the current fiscal year ending December 31, had sales of 1,800 tons of product
during the current year. The manufacturing capacity of Sana's facilities is 3,000 tons
of product. Consider each question's situation separately.
Sales P900,000
Variable costs
Manufacturing P315,000
Selling costs 180,000
Total variable costs P495,000
Fixed costs
Setting 112,500
Administration 45,000
Net income before income taxes P157,500
Income taxes (40%) (63,000)
Net income after income taxes P94,500
43.The breakeven volume in tons of product for the year is (E)

A. 420 C. 495
B. 1,100 D. 550
44.If the sales volume is estimated to be 2,100 tons in the next year, and if the
prices and costs stay at the same levels and amounts next year, the after-tax net
income that Sana can expect for next year is (E)
A. P135,000 C. P283,500
B. P110,250 D. P184,500
45.Sana has a potential foreign customer that has offered to buy 1,500 tons at
P450 per ton. Assume that all of Sana's costs would be at the same levels and
rates as last year. What net income after taxes would Sana make if it took this
order and rejected some business from regular customers so as not to exceed
capacity? (M)
A. P297,500 C. P211,500
V. P252,000 D. P256,500
46.Without prejudice to your answers to previous questions, and assume that

Sana plans to market its product in a new territory, Sana estimates that an
advertising and promotion program costing P61,500 annually would need to be
undertaken for the next two or three years In addition, a P25 per ton sales
commission over and above the current commission to the sales force in the new
territory would be required. How many tons would have to be sold in the new
territory to maintain Sana's current after-tax income of P94,500? (M)
A. 307.5 C. 273.33
B. 1,095 D. 1,545
47.Without prejudice to preceding questions, assume that Sana estimates that the
per ton selling price will decline 10% next year. Variable costs will increase P40
per ton and the fixed costs will not change. What sales volume in pesos will be
required to earn an after-tax net income of P94,500 next year? (M)
A. P1,140,000 C. P1,500,000
B. P825,000 D. P1,350,000
Variable & Absorption Costing

Question Nos. 48 through 50 are based on the following information.
This makes no sense at all, “said Tom, President of Horizon, Inc. "We sold the same
number of units this year as we did fast year, yet our profits have more than
doubled. Who made the goof - the computer or the people who operate it?" The
statements to which Tom was referring are shown below (absorption costing basis):
2004 2005
Sales (20,000 units each year) P700,000 P700,000
Less cost of goods sold 460,000 400,000
Gross margin 240,000 300,000
Less: Operating expenses 200,000 200,000
Profit P40,000 P100,000
The statements above show the results of the first two years of operation. In the
first year (2004), the company produced and sold 20,000 units. In 2005, the
company again sold 20,000 units, but it increased production in order to have a
stock of units on hand, as shown below:
2004 2005
Production in units 20,000 25,000
Sales in unite 20,000 20,000
Variable production cost per unit P8 P3
Fixed manufacturing OH costs P300,000 P300,000
(total)
Horizon produces a single product. Fixed manufacturing overhead costs are applied
to the product on the basis of each year’s production, (Thus, a new fixed
manufacturing overhead rate is computed each year) Variable selling and
administrative expense are P1 per unit sold.
48.Had the company used variable costing, the profit for each year , 2004 and
2005, would have been: (E)
A. P40,000, P100,000 C. P100,000, P100,000
B. P100,000, P40,000 D. P40,000, P40,000
49.Using the absorption costing, the product’s unit cost for 2004 and 2005,
respectively, are: (E)
A. B. C. D.
2004 P8 P23 P23 P8
2005 P8 P23 P20 P9
50.If JIT has been in use during 2005, what would the company’s net income have
been under absorption costing? (M)
A. P100,000 C. P20,000
B. P40,000 D. P60,000

Questions No. 45 through 50 are based on the following information:
You have recently graduated from a university and have accepted a position with
Villar Company, the manufacturer of a popular consumer product. During your first
week on the job, the vice president has been favorably impressed with your work.
She has been so impressed, in fact, that yesterday she called you into her office and
asked you to attend the executive committee meeting this morning for the purpose
of leading a discussion on the variances reported for last period. Anxious to
favorably impress the executive committee, you took the variances and supporting
data home last night to study.
On your way to work this morning, the papers were laying on the seat of your new,
red convertible. As you were crossing a bridge on the highway, a sudden gust of
wind caught the papers and blew them over the edge of the bridge and into the
stream below. You managed to retrieve only one page, which contains the following
information:
Standard Cost Summary
Direct materials, 6 pounds at P3 P18.00
Direct labor, 0.8 hours at P5 4.00
Variable overhead, 0.8 hours at P3 2.40
Fixed overhead, 0.8 hours at P7 5.60
P30.00
Total VARIANCES REPORTED

Standard Price Spending Quantity
or Volume
Cost * or Rate Or Budget
Efficienc
y
Direct materials P405,000 P6,900 F P9,000 U
Direct labor 90,000 4,850 U 7,000 U
Variable 54,000 P1,300 F ?@
overhead
Fixed overhead 126,000 500 F P14,000 U
* Applied to Work in process during the period

@
Figure obliterated.
You recall that manufacturing overhead cost is applied to production on the basis of
direct labor-hours and that all of the materials purchased during the period were
used in production. Since the company uses JIT to control work flows, work in
process inventories are insignificant and can be ignored.
It is now 8:30 A.M. The executive committee meeting starts in just one hour; you
realize that to avoid looking like a bungling fool you must somehow generate the
necessary “backup” data for the variances before the meeting begins. Without
backup data it will be impossible to lead the discussion or answer any questions.
45.How many pounds of direct materials were purchased and used in production?
A. 138,000 lbs. C. 132,000 lbs.
B. 135,000 lbs. D. 137,300 lbs.
46.What was the actual cost per pound of material?
A. P3.00 C. P3.05
B. P2.95 D. P3.10
47.How many actual direct labor hours were worked during the period?
A. 18,000 C. 16,600
B. 19,400 D. 18,970
48. How much actual variable manufacturing overhead cost was incurred during
the period?
A. P55,300 C. P58,200
B. P56,900 D. P59,500
49. What is the total fixed manufacturing overhead cost in the company’s flexible
budget?
A. P112,500 C. P140,000
B. P139,500 D. P125,500
50.What were the denominator hours for last period?

A. 18,000 hours C. 22,000 hours
B. 20,000 hours D. 25,000 hours
Relevant Costing
Questions 281 through 286 are based on the Statement of Income of Ilongo, Inc.
which represents the operating results for the current fiscal year ending December
31, 2003. Ilongo had sales of 1,800 tons of product during the current year. The
manufacturing capacity of Ilongo’s facilities is 3,000 tons of product. Consider each
question’s situation separately.
Sales P900,000
Variable costs
Selling costs 180,000
Total variable costs P495,000
Fixed costs
Manufacturing P 90,000
Selling 112,500
Administration 45,000
Net income before income taxes P157,500
Income taxes (40%) (63,000)
Net income after income taxes P 94,500
281. The breakeven volume in tons of product for the 2003 is

A. 420 C. 495
B. 1,100 D. 550
282. If the sales volume is estimated to be 2,100 tons in the next year, and if the
prices and costs stay at the same levels and amounts next year, the after-tax net
income that Ilongo can expect for 2004 is
A. P135,000 C. P283,500
B. P110,250 D. P184,500
283. Ilongo has a potential foreign customer that has offered to buy 1,500 tons at
P450 per ton. Assume that all of Ilongo’s costs would be at the same levels and
rates as last year. What net income after taxes would Ilongo make if it took this
order and rejected some business from regular customers so as not to exceed
capacity?
A. P297,500 C. P211,500
B. P252,000 D. P256,500
284. Ignore the facts presented in the previous questions, and assume that Ilongo
plans to market its product in a new territory. Ilongo estimates that an
advertising and promotion program costing P61,500 annually would need to be
undertaken for the next two or three years. In addition, a P25 per ton sales
commission over and above the current commission to the sales force in the new
territory would be required. How many tons would have to be sold in the new
territory to maintain Ilongo’s current after-tax income of P94,500?
A. 307.5 C. 273.33
B. 1,095 D. 1,545
285. Ilongo is considering replacing a highly labor-intensive process with an

automatic machine. This change would result in an increase of P58,500 annually
in manufacturing fixed costs. The variable manufacturing costs would decrease
P25 per ton. The new breakeven volume in tons would be
A. 990 C. 1,854
B. 1,224 D. 612
286. Ignoring the facts presented in Question 285, assume that Ilongo estimates
that the per ton selling price will decline 10% next year. Variable costs will
increase P40 per ton and the fixed costs will not change. What sales volume in
pesos will be required to earn an after-tax net income of P94,500 next year?
A. P1,140,000 C. P1,500,000
B. P825,000 D. P1,350,000

Adrenal Company has a single product called a CAD. The company normally
produces and sells 60,000 CADS each year at a selling price of P32 per unit. The
company’s unit costs at this level of activity are given below:
Direct labor 4.50
Variable manufacturing overhead 2.30
Fixed manufacturing overhead (P300,000 total ) 5.00
Variable selling expenses 1.20
Fixed selling expenses (P210,000 total) 3.50
Total cost per unit P26.50
287. Assume that Adrenal Company has sufficient capacity to produce 90,000
CADS each year without any increase in fixed manufacturing overhead costs.
The company could increase its sales by 25% above the present 60,000 units
each year if it were willing to increase the fixed selling expenses by P180,000.
The increase in income if the production is increased by 25% is
A. P30,000 C. P10,833
B. P2,500 D. P208
288. Assume again that Adrenal Company has sufficient capacity to produce
90,000 CADS each year. A customer in a foreign market wants to purchase
20,000 CADS. Import duties on the CADS would be P1.70 per unit, and costs for
permits and licenses would be P9,000. The only selling costs that would be
associated with the order would be P3.20 per unit shipping cost. What is the
break-even price on this order?
A. P23.35 C. P28.65
B. P22.15 D. P21.70
289. The company has 1,000 CADS on hand that have some irregularities and are
therefore considered to be “seconds”. Due to the irregularities, it will be
impossible to sell these units at the normal price through regular distribution
channels. What unit cost figure is relevant for setting a minimum selling price?
A. P16.80 C. P18.00
B. P4.70 D. P1.20
290. Due to a strike in its supplier’s plant, Adrenal Company is unable to purchase
more material for the production of CADS. The strike is expected to last for two
months. Adrenal Company has enough material on hand to continue to operate
at 30% of normal levels for the two months. If the plant were closed, fixed
overhead costs would continue at 60% of their normal level during the two-
month period; the fixed selling costs would be reduced by 20% while the plant
was closed. How much is the advantage or disadvantage of closing the plant for
the two-month period?
A. Disadvantage, P144,000 C. Advantage, P144,000
B. Disadvantage, P15,000 D. Advantage, P15,000
291. An outside manufacturer had offered to produce CADS for Adrenal Company
and to ship them directly to Adrenal’s customers. If Adrenal Company accepts
this offer, the facilities that it uses to produce CADS would be idle; however,
fixed overhead costs would be reduced by 75% of their present level. Since the
outside manufacturer would pay for all the costs of shipping, the variable selling
costs would be only two-thirds of their present amount. What is the unit cost
figure that is relevant for comparison to whatever quoted price is received from
the outside manufacturer?
A. P20.95 C. P21.35
B. P20.55 D. P16.80

You have recently graduated from a university and have accepted a position with
Villar Company, the manufacturer of a popular consumer product. During your first
week on the job, the vice president has been favorably impressed with your work.
She has been so impressed, in fact, that yesterday she called you into her office and
asked you to attend the executive committee meeting this morning for the purpose
of leading a discussion on the variances reported for last period. Anxious to
favorably impress the executive committee, you took the variances and supporting
data home last night to study.
On your way to work this meaning, the papers were laying on the seat of your new,
red convertible. As you were crossing a bridge on the highway, a sudden gust of
wind caught the papers and blew them over the edge of the bridge and into the
stream below. You managed to retrieve only one page, which contains the following
information:
Standard Cost Summary
Direct materials, 6 pounds at P3 P18.00
Direct labor, 0.8 hours at P5 4.00
Variable overhead, 0.8 hours at P3 2.40
Fixed overhead, 0.8 hours at P7 5.60
P30.00
Total VARIANCES REPORTED

Standar Price or Spendi Quantit Volume
d Cost* Rate ng Or y or
Budge Efficienc
t y
Direct materials P405,00 P6,900 P9,000
0 F U
Direct labor 90,000 4,850 U 7,000 U
Variable 54,000 P1,300 ?@
overhead F
Fixed overhead 126,000 500 F P14,000
U
* Applied to Work in process during
the period
@ Figure obliterated.
You recall that manufacturing overhead cost is applied to production on the basis
of direct labor-hours and that all of the materials purchased during the period
were used in production.
Since the company uses JIT to control work flows, work in process inventories are
insignificant and can be ignored.
It is now 8:30 A.M. The executive committee meeting starts in just one hour, you
realize that to avoid looking like a bungling fool you must somehow generate the
necessary "backup" data for the variances before the meeting begins. Without
backup data it will be impossible to lead the discussion or answer any questions.
292. How many pounds of direct materials were purchased and used in
production?
A. 138,000 lbs. C. 132,000 lbs.
B. 135,000 lbs. D. 137,300 lbs.
293. What was the actual cost per pound of material?

A. P3.00 C. P3.05
B. P2.95 D. P3.10
294. How many actual direct labor hours were worked during the period?
A. 18,000 C. 16,600
B. 19,400 D. 18,970
295. How much actual variable manufacturing overhead cost was incurred during
the period?
A. P55,300 C. P58,200
B. P56,900 D. P59,500
296. What is the total fixed manufacturing overhead cost in the company's flexible
budget?
A. P112,500 C. P140,000
B. P139,500 D. P125,500
297. What were the denominator hours for last period?

A. 18,000 hours C. 22,000 hours
B. 2.0,000 hours D. 25,000 hours
Capital Budgeting
Pinewood Craft Company is considering the purchase of two different items of
equipment, as described below:
Machine A. A compacting machine has just come onto the market that would permit
Pinewood Craft Company to compress sawdust into various shelving products. At
present the sawdust is disposed of as a waste product. The following information is
available on the machine:
A. The machine would cost P420,000 and would have a 10% salvage value at
the end of its 12-year useful life. The company uses straight-line depreciation
and considers salvage value in computing depreciation deductions.
B. The shelving products manufactured from use of the machine would generate
revenues of P300.000 per year. Variable manufacturing costs would be 20% of
sales.
C. Fixed expenses associated with the new shelving products would be (per year):
advertising, P40,000; salaries, P110,000; utilities, P5,200; and insurance, P800.
Machine B. A second machine has come onto the market that would allow Pinewood
Craft Company to automate a sanding process that is now done largely by hand.
The following information is available.
A. The new sanding machine would cost P234,000 and would have no salvage
value at the end of its 13-year useful life. The company would use straight-line
depreciation on the new machine.
B. Several old pieces of sanding equipment that are fully depreciated would be
disposed of at a scrap value of P9,000.
C. The new sanding machine would provide substantial annual savings in cash
operating costs. It would require an operator at an annual salary of P16,350 and
P3,400 in annual maintenance costs. The current, hand-operated sanding
procedure costs the company P78,000 per year in total.
Pinewood Craft Company requires a simple rate of return of 15% on all equipment
purchases. Also, the company will not purchase equipment unless the equipment
has a payback period of 4.0 years or less. (In all the following questions, please
ignore income tax effect)
298. The expected income each year from the new shelving products (Machine A)
is:
A. P52,500 C. P240,000
B. P84,000 D. P 92,500
299. The annual savings in cost if Machine B is purchased is

A. P56,250 C. P43,250
B. P38,250 D. P21,750
300. The simple rates (%) of return for Machine A and Machine B are:
A. B. C. D.
Machine A 12.5 20.0 12.5 20.0
Machine B 17.0 17.0 16.4 16.4
301. The payback periods (years) for Machine A and Machine B are:
A. B. C. D.
Machine A 4.5 5.0 4.5 5.0
Machine B 4.0 4.0 4.2 4.2
Financial Statement Analysis

Emong de Leon, the nervous accountant, spilled a cup of coffee over the annual
financial statements for Bathala Company. Luckily, though the content of the
financial statements were unreadable, the notes that he had developed had been
still intact.
He recalled that the balance sheet contained his favorite numbers (the first two
digits) that suggested his ages when he got married, when he passed the CPA
examination, and his present age, respectively, as follows:
Current Liabilities P320,000

Sales P4,200,000
Interest expense P80,000
The following additional information were among the notes that he had developed
when he had finalized the financial statements:
1. All sales during the year were on account.

2. There was no change in the number of shares of common stock outstanding
during the year.
3. The interest expense on the income statement relates to the bonds payable; the
amount of bonds outstanding did not change during the year.
4. Selected balances at the beginning of the current fiscal year were:

Accounts receivable P 270,000
Inventory 360,000
Total assets 1,800,000
5. Selected financial ratios computed from the unreadable financial statements
for the current year are:
Earnings per share P2.30
Debt-to-equity ratio 0.875 to 1
Accounts receivable turnover 14.0 times
Current ratio 2,75 to 1
Return on total assets (using net Operating income) 18.0%
Times interest earned 6.75 times
Acid test ratio 1.25 to 1
Inventory turnover 6.5 times
The selected balances and amounts that are to be included in the balance sheet
and income statement for the current year are:
46.Accounts receivable
A. 300,000 C. 330,000
B. 270,000 D. 240,000
47.Inventory
A. 360,000 C. 420,000
B. 320,000 D. 480,000
48.Total liabilities
A. 1,120,000 C. 2,400,000
B. 1,280,000 D. 800,000
49.Cost of goods sold

A. 2,730,000 C. 2,420,000
B. 1,470,000 D. 2,940,000
50.Total assets
A. 2,100,000 C. 3,000,000
B. 2,400,000 D. 4,200,000

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What are the characteristics of management advisory services?

What are the characteristics of management advisory services?

What are some examples of activities at different levels in activity-based costing?

What are some examples of activities at different levels in activity-based costing?

Overview

Management advisory services

1. The following characterize management advisory services except

2. Which of the following is not classifiable as a management advisory service by

2. Which of the following statement is false?

Management accounting & financial accounting

A. Reporting of historical information

B. Compliance to generally accepted accounting principles

C. Contribution approach income statement

D. External users of financial report

3. The following are characteristics of financial accounting, except?

4 The following are inherent to either management accounting or financial

External reporting Internal reporting

8. Designing and redesigning are activities that are classified as

9. The examples of activities at the product level include

1. Examples of activities at the batch level of costs include

10. Examples of unit level activities are

3. An example of a nonvolume-related overhead base would be:

11.Classify the following as volume (unit) base or non-volume (activity) base:

16.Mulvey Company derived the following cost relationship from a regression

Total units produced Total units produced

Total units produces Total units produced

the maintenance costs. Information for the first quarter is as follows:

Direct Labor Hours Maintenance Costs

the nearest pesos?

5. Largo Company wishes to determine the fixed portion of its maintenance

expense (a semi-variable expense), as measured against direct labor hours for

Direct Labor Hours Maintenance

Manufacturing Overhead Costs Cost Function

Breakeven Analysis – Single Product

number of units to breakeven is

Selling price per pair of sunglasses P25.00

A. 97,500 units C. 83,572 units

B. 101,740 units D. 86,250 units

22.Madel Company manufactures a single electronic product called Walastik.

Direct labor P180

Product Unit Selling Unit Variable Unit Contribution

TV sets CD player Radios

Bush Electronics, Inc. had fixed costs of P2,400,000.

4. The manager of Salvacion Store reviewed the following data:

Fruits Meat Canned

Fixed costs, P1,290,000 per month.

The breakeven sales for each month is

Breakeven Analysis – Cash Basis

Breakeven Analysis - ABC

Activity Driver Unit Variable Cost Level of Activity

What is the breakeven point using ABC?

29.Donnelly Corporation manufactures and sells T-shirts imprinted with college

Additional unit sales

20.Brunei Corp. is developing a new product, surge protectors for high-voltage

Per Unit (Pairs) Data

Saturday. Camay Company is considering opening on Sundays. The annual

incremental costs of Sunday openings are estimated at P31,200. Camay’s gross

margin on sales is 25 percent. Camay estimates that 75 percent of its Sunday