Since 1977

MAS B. TRINIDAD
Quiz 3. SET A OCTOBER 2019

1. Costs that cannot be changed by any decision made c. The two companies may define working capital in
now or in the future are: different terms.
a. fixed costs c. avoidable costs d. The two companies may be different sizes.
b. indirect costs d. sunk costs
9. The issuance of serial bonds in exchange for an
2. Discontinuing unprofitable products will increase office building, with the first installment of the
profitability: bonds due end of the year:
a. if the resources no longer required by the a. Decreases net working capital.
discontinued product can be eliminated b. Decreases the current ratio.
b. if capacity constraints are adjusted c. Decreases the quick ratio.
c. automatically d. Affects all of the answers as indicated.
d. when a large portion of the fixed costs are
unavoidable 10. An aggressive working capital policy
a. uses more short-term financing than long-term
3. When there is excess capacity, it makes sense to b. uses short-term financing to support only the
accept a one-time-only special order for less than peaks of temporary working capital
the current selling price when: c. supports a portion of permanent working capital
a. incremental revenues exceed incremental costs with short-term financing
b. additional fixed costs must be incurred to d. Both a & b
accommodate the order e. Both a & c
c. the company placing the order is in the same
market segment as your current customers 11. Techno Resource manufactures two products:
d. it never makes sense Regular and Super. The results of operations for the
year follow.
4. When deciding to accept a one-time-only special Regular Super Total
order from a wholesaler, management should do all Units 10,000 3,700 13,700
of the following, except Sales P240,000 P740,000 P980,000
a. to analyze product costs Cost of goods
b. to consider the special order’s impact on future sold 180,000 481,000 661,000
prices of their products Gross margin 60,000 259,000 319,000
c. to determine whether excess capacity is Selling
available expenses 60,000 134,000 194,000
d. to verify past design costs for the product Operating
income P 0 P125,000 P125,000
5. An opportunity cost commonly associated with a Fixed manufacturing costs included in cost of goods
special order is sold amount to P3 per unit for Regular and P20 per
a. the contribution margin on lost sales. unit for Super. Variable selling expenses are P4 per
b. the variable costs of the order. unit for Regular and P20 per unit for Super;
c. additional fixed costs related to the increased remaining selling amounts are fixed.
output.
d. any of the above. Techno wants to drop the Regular product line. If
the line is dropped, company-wide fixed
6. Which of the following ratios would be least helpful manufacturing costs would fall by 10% because
in appraising the liquidity of current assets? there is no alternative use of the facilities. What
a. Accounts Receivable turnover would be the impact on operating income if Regular
b. Current Ratio is discontinued?
c. Days’ sales in inventory a. P0 c. P20,000 increase
d. Days’ sales in accounts receivable b. P10,400 increase d. P39,600 decrease

7. An increase in a company’s current ratio 12. Smith Company has 27,000 direct labor hours
accompanied by a decrease in its acid-test (quick) available for producing X and Y. Consider the
ratio could be a warning that the company is following information:
a. depleting its inventories Product X Product Y
b. having trouble collecting its receivables Required DLH 2 3
c. tightening its credit policies Maximum demand (units) 6,000 8,000
d. carrying excessive inventory Contribution margin per unit P5.00 P6.00
Contribution margin per DLH P2.50 P2.00
8. In comparing the current ratios of two companies, If Smith follows proper managerial accounting
why is it invalid to assume that the company with practices, which of the following production
the higher current ratio is the better company? schedules should the company set?
a. A high current ratio may indicate inadequate Product X Product Y
inventory on hand. a. None 8,000
b. A high current ratio may indicate inefficient use of b. 1,500 8,000
various assets and liabilities. c. 6,000 None
d. 6,000 5,000

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13. Wallace Company produces 15,000 pounds of a. P342,000 c. P530,000

Product A and 30,000 pounds of Product B every b. P480,000 d. P570,000
week by incurring a common variable cost of
P400,000. These two products can be sold as is or 17. The Twilight Company has 1,000 obsolete twinkling
processed further. Further processing of either lights that are carried in stock at a manufacturing
product does not delay the production of cost of P200,000. If the twinkling lights are
subsequent batches of the joint product. Data redesigned for P50,000, they could be sold for
regarding these two products are as follows: P90,000. If the twinkling lights are scrapped, they
could
Product
be Asold forProduct
P10,000.
B What alternative is
Selling price per pound without further processing moreP12.00
desirable and P9.00
what are the total relevant
Selling price per pound with further processing costs 15.00
for that alternative?
11.00
Total separate weekly variable costs of further a. Redesign and P50,000.
processing b. Redesign
50,000 and P150,000.
45,000
To maximize Wallace Company’s manufacturing c. Scrap and P200,000.
contribution margin, the total separate variable costs d. Neither, as there is an overall loss under either
of further processing that should be incurred each alternative.
week are
a. P45,000 c. P95,000 18. Tagaytay Open-Air Flea Market is along the highway
b. P50,000 d. P0 leading to Taal Vista Lodge. Arnel has a stall which
specializes in hand-crafted fruit baskets that sell for
14. A manufacturing company's primary goals include P60 each. Daily fixed costs are P15,000 and
product quality and customer satisfaction. The variable costs are P30 per basket. An average of
company sells a product, for which the market 750 baskets are sold each day. Arnel has a
demand is strong, for P50 per unit. Due to the capacity of 800 baskets per day. By closing time,
capacity constraints in the Production Department, yesterday, a bus load of teachers who attended a
only 300,000 units can be produced per year. The seminar at the Development Academy of the
current defective rate is 12% (i.e., of the 300,000 Philippines stopped by Arnel’s stall. Collectively,
units produced, only 264,000 units are sold and they offered Arnel P1,500 for 40 baskets. Arnel
36,000 units are scrapped). There is no revenue should have
recovery when defective units are scrapped. The a. Rejected the offer since he could have lost P500.
full manufacturing cost of a unit is P29.50, b. Rejected the offer since he could have lost P900.
including c. Accepted the offer since he could have P300
Direct materials P17.50 contribution margin.
Direct labor 4.00 d. Accepted the offer since he could have P700
Fixed manufacturing overhead 8.00 contribution margin.
The company's designers have estimated that the
defective rate can be reduced to 2% by using a 19. AA Company has current assets of P800,000 and
different direct material. However, this will increase current liabilities of P1,000,000. Which of the
the direct materials cost by P2.50 per unit to P20 per following would cause AA Company’s current ratio
unit. The net benefit of using the new material to to rise?
manufacture the product will be a. Payment of P60,000 accounts payable.
A. P(120,000) C. P750,000 b. Purchase of P60,000 of inventory on account.
B. P120,000 D. P1,425,000 c. The collection of P60,000 of accounts receivable
that was previously written off.
15. Roxas Company currently sells 1,000 units of d. Refinancing a P60,000 long-term loan with
product M for P2 each. Variable costs are P1.50. A short-term debt
discount store has offered P1.70 per unit for 400
units of product M. The managers believe that if 20. The following information is available for ABC
they accept the special order, they will lose some Company.
sales at the regular price. Determine the number Current ratio 3.5
of units they could lose before the order become Acid test ratio 3.0
unprofitable. Inventory turnover 8.0
a. 200 units. c. 400 units. Year-end current liabilities P600,000
b. 160 units. d. 500 units Beginning inventory P500,000
How much is the cost of sales during the year?
16. Kingston needs 10,000 units of certain part to be a. P1,600,000 c. P2,400,000
used in its production cycle. If Kingston buys the b. P3,200,000 d. P6,400,000
part from Utica Company instead of making it,
Kingston could not use the released facilities in 21. During the year, Raul Co. purchased P960,000 of
another manufacturing activity. 60% of the fixed inventory. The cost of goods sold for the year was
overhead applied will continue regardless of what P900,000, and the ending inventory was P180,000.
decision is made. The following information is What was the inventory turnover for the year?
available: a. 6.4 c. 5.3
Cost to Kingston to make the part: b. 6.0 d. 5.0
Direct materials P6
Direct labor 24 22. The following data were abstracted from the
Variable overhead 12 records of Johnson Corporation for the year:
Fixed overhead applied 15 Sales P1,800,000
P57 Bond interest expense 60,000
Cost to buy the part from Utica Company P53 Income taxes 300,000
In deciding whether to make or buy the part, Net income 400,000
Kingston’s total relevant costs to make the part are: How many times was bond interest earned?

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a. 7.67 c. 12.67 30. Ruth Company currently has P1,000,000 in accounts

b. 11.67 d. 13.67 receivable. Its days sales outstanding (DSO) is 50 days.
The company wants to reduce its DSO to the industry
23. Given the following data for total sales (P’000): average of 32 days by pressuring more of its customers to
Year Peso sales pay their bills on time. The company’s CFO estimates that
2016 P50,000 if this policy is adopted the company’s average sales will fall
2017 55,000 by 10 percent. Assuming that the company adopts this
2018 56,000 change and succeeds in reducing its DSO to 32 days and
2019 53,000 does lose 10 percent of its sales, what will be the level of
A table showing trend percentages for 2016 – 2019, accounts receivable following the change? Assume a 365-
respectively, using 2016 as the base year would day year.
reveal: a. P576,000 c. P750,000
a. 100%; 110%; 102%; and 95% b. P633,333 d. P900,000
b. 100%; 10%; 2%; and (5%)
c. 100%; 110%; 112%; and 106% 31. A company enters into an agreement with a firm who
d. 94%; 104%; 106%; and 100% will factor the company's accounts receivable. The
factor agrees to buy the company's receivables: which
24. Given the following information, calculate the market average P100.000 per month and have an average
price per share of WAM Inc. collection period of 30 days. The factor will advance up
Net income = Earnings per share = to 80% of the face value of receivables at an annual
P200,000 P2.00 rate of 10% and charge a fee of 2% on all receivables
Stockholders’ equity = Market/Book ratio = purchased. The controller of the company estimates
P2,000,000 0.20 that the company would save P18,000 in collection
A. P20.00 D. P 2.00 expenses over the year. Fees and interest are not
B. P 8.00 E. P 1.00 deducted in advance. Assuming a 360-day year, what
C. P 4.00 is the annual cost of financing?
a. 10.0% c. 16.0%
25. Harwichport Company has a current ratio of 3.5 to 1 b. 14.0% d. 17.5%
and an acid-test ratio of 2.8 to 1. Current assets
equal P175,000 of which P5,000 consists of prepaid 32. Hanes Corp. is considering establishing a lockbox
expenses. Harwichport Company's inventory must be: system. The bank will charge P30,000 annually for
A. P30,000. C. P50,000. the service, which will save the firm approximately
B. P40,000. D. P35,000. P15,000 in processing costs. The lock box system will
reduce the float for cash receipts by 2 days. Assuming
26. A company has total assets of P400,000, net income of that the average daily cash receipts are equal to
P40,000, and return on equity of 20%. The debt ratio P400,000, and short-term interest costs are 4%,
is calculate the benefit or loss from adopting the lockbox
A. 50% C. 20% system.
B. 40% D. Zero. a. P30,000 loss c. P12,000 benefit
b. P15,000 loss d. P17,000 benefit
Use the following information for the next three questions.
The following data pertain to the financial statements of 33. A firm is evaluating whether to establish a lockbox
Victory Corp. for 2019: system. The bank will charge P30,000 per year for the
Jan. 1, 2019 Dec. 31, 2019 lockbox and the firm will save approximately P8,000 in
Assets internal processing costs. The firm estimates that the
Cash P 25,000 P 37,500 float will be reduced by three days if the lockbox
Accounts receivable 62,500 62,500 system is put into place. Assuming that average daily
Inventory 175,000 325,000 cash receipts are P350,000 and short-term interest
Building 1,250,000 1,125.000 rates are 4%, what decision should the firm make
Liabilities regarding the lockbox system?
Accounts payable P 50,000 P 50,000 a. Do not establish the lock box system because the
Bonds payable 187,500 187,500 net cost is P30,000.
Equity b. Do not establish the lockbox system because the
Common stock P1,000,000 P1,000,000 net cost is P22,000.
Retained earnings 265,000 300,000 c. Establish the lockbox system because the net
No. of shares of 100,000 100,000 benefit is P12,000.
common stock d. Establish the lockbox system because the net
outstanding benefit is P20,000.

Net sales – Cash P250,000 34. Gild Company has been offered credit terms of 3/10
Credit 750,000 net 30. Using a 365-day year, what is the nominal cost
Net income before dividends 125,000 of not taking advantage of the discount if the firm
Dividends paid 25,000 pays on the 35th day after the purchase?
a. 14.2% c. 37.6%
27. The accounts receivable turnover for the year 2019 is b. 32.2% d. 45.2%
A. 6.0 times C. 12.0 times 35. A company obtained a short-term bank loan of
B. 8.6 times D. 16.0 times P250,000 at an annual interest rate of 6%. As a
condition of the loan, the company is required to
28. The asset turnover for the year 2019 is maintain a compensating balance of P50,000 in its
A. 0.65 times C. 12.25 times checking account. The company's checking account
B. 1.19 times D. 15.31 times. earns interest at an annual rate of 2%. Ordinarily, the
company maintains a balance of P25,000 in its
29. The rate of return on shareholders’ equity for the year checking account for transaction purposes. What is the
2019 is effective interest rate of the loan?
A. 6.5% C. 8.2% a. 6.44% c. 5.80%
B. 7.8% D. 9.7% b. 7.11% d. 6.66%
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