Accounting 6: Self Practice Questions

1. The MAS Practice Standards include the following specific attributes of practice, except:
a. Personal characteristics, competence, and due care.
b. Client benefit, understanding with the client, and planning, supervision, and control.
c. Sufficient relevant data and communication of results.
d. Competence, confidentiality, and integrity.

2. Systematic evaluation of the trade-offs between product functionality and product cost while still
satisfying customer needs is the definition of
a. Activity-based management.
b. Theory of constraints.
c. Total quality management.
d. Value engineering.

3. Economist and economic policy makers are interested in the multiplier effect because the multiplier
explains why
a. A small change in investment can have a much larger impact on gross domestic product.
b. Consumption is always a multiple of savings.
c. The money supply increases when deposits in the banking system increase.
d. The velocity of money is less than one.

Questions 4 and 5 are based on the following information.

Kevin Corp. produces a single product with a normal capacity of 5,000 units. The following cost structure
applies to year 2010, its first year of operations:
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 20,000

4. Kevin Corp. produced 5,000 units and sold 4,500 units in 2010. If Kevin Corp. uses absorption costing,
it would deduct period costs per unit of
a. P8.00 c. P8.44
b. P6.00 d. P10.44

5. Kevin Corp. produced 5,000 units and sold 4,500 units in 2010. If Kevin Corp. uses variable costing, it
would deduct period cost of
a. P9,000 c. P43,000
b. P34,000 d. P61,000

6. The L Co. has an operating leverage of 2. Sales for 2011 are P200,000 with a contribution margin of
P100,000. Sales are expected to be P300,000 in 2012. Profit for 2012 can be expected to increase by
what amount over 2011?
a. P25,000 c. P 50,000
b. 200% d. 40%

7. Assuming that we can earn 13.5% return on accounts receivable, which of the following actions to
finance an increase in our accounts receivable balance would be optimal?
a. A reduction in marketable securities which are earning a return of 14.2%.
b. A decrease in inventories which are earning a 17.6% return.
c. An increase in bank loan that would cost us 11.5%.
d. An increase in accounts payable that would cost our firm 15%.

8. 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 Supervisor’s 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 cost would be
a. P109,300
c. P76,300
b. P99,000
d. P10,366

9. When advanced manufacturing systems are installed, what effect does such installation usually have
on fixed costs and the break-even point? Fixed Costs Break-even Point
a. Increase Increase
b. Increase Decrease
c. Decrease Increase
d. Decrease Decrease

10. The A Co. has recently evaluated a proposal to invest in a cost reducing production technology.
According to the evaluation, the project would require an initial investment of P17,166 and would provide
equal annual cost savings for five years. Based on a 10% discount rate, the project generates on net
present value of P1,788. The project is not expected to have any salvage value at the end of its five-year
life. What are the expected annual cost savings of the project?
a. P3,500 c. P4,500
b. P4,000 d. P5,000

11. E Mfg. incurs an annual fixed cost of P250,000 in producing and selling “Cooky”. Estimated unit sales
for 2010 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 E Mfg. can spend for variable costs per unit
and still meet its profit objective if the sales price per unit is projected at P7?
a. P4.37 c. P4.00
b. P4.59 d. P4.70

12. Consider the following statements regarding the economic pricing model:
I. The economic model is limited in use because a firm's demand curve is difficult to determine.
II. The marginal revenue and marginal cost model is valid for all forms of market organization (perfect
competition, oligopoly, and so forth).
III. Cost accounting systems are not designed to measure the marginal changes in cost incurred as
production and sales increase.
Which of the above statements is (are) true?
a. I only. b. III only. c. I and III. d. II and III.

13. Batman Co. earned P40,000 on sales of P400,000. It earned P55,000 on sales of P450,000. Variable
costs as a percentage of sales and total fixed costs are:
a. 30% and P0, respectively. c. 70% and P80,000 respectively.
b. 40% and P210,000 respectively. d. 90% and P360,000 respectively.

14. 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

15. Zin, Inc., is planning its cash needs for an upcoming period when 85,000 machine hours are expected
to be worked. Activity may drop as low as 78,000 hours if some overdue equipment maintenance
procedures are performed; on the other hand, activity could jump to 94,000 hours if one of Zin's major
competitors likely goes bankrupt. A flexible cash budget to determine cash needs would best be based
on:
a. 85,000 hours.
b. 94,000 hours.
c. 78,000 hours and 94,000 hours.
d. 78,000 hours, 85,000 hours, and 94,000 hours.

16. SY Co. manufactures a single product. SY keeps inventory of raw materials at 150% of the coming
month’s budgeted production needs. Each unit of product requires three pounds of materials. The
production budget is, in units: May 1,000; June 1,200; July 1,300; August 1,600: Raw material purchases
in July would be:
a. 3,500 pounds c. 1,950 pounds
b. 4,800 pounds d. 5,250 pounds

17. 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 P20,000 P40,000
Year 2 depreciation P20,000 P30,000
Year 3 depreciation P20,000 P20,000
Year 4 depreciation P20,000 P10,000
Year 5 depreciation P20,000 P0,000

Assuming that the company faces a marginal tax rate of 40%, and has a cost of capital of 10%, what is
the difference between the two methods in the present value of the depreciation tax benefit?
a. P7,196 c. P2,876
b. P0 d. P6,342

18. Zero-based budgeting

a. Involves the review of changes made to an organization’s original budget.
b. Does not provide a projection of annual expenditures.
c. Is a method peculiar to budgeting by program.
d. Involves the review of each cost component from a cost/benefit perspective.

19. H Division of T Company expects the following results for 2012:

Unit sales 70,000
Unit selling price P 10
Unit variable cost P 4
Total fixed cost P300,000
Total investment P500,000

The minimum required ROI is 15% and divisions are evaluated on residual income. A foreign customer
approached H manager with an offer to buy 10,000 units at P7 each. H has a capacity of 75,000 units
and the foreign customer will not accept lower than 10,000 units. Accepting the order would increase fixed
costs by P10,000 and investment by P40,000. At the price of P7 offered by foreign customer, what the
minimum number of units in regular sales that H could sacrifice and still maintain the expected residual
income?
a. 2,333 c. 2,657
b. 3,333 d. 3,667

20. If the investment turnover decreased by 10% and ROS decreased by 30%, the ROI would
a. increase by 30% c. decrease by 37%
b. decrease by 10% d. decrease by 33.3%

21. Blade Division of Dana Co. 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 P2,000 P14,000
Unit sales 10,000 20,000

Lawn Products can buy the blades from an outside supplier at P1.50 each. Assume the Blade Division is
now at capacity and sufficient demand exists to sell all production to outsiders at present prices, what is
the differential cost (benefit) of selling the all blades to external customers?
a. P5,000 benefit. c. P7,500 cost.
b. P0 differential cost. d. P10,000 cost.

22. T Company manufactures specialty components for the electronics industry in a highly labor intensive
environment. M Company has asked T to bid on a component that T made for M last month. The previous
order was for 80 units and required 120 hours of direct labor to manufacture. M would now like 240
additional components. T experiences an 80% learning curve on all of its jobs. The number of direct labor
hours needed for T to complete 240 additional components is
a. 360.0 c. 307.2
b. 187.2 d. 250.0

23. T Company manufactures and sells FM radios. Information on last year’s operations (sales and
production of the 2011 model) follows:
Sales price per unit P30
Cost per unit
Direct materials 7
Direct labor 4
Overhead (50% variable) 6
Selling costs (40% variable) 10
Production in units 10,000
Sales in units 9,500

At this time (April 2012), the 2012 model is in production and it renders the 2011 model ratio obsolete. If
the remaining 500 units of the 2012 model radios are to be sold through regular channels, what is the
minimum price the company would accept for the radios?
a. P30 c. P18
b. P27 d. P4

24. Computer Games Co. manufactures a variety of computer games. D. Vallejo, President, is
disappointed in the sales of a new basketball game. The game sold is only 2,000 units in 2011 when
10,000 were projected. Sales for 2012 look no better. At P75 per game, it is not a hot seller. Direct costs
of the board game are P35 variable cost and P35,000 fixed. D is considering several options.

Option 1: Cut the price to P45 and perhaps sell 5,000 units.
Option 2: Cut the price to P35, reduce material costs by P2, and cut advertising by P20,000. Anticipated
volume for this option is 3,000 units.
Option 3: Cut the price to P50 and include a P5 mail-in rebate offer. It is anticipated that 4,000 units could
be sold and only 25% of the rebate coupons would be redeemed.

Which option is preferred?

a. Option 1 c. Option 3
b. Option 2 d. All of them are equally preferred

25. If revenues are P210,000 under Alternative A and P216,000 under Alternative B, and costs are
P190,000 for A and P204,000 for B, then using the basic approach in incremental analysis, incremental
revenues, costs, and profit, in comparing B to A are respectively
a. P6,000, P(14,000), P(8,000) c. P6,000, P14,000, P8,000
b. P(6,000), P14,000, P8,000 d. P(6,000), P(14,000), P(8,000)

26. M Recording produces discs for home entertainment. The discs are sold to retail stores for P50.
Manufacturing and other costs are as follows:

Variable costs per unit Fixed costs per unit

Direct materials P15.00 Factory overhead P20,000
Direct labor 7.50 Selling and Adm. 10,000
Factory overhead 5.00 Total P30,000
Distribution 2.50
Total P30.00

The variable distribution costs are for transportation to the retail stores. The current production and sales
volume is 20,000 per year. Capacity is 25,000 units per year. The discs are currently unpackaged.
Packaging them individually would increase costs by P2.00 per unit. However, the units could then be
sold for P55. All other information remains the same as the original data. What is the effect on profits if M
Recording packages the discs?
a. dec by P60,000 c. inc of P100,000
b. dec of P40,000 d. inc of P60,000

27. P 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 hours of machine time and product Y requires 8 hours of machine time. If P wants to dedicate
80% of its machine time to the product that will provide the most income, P will have a total contribution
margin of

a. P 250,000 c. P210,000
b. P 240,000 d. P200,000

28. P Company had the following information:

Activity drivers Unit variable cost Level of activity drivers
Units sold P40
Setups 1,000 80
Engineering hours 60 2,000

Other data:
Total fixed costs (traditional) P400,000
Total fixed costs (ABC) P150,000
Units selling price P80

What is the breakeven point in units using ABC?

a. 10,000 units c. 5,000 units
b. 15,000 units d. 8,750 units

29. The O Plant has two categories of overhead, maintenance and inspection. Costs expected for these
categories for the coming year are as follows:
Maintenance P100,000
Inspection 150,000

The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct labor
hours. The following data have been assembled for use in developing a bid for a proposed job:
Materials P1,000
Direct labor P4,000
Machine hours 500
Number of inspections 4
 Direct labor hours 800

Total expected machine hours for all jobs for the year is 25,000, and the total expected number of
inspections is 1,500. Using activity-based costing and the appropriate activity drivers, the total cost of the
potential job would be
a. P2,600 c. P 7,400
b. P3,600 d. P7,150

30. The following described costs were summarized from the activities of Excellent Co.;
1. Warranty work
2. Labor and overhead incurred for rework of defective products found by an inspector
3. Quality training program
4. The costs of a consumer complaint department
5. In-process inspection costs
6. Reinspections of reworked products
7. Downtime attributed to quality problems
8. Product recalls
9. Lower sales due to poor product performance
10. Quality audits

To what classification of quality costs do the following described costs belong?

Prevention Appraisal Internal failure External failure
a. 3,7,10 3,5 2 1,4,8,9
b. 3,10 5 2,6,7 1,4,8,9
c. 10 3 2,5,6 1,4,7,8,9
d. 3,10 5 1,2,10 4,7,8,9

31. The average labor cost per unit for the first batch produced by a new process is P120. The cumulative
average labor cost after the second batch is P72 per product. Using a batch size of 100 and assuming the
learning curve continues, the total labor cost of four batches will be
a. P4,320 c. P2,692
b. P10,368 d. P17,280

32. The Board of Directors of B Company was unhappy with the current return on common equity.
Though the return on sales (profit margin) is impressively good at 12.5%, the assets turnover was only
0.75. The present debt ratio is 0.40. The VP of Corporate Planning presented a proposal as follows:

 Profit margin should be raised to 15 percent.

 The new capital structure would be revised by raising debt components.
 The assets turnover would be maintained at 0.75.

The proposed adjustment is estimated to raise return on equity by 50%. What debt ratio did the VP
propose in order to raise the return on equity (ROE) to 150% of the present level?
a. 0.52 c. 0.68
b. 0.61 d. 0.72

33. The Baguio Corporation projects the following for the upcoming year:
EBIT P35 million
Interest expense P 5 million
Preferred stock dividends P 4 million
Common stock dividend payout ratio 50%
Average number of common shares outstanding 2 million
Effective corporate income tax rate 40%
The expected dividend per share of common stock is
a. P2.10 c. P1.80
b. P2.70 d. P3.50.

34. What will happen to the ratios below if Cebu Enterprises uses cash to pay 50% of its accounts
payable?
Current Ratio Acid-test Ratio Current Ratio Acid-test Ratio
a. increase increase c. increase decrease
b. decrease decrease d. decrease increase

35. David Company is considering the use of accelerated depreciation rather than straight-line
depreciation for a new asset acquisition. Which of the following choices correctly shows when the
majority of depreciation would be taken (early or late in the asset's life), when most of the tax savings
occur (early or late in the asset's life), and which depreciation method would have the higher present
value?
When Majority When Majority Depreciation Method
of Depreciation is Taken of Tax Savings Occur With Higher Present Value
a. Early in life Early in life Accelerated
b. Early in life Early in life Straight-line
c. Early in life Late in life Straight-line
d. Late in life Late in life Straight-line

36. R Co. is involved in the evaluation of a new computer-integrated manufacturing system. The system
has a projected initial cost of P1,000,000. It has an expected life of 6 years, with no salvage value and is
expected to generate annual cost savings of P250,000. Based on R Co.’s analysis, the project has a net
present value of P57,625. What discount rate did the company use to compute the net present value?
a. 10% c. 12%
b. 11% d. 13%

37. K Services has a telephone system that is in poor condition. The system either can be overhauled or
replaced with a new one. The following data have been gathered concerning the two alternatives:
Present system Proposed new system
Purchase cost – new P250,000 P300,000
Accumulated depreciation 240,000 0
Overhead costs needed now 230,000 0
Annual cash operating costs 180,000 170,000
Salvage value now 160,000 0
Salvage value at the end of 8 years 152,000 165,000
Working capital required 0 200,000

K uses a 10% discount rate and the total cost approach to capital budgeting analysis. Both alternatives
are expected to have a useful life of 8 years. The present value of 10% of annuity at P1 for 8 periods is
5.33493 and of P1 at the end of 8 periods is 0.46651. In deciding based on the less cost to K, the net
present value of the alternative of purchasing the new system is
a. P1,076,662 c. P1,236,662
b. P1,196,662 d. P1,084,662

38. Blue Bros. Inc. is considering an investment in a computer that is capable of producing various
images that are useful in the production of commercial art. The computer would cost P20,000 and have
an expected life of 8 years. The computer is expected to generate additional annual net cash receipts
(before tax) of P6,000 per year. The computer will be depreciated according to the straight-line method
and the firm’s marginal tax rate is 25%.

What is the after-tax net present value of the proposed project (using a 16% discount rate)
a. P2,261 c. P6,062
b. P(454) d. P4,797

39. Which of the following is not involved in the computation of the economic order quantity?
a. Lead time from order placement until order fulfillment.
b. Number of units expected to be sold or used during the year.
c. Cost of placing and receiving an order.
d. Cost of obtaining capital.

40. If a firm purchases raw materials from its supplier on a 2/10, 4/50 terms, the equivalent annual
effective interest (using 360-dya year) of continuously giving up a cash discount and making payment on
the 50th day is
a. 14.00 percent c. 12.29 percent
b. 18.37 percent d. 14.69 percent

41. A current trend regarding input forms in computer systems is

a. the use of less preparing on such forms.
b. more reliance on purchased card stock.
c. the adoption of a standard layout among business organizations.
d. the elimination of the form itself.

42. Turnaround documents

a. are generated by the computer and eventually returned to it.
b. generally circulated only within the computer center.
c. are only used internally in an organization.
d. are largely restricted to use in a manual system.

43. An organization employs multiple central processors to serve multiple real-time applications and
multiple classes of users. Data processing jobs are completed by the processor that is best designed to
perform the job efficiently. The processors are at different locations and are connected by data
communications lines. The organization is employing a systems configuration referred to as a
a. simplex system.
b. duplex system.
c. distributed processing system.
d. communications “(front-end) processor system.
44. Under which of the following condition(s) are prices said to be elastic?
Price Change Change in Sales Volume
a. Increase Sizable increase
b. Increase Sizable decrease
c. Decrease Sizable decrease
d. Decrease Sizable decrease

45. Which of the following statements regarding price elasticity is false?

a. The concept of price elasticity is an extension of the economic pricing model.
b. Demand is elastic if a price change has a large negative impact on sales volume.
c. Demand is elastic if price changes have no impact on sales volume.
d. Measuring price elasticity is an important objective of market research.

46. Prices are said to be inelastic under which of the following conditions?
Price Change Change in Sales Volume
a. Increase Sizable decrease
b. Increase Little impact
c. Decrease Sizable increase
d. Decrease Sizable increase

47. A company is planning a multi-phase construction project. The time estimates for a particular phase of
the project are:
Optimistic 2 months
Most likely 4 months
Pessimistic 9 months

Using PERT, the expected completion time for this particular phase would be
a. 4 months
b. 4 ½ months
c. 9 months
d. 5 months

48. Your client wants your advice on which of two alternatives he should choose. One alternative is to
sell an investment now for P10,000. another alternative is to hold the investment three days after which
he can sell it for a certain selling based on the following probabilities:
Selling price Probability
P 5,000 0.4
P 8,000 0.2
P12,000 0.3
P30,000 0.1

Using probability theory, which of the following is the most reasonable statement?
a. hold the investment three days because the expected value of holding exceeds the current selling price
b. hold the investment three days because of the chance of getting P30,000 for it
c. sell the investment now because the current selling price exceeds the expected value of holding
d. sell the investment now because there is a 60 percent chance that the selling price will fall in three
days
49. A company will receive cash from sales in 1 year that can be used to pay for materials. The supplier
will allow payment in 1 year. If the company pays the supplier immediately, it will receive a 20% discount
off the P100,000 purchase price, but it must borrow the full amount. A bank has offered the company
three alternatives:

1. A 1-year loan at 18% with no other fees,

2. A 1-year loan at 15% with the provision that it maintains 20% of whatever amount it borrows as
noninterest-bearing compensating balances over the life of the loan, or
3. A guaranteed line of credit of P100,000 at 17% with the provision that the bank will collect a 1% fee on
the average amount of unused funds. The company expects to borrow no other funds.

The company would achieve the lowest cost of financing by:

a. Allowing the supplier to finance the materials and making payment at the end of 1 year.
b. Accepting the 1-year loan at 18% with no other provisions.
c. Accepting the 1-year loan at 15% with the compensating balance provisions.
d. Accepting the guaranteed line of credit at 17% with the fee required on the average amount of unused
funds.

50. A newspaper dealer buys papers for P8.50 and sells them for P10.00. He cannot return unsold
papers. The technique that could be used to determine the number of papers to order is
a. linear programming. c. EOQ.
b. payoff table d. reorder point.

51. In any competitive market, an equal increase in both demand and supply can be expected to always
a. Increase price
b. Increase both price and market-clearing quantity
c. Decrease both price and market-clearing quantity
d. Increase market-clearing quantity

52. BE & H Mfg. is considering dropping a product line. It currently produces a multi-purpose
woodworking clamp in a simple mfg. process which utilizes special equipment. Variable costs amount to
P6.00 per unit. Fixed overhead costs, exclusive of depreciation, have been allocated to this product at a
rate of P3.50 a unit and will continue whether or not production ceases.

Depreciation on the special equipment amounts to P20,000 a year. If production of the clamps is stopped,
the equipment can be sold P18,000; if production continues, however, the equipment will be useless for
further production at the end of one year and will have no salvage value. The clamp has a selling price of
P10 a unit. Ignoring tax effects, the minimum number of units that would have to be sold in the current
year to breakeven on a cash flow basis is
a. 4,500 units. c. 20,000 units.
b. 36,000 units. d. 5,000 units.

53. The Nestor Company has budgeted production for next year as follows:

Quarter First Second Third Fourth

Production in units 10,000 12,000 16,000 14,000
Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of
the year total 4,000 lbs. The raw materials inventory at the end of each quarter should equal 10% of the
next quarter's production needs. Budgeted purchases of raw materials in the third quarter would be:
a. 62,400 lbs. b. 50,400 lbs. c. 63,200 lbs. d. 56,800 lbs.

54. In microeconomics, the distinguishing characteristic of the long run on the supply side is that
a. Only supply factors determine price and output
b. All inputs are variable
c. Only demand factors determine price and output
d. Firms are not allowed to enter or exist the industry

55. A company operating in a perfectly competitive market has been paying P10 per hour for labor and
P20 per hour to rent a piece of capital equipment. The firm can use labor and capital in any desired
proportions to produce its product. If wages rise to P20 per hour and capita equipment rentals rise to P22
per hour, in the long run the firm will
a. Use relatively more labor and relatively less equipment in its production
b. Use relatively more equipment and relatively less labor in its production
c. Use less of both and equipment in its production, but in the same proportions as before
d. Lower its average equipment-output ration and raise its average labor-output ratio.

56. Which of the following statements concerning pure monopolies is correct?

b. The demand curve of a monopolies is perfectly elastic
c. The point of profit maximization for a monopoly is where average total revenue equals average total
cost
d. The supply curve of a monopoly is perfectly inelastic.
e. The monopolist's marginal revenue curve lies below the monopolist's demand curve

57. The following would shift the quantity demanded to the right, except:
a. An increase in the disposable household income.
b. An upturn in individual’s self-esteem.
c. An upsurge in education, creativity, and technology.
d. Simplicity and servitude.

58. The output and cost information for a firm is presented below.
Output Total Variable Cost Total Cost
0 P -0- P100
1 P150 P250
2 P260 P360
3 P350 P450

The marginal cost of the second unit of output is

a. P 100 c. P 180
b. P 150 d. P 110

59. The proper sequence of activities in the system development 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.

60. The M 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 April P12,000
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

Questions 61 through 65 are based on the following information.

Due to erratic sales of its sole product - a high-capacity battery for laptop computers, Palafox Company
has been experiencing difficulty for some time. The company’s income statement for the most recent
month is given below:

Sales (19,500 units @ P300) P 5,850,000

Less variable expenses 4,095,000
Contribution margin 1,755,000
Less fixed expenses 1,800,000
Net loss P (45,000)

61. The president believes that a P160,000 increase in the monthly advertising budget, combined with an
intensified effort by the sales staff, will result in an P800,000 increase in monthly sales. If the president is
right, what will be the effect on the company’s monthly profit or loss?
a. P120,000 increase c. P120,000 decrease
b. P 80,000 increase d. P 80,000 decrease

62. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price,
combined with an increase of P600,000 in the monthly advertising budget, will cause unit sales to double.
What will the new profit or loss if these changes are adopted?
a. P 60,000 c. P 45,000
b. P(60,000) d. P(45,000)

63. Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop
computer battery would help sales. The new package would increase packaging costs by P7.50 per unit.
Assuming no other changes, how many units would have to be sold each month to earn a profit of
P97,500?
a. 21,818 c. 25,450
b. 23,000 d. 28,000

64. Refer to the original data. By automating certain operations, the company could reduce variable costs
by P30 per unit. However, fixed costs would increase by P720,000 each month. How would the
breakeven point in units change if the company automated the operations?
a. 1,000 units increase c. 3,000 units increase
b. 1,000 units decrease d. 3,000 units decrease

65. Refer to the original data. By automating certain operations, the company could reduce variable costs
by P30 per unit. However, fixed costs would increase by P720,000 each month. At what level of
production would the automation of the production process be indifferent to the present process?
a. 18,000 c. 24,000
b. 21,000 d. 28,000

66. Which of the following is not a function of financial management?

A. Financing.
B. Risk-management.
C. Internal control.
D. Capital budgeting.

67. A company allocates its variable factory overhead based on direct labor hours. During the past three
months, the actual direct labor hours and the total factory overhead allocated were as follows:
Jan Feb Mar
Direct labor hours 1,000 3,000 5,000
Total factory overhead allocated P80,000 P140,000 P200,000

Based upon this information, monthly fixed factory overhead was

a. P30,000 c. P46,447
b. P50,000 d. P33,333

68. The B Co. is planning to produce two products, X and Y. B Co. is planning to sell 100,000 units of X at
P4 a unit and 200,000 units of Y at P2 a unit. Variable costs are 70% of sales for X and 80% of sales for
Y. 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

69. F Co. manufactures a single product. For 2011, the company had sales of P90,000, variable costs of
P50,000, and fixed costs of P30,000. F expects its cost structure and sales price per unit to remain the
same in 2012, however total sales are expected to jump by 20%. If the 2012 projections are realized,
profit in 2012 should exceed profit in 2011 by
a. 100% c. 20%
b. 80% d. 50%

70. The following information is available for Bacolod City Company:

Balance sheet
Current assets P 500,000
Property, plant, and equipment 4.000.000
Total assets P4,500,000
Current liabilities P 30,000
Long-term debt 2,500,000
Ordinary shares 200,000
Retained earnings 1,770,000
Total liabilities and
shareholders' equity P4,500,000

Budgeted income information 100,000 units 105.000 units

Sales P3,000,000 P3,150,000
Expenses (2,800.000) (2,850,000)
Operating income (EBIT) P 200,000 P 300,000
Earnings per share (EPS) P0.20 P1.20

What is Bacolod City’s degree of operating leverage?

a. 1/5 b. 10 c. 5 d. 2/3

71. 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:
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

72. Which of the following is not a commonly used approach to setting transfer prices?
a. Market price approach
b. Revenue price approach
c. Negotiated price approach
d. Cost price approach

73. When management seeks to achieve personal departmental objectives that may work to the detriment
of the entire company, the manager is experiencing:
a. budgetary slack
b. padding
c. goal conflict
d. cushions

74. An analysis of a proposal by the net present value method indicated that the present value of future
cash inflows exceeded the amount to be invested. Which of the following statements best describes the
results of this analysis?
a. The proposal is desirable and the rate of return expected from the proposal exceeds the minimum rate
used for the analysis.
b. The proposal is desirable and the rate of return expected from the proposal is less than the minimum
rate used for the analysis.
c. The proposal is undesirable and the rate of return expected from the proposal is less than the minimum
rate used for the analysis.
d. The proposal is undesirable and the rate of return expected from the proposal exceeds the minimum
rate used for the analysis.

75. Assuming that all direct materials are placed in process at the beginning of production and that the
first-in, first-out method of inventory costing is used, what is the total cost of 3,600 units of beginning
inventory which were completed during the period?
a. P61,200
b. P48,600
c. P38,400
d. P45,600

76. All of the following are correct statements about the market-based approach except that it
a. assumes that the transfer price should be based on the most objective inputs possible.
b. provides a fairer allocation of the company's contribution margin to each division.
c. produces a higher company contribution margin than the cost-based approach.
d. ensures that each division manager is properly motivated and rewarded.

77. A static budget report

a. shows costs at only 2 or 3 different levels of activity.
b. is appropriate in evaluating a manager's effectiveness in controlling variable costs.
c. should be used when the actual level of activity is materially different from the master budget activity
level.
d. may be appropriate in evaluating a manager's effectiveness in controlling costs when the behavior of
the costs in response to changes in activity is fixed.

78. If standard costs are incorporated into the accounting system,

a. it may simplify the costing of inventories and reduce clerical costs.
b. it can eliminate the need for the budgeting process.
c. the accounting system will produce information that is less relevant than the historical cost accounting
system.
d. approval of the stockholders is required.

Use the following information for nos. 79 & 80

Victory Company has hired a consultant to propose a way to increase the company’s revenues. The
consultant has evaluated two mutually exclusive projects with the following information provided for each
project:
Project Top Project Down
Capital investment P790,000 P440,000
Annual cash flows 130,000 75,000
Estimated useful life 10 years 10 years

Victory Company uses a discount rate of 9% to evaluate both projects.

79. What is the net present value of Project Top?

a. P834, 296 c. 481, 325
b. 44, 296 d. 41, 325

80. Which project should Victory accept?

a. Project Top c. Project Down
b. Both Projects Top and Down d. Neither Project Top nor Down
 ---END OF EXAMINATION--

ANSWER KEY:
1. D 22. B 43. C 64. A
2. D 23. D 44. B 65. C
3. A 24. C 45. C 66. C
4. A 25. A 46. B 67. B
5. C 26. D 47. B 68. B
6. C 27. B 48. A
7. C 28. D 49. D 69. B
8. A 29. C 50. B 70. B
9. A 30. B 51. D 71. D
10. D 31. B 52. A 72. B
11. C 32. A 53. C 73. C
12. C 33. D 54. B 74. A
13. C 34. A 55. B 75. B
14. A 35. A 56. D 76. C
15. D 36. B 57. D 77. D
16. D 37. A 58. D 78. A
17. C 38. A 59. C 79. B
18. D 39. A 60. D 80. C
19. A 40. B 61. B
20. C 41. D 62. B
21. A 42. A 63. B