tll)r\R

CPA REVIE\I/ SCFIOOL O!-'I'HI] PHILIPPINES

Manila
MANAGEMENT ADVISORY SERVICES Saturday, September 14,2413
Final Pre-board Examination 1:30 pm to 4:30 pm
$et B

Instructions Choose the BEST anwver for each of the following items. Mark only one answer fcr each
item on the SpecialAnswer Sheet provided. Strictiy no .jrasure allowed, Use Pencil No. 1 only,

USE Tt'.IE FCLLGWING TO ANSW{ER QUESTION.S 1 AND 2:

B:'oyles Company makes four prcrducts irr a sin,;le facility. These oroducts have the following unit
product costs:
ProductABCD
Direct materials P10.70P 5.40 P 5.10 P 7.20
Direct labor 19.10 21.4A 29.00 34.44
Variable manufacturing overhead 1.20 1.50 1.80 1.60
Fixed manufacturing overhead 27-.40 16.00 15.00 t7'60
Unit product cost i:5-r.40 P44.30 P50.90 P60.80

Additionaldata concrerning these product:: ail iistt:cj oeicw,

ProductABCD
unit
Grinding minutes per 2.2A 1.20 L.70 1'80
unit
Selling price per P65.40 P58.50 P7O.7A P76,24
unit
Variable selling cost per P3.60 P:].80 P2.00 P3.40
units
Monthly demand in 1,000 4,000 1,000 4,0C0

The grinding machines are potenLially the .:cingLiairrL in the production facitity. A total of !4,400
minutes are available per month on thesc rnechines. Direct labor is a variable cost in this
company,

B 1. l-low many minutes of grinding machir,* time vrrould ce required to satisfy demand for all four
products?
a. 13,400 c. 10,000
b, 15,900 c. 14,400

C 2. Up to how much should the companl' be willing to pay for one additlonal hour of grinding
machine time if the company has made the Lres;i ust of the existing grinding machine capacity?
a. P26.4A c. P14.00
b. P12.00 c. P 0.00

C 3,Which of the following decislon-making nrorlerls ec;uatr:s tire initiat investment with the present
value of the future cash inflows?
a. Accounting rate of return. {. Internal rate of return.
b, Payback period. i. Cost-benefit ratio.
A 4. A company's controller is adjusting next year's budget to reftect the impact of an expected 5o/o
inflation rate. Listed below are selected itenrs fronr next year's budget befbre the adjustment:
(250+100) x 1.05
Total salaries expense P250,000
Health costs
+ 65 + 37.75
100,000
= 470,250 Depreciation expense 65,000
l-nterest expense on I0-year fixeC-rate notes 37,750
Walang effect sa dep'n
exp. & interest After adjusting for the Solc infiatic,n ra'..], u;rriit rs thrr company's total budget for the selected
exp. yung items before taxes for next year?
inflation rate. a. P470,250 c. P473,500
b. P472,138 C P475,388

C 5. Dl Co. has a job-order cost system. Tire following debits (credits) appeared in the Work in
Process account for the month of March:
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Final Pre-board Examination - septembei" 14,2ai3 page 2 of 12 pages

March 1, balance p 12,000

March 31, directmaterials 40,000
March 31, directlabu' 30,0C:l
March 31, manufacturing overhearJ applied 27,OOA
gcods
March 31, to finished (r00,0C0)
, i

DJ Co. applies overhead at a predetermined rate cf 90o,/o oi direct labor i.ost. -rcb i\o. 101, the
oniy job still in process at the end of March, has bet:n r:ilargr,d u;,th n'rer,ulu:turirig overhead of
P2,250.

What was the amount of direct materials ch:;-gi:ci i,o lcb l{r;. 101?
a. P2,250 c. ?4,251
b. P2,500 d. ?4,7_5

A 6. Which of the following changes would result in i!';e lliclheEt p;eeii:ri val'-ie fcr a series of cash
flor,vs?
e. A P100 decrease in taxes each year foi" tour years"
b. A P100 decrease irr the cash outflorr each year tbr three '.iei:is,
c. A P1.00 increase in disposal value ;lt the end of four '?c:ar:_,.
d. A P100 increase !n cash inflaw ea:h vear fcr three )ears.
B 7. Which of ihe following is usually a benefit of ti:ansrnitting transacticns in an electronic data
interchange (Et-lI) environrnent?
a, Elimination of the need to conti:rt,cusly up,dale ari-'uirrls softwa'r:.
b. Assurance of the thoroughness of iransactr,rn data beca.:se ci sr-anCei'Cized controls.
c. Automatic protection of information that has electroilir:aiiv left the er-"rity.
d. Elimination of the neeci to veriry the receipt of <loods nefore maxiirg 6:ravment.
-i-he
C 8. optimal capitalization fr:i'an organizaticn usuaily can l;e,l;:tei'mined b1, t[r.:
a. Maximum degree of financiar ieveraEe (DFL.).
b. l,laximum degree of total leverage (DTt.)
c. Lowest total weighted-aryerage cost of cilpltal (1,4/ACf),
d. Intersection of the marginal cost of cap,tal arrl the n"rargir::-! efiici*niry of investment.
B 9. Ryan Co. projects the follow:r':g n:onihly r'evi"i,.:r:1:l :'ij rlex[ yrlc:. .

January P100,0C{i jLrly [-'25il,01'0

Febi'uary t0C,000 *^u,iList 275,0CI0
March 4.15,00iJ Setl:.nb,er 300,0C()
Apt"il 350,0(}0 u'i:tc.trer' 350,000
May 575,00fi l.Jnvernbe , 40il,300
June 3A*,illL Dec*i';rber ,25.,A0'J
Ryan's terms are net 30 days" The conpeirl tynicaliv recelves oayment on 80% of sales the
month following the sale anl !7o/ct is collecterl tvo rricntf)s at,.:r :he sall" Approximately 3o/o of
sales are deemed bad debt. V/h,lt amo,-i.nt r*pr-:.;erts i.r,r: e.irt€i'ir- j ias;i :c,::clir,i ;n llre second
calendar quarter of nexL irr:ar?
a. P1,450,000 i:. P:1.,.125,,i)0i)
b. P1,393,750 c. P i.134,i50

B 10. Bander Co. is determining how to finance scnre k;n,g-terrrl n;'ojer,ts, tsander has clecided it
prefers the benefits of nr: fixed charges/ n(l i,xeC rn;:tr,r-,ir,, *,*,r,.:tiirl .,n I',crease in the credit-
wo(hiness of the company, Whrcr el the i1,1,:yeiii!.1 'rvi-.ui{l Lri:::l nre.:l Bancler's financing
requiremerrts?
a. Bonds. c, Lorr,;-tenll ;eb1..
b. Crmmon stoCk. d. Short"teri:rr ir:i,:;,
,
B 11' Shimcn Corporation manufacture$ lndustriel-si;:*d ivater coolers end uses buclgeted machine-
hours io allocate variable rnanufacturlrrg ,:verhearC" The folloy;ine; infcrrrnation pertains to the
conrpany's manufactu:'ing overhead data:
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Final Pre-board Examination - September 14,2013 Page 3 of '12 pages i

Budgeted,output units 15,000 units

Budgeted machine-hours 5,000 hours
Budgeted variable manufacturing overhead costs for 15,000 units P161,250

Actual output units produced 22,000 units

Actual machine-hours used 7,200 hours i

AcLual variable manufactui'ing overhead costs P242,000

What is the flexible-budget variance for variable manulacturing overhead?

a, P5,500 favorable c. P4,300 favora!:le
b, P5,500 unfavorable d. None of these answers is correct,
i

C 12. Which of the following terms represents the resicuai rncome that remains after the cost of all
capital, including equity capital, has been deducter{?
a. Free casir flow. c.
-.cn'Jmic value-acded.
b. Market value-added. d.
i.let operating capicai.

B 13. The following inforrnation is available for the i,,rholesale products division of Watco;
Net operating profit before interest arrd taxes P30,000,000
Depreciation expense 10,00C,0C0
Change in net working capitai 5,000,000
Capital expenditures 4,000,000
Invested capital (total assets - current liabiiities) 50,000,0C0
Weighted-average cost of capital lCa/o
Tax rate 4ao/o

What is the amount of economic value added (EVA) for the division?
a. P30,000,0G0 c. P25,000,000
b. P13,000,000 d. P 5,000,000
A L4. Fargo, Mfg., a small business, is developing a budget for next year. Which of the following steps
shculd Fargo perform flrst?
a. Forecast Fargo's sales vr:lume.
b. Determine the price of Fargo's products.
c. Identify costs of Fargo's forecasted sales vol';rne
d. Compute the peso tsmoUrit of Fargo's fore,casted r;:,r!es.
A + 15. What is the effect when a foreign competito:''s currency becomes weaker compared to the U.S.
dollar?
a. The foreign company will have an advantage in the ti.S. market.
b. The foreign company will be disadvantaged in the U.S. market.
c. The fluctuation in the foreign currency's excirange rate i:as no effect on the U.S.
company's sales or cost of goods sold.
d. It is better for the U,S. company when tire v;rlue cf the L.J.S. dcllar- strertgtlrens.

D * 16. When a firm finances each asset with a financiai instru'nent of the same approximate maturity
as the life of the asset, it is appiying
a. Working capital management, c.
Financiai Neverage.
b. Return maximization. cj. A hecglng approach.
D *.Tam Co. is negotiating for the purchase of er;uip,-rent tlrat woi;lcj ccst P100,000, with the
17.
expectation that P20,0C10 per year coulcl be i;r,,ed rn atle;-tax casl ccsts if tne equipment were
20 acquired. The equipment's estimated useful lii'r: ir t,:n /3ei-r, i,^lri.ii no residuai value, and it would
-10 be depreciated by the straight-line method. Tam's preoeternrined mininrum ciesired rate of
= 10 / 100 return is 12o/o. The
present value of an annuity of 1 at 17c/o ior ten perioCs is 5"65. The present
value of 1 due in ten periods at i2% is .32?. A.ccruti 1::c;r..'irr,irr;(j fale oF "eturn based cn the
= 10% initia! investmerrt is
a. 30olo :. 1z"l'h
b. 2Ao/o c. 1allt
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Final Pre-board Examination - September 14,2013 Page 4 of 12 pages

D 18. If an investment project has a profitabilii,r index of 1.15, then the

a. Project's internal rate of return is 15%.
b. Project's cost of capital is greater than its internal rate of return.
c. Project's internal rate of return exceeds its net present value.
d. Net present value of the project is positive.

C 19. An economy is at the peak of the business cycie. Which of the following poliry packages is the
to prevent most effective way to dampen the econorny and prevent inflation?
a. Increase government spending, reduce taxes, increase money supply, and reduce interest
inflation, rates.
lahat ng perab, Reduce government spending, increrie t;ixe:, increase money supply, and increase
interest rates.
ng gov't c. Reduce government spending, increase raxes, reciuce money supp{y, and increase interest
pigil. rates.
d.
Nang ho-hoard Reduce government spending, red:ile'.,i),rrg, i'educe money supply, and reduce interest
rates.
sya
D 20. Eagle Sporting Goods has P2.5 million in lriventcry and P2 million in accounts receivable. Its
averiqc rl;iiyr s3ls5 are P100,000. The flrm's payabies deferral period is 30 days and average
daiiy cost- of sales are P50,000. What is the length of the firm's cash conrrersion period?
a. 100 days. c.
5Ct days,
b. 60 days. ,-j. 40 days.
B 21. Which changes in costs are most condircive to switching from a traditional inventory ordering
system to a just-in-time ordering system?
Cost per Inventory unit
purchase order arrying costs
a. Increasing Increasing
t-
l), Decreasing Increaslng
C, Decreasing Decreasrng
d. Increasing Decreasincl

B 22, Newton Corporation is offered trade credit terms af 3175, net 45. The firm does not take
advantage of the discoun[, and it pays the account aiter 67 days. iJsing a 365- day year, what is
the nominal annual cost of not taking the discollnt'/
a. !8.2o/o 3/97 : 52 = X:365 c. ?3.48o/o
b. 27.71o/o d. 26.45a/o
x=21.71%
B 23. Management of Terra Corp. is attempting to es'iinrate the firm's cost of equity capital. Assuming
that the firm has a constant growth rate of So/'t, d forecasted dividend cf P2.77, and a stock
price o1' ?23.72, what is the esi.in"iatei cost tf con:rnon equil,r using the dividend-yield-plus-
grc;rvth appnoach?
a, 9.lo/o c. 15.64/o
b, !4.1o/o d. 72.30/o

ITEMS 24 TO 26 ARE BASED ON THE FOLLOI/IING;NI:ORMATION:

Alex Company is a manufaclurer of electronir si'iitches. One of their products, "Sensory Switch,"
is used as a component of most electrical appliances.
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Final Pre-board Examination - September 14,201.l Page 5 of 12 pages

Sensory Switch,has the following financial data per unit:

Selling price p1B0
Variable costs:
Materials pZ4
Labor 18
Factory overhead 15
Shipping and handling __-1 p 5ti
Fixed costs:
Factory overhead P-?6
Selling and administrative *14. _lA
Total p110

During the rnonth, Alex has received a special, one-time order for 1,500 units of Sensory Switch.

C 24. Assuming that the connpany has excess capacrty that is enough tc produce this special order
without affecting sales to reguiar cLrstinr-:rs, ;:nd fir3 :ofripan],' r.ryants to imprcve its profitability,
the price that ls acceptabre for ;his special, one-tinne crcer is in excess cf
a. P180. r, pu0.
b. P110. d. P50.
A 25. Assume that Alex is operating at fuil capaci[ and tlrat it does not wanL to incur a loss from this
order, the rninimum acceptable price is
a. P180. c. P6C.
b. Pi10. rl, P5CI.

D 26. Assume that the excess capacity availabie for the special oiCer is only 1,000 units, sr: that if the
order urere accepted, Alex rryculd have to reduce sales to regular customers. What is the
minlmum price for this special order?
a. P180 c, i) 5l
b. P110 .1. F100
D 27 . All of the following statements in regard to wcl,..in* caprral ei e c3r "rrr.f jxlept;
a, Current liabilities are an important aor.r'.j;il;nanci,-'g ,o;'r,:;in),1:nai! l-irms.
b. Profitability varies inversely with liqui,llh .

c. The hedging approach to financinq in',c;v.:s malr:lrir;g not.:i-ities cf debt with specific
financing needs.
d. Financing permanent inventory huiicl-ui-i wil.h lorrq*ierr, c1eot is an example of an
aggressi'.re working capit;l poiirry.

ITEMS 2B THR2UGH 32 ARE BA.1ED oN THE r-olt-JytriNG'trirrroi1il,4"f{ot,i:

The following is selected data for ihe Consuriei' Prorlu*s d!vr:,,ln (rf Ar,-on Corporations for
2013:
Sales p50,il0r.000
Average invested capital (assets) 2il,0C.:},0(,0
Net income 2.[ir0.i;00
Cost of capital 3'i,o

B 28. What is the return on sales (R.OS) for tire civi:iorr /

2/50 e. Ba/a C. 1.0a/a
b. 4o/o t). 'Lja/a

C 29. Wlrat is the asset turnover ratio for the ciivisionz

50/20
a. 0,25 c, 2 s
b,1c d.8
A 30. What is.the return on lnvestment (RCI) for the clivision?
a. .1"04/c (:. alr
2/20 b. Ba/o d '-_i,o
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2013 Page 6 of 1 2 pages
Final Pre-board Examination - September 14,

D 31. What is the amount of residual income (RI) for the division?
a.
P2,000,000 c.
P1,000,000
b. P1,600,000 d,
P 400,000

C 32. What is the amount of interest rate spread for the division?
interest- a. 8o/o c" Za/o
rate spread = ROI - req'd rate of return ord.cost
b. 70o/o 2Ao/o
of capital if not available
\ .-r, ,' .i , t'l

C 33. In the cost of quality, which of the following is an example of an "lnternal failure"?
a. Cost of inspecting products on the production line by quality inspectors,
b. Labor cost of product designers whose task is to design components that will not break
under extreme temperature conditicns.
c, Cost of reworking defective pafts de:ecled by the quality assurance group.
d. Cost of pafts returned by customers.
C 34. Mien Co. is budgeting sales of 53,000 units of product Nous for October 2013. The manufacture
of one unit of Nous requires four kilos of chemical Loire. During October 2013, Mien plans to
reduce the inventory of Loire by 50,000 i.iilos and increase the flnished goods inventory of Nous
by 6,000 units. There is no Nous work in process inventory.

How many kilos of Loire is Mien budgeting to purchase in October 2013?

a.
138,000 c.
L86,000
b.
162,000 d. 238,000
D 35. The master budget
a. Shows forecasted and actual results.
b. Reflects controllable costs only.
c.
Can be used to determine manufacturiag cost variances.
d. Contains the operating budget.
B 36, Kern Co. is planning to invest in a two-year projeC that is expected to yield cash flows from
operations, net of income taxes, of P50,000 in llre lrrst year and P80,000 in the second year,
Kern requires an internal rate of return of 15o/c. The present value of P1 for one period at 15olo
is 0.870 and for two periods at 150/o is 0.756. The future value of P1 for one period at 15% is
1.150 and for two periods at 15% is 1.323. The rnaximum that Kern should invest immediately is
a. P 81,670 c. P130,000
ir. P103,980 d. P163,340

D 37. When production levels are expected to i,:crEase i,vithin a relevant range, and a flexible budget is
used, what effect would be anticipated with re::pect to each of the following costs?
Fixed costs
Variable costs
per unit per unit
a. Decrease Decrease
b, No change No change
c. No change Decrease
d. Decrease No change

C 38. Controllable revenue would be included in a performance repoft for a

Profit center Cost center
a. No No
b. No Yes
c. Yes No
d. Yes Yes
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CPAR MAI'IAGEMENT,O.DVISORY SERVICES

Fjnal Pre-board Examination - September 14,2013 Page 7 of 12 pages

A 39. The following is a summarized income statement of Carr Co.'s proflt centei' No" 43 for Marqh
2013r
l

Contribution lnargin rl P;70,r100

Feriod expenses:
Manager'S salary P20,000
Facility depreciation 8,J("iO
Corporate expense aliocaticn _ 33.00i)
--:^].L!?
Profit center incorne i
Pt_ags

Which of the following amounts would mo:'-: lii,.r:i'1t be subje:t tc the rontrcl of lhe profit center's
manager?
a. P70,000 .. P37,000
b, P50,000 d. P33,000

A 40. A company obtained a short-term bank loan cf P25t),000 at an annuai intei-est rate of 6%, As a
condition of the loan, the company is required to rnaintain a cornpensaiing balance of F50,000 in
its checking account, The company's checking account earns interest at an annuai rate of 7o/o.
Ordinarily, the company maintains a balance of P25,000 in its check;rg account for lransaction
purposes. What is the effective interest rate of the laarrl
a. 6.440/o c. 5.81r%
b. 7.7!o/o d. 6.66a/o

A 41. The following direct manufacturing labor information pertains to the manufacture of product Glu:
Time required to make one unit 2 direC labor hours
Number of direct workers ril-\
Number of productive hours per weel! per worker /4
7.,
Weekiy wages pe" worker D'3i
Workers'benefits treated as direct manufatturing ia59 a runr
7.,u/i nf v,agt: ;

What is the stanclard ,lirect manufacturirig lahcr-cosi r,,.r :ii-rit. of 1:rodu:t Gl".r?
a. P30 c. PiS
b. P24 d. p12
C 42: Following are the operating results of the turcl segm.:nts cf P.:r'kiin Corporation:

Sales
WnsilA Segae$3 llbi
glSJ,Jg g2_5,0_88
P-U.oqQ
Variable cost of goods sold z[ r)nf; 8,50r' .t j, -) tll l
Fixed cost of goods solcj .i,,_,uJ :i..5Ji' -'l.eQit
Gross margin
Variable selling and administratir,.e 2,t]00
f,iii]o -.a09 il:rrjg
3,000 5"t'i(J0
Fixed selling and adminisil"aLir.,e ._",_lit! __j-500 ,3_OAU
Operating income (loss) p-Lru uSrr-01 F'_b-00

Fixed costs of goods sold are allocated to each sesliierrt i:asei cn ';he nlririb'ei or' ernpioyees,
Fixed selling and administrative exoenses ar6 ailo."e!.erl ry.:...1i1,r. lf :lelr:rent B is eliminated,
P1r500 of fl>red costs r:f goods solcl would 1-,: ii:::";:ji,:,,:1. I,3::rr"nini.. :eqr:rrni B ls closed, the
effect on operating income would be
a. An increase of P500"
b. An increase of P2.,000. .J. /. :r:e/,i"i-rase Cl p2,i,jC.
D 43. Which of the following is true about actir;lty-5E5-cj cos;i;,-q?
a. It shou{d not be used with process r:r jcb ccsting.
b. It can be used only with proce-qs costir,g.
c. It can be used only with job costing.
d. It can be used with either process or- job cortinq.
B 44. The ABC Company is trying to decide betyreen keeoing a;'i e:listrrrgt machint: ariii replacing it with
a new machine. The old machine was pui'chas;er1 just h.vo years ego fcr P50,t)00 and had an
expected life of 10 years. It now costs Ir1.000 a mrnlh for,ni;tinten:r1ctt ar'id repairs due to a
mechanical problem. A new machine is being corlsidcred lo replsce it dt it cost of P60,000. The
 CPAR MANAGEMENT ADVISORY SERVICES
September 14,2013 Page 8 of 12 Pages
Final Pre-board Examination -

new machine is more efficient and it urill only cost P200 a month for maintenance and repairs.
The new machine has an expected life of 10 years. In deciding to replace the old machine/
which of the following factors, ignoring income taxes, should ABC not consider?
a. Any estimated salvage value on the old machine.
b. The original cost of the old machine,
c. The estimated useful life of the nerri machine ,

d. The lower maintenance cost on the nelv machine.

A 45. Black Co.'s breakeven point was P780,000. V;r'i"ble expenses averaged 6Aa/o of sales, and the
margin of safety was P130,000, What wr:s Biack's contribution margin?
a. P 364,000 c. P 910,000
b. P 546,000 d. P1,300,000
C a6, Limitations of an activity based costing systern include which of the following?
a. Cc.:ntrol of overhead costs is enhanceci.
b. Activily-based costing systems are less reliable.
(:. Tiie expense of obtaining cost data is relatively high.
d. It eliminates arbitrary asslgnmen[ cf overhead costs'
C 47. lackson Co. is considering a project that wiii use 2,000 square feet of storage space at one of its
facilities to store used equipment. What wili determine Jackson's opportunity mst?
a. The net present value of the project,
b. The internal rate of return of the prolect,
c, The value of the next best use of the space.
d. The depreciation expense on the space.
B 48. The following information pertains to Roe Co.'s 201.3 manufacturing operations:
Standard direcl manufacturing iabor hr:urs per unit ?
Actual direct manufacturing labor hours 10,500
Number of units produced 5,000
Standard variable overhead per standard
direct manufacturing labor hour P3
Actual variable overhead PzB,ooo

Roe's 2013 unfavorable variable overhead efficlency variance was

a. P0 c.P2,000
b. P1,500 d.P3,500

C lir 49. Which of the following indicates that the economy is in a recessionary phase?
a. The rate of unemployment decre.rses.
b" The purchasing power of money declines raprirlly.
c. Potential national income exceeds actual nailonal income.
d. There is a shortage of essential raw nrateriais and costs are rising.
B 50. A company produces and sells two proiucts. The first product accounts for 75o/o of sales and the
second product accounts for the remairring ?'.la/o af sales. The first product has a seiling price of
P10 per unit, variable costs of P6 per unit, and allocated fixed costs of P100,000, The second
product has a selling price of P25 per unit, variable costs of P13 per unlt, and allocated fixed
costs of P212,000. At the breakeven poin; ',vhat number of units of the first product will have
been sold?
a. 52,000 c. 25,000
b. 39,000 d. '14,625

B 51. Which of the following is one of the four perspeciives of a balanced scorecard?
a. lust in time. c. Benchmarking.
b. Innovation. rl. Activity-based costing.
D a new method for allocating overhead to its two products,
52. The ltJew Wave Co. is considering
regular and premium coffee beans. Currently New Wave is Lrsing the traditional method to
allocate overhead, in which the cost driver is direct Iabor costs. However, it is interested in using
 CPAR MANAGEMENT ADVISORY SERVICES
Final Pre-board Examination - September 14, ZO13

two different dr,ivers:. machine hours (MH) for separating and roasting beans, and pounds of
coffee for packing and shipping.
l

Machine hours for the current month are 700 f,orrs; direct labor cost per pound of coffee is
PL.25, and direct materials cost per pound of coffee is P1.50. There are t,00b pounds of coffee
packed and shipped for the current month.

The following data are also available: l

Regular Premium
Overhead for the current month P5,000.00
Cost pool for separating
and roasting beans 3,500.00 150 MH 550 MH
Cost pool for packing and shippinE 1,5C0.00 500 pounds 500 pounds

What is the totai cost per pound fcr the prenriuin ccffee using the new activity-based costing
method?
a. P5.00 c. P7.75
b. P5,7s d" p9.7s

B 53. Which of the fcllowing statements beiow shows the contrast between data and information?
a. Data is the output of an AiS.
b. infornration is the prinnary ourpurt of an AIS.
c. Data is more useful in decislon-making than iiiorm.;ticn.
d, Data and information are the same.
D 54. The Internet has changed the way many processes are perforrneci in business today" The
Internet has had a material effect on the five prirnary characteristics in the value chain and on
the.strategy adopted by businesses that incorporate use of the lVeb into their business systems.
which statement below is i:r'ue r"egarding the Inleri^et r-elati,re tl s str.:-eqi; positicn that a
business may adopt?
a. LJse of the Internet has reduced the power of buyers.
b' The Internet has increased the barriers to entrT in manv industries.
c. Use of the Internet reduces pressure to cornpete on price.
d. The most important effect of the developrnent o1'the Internet in business is lhe increased
impoftance of adopting a viable buslness strategy.

C 55' The Wood Furniture company produces a specially wcorl furniture procuci, :nrl has the
following information available concerning its inventory items:
Relevant ordering costs per pur.chase order p15C
Relevant carrying costs per year:
Required annual return on inyestnierrt ] c('1,
Required other costs per year l'.1..;.u

Annualdemand is 10,000 packages per veai-. Thr,purclraSB pu-i,16-, n,;r irack,a,_.r.. is pi6.

what are the relevanl total costs et the econornic order qua itrs,:
a. P1,000 c. pj,C00
b. P1,500 d. P3,500

B i6. Quality of design measures how closely the characteristlcs cf prcducrs cr services match the
needs and wants of customers. Conformance qr,ai!f;:
a. measures the same things
b. is the performance of a produc or service acccrdrng tc design and prccluct specifications
c, is making the product according to design, engineeiing, ancl manuf:cturring specifications
d. focuses on fitness of uses from a customei- peispective
D i7. The balanced scorecard is said to be "balanced" because it measures:
a. short-term and long-term objectives c. internal and external ohjectives
b. financial and nonfinancial objectives d Ail of these arisv,/ers are correct.
 CPAR MANAGEMENT ADVISORY SERVICES
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Final Pre-board Examination -
D 58, Bugos Company makes a household appliance with model number rcG00. The goal fot 2014 is
to reduce direct materials usage per unit. No defective units are currently produced.
10,500 Manufacturing conversion costs depend on pi"cdudion capacity defined in terms of )0(300 units
that can be produced. The industry market size for appliances increased 57o frorn 2013 to 2014.
-10,000
The following additional data are available for 2013 and 2014:
= 500
2A-L3 20L4
x 100
Units of )C€00 produced and sold 10,000 10,500
= 50,000F Selling price P100 P95
Direct materials (square feet) 30,000 29,000
Direct material costs per square foot P10P1 1

Manufacturing capacity for )C(300 (units) 12,500 12,000

Total conversion costs P250,000 P240,000
Conversion costs per unit of capacity P20P20

What is the revenue effect of the growth component?

a. P2,500 U (:. ?47,500 F
b. P52,500 U d. P50.000 F

D 59. Which of the following factors should NOT be coristdered when pricing a special order?
a. the likely bids of competitors
b. the incremental cost of one unit of product
c.revenues that will be lost on existing saies if prices are lowered
d. stable pricing to earn the desired long-ri.tn return => one time lang yung special order!

C 50. Welch Manufacturing is approached by a European customer to fulfill a one-time-only special

order for a product llmilar to one offered to domestic customers. Welch Manufacturing has a
policy of adding a 10% markup to fuli iosls and currently has excess capacity. The following
per unit data apply for sales to regular ststomers:

yung 10% mark- Variable costs:

up, to FULL cost Direct materials P30
Direct labor 10
yun. 15
Manufacturing overhead
i.e kasama yung Marketing costs 5

fixed cost dun Fixed costs:

Ma n ufactu ri ng overhead 100
w/c is Marketing costs 20
irrelevant. Total costs 180
Markup (10%) 18
Estimated selling price P198

For Welch Manufacturing, what is the minimum accePtable Price of this one-time-onl,v sPecial
order?
a. P40 d. P60
b. P55 d. P66

A 61. After conducting a market research study, Schultz N'lanufacturing decided to produce a new
interior door to complement its exterior door line. It is estiinated that the new interior door can
be sold at a target price of P60. The dflnucll tar-get sales volume for interior doors is 20,000'
Schultz has target operating income af TJa/o of sales.

What is the target cost for each interior door?

a. P48 c, P60
b. P58 d. P45
D 62. Local Steel Construction Company produces two products, steel and wood beams. Steel beams
have a unit contribution margin of P200, and wood beams have a unit contribution margin of
P150. The demand for steel beams exceeds Local Steel Construction Company's production
 CPAR '
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ntr\NAcEMENT ADVtsoRy sERVtcES

Final Pre-board Examination - September 14,2}fi Face i 1 cf 12 oaoes

capacity/ which.is limited by available direct labor and machine-iiours. The maximum demand
for wood beams is 90 per week. irlanagerirent des;r;s thal the prorluct mix should maximize the
weekly contribution toward I'ixed costs and pn:fits.
f i

Direct manufacturing labor is limiteij tr 3,CJ0 tiour"-! a y,'eiiK atil 1.000 l:ours is all that thl
company's outdated machines can run a ,veek. The steei beams i-ecuire l-2il l-rours of labor an&
60 machine-hours, Wood beams require r5C lahor hours anC 12.0 machine-hours.
I

Let S = uirits of steel beams; !V = units of wood beams i

Which of the fcllowirr! is n:t a con-ctl.;ir.t funrticn lil thi; case?

a.1"205 -150W < 3,000 - 6t.)i - i20V/ j:'.1,[ J0
b. w<90 i.l" +
is your objective, NOT
2C0S 153VV this

B constraint
63. A recent college graduate has the choice of bu1,.irrE a neLv auto :br ;,20,U00 or. investing the
money for four years with a 6a/o expected annua! rcte of return. trf the graduate decides to
purchase the auto, the BEST estimate of the ouportunln, cc:t or ihat decision is:
a. P1",200 r D)fi /"lf],r
t 1\rt\Jrv
Lr. P4,EAA cl" zero since there is no opporturriW cost
D 64. Which sf the following statements related to assumptions aboirt estimating linear cost functions
is FA|._SE?
a' variations in a single cost driver explain i,ariations in tr:ial costs.
b' A cost object is anything for whlch a separate rneasuremenI of ccsts is Cesired.
c. A linear functicn approximates cost behavior wtthin lhe reievant r-ange of the cost driver.
d. A high correlation between two variabies ensures that a cause-and"e,fect relationship
exists,
may mga expurious variables na nagkataon lang talaga yung high correlation.
B 65' Mount Vernon Furnitui'e nranufactures expensive tables. its vai'nisning departnrent is fully
automated and requires substantial inspection tu keep the machines operating properly. An
improperly varnished table is very expensive lc correct. Irrspecilon hours for the 10,000 tables
varnished in September totated 2,500 hcurs by .lr, e.nrelo.y,e,,,s Eignt ,luar.ts cf varnish were
used, on average, for each tabls, The standa;'d ai'rlornt rf .,rarnisn !: t.:bl: is rirne cuarts, The
cost of inspection for Septernber was equ;ll to tfle brrcgeteil amuur.l of I76,!00.

What is the inspection cost pei ,jn;t'i

a. P30.40 l f \.'rrrL,
- i: J/L
b" P7,60 r'J, P4,00il

A 66. Penny's W and Appliance Store is a sn-rall cotat.)any ili;;l nas irii-ed ,r(,r-r io perform some
management advisory services. The followinq infc'rrriation p;:;rtuins ic 20"X5 cperatiors.

Sales (2,000 televisions) P 9t0,tlr-]o

Cost of goods sold /+00,111,0
Store manager's salary per yeai- 7!,C{"i0
Operating costs per year 1S7,f100
Adveftising and promotion prer year I5,00c
Cominission t ({r,'a;:f sal:-,s,) 36,i-r611

What are the estimated rctal ccsts ii penn\r,s e>,r,e,-1s ic :eii 3t C*10 r,.,ii; ,.ie;,i- yra,-l
a. P896,000 ?rl .,r_'r.
l .t/ .1i. ., ..I.Ji
1r)

b. P679,000 al P799,000

B i7.To complel:e the firsi setup on a new machine toort an er.plove<, 210 r,rinutes, rJsing an 80%
cumulative average-time learning curue indicates il;at trre se:o:rd s(,triD on the trew machine is
expected to take:
a. 160 minutes .. 80 minuitos
b. l-20 minutes d. 6C milriri;cs
 CPAR MANAGEMENT ADVtsoRy sERVtcEs
Final Pre-board Examination - September 14,2013 page 12 of 12 pages

D 68. The Institute of Management Accountants (IMA) has developed ethical standards for
management accountants. What four categories has the IMA classified these standards intc?
a. Reliability, Objectivity, Commitment, and Competence Although yung commitment sounds
b. Objectivity, Integrity, _________
Commitment, and Confidentiality ethical, competence yung sagot!
c. Observation, Integrity, Closure, and Competence
d. _________
Competence, Objectivity, Integrity, and Confidentiaiity

A 59, Adolphson Corporation has provided the following summary of its quality cost repoft for the last
two years:
Summary of Quality Cost Report
(in ihousands)

This Year Last Year o/o Change

Prevention costs P300 P 200 +50
Appraisal costs 315 210 +50
Internal failure costs LL4 190 -40
External failure costs 62L 1,200 -48
Total quality costs P1,350 P1,800 -25

On the hasis of this report, which one of the following statements is most likely correct?
e. An increase in prevention and appraisal costs resulted in fewer defects, and therefore,
resulteci in a decrease in internal and externai failure costs.
b. A decrease in internal and external fai{rrre costs resulted in less need for prevention and
appraisal cosLs.
c, Quality costs such as scrap anC i"ervoril rierreasecj by 48a/o.
d. Quality costs such as returns and repairs i:nder warranty decreased by 40o/o.

D 70. \uhich of the following is a characteristic of i'r^ranagement advisory seruices?

a. Seruices rendered are for third patties.
b. Engagements are usually recurring
c. Human relations do not play a vital role in eacil engagement.
d. It involves problem solving.

- fhe €;wd. -
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EA Review School oi'the Pi'iiipi:ines
i

MANAGEMENT ADVISORY SERVICES SEP'|EI\'IBER 2013

Final Pre-board Examination - SOLUTIONS GUIDE 74'h Batch

29 ! j= (P50,C00,0001P2Cl,0C0,000)
1&2 AB ar\
UU
Demand 1,000 4,000 1,000 4,00J 30. 1{)Yc.- (.P2,1Ai,ACC1 P20,0C0,00C)
Time per unit 2.20 1.2A 1.7 1.80
Total 2,200 4,800 1,700 7 ,'2AA 31 P400,0C0= iP2,C00,000-(P20,0riu,000 x8?0ll

32. The interes;i rate spisai is the a;iierence beiweett the reiurn
ABCD 0n invesimeni 3nc ihe required raie cf return (cosi of
CM per unit P30.80 ?26.40 P32,80 P29.6C :ipiial). 29rc = iiP2,00ir,000/ P20,000 000)- 8%1.
Time per unit 2.2A 1.20 1.7A 1.30
CM per minute P14 P22 P19 2tl D16.4r ir.,l, S:lies 53,ti00
Rank4123 llcrei ;r: in i".',v6nioO 6 0ri0
,io nn0
Sidgr:tt,i prot:t:c,ion
4 Saiaries expense P250,000 x 1.05 P262,500
x n-lalerial$ pe r unil _4
Health costs 100,000 x 1.05 105,0{ic a1A nnn
a( 1/\4 Pr.rcir:ctlon rreeds
Depreciation expense 65,000 x 1,00 UJ,VUt/
lnterest expense 37,750 x 1.00 I _:,-!L\l!
L"lec!'eaie irr irtvin toiy f0,qa0
!L'd?eiet pLtir:hases 136-C!!
Total Budget E3Z0/59
36. .i [rbr,,|t,) r g;,ij r-" 43 .C0
5, Beg Balance 12,000
. 2 P8i."r!| ;: .7;6 ar lon
_.lvtr:!!
Direct Materials 10,000 "fotal
Direct Labor 30,000 Pr:scil rralLra *Jil.gn0
Overhead Applied 27,ACl
,41 i. !,tato = i:tr:,.i.lr- , 22ll 1l l0)
lssued I0qJq8
Ending Balance 9,C00
Less: Overhead D ) ?rr, 41 ';t,:elrly" wagt: 16qy r;.,61i1i,r" P5(]C
Labor (2,250 + 90%) 'i00
*?_5C9 4,2i0 Beiiefits iieaieJ ::: i)lt1L. crst
Materials cost l-fr(AJ TOlal DX,lt_ i'r;,',,ri.:eir trer ViOrker P6C0
l.'icrils rsi wer:.;<. L,l)
S. Sales Yo April Ma June Tota! rlir,,ll cc,si per l:,;r P'J
Feb 500,000 17% 85,000 - 85,C00 l'ir;uts reql'ire.: iill ga,:l unjt
March 425,000 80% 340,C00 - 310,000 'li,i
._v2
March 425,000 17To - 7'2,25A - i LtLJrt
:ita;roaro ccsi n,;r Ltn:L PJ!
April 450,000 B0% 360,000 -
r0C,000
A2 - -:li 0 .) iri
April 450,000 17% 75,500 76,500 P/ lC,i ,P1r ?.5' ,) - 1 l. t

May 575,000 80% 460,000 460,0c0

Totaf 425,000 43t,25{) 536,50{t 1,31i3,I50 ri P.:ij.1 li-r ,, :ii,;::, il )! bie ,<r ,-,
4,1.
ll,j; ;lll;3,0,! _ _r*
P242,0A0 *p2,0AA x (Pl61,250/15,000)l = P5,5C0 unf.
':C .,9 2,.'f1f ,,it iit _Eat: i. pl\ P31,ECO
13. Optg prcfit after tax (30m x 60%) P18,000,!c0 !l',iOi' i5 ,r.'ri ;r 2 x P3) . if,C!0
Capital charge on invested capital
i-hf,vorahitt \iar Cr Efi la-iancr .:,Iq!
{50m x 10%) 5otr0.ul
EVA Pl3irc,ul l,l ,:ir-st S::ccno
17, Annual savings in after-tax cash costs P20,CCO
(,lI pe,rt.r,.'' P4 t't'2
Annual depn (P100,000 /10 years) il!.qru
' $;les m,, l:,t;'- i5% 250,,0

lncrease in annual net income Pi0,000 ()i,ntp::':ltt -1,1 P3 P3 P6

' + lnvestment cost 100 000
Acctg rate of return ::lli tlr,rnlroi.ile,r:,rli'i,v.'r = Fi.t2,OCC -- :ir ,= 52,000

24. lnventory conversion period (P2,500,C00tP50,000) A:n

!rrits cf iiri: iirsl r,iidtrcl :,i lrreaklver Eg.rug
Receivable conversion pd. (P2,000,000i P1 00.000) '24
Payables deferral \period :
EA 5: inl; iierheai ,iilccai,-a
tc', each :,!i,to ,;f oi'el:',ium ccffee is
Cash conversion cycle
equi:l tcr lt(r''J,5riC x 55[t l::r:l7r.i0 MH) ip1 ,500 x
Dl1 l,.rtl
"
, silJ .io.rnC::/ii)'iL] pun,1s;1 r'50C l,c,tr,rls], ai C lne iotal cost
22. 3%(100% -3%) x 365/(67 days - i5 Cays\ = ZA% ?1,t' por.rril is ::L;ri .l i:!, 75 (Pr.J..J allurcateci overhead +
i1 ;.5 5,J.rr l1'r'ri * :" .. j c;rrecl cl.-.ir t.sl
23. l(2.11123.13) *Sokl= 1!.1$.
t. 5i : jfi;l f,1|r i-' ,i) . 13
26, Variable cost p 60
iJriji Carry;r.i ra.: .:
'i'ie q!]i-iri
fp -,
1i501 P3j = '1,0(j0 units
Opportunity cost ([500 units x P120] + 1 ,500 units) _jq [O.f, = i.'{'I 11 ii2 r 10,000 v

Minimum price E10E

F r-C [trC
t t]_1 lj1ri- -_'_11i_1t x F i)l.,:?::.e!.I
28. 4% = (P2,000,000/P50,000,000) 1 ^.il :