TEST BANK 15. Which of the following characteristics does not relate to management accounting?

MANAGEMENT ACCTG. – 1 A. Accounting reports may include non-monetary information.

B. It is subject to restrictions imposed by GAAP.
Mgt. Acctg. Environment C. Reports are often based on estimates and are seldom useful for everything
other than the purpose for which they are prepared.
1. Management Accounting D. It provides data for external users within the business organizations.
A. Is governed by generally accepted accounting principles.
B. Draws from disciplines other than accounting 22. The activities in a management system’s control process can be grouped into four:
C. Is geared primarily to the past rather than future. 1. Measurement of actual performance
D. Places more emphasis on precision of data compared with financial accounting 2. Deciding and implementing corrective action.
which does not place more emphasis on accuracy of information. 3. Determining standards of performance.
4. Comparing actual performance versus standards and analyzing results.
2. Management accounting is an integral part of the management process. As such, it
provides essential information for the following objectives except The above steps must be done in this sequence:
A. Maintaining the current level of resources utilization as well as internal and A. 4,3,2,1
external communication. B. 3,1,4,2
B. Measuring and evaluating performances. C. 1,3,4,2
C. Planning strategies and controlling current activities of the organization. D. 3,4,1,2
D. Enhancing objectivity in decision-making.
23. The concept of “management by exception” refers to management’s
3. The chief management accountant called “controller” traditionally performs these A. Consideration of only those items which vary materially from plans.
functions except B. Consideration of only rare events.
A. The establishment and implementation of the financial planning process. C. Consideration of items selected random.
B. Financial and management reporting and interpretation. D. Events that involve material amount.
C. Protection of company resources and economic evaluation.
D. Relate to specific problems where expert help is required. 28. A type of managerial accounting that refers to the determination of the cost of
products and services regardless of whether they are variable or non-variable is
6. Management accountants help design, develop, install and maintain reporting known as
systems which are A. Differential accounting
aligned with the structures of the organization. These systems provide information B. Activity accounting
that are useful C. Full cost accounting
for decision making. Management decision processes fall into three categories. D. Responsibility accounting
A. Repetitive, non programmed and strategic
B. Repetitive, programmed and strategic 29. A type of managerial accounting that refers to the determination of the operating
C. Repetitive, non programmed and nonstrategic cost regardless of cost behavior is
D. Non repetitive, non programmed and strategic A. Differential accounting
B. Full cost accounting
7. In this element of internal control, the object is to gauge the efficiency of the various C. Responsibility accounting
levels of people in the organization as well as the quality and quantity of results. D. Profitability accounting
A. Records and reports
B. Standards and performance. COSTS CONCEPTS, CLASSIFICATION AND SEGREGATION
C. Internal audit
D. Policies and procedures. 1. The term relevant cost applies to all the following decision situations except the
A. Acceptance of a special order.
12. You are newly appointed as controller of ABC Corporation. Among the jobs your B. Determination of a product price.
department would do, include the following: C. Replacement of equipment.
A. Cash receipts, cash disbursement, general accounting, taxation, financial D. Addition or deletion of a product line.
statements analysis and internal auditing.
B. Financial reporting, strategic planning, managerial accounting, 2. A decision-making concept, described as “the contribution to income that is
taxation, financial statement analysis and internal accounting. foregone by not using a limited source for its best alternative use.” is called
C. Financial accounting, managerial accounting, cost accounting, inventory A. Marginal Cost
accounting, Payroll accounting, tax accounting, and sales forecasting. B. Incremental Cost
D. Tax accounting, internal accounting, internal auditing, general accounting. C. Potential Cost
D. Opportunity Cost
 10. Cost of goods sold is a component of the income statement. In a merchandising
5.The term that refers to costs incurred in the past that are not relevant to a future decision is establishment, this refers to purchases adjusted for changes in inventory. In a
A. Full absorption costing manufacturing company, what replaced purchases to arrive at cost of goods sold?
B. Under-allocated indirect cost A. Finished goods
C. Sunk cost B. Fixed manufacturing overhead
D. Incurred marginal cost C. Work in process inventory
D. Cost of goods manufactured
Q 5-7 are based on the following information. Management accountants are frequently asked
to analyze 14. When all manufacturing cost used in production are attached to the products,
various decision situations including the following: whether direct, or
I. The cost of a special device that is necessary if a special order is accepted. indirect, variable or fixed, this is called
II. The cost proposed annually for the plant service for the grounds at corporate A. Process costing
headquarters. B. Absorption costing
III. Joint production cost incurred to be considered in a sell-at-split versus a process- C. Variable costing
further D. Job order costing
decision.
IV. The cost of alternative use of plant space to be considered in a make-or-buy 15. Al-kris Company uses a regression equation to analyze the behavior of its
decision. transportation costs (T) as a function of travel time (H). They developed the
V. The cost of obsolete inventory acquired several years ago, to be considered in a following equation using two years’ observation with a related coefficient of
keep- determination of 85: T= 100,000 + P50H
versus-disposal decision.
If 500 hours of travel time were logged in one period, the related point estimate of
The cost described in situations I and IV are total
A. Prime cost transportation costs would be
B. Discretionary costs A. P110,000
C. Relevant costs B. P121,250
D. Differential costs C. P106,250
D. P125,000
The costs described in situations III and V are
A. Prime costs 16. These are among the methods of segregating fixed cost and variable costs except
B. Sunk costs A. Breakeven method
C. Discretionary costs B. Simple regression analysis
D. Relevant costs C. Scattergraph method
D. High-low method.
The cost describe in II is a
A. Prime costs
B. Discretionary costs Highest cost – Lowest cost = Difference in cost =Variable cost /
C. Relevant costs unit
D. Differential costs Highest hour – Lowest hour =Difference in hour =

8. Management accountants are concerned with incremental unit costs. These costs Highest or lowest Cost xxx
are similar to the following, except - Variable cost (UVC x highest or lowest hour) xxx
A. The economic marginal cost Fixed cost xxx
B. The variable cost
C. The cost to produce an additional unit.
D. The manufacturing unit cost. 17. Dongian, Inc. is preparing a flexible budget for the next year and requires a
breakdown of the cost of steam used in its factory into the fixed and variable
9. Opportunity costs are elements. The following data on the cost of steam used and direct labor hours
A. Costs irrevocably incurred by past actions. worked are available for the last 6 months of this year.
B. The difference between actual and standard costs.
C. Not recorded in the accounting records. Month Cost of Steam Direct Labor Hours
D. Partly fixed costs and partly variable costs. July P15,850 3,000
August 13,400 2,050
 September 16,370 2,900 A. The way costs change with respect to the dependent variable.
October 19,800 3,650 B. The way costs change with respect to both independent variable and dependent
November 17,600 2,670 variables.
December 18,500 2,650 C. The variability expense with pesos of production.
P101,520 16,920 D. The way costs change with respect to the independent variable.

Assuming that Dongian uses the high-low method of analysis. The estimated 25. The slope of the line of regression is
variable cost of steam per direct labor hour is: A. The rate at which the independent variable varies.
A. P4.00 B. The rate at which the dependent variable varies.
B. P5.42 C. The level of fixed costs.
C. P5.82 D. The level of the total variable costs.
D. P6.00
27. The segregation of fixed costs and variable costs is key to proper cost analysis.
What is the amount of fixed cost? Regression analysis is a technique used for this purpose. Identify the appropriate
A. P14,600 statements below on regression analysis:
B. P 8,200 1. It assumes that a change in value of a dependent variable is related to the
C. P 5,200 change in the value of an independent variable.
D. P 0 2. A linear relationship between direct cost and production volume can cause a
problem when using accounting data for regression analysis.
19. Mark Company estimates handling costs at two activity levels as follows: 3. It attempts to find an equation for the linear relationship among variable.
4. It establishes a cause and effect relationship.
Kilos handled Cost
80,000 P160,000 A. All four statements are appropriate.
60,000 132,000 B. Statements 1, 3 and 4 only.
C. Statements 1 and 3 only.
What is Mark’s estimated cost of handling 75,000 kilos? D. Statements 2 and 4 only.
A. P150,000 Y = a + bx
B. P153,000
C. P157,500 Where : Y = Total cost
D. P132,000 a = Fixed cost
b = Variable cost / unit or hour
20. The total production cost for 20,000 units was P21,000 and the total production cost x = number of units or hours
for making
50,000 units was P34,000. Once production exceeds 25,000 units, additional fixed 29. For the month just ended, the cost components to make Product AB was P50 per unit
costs of P4,000 were incurred. The full production cost per unit for making 30,000 plus fixed
units is: costs of P250,000. One thousand units were produced. For the month the cost to
A. P 0.30 make the product will be P55 per unit plus fixed cost of P250,000. Fifteen hundred
B. P 0.68 units are expected to be produced. The estimates of the underlying but unknown
C. P 0.84 intercept and slope coefficient for the current month are
D. P0.93 A. P250,000 and P50
B. P55 and P250,000
23. For the six months of the year, the highest level of activity for MDG Corporation was C. PP50 and P250,000
18,000 full D. P250,000 and P55
units of production with maintenance cost at P114,000 and its lowest level of activity
for the same period was at 14,000 full units of production with maintenance cost at 33. Which of the following may be used to estimate how both the number of shipments
P94,000. What amount of maintenance cost should MDG expect in a month in which and the weight of materials handled affect inventory warehouse costs?
it was scheduled 16,000 equivalent full units of production. A. Economic order quantity analysis
A. P 24,000 B. Probability analysis
B. P104,000 C. Correlation analysis
C. P 80,000 D. Multiple regression analysis
D. P114,000
34. A non-linear cost function
24. Simple regression analysis provides the means to evaluate a line of regression, A. Does not effectively describe the behavior of costs all the time.
which is fitted to a plot of data and represents B. Never describes the behavior of costs in relation to the cost driver.
 C. Has two constants and single slope. Q = P6,000 + P5.25Z
D. Always describes the behavior of costs in relation to the driver.
If 1,000 machine hours are worked in one month, the related point of estimate of
35. Crescent Company has the data relating total production costs to volume for each total maintenance costs would be
quarter during the past five years. During this period, production volume has varied A. P11,250
substantially. The method of production has been relatively unchanged and the cost B. P10,125
behavior has been complex. What is the most appropriate method for estimating C. P 5,250
future production cost? D. P 4,725
A. Linear programming
B. Cost-volume-earnings approach 44. Y =P575,000 + P8.50x represents the behavior of maintenance costs (Y) as a
C. Time-series or trend regression analysis function of machine hours (x). Thirty (30) monthly observations wee used to develop
D. Program evaluation review technique the foregoing regression equation. The related coefficient of determination was .90.
If 2,500 machine hours were worked in one month, the related point estimate of
Q. 36-38 are based on the following. total variable maintenance costs would be:
In preparing the annual profit plan for the coming year, Venus Company wants to A. P23,000
determine the cost behavior pattern of the maintenance costs. Venus has decided to B. P21,250
use linear regression by employing the equation Y = a + bx for maintenance costs. C. P25,250
The prior year’s data regarding maintenance hours and costs and the results of the D. P19,125
regression analysis are given below,
Average cost per hour P 9.00 MARGINAL COSTING and COST-VOLUME-PROFIT ANALYSIS
a 684.65
b 7.2884 1. Cost-volume-profit analysis assumes that over the relevant range
Standard error of a 49.515 A. Variable costs are nonlinear
Standard error of b .12126 B. Fixed costs are nonlinear
Standard error of the estimate 34.469 C. Selling prices are unchanged
r2 .99724 D. Total costs are unchanged

In the standard regression equation Y = a + bx, the letter b is best described as 2. Cost-volume-profit analysis assumes that over the relevant range total
a(n): A. Revenues are linear
A. Independent variable B. Costs are unchanged
B. Dependent variable C. Variable costs are nonlinear
C. Constant coefficient D. Fixed costs are nonlinear
D. Variable coefficient
2. Break-even analysis assumes that over the relevant range
The letter “x” in the standard regression equation is best described as a (an) A. Selling prices are unchanged.
A. Independent variable B. Variable costs are nonlinear
B. Dependent variable C. Total costs are unchanged
C. Constant coefficient D. Fixed costs are nonlinear
D. Coefficient of determination
5.The amount of variable cost per unit and total fixed cost within a relevant range behave
Based upon the data described from the regression analysis, 420 maintenance hours this way in
in a month relation to production level:
would mean the maintenance costs (rounded to the nearest peso) would be A. Production increases, unit variable cost increases, total fixed cost increases.
budgeted at B. Production decreases, unit variable cost decreases, total fixed cost decreases.
A. P3,780 C. Production increases, unit variable cost remains constant, total fixed
B. P3,600 cost remains the same.
C. P3,790 D. Production increases, unit variable cost decreases, total fixed cost remains the
D. P3,746 same.

39. Pure Company has developed a regression equation to analyze the behavior of its 6.Assuming that a flexible budget is in use, production levels are expected to increase within
maintenance costs (Q) as a function of machine hours (Z). The following equation a relevant
was developed by using 30 monthly observations with a related coefficient of ranged, the expected effect on fixed cost per unit per unit (FCU) and variable costs
determination of 0.90: per unit (VCU)would be
A. FCU to decrease and VCU to decrease
 B. FCU to decrease and VCU no change C. 30%
C. FCU no change and VCU no change D. 25
D. FCU no change and VCU to decrease
BEP (Units) = FC / UCM (OR) BEP(u) = Actual Sales x (1 – MS
7. One of the major assumptions limiting to reliability of break-even analysis is that Ratio)
A. The cost of productivity will continually increase.
B. The cost of production factors varies with changes in technology. BEP (Peso) = FC /CMR
C. Total variable cost will remain unchanged over the relevant range.
D. Total fixed cost will remain unchanged over the relevant range. Margin of Safety = Budgeted or Actual Sales – Breakeven Sales (OR) MS=
Sales x MSR
9. At breakeven point, fixed cost is always ( B or A S ) (BES)
A. Less than contribution margin MSR = MS / ACTUAL (or BUDGETED) SALES
B. Equal to contribution margin MSR = NPR / CMR
C. More than variable cost MSR = [ 1 – (BE Sales / Actual Sales) ]
D. More than the contribution margin
AT BEP: PROFIT (LOSS) = 0
15. The rate or amount that sales may decline before losses are incurred is called: Sales = Total Costs
A. Sensitive level of income Contribution Margin = Total Fixed Costs
B. Variable sales ratio
C. Margin of safety Relevant Formulas
D. Residual income rates
CONTRIBUTION MARGIN = ?
16. Total unit costs are
CM = SALES – VARIABLE COST CM = FIXED COSTS + IBIT
A. Relevant for cost-volume-profit analysis
CM = SALES x CMR CM = Quantity sold
B. Independent of the cost system used to generate them
x UCM
C. Irrelevant in marginal analysis
D. Needed for determining product contribution
CMR = ?
Sales (S) xxx CMR = 100% - VCRatio CMR = CM / SALES
- Variable C/S (VC) xxx CMR = UCM / USP CMR =
Manufacturing margin xxx NPR / MSR
- Variable expenses(VE) xxx
Contribution Margin (CM) xxx UCM = ?
-Fixe Costs & Expenses(F C&E) xxx UCM = USP – UVC
Income Before Income Tax (IBIT) xxx UCM = FC / BEP (IN UNITS)
UCM = CM / QUANTIRY SOLD
Q19-20 are based on the following selected budgeted data of Ritz Company for the coming
year:
PROFIT = ?
Selling price per unit P 12.00 PROFIT = CM – FIXED COST
Budgeted sales 600,000 PROFIT = SALES x MS Ratio x CM Ratio
Fixed expenses 150,000 PROFIT = SALES x NPRatio
Variable cost per unit 8.00
Change in Profit = CM – Inc. in FC
Change in Profit = CM + Dec in FC
What is the breakeven sales in units?
A. 35,000
B. 37,500 FIXED COST = ?
C. 40,000 FC = CM (at BEP )
D. 45,000 FC = BEP (units) x UCM

What is the margin of safety ratio in percent? VC Ratio = VC / SALES

A. 15% VC Ratio = UVC / USP
B. 20% VC Ratio = 100% - CMR
 VC RATIO = ( CHANGE IN COST – Inc. in FC) / Change in Sales B. Increase both the fixed costs and contribution margin.
VC RATIO = ( CHANGE IN COST +Dec. in FC) / Change in Sales C. Decrease the fixed costs and increase the contribution margin.
D. Increase the fixed costs and decrease the contribution margin.

23. Ces Co’s operating percentages were as follows: 29. RDG Inc.’s net sales in 2009 were 15% below the 2008 level. RDG’s semi-variable
costs would
Revenues A. Increase in total and increase as a percentage of net sales.
100% B. Decrease in total and decrease as a percentage of net sales.
Cost of goods sold: C. Increase in total but decrease as a percentage of net sales.
Variable 50% D. Decrease in total but increase as a percentage of net sales.
Fixed 10%
60% 30. Cost-volume-profit analysis is a key factor in many decisions, including choice of
Gross profit product-lines,
40% pricing of products, marketing strategy, and utilization of productive facilities. A
Other operating expenses: calculation used in CVP analysis is the break-even point. Once the break-even point
Variable 20% has been reached operating income will increase by the
Fixed 15% A. Sales price per unit for each additional unit sold.
35% B. Contribution margin per unit for each additional unit sold.
Operating income 5% C. Fixed cost per unit for each additional unit sold.
D. Gross margin per unit for each additional unit sold.
Ces’s sales totaled P3 million, at what level is break-even sales?
A. P3,750,000 32. Miles Company sells three chemicals: Simpol, Plutex and Coplex. Simpol is the most
B. P1,850,000 profitable
C. P1,875,000 product while Coplex is the least compatible. Which of the following events will
D. P2,500,000 definitely decrease the firm’s overall BEP for the upcoming account period?
A. An increase in the overall market of Plutex
24. A company produced 500 units of a product and incurred the following costs. Direct B. A decrease in Coplex’s selling price
materials, C. An increase in anticipated sales of Simpol relative to the sales of
P8,000; direct labor, P10,000; overhead (20% fixed), P45,000. If the sales value of Plutex and Coplex
500 units is D. An increase in Simpol raw materials
P102,000, what is the contribution margin percentage?
A. 44% 34. Pia Company reported the following for the year just ended:
B. 47%
C. 53%
Budgeted sales P3,000,000
D. 74%
Break-even sales 2,100,000
Budgeted contribution margin 1,800,000
25. Given the selling price at P120 per unit; contribution margin ratio at 25% and fixed
Cashflow break-even 600,000
cost at P250,000, the total variable expenses at the break even point would be:
Q?
A. P350,000
A. P 900,000
B. P750,000
B. P2,400,000
C. P450,000
C. P1,200,000
D. P250,000
D. P1,500,000
26. Which of the following is used to determine the break-even point when using the
35. The contribution margin ratio always increases when the
contribution
A. Breakeven point increases
margin method?
B. Breakeven point decreases
A. Revenues less operating income equals variable costs plus fixed costs.
C. Variable costs as a percentage of net sales decrease.
B. Unit contribution margin times the break-even number of units equals
D. Variable costs as a percentage of net sales increase.
fixed costs.
C. Selling price less unit fixed costs equals contribution margin.
36. The following information pertains to Vilma Company’s cost-volume-profit
D. Total fixed costs equal total revenues.
relationships:
28. To reduce the break-even point, the company may
Breakeven point in units sold 1,000
A. Decrease both the fixed costs and contribution margin.
 Variable costs per unit P 500  Variable manufacturing costs per unit will increase by one-third.
Total fixed costs P150,000  Fixed cost will increase by 10%.
 The income tax rate will remain unchanged.
How much will be contributed to profit before income taxes by the 1,001 st units sold?
A. P650 For the company to break-even the coming year, the company should sell
B. P500 A. 21,600
C. P150 B. 2,600
D. P 0 C. 21,250
D. 19,250
39. Which of the following would decrease unit contribution margin the most?
A. A 15% decrease in selling price 44. A company has revenues of P500,000, variable costs of P300,000, and pretax profit
B. A 15% increase in variable costs of P150,000. If the company increased the sales price per unit by 10%, reduced
C. A 15% decrease in variable costs fixed costs by 20%, and left
D. A 15% decrease in fixed costs. variable cost per unit unchanged, what would be the new breakeven point in pesos?
A. P 88,000
Q40-41 are based on the following information. B. P100,000
C. P110,000
Stuff Toys Manufacturing Co. manufactures and sells dolls. The following information D. P125,000
relates to the operating results for the last quarter:
45. Lilly Corporation has a contribution margin ratio of 0.26. It aims to have a net
Stuff toys sold 19,375 income of P320,000 with a sales volume of P2 million. Its total fixed costs amount to
Breakeven point in number of toys 15,500 A. P200,000
Breakeven point in peso sales P65,875 B. P 83,200
Total fixed costs P47,275 C. P230,777
D. P520,000
What was the company’s variable cost per doll?
A. P4.25 46. AA Corporation, a manufacturing company, is operating at 90% capacity. Since there
B. P3.05 is no use of the 10% idle capacity, an offer for a new order at P8.20 per unit
C. P1.20 requiring 15% capacity is being considered. If the order will be accepted, the 5%
D. P0.96 additional capacity will be sub-contracted at the cost of P7.80 per unit. The variable
cost per unit of production of AA Corporation follows:
What was the margin of safety percentage for the last quarter of the company?
(rounded to the
nearest percent) Materials P 4.00
A. 20% Labor 1.75
B. 25% Variable overhead 1.75
C. 28% Total 7.50
D. 72%
What is the expected contribution margin per unit on the new order?
42. For a profitable company, the amount by which sale can decline before losses occur A. P0.40
is known as the B. P0.60
A. Variable sales ratio C. P0.50
B. Margin of safety D. P0.55
C. Sales volume variance
D. Marginal income rate. 47. Last year, the contribution margin ratio of Mara Company was 30%. This year, fixed
costs are
43. Dagupan Silver, Inc. manufactures and sells key rings embossed with college names expected to be P120,000, the same as last year, and revenues are forecasted at
and slogans. P550,000, a 10%
Last year, the key rings sold for P75 each, and the variable costs to manufacture increase over last year. For the company to increase operating income by P15,000 in
them were P22.50 per unit. The company needed to sell 20,000 key rings to break- the coming
even. The net income last year was P50,400. The company expects the following for year, the contribution margin ratio must be
the coming year: A. 20%
B. 30%
 The selling price of the key rings will be P90. C. 40%
 D. 70%
Bohol Marketing Company is expecting an increase of fixed costs by P78,750 upon
48. A company increased the selling price of its product from P1.00 to P1.10 a unit when moving their
total fixed place of business to the downtown area. Likewise it its anticipating that the selling
costs increased from P400,000 to P480,000 and variable cost per unit remain price per unit and the variable expenses will not change. At the present, the sales
unchanged. How will these changes affect the breakeven point? volume necessary to breakeven is P750,000 but with the expected increase in final
A. The breakeven point in units will be increased. sales, the sales volume necessary to breakeven would go up to P975,000. Based on
B. The breakeven point in units will be decreased. these projections,
C. The breakeven point in units will remain unchanged.
D. The effect cannot be determined from the information given. What is the profit-volume ratio of Bohol Marketing?
A. 35%
B. 40%
BESales with profit C. 45%
D. 65%
Break- Even Sales(U) = FC + IBIT / UCM What would be the total fixed costs of Bohol Marketing after the increase of
P78,750?
A. P 341,250
50. In using cost-volume-profit analysis to calculate expected unit sales, which of the B. P 262,500
following should be deducted to fixed cost in the numerator? C. P2,183,750
A. Predicted operating loss. D. P 300,000
B. Predicted operating income
C. Unit contribution margin 56. Variable cost per unit is P3.50. Contribution margin is 30%. Breakeven sales is P1
D. Variable costs million. To sell an additional 50,000 units at the same price and contribution margin,
how much will fixed costs increase to have a gross margin equal to 10% of the sales
51. Queen Company would like to market a new product at a selling price of P15 per value of the additional cost of 50,000 units to be sold?
unit. Fixed cost A. P 67,500
for his product are P1,000,000 for less than 500,000 units of output and P1,500,000 B. P 50,000
for 500,000 or more units of output. The contribution margin percentage is 20%. C. P 57,500
How many units of this product must be sold to earn a target operating income of P1 D. P125,000
million?
A. 754,900 64. Queen Company sells video tapes. The projected after tax net income for the year is
B. 833,334 P480,000 based on a sales volume of 200,000 units. It sells the tapes at P64 each.
C. 825,530 The variable cost consists of P40 unit purchase price (bulk orders) and a handling
D. 785,320 cost of P8 per unit. Annual fixed cost are P2,400,000 and the company’s income tax
rate is 35%. An increase of 10% projected unit sales volume for the year would
52. Merchandiser, Inc. sells Product O to retailers for P200. The unit variable cost is P40 result in an increased after tax income for the year of
with a selling commission of 10%. Fixed manufacturing cost total P1,000,000 per A. P120,000
month wile fixed selling and administrative costs total P420,000. The income tax B. P 48,000
rate is 30%. The target sales if after tax income is P123,200 would be C. P208,000
A. 10,950 units D. P 40,000
B. 15,640 units
C. 13,750 units Multi-product sales
D. 11,400 units

53. Nice Company has sales of P400,000 with variable costs of P300,000, fixed costs of Composite BES (Units) = FC / Ave. UCM*
P120,000 and an operating loss of P20,000. By how much would Nice need to
increase its sales in order to achieve a target operating income of 10% of sales? *Ave UCM = Sales mix ratio/Product (x)UCM / Product
A. P400,000
B. P462,000
C. P500,000 Q65-66 are based on the following information.
D. P800,000
The data below pertain to two types of products manufactured by King Company:
Q54-55 are based on the following information.
 Unit Sales Price Unit Variable Cost 75. In a multi-product company, as the mix of the products being sold changes, the
Product Y P120 P 70 overall contribution margin ratio will also change. IF the shift in mix is toward the
Product Z 500 200 less profitable products, then the contribution margin ratio will
A. Fall
Fixed cost total P300,000 annually. The expected mix in units is 60% for Product Y B. Rise
and 40% for C. Not change
Product Z. D. Change in direct proportion to break-even point

How much is King’s breakeven sales? 76. Mixnuts Corporation is a multiple-product firm. In their review of operations, they
A. 857 decided to shift the sales mix from less profitable products to more profitable
B. 1,111 products, accounting for 30% of gross sales. This will cause the company’s
C. 2,000 breakeven profit to
D. 2,459 A. Decrease
B. Change by 15%
How much is King’s breakeven sales in pesos? C. Increase
A. P300,000 D. Not change
B. P420,000
C. P475,000 77. Pangasinan Frames Inc. has the following revenue and cost budgets for the two
D. P544,000 products it sells

68. Alpha is selling three products: Red, White, and Blue. The company sells three units Plastic Frames Glass Frames
of Red for Sales Price P 50 P 75
every unit of Blue, and two units of White for every unit of Red Fixed costs are Direct materials (10) (15)
P720,000. Direct labor (15) (25)
Contribution margin are: Fixed overhead (15) (20)
Net income per unit P 10 P 15
Budgeted unit sales 100,000 300,000
P 1.90 per unit of Red
2.00 per unit of White
The budgeted unit sales equal the current unit demand, and total fixed overhead for
2.30 per unit of Blue
the year in
budgeted at P4,875,000. Assume that the company plans to maintain the
How many units of White would the company sell at breakeven point?
proportional mix. In
A. 360,000
numerical calculations, the company rounds to the nearest centavo and unit. The
B. 108,000
total number of
C. 72,000
units the company needs to produce and sell to break-even is
D. 216,000
A. 300,000
B. 354,545
69. Best Laboratory, Inc. formulates and sells three major chemicals: C1, C2, and C3. It
C. 150,000
sells to
D. 75,000
industrial users who use and buy these chemicals in the following ratio: three (3)
measures of C1 per one (1) measure of C3, two (2) measures of C2 per one (1)
79. In a profit-volume graph, the cost/volume/profit relationships are represented. The
measure of C1. The company makes the following contribution margin per measure:
vertical axis is
C1 P 30
the profit in pesos and the horizontal axis is the volume in units. The diagonal line is
C2 45
the contribution margin line. The point at which the contribution margin line
C3 90
intersects the zero profit line is the point:
Fixed costs amounted to P1.8 million. At break-even point, the volume of C3 to be
A. At which the volume level is zero.
sold would be
B. At which the total costs equal the total sales.
A. 12,000
C. At which sale increases.
B. 36,000
D. At which total variable costs equal total sales.
C. 24,000
D. 4,000
80. When using the graph method, if the unit output exceeds the break-even point,
A. Expenses are extremely high relative to revenues.
B. There is loss because the total cost line exceeds the total revenue line.
 C. Total sales exceed total cost. B. P216,000
D. There is profit since the total cost line exceeds the total revenue line. C. P306,000
D. P288,000
81. The most important use of the cost-volume-profit graph is to show
A. The breakeven point. Q.88-89 are based on the following information.
B. The cost/margin ratio at various levels of sale activity.
C. The relationships among volume, cost, revenues, over-wide ranges of The Handicraft Company manufactures and sells Batik handbags to assorted prints.
activity. Data for the
D. The determination of cross over point. previous year were as follows:

Sensitivity Analysis Selling price per piece P8.00

Variable cost per piece P2.00
85. Calculate the overall breakeven point in terms of units if the company believes that No. of pieces to breakeven 25,000
the current price of P40 is too high and the firm faces stiff competition. After all the Net income last year P5,850
sensitivity analysis is done, it was decided by the management committee to lower
the price to P36 without sacrificing the quality of the product. What is the new For the coming year, the company estimates that the selling price will be P 9.50 per
breakeven point if fixed costs are P309,750 and unit contribution margin is P6? piece, variable cost to manufacture will increase by 25%, and the fixed costs will
A. 51,625 increase by 10%. Income tax rate of 35% will not change.
B. 39,125
C. 31,250 What is the selling price per piece that would give the same contribution margin rate
D. 43,750 as previous
year?
Q86-87are based on the following information. A. P10.00
B. P 9.50
Presented below are the results of operations of Venus Products, Inc. for 2009: C. P 8.00
D. P10.50
Sales (150,000 units) P600,000
Cost of goods sold: If sales for the coming year are expected to exceed last year’s by 1,800 pieces,
Fixed P150,000 what would be the expected sales volume for the coming year?
Variable 300,000 450,000 A. 28,300
Gross profit P150,000 B. 27,775
Selling and administrative: C. 26,800
Fixed 39,000 D. 26,500
Variable 45,000 84,000
Income before taxes P 66,000 90. Winner Company prepared the following preliminary forecast concerning Product G
for 2010
The company is concerned about the expected increase in fixed manufacturing costs assuming no expenditure for advertising:
by 50% if it will buy a new equipment with a higher production capacity. However,
study shows that with the use of the new equipment sales volume in units are Selling price per unit P 10
expected to increase by 40% while variable Unit sales 100,000
manufacturing costs will decrease from P2.00 to P1.50 per unit. The total fixed Variable costs P600,000
selling and Fixed costs P300,000
administrative expenses and variable selling and administrative expenses will
remain the same. The company has been operating at full capacity. If the company Based on market study in December 2009, Winner estimated that it could increase
will buy the new equipment, the unit selling price by 15% and increase the unit sales volume by 10% if P100,000
were spent on advertising. Assuming that Winner incorporates these changes in its
What would be the breakeven point in terms of units? 2010 forecast, what should be the operating income from Product G?
A. 120,000 A. P175,000
B. 66,000 B. P190,000
C. 176,000 C. P205,000
D. 105,000 D. P365,000

What is the maximum expected income before income tax? 91. When used in cost-volume-profit analysis, sensitivity analysis
A. P198,000 A. Determines the most profitable mix of product to be sold.
 B. Allows the decision maker to introduce probabilities in the evaluation of decision
alternatives. 1. Under the direct costing, which is classified as product costs?
C. Computes profit per unit of production and determines the optimum production A. Only variable production costs.
of the company. B. Only direct costs.
D. Is done through various possible scenarios and computes the impact C. All variable costs
on profit of various predictions of future events. D. All variable and fixed production costs.

Operating Leverage 2. In absorption costing, as contrasted with direct costing, the following are absorbed
98. Willy Corporation is operationally, a highly leveraged company, that is, it has high into inventory.
fixed costs and low variable cost. As such, small changes in sales volume result in A. All the elements of fixed and variable manufacturing overhead.
A. Proportionate change in net income. B. Only the fixed manufacturing overhead.
B. Large changes in net income. C. Only the variable manufacturing overhead.
C. Negligible change in net income. D. Neither fixed nor variable manufacturing overhead.
D. No change in net income.
In an income statement prepared as an internal report using the direct (variable)
99. The percentage change in earning before interest and taxes associated with the costing method, fixed selling and administrative expenses would
percentage change in revenues is the degree of A. Not be used.
A. Operating leverage B. Be used in the computation of the contribution margin.
B. Financial leverage C. Be used in the computation of operating income but not in the
C. Breakeven leverage computation of the contribution margin.
D. Combined leverage D. Be treated the same as variable selling and administrative expense.

101. Yoly Inc. manufactures computers tables. It has an investment of P1,750,000 in 5 In an income statement prepared as an internal report using the direct (variable)
assets and expects a 25% return on investment. Its fixed production cost for 2,000 costing method,
units is P550,000 plus an additional P150,000 for selling and administrative variable selling and administrative expenses would
expenses. The variable cost to manufacture is P1,500 per table. The selling price per A. Not be used.
table should be: B. Be used in the computation of the contribution margin.
A. P2,068.75 C. Be used in the computation of operating income but not in the
B. P1,850.00 computation of the contribution margin.
C. P2,531.25 D. Be treated the same as fixed selling and administrative expense.
D. P2,725.00
6 A type of managerial accounting which refers to the determination of the operating
102. Using absorption costing, the determination of the breakeven point depends on all of cost regardless of cost behavior, whether variable or non-variable, is
the following, except A. Differential accounting
A. The budgeted level of production. B. Full cost accounting
B. Achieving targeted production levels. C. Responsibility accounting
C. The number of units sold during the period. D. Profitability accounting
D. The level of fixed manufacturing overhead.
7. When all manufacturing costs used in production are attached to the products,
104. State whether the following statements are true or false. whether direct or
1. The breakeven point is defined as the sum of variable expenses and fixed indirect, variable or fixed, this is called:
expenses. A. Process costing
2. As sales exceed the breakeven point, a low contribution margin percentage B. Absorption costing
would result in C. Variable costing
lower profit than would a high contribution margin percentages. D. Job order costing
3. All fixed costs are treated as period costs when variable costing is used.
8. For a multiple-product company, in determining the break-even point, which of the
Statement 1 Statement 2 Statement 3 following
A. True True True assumptions are commonly used when variable costing is adopted?
B. False True True
C. False False True I. Sales equal production
D. False False False II. Unit variable cost is constant
III. Sales mix is constant
VARIABLE COSTING
 A. I and III C. Variable manufacturing costs increase
B. I and II D. Units produced exceed units sold.
C. I, II and II
D. II and III 17. President X of ABC Corporation requested you to explain the difference in net
income between the variable costing income statement presentation and the
9. Carla company’s 2009 fixed manufacturing overhead cost totaled P100,000 and absorption method. You would say that the difference:
variable selling costs totaled P80,000. Under the direct costing, how should these A. Is none if there is no change in the fixed costs in the beginning and
costs be classified? ending inventories.
B. Is equal to the fixed cost per unit times the number of units sold.
Period Cost Product Cost C. Is attributable to the variable costs in the inventory.
A. P 0 P 180,000 D. Is attributable to the fixed cost in ending inventory.
B. P 80,000 P 100,000
C. P100,000 P 80,000 19. Identify the following statements as true or false.
D. P180,000 P 0 1. In direct costing, fixed factory overhead forms part of the inventory value.
2. The difference in net income between variable costing and absorption
10. If production is greater than sales (units), then absorption costing net income will costing is due entirely to the treatment of fixed manufacturing overhead.
generally be
A. Greater than direct costing net income Statement 1 Statement 2
B. Less than direct costing net income A. True True
C. Equal to direct costing net income B. True False
D. Additional data is needed to be able to answer. C. False True
D. False False
11. Which of the following statements is correct?
A. When production is higher than sales, absorption costing net income is lower Inventoriable cost
than variable costing net income.
B. If all the products manufactured during the period are sold in that Direct Materials xxx Direct Materials
period, variable costing net income is equal to absorption costing net xxx
income. Direct labor xxx Direct labor
C. When production is lower than sales, variable costing net income is lower than xxx
absorption costing net income. Variable OH xxx Variable OH
D. When production and sales level are equal, variable costing net income is lower xxx
than absorption costing net income. Fixed OH
xxx
12. Operating income using direct costing as compared to absorption costing would be Total Product Cost (Variable Costing) xxx Total Product Cost (Absorption Costing)
higher xxx
A. When the quantity of beginning inventory equals the quantity of ending
inventory. 20. Mark produces and sell boxes of signing pens for P1,000 per box. Direct materials
B. When the quantity of beginning inventory more than the quantity of are P400 per box and direct manufacturing labor averages P75 per box. Variable
ending inventory. overhead is P25 per box and fixed overhead is P12,500,000 per year. Administrative
C. When the quantity of beginning inventory less than the quantity of ending expenses, all fixed, run P4,500,000 per year, with sales commissions of P100 per
inventory. box. Production is expected to be 100,000 boxes, which is met every year. For the
D. Under no circumstances. year just ended, 75,000 boxes were sold.
13. If sales equal production, one would expect net income under the variable costing
method to be What is the inventoriable cost per box using variable costing?
A. The same as net income under absorption costing method. A. P770
B. Greater than net income under absorption costing method. B. P500
C. Differing in as much as the difference between sales and production. C. P475
D. Less than net income under the absorption costing method. D. P625

16. Other things being equal, income computed by the direct costing method will Same information above, what is the inventoriable costs per box using absorption
exceed that computed by an absorption costing method if costing?
A. Fixed manufacturing cost increases. A. P770
B. Units sold exceed units produced.
 B. P500 Variable Costing Absorption
C. P475 Costing
D. P625 Sales xxx Sales
xxx
22. Compute for the inventory value under the direct costing method using the data (-) Variable Cost & S & A Exp.(no. of units sold x vc/u) xxx Variable & Fx cost
given: units unsold at the end of the period, 45,000; raw materials used, P6.00 per xxx
unit; raw materials inventory, beginning, P5.90 per unit; direct labor, P3.00 per unit; Contribution margin xxx Gross profit
variable overhead per unit, P2.00 per unit; indirect labor for the month, P33,750. xxx
Total fixed costs, P67,500. (-) Fix OH & S&A Exp. xxx Var & Fx S&A Exp
A. P16.90 xxx
B. P11.00 Net income xxx
C. P17.45 xxx
D. P19.15
Under VC : Fixed OH = Normal capacity x UFC
Q24-25 are based on the following data. Fixed expenses = Normal capacity x UFC
Under AC : Fixed OH = Q S x UFC
Miles Company produced 100,000 units of Product Z during the month of June. Costs Fixed expenses = Normal capacity x UFC
incurred
during June were as follows: VC AC
If there is: Variable Prod’n Variance (UF) / F (UF) / F
Direct materials P100,000 Volume Variance (UF) / F - “ in computing net income”
Direct labor 80,000
Manufacturing overhead:
Variable 40,000 Volume Variance = ?
Fixed 50,000 Normal capacity (in units) xxx
Selling and Administrative Expenses: Less: Actual capacity(in Units) xxx
Variable 12,000 Difference xxx
Fixed 46,000 (x) UFC xx
Total P327,000 Volume Variance xxx

What was Product Z’s unit cost under absorption costing?

A. P3.27 26. Matt and Company completed its first year of operations during which time the
B. P2.70 following
C. P2.32 information were generated:
D. P1.80
Total units produced 100,000
What was Product Z’s unit cost under variable (direct) costing? Total units sold 80,000 @ P100/unit
A. P2.82 Work in process ending inventory none
B. P2.70 Cost:
C. P2.32 Fixed:
D. P2.20 Factory overhead P1.2 million
Selling and Administrative 0.7 million
Operating income Variable cost per unit:
IF THEN, NET INCOME UNDER IF Raw materials P20.00
Direct labor 12.50
Factory overhead 7.50
SALES > PRODUCTION VC > AC PRODUCTION > Selling and administrative 10.00
SALES
SALES < PRODUCTION VC < AC PRODUCTION < If the company used the variable (direct) costing method, the operating income
SALES would be
SALES = PRODUCTION VC = AC PRODUCTION = A. P2,100,000
SALES B. P4,000,000
C. P2,480,000
D. P3,040,000
 first year of operations. This statement was the one included in the company’s
27. Holmes Company began its operations on January 1, 2009, and produces a single annual report to the stockholders.
product that sells for P10 per unit. Holmes uses an actual (historical) cost system. In
2009, 100,000 units were Sales (400 boxes @ P12.50) P5,000.00
produced and 80,000 units were sold. There was no work-in-process inventory at Less: Cost of goods sold (400 boxes @P8.00) 3,200.00
December 31, Gross margin P1,800.00
2009. Manufacturing costs and selling and administrative expenses for 2009 were as Less: Selling and administrative expenses 800.00
follows: Net income P1,000.00

Fixed costs Variable costs Variable selling and administrative expenses are P0.90 per box unit. The company
Raw materials - P2.00/unit produced produced 500
Direct labor - P1.25/unit produced boxes during the year. Variable manufacturing costs are P5.25 per box and fixed
Factory overhead P120,000 P0.75/unit produced manufacturing
Selling and administrative P 70,000 P1.00/unit produced overhead costs total P1,375 for the year. What is the company’s direct costing net
What would be Holmes operating income for 2009 under the variable (direct) costing income?
method? A. P2,540
A. P114,000 B. P2,265
B. P210,000 C. P1,000
C. P234,000 D. P 725
D. P330,000
32. Crest Inc., manufactures a single product for which the costs and selling prices are:
Q29-30 are based on the following information. Variable production costs P 50 / unit
Selling price
Expected to operate at normal capacity, Ruth Corporation plans to manufacture P150 / unit
275,000 units of Fixed production overhead P200,000 /
products in 2010, and the following estimates with respect to sales: quarter
Fixed selling and administrative overhead P480,000 /
quarter
Sales in units 250,000
Unit selling price P 35.00
Normal capacity is 20,000 units per quarter. Production in the 1st quarter was
19,000 units and sales volume was 16,000 units. No opening inventory for the
Finished goods inventory on December 31, 2009 is estimated at 25,000 units costing
quarter. The absorption costing profit for the quarter was:
P500,000.
A. P920,000
Included in this amount is the fixed manufacturing overhead amounting to
B. P950,000
P300,000. No changes in the fixed manufacturing cost and variable cost per unit of
C. P960,000
produce are expected in 2010.
D. P970,000
What is the estimated income from manufacturing using the absorption costing
Q 33-34 are based on the following information.
method?
A. P3,350,000
The following operating data are available from the records of Matt Company for the
B. P3,450,000
month of
C. P3,550,000
January 2010:
D. P3,750,000
Sales (70 per unit) P210,000
What is the estimated income from manufacturing using the variable costing
Direct materials 59,200
method?
Direct labor 48,000
A. P3,150,000
Manufacturing overhead:
B. P3,550,000
Fixed 36,080
C. P3,450,000
Variable 24,000
D. P3,750,000
Marketing and general expenses;
Fixed 11,000
31. Jane Biscuits manufactures and sells boxed coconut cookies. The biggest market for
Variable 5% of sales
these cookies are as gift that college students buy for their business teachers. There
Production in units – 3,280 units
are 100 cookies per box. The following income statement shows the results of the
Beginning inventory – none
 Rule:
The ending finished goods inventory under absorption costing method would be Change in Units (Production – Sales) xxx Inventory, End xxx
A. P14,280 (x) FC / Unit xx or (x) FC / Unit
B. P16,968 xx
C. P12,096 Difference in Net income xxx
D. P16,072 xxx

The net income for the month under the variable costing method would be Q39-40 are based on the following information.
A. P32,420
B. P25,500 The books of Fontana Company pertaining to the year ended December 31, 2009
C. P23,320 operations, showed the following figures relating to Product A:
D. P22,420
Beginning inventory – Finished Goods
Q35 through 38 are based on the following information: and Work in Process
none
Sales per unit P Number of units produced 40,000 units
15.00 Number of units sold at P15
Variable production cost 8.00 32,500 units
Annual fixed production cost Costs:
35,000.00 Direct material used
Variable office expense (unit) P177,500
3.00 Direct labor used 85,000
Annual fixed selling expense Manufacturing costs:
15,000.00 Fixed P110,000
Produced 12,500 units during the period. Variable 61,500 171,500
No inventory at January 1 (beg.) Fixed administrative expenses 30,000
Sold 10,000 units

The ending inventory under direct costing is Under variable costing, what would be the finished goods inventory as at December
A. P25,000 31, 2009?
B. P27,500 A. P81,375.00
C. P20,000 B. P60,750.00
D. P32,500 C. P87,000.00
D. P49,218.75
Ending inventory under absorption costing is
A. P32,500 Which costing method, variable or absorption costing, would show a higher
B. P20,000 operating income for
C. P25,000 2009 and by how much?
D. P27,000 A. Variable by P20,625
B. Absorption by P20,625
Total variable annual cost charged to expense in direct costing C. Variable by P26,250
A. P110,000 D. Absorption by P26,250
B. P117,500
C. P 80,000 41. During the year 2009, Mt. Carmel Corporation manufactured 70,000 units of Product
D. P100,000 A, a new
product. Only 65,000 units were sold during the year. There was no beginning
Total fixed cost charged against current year’s operations in absorption costing: inventory.
A. P35,000 Manufacturing cost per unit was P20.00 variable and P50.00 fixed. What would be
B. P25,000 the effect on net income if absorption costing is used instead of variable costing?
C. P15,000 A. Net income is P250,000 lower
D. P43,000 B. Net income is P250,000 higher
C. Net income is P100,000 lower
Reconciliation of income D. Net income is P100,000 higher
42. At the end of Mt. Everest Company’s first year operations, 1,000 units of inventory D. Budgeted Variable Overhead (Budgeted Production X Standard VOH rate)
remained on xxx
hand. Variable and fixed manufacturing cost per unit were P90 and P20, respectively. Budgeted Fixed Overhead (Normal capacity X Std. Fx OH rate) xxx
IF Mt. Budgeted Factory Overhead
Everest uses absorption costing rather direct (variable) costing, the result would be xxx
a higher pretax income of
A. P20,000 Standard VOH Rate (Budgeted VOH / Budgeted Capacity)
B. P70,000 xxx
C. P 0 Standard FxOH Rate (Budgeted FxOH / Normal capacity)
D. P90,000 xxx
Standard OH Rt.
43. The production volume variance occurs when using xxx
A. The absorption costing approach because of production exceeding the sales.
B. The absorption costing approach because production differs from that E. The following are the content analysis of the following expense and income
use in setting the fixed overhead rate used in applying fixed overhead accounts:
to production.
C. The variable costing approach because of sales exceeding the production for _ Accrued Expenses
the period. PAID xx Beg.Bal xx
D. The variable costing approach because of production exceeding the sales for Ending Balance xx INCURRED xx
the period. Prepaid Expense
Beg.Bal. xx INCURREDxxx
BUDGETING PAID xx Ending Bal.
Therefore: xx
Formulas in Flexible Budgeting
A. Budgeted Sales xxx Basic equations: AE, Beg + Incurred = Paid + AE, End PE, Beg + Paid = Incurred +
+ FG, End xxx FG, beg + Production PE, End
= TGAS Incurred = AE, End + Purchases – AE, Beg. Incurred – PE,Beg + Paid – PE,
TGAS xxx FG, end + Sales = End
TGAS Paid = AE, Beg +Incurred – Paid Paid = PE, Beg + Incurred –PE,
-FG, Beg. xxx FG, beg + Purchases = End
FG, End + Sales
Budgeted production xxx P= S + FG,end – FG, beg.
_ Accrued Income
B. Budgeted production x Beg Bal xx RECEIVEDxx
X Std Materials /u x EARNED xx
Budgeted materials needs x Mat Inv, Beg + Mat Purchases=Total
mat av for use
+ Materials Invty, End x Mat Inv, End + Mat Used =Total mat Precollected Income
av for use EARNED xx
Materials available for use x Mat Inv, Beg + Mat Ending Bal. xx
Purchases=Mat,End+Mat Used
-Materials Invty, Beg. x Mat Purchases = Mat Used +
Mat Invty, Beg
Budgeted Materials Purchases x
X Standard materials cost / unit Px
Budgeted materials purchases in P Px Therefore:

C. Budgeted Production x AI, Beg + Earned = Received + AI, End PI, Beg + Received = Earned +
X Standard DLH per unit x hrs PI End
Budgeted DLH x Earned = AI, Ending + Received – AI, Beg Earned = PI, Beg +Received –
X Standard DL rate per hour Px PI, End
Budgeted DL Cost Px Received + AI, Beg + Earned – AI, End Received + PI, End + Earned –
PI, Beg
 D. Foster the planning of operations, facilitate the fixing of blame for missed
budget predictions, and ensure goal congruence between superiors and
subordinates.
F. Cash Balance
A. Cash , Beg xxx 3. Operating 4 Which of these statements are advantages of profit planning?
activities: 1. Develops profit-mindedness, encourages cost consciousness and resource
Add: Receipts xxx Cash Inflows utilization throughout the company.
xxx 2. Provides vehicle to communicate objectives, gain support for the plan, of what
Total cash available for use xxx Cash outflows is expected, thereby developing a sense of commitment to achieve established
(xxx) xxx goals.
Less: Payments xxx Financing 3. Provides yardstick to evaluate actual performance, encouraging efficiency
activities: increasing output and reducing cost.
Cash balance, End xxx Cash Inflows 4. Provides a sense of direction for the company and enhances coordination of
xxx business activity.
Cash 5. Eliminates or takes over the role of administration by providing detailed
outflows (xxx) xxx information that allows executives to operate toward achievement of the
B. Cash inflows xxx Investing activities: organization’s objectives.
Less: Cash outflows xxx Cash Inflows
xxx A. Statements 3,4 and 5 only.
Cash B. All five statements.
outflows (xxx) xx C. Statements 1,3 and 4 only
Net cash inflows (outflows) xxx Net cash inflows (outflows) D. Statements 1, 2, 3 and 4 only.
xxx
Add: Cash bal, Beg xxx Add: Cash balance, beg 5 On budgeting, all of the following are not valid, except
xxx A. Responsibility budget identifies revenue and costs with the individual
Cash balance , End xxx Cash Balance , End responsibilities for their incurrence.
xxx B. The best way to establish budget figures is to use last year’s actual cost and
activity data as this year’s budget estimates.
C. A sales budget and a sales forecast are the same thing.
D. The primary purpose of the cash budget is to show the expected cash balance
1. The process of creating a formal plan and translating goals into a quantitative at the end of the budgeted period.
format is
A. Process costing 6 In budgeting which of the following statements is false?
B. Activity-based costing A. Budgeting provides a measuring device to which subsequent performance is
C. Budgeting compared and evaluated.
D. Variance analysis B. Planning and control are essential features of the budgeting process.
C. Budget preparation is not the sole responsibility of any one department and is
2. Which of the following objectives is not a primary purpose of preparing a budget? prepared by combining the efforts of many individual.
A. To provide a basis for comparison of actual performance. D. Capital expenditure budget shows the availability of idle capital cash
B. To communicate the company’s plans throughout the entire business for investment.
organizations.
C. To control income and expenditures in a given period. 7 These statements are proper to the budgeting process except
D. To make sure the company expands its operations. A. It is a part of management’s responsibility to plan the use of its resources.
B. It is a tool to orchestrate the various functions of operations in a business.
3. The major objectives of any budget system are to C. The involvement of various levels of individuals in the company is necessary to
A. Define the responsibility centers, provide a framework for performance gain acceptance and attain its goals.
evaluation, and promote communication and coordination among organization D. Actual results need not be compared with plan, since the process ends
segments. after the budget is approved.
B. Define responsibility centers, facilitate the fixing of blame for missed budget
predictions, and ensure goal congruence between superiors and subordinates. 8. The starting point in the preparation of an annual as well as monthly master budget
C. Foster the planning of operations, provide a framework for prepared by the Budget Committee is the
performance evaluation, and promote communication and coordination A. Cash Budget
among organizational segments. B. Investment center
C. Cost center
 D. Responsibility center B. Discretionary budget
C. Fixed budget
20. Computer base financial planning models often use the master budget as their D. Capital budget
A. Structural base
B. Target budget model 34. Which one of the following may be considered an independent item in the
C. Probability source preparation of the master budget?
D. Budget formula A. Ending inventory budget
B. Capital investment budget
21. For the company that does not have resource limitation, in what sequence would the C. Pro-forma income statement
following D. Pro-forma statement of financial position
budgets be prepared?
i Cash budget 36. This budgeting system places the burden of proof on the manager to justify
ii Sales budget authority to spend any money whether or not there was there was spending in the
iii Inventory budget previous period. Different ways of performing the same activity and different levels
iv Production budget of effort for the activity is evaluated. This system is called
v Purchases budget A. Scenario
B. Zero-based budgeting
A. Sequence ii, iii, iv, v and i C. Budgeting by alternatives
B. Sequence ii, iii, iv, i and v D. Budgeting by responsibility and authority
C. Sequence ii, iv, iii, v and i
D. Sequence iv, iii, ii, i and v 37. A systematized approach known as zero-based budgeting (ZBB)
A. Classifies the budget by the prior year’s activity and estimates the benefits
22. In a master budget plan, sales forecast is under arising from each activity.
A. Financial budget B. Commences with either the current level of spending or projected whichever is
B. Operating budget lower.
C. Performance budget C. Presents planned activities for a period of time but does not present a firm
D. Capital budget commitment.
D. Divides the activities of individual responsibility centers into a series
26. The most common method used in sales forecasting which makes use of the cause of packages that are prioritized.
and effect
relationship between the company sales and some outside economic factor is the 38. In zero-based budgeting, which of the following statements are true?
A. Correlation analysis 1. All activities in the company are organized into breakup units called packages.
B. Industry trend analysis 2. All costs have to be justified every budgeting period
C. Sales force composite method 3. The process is not time consuming since justification of costs can be done as a
D. Executive opinion method routine matter.

31. A budget expressed in units of materials, number of employees, or number of man- A. All three statements
hours or service units rather than in pesos is known as B. Statement 1 1nd 2 only
A. Planning budget C. Statement 1 only
B. Progressive budget D. Statement 2 and 3 only
C. Physical budget
D. Traditional budget 41. The budget that describes the long-term position, goals, and objectives of an entity
within its
32. A budget that identifies revenues and cost with an individual controlling their environment is the
incurrence is A. Capital budget
A. Master budget B. Operating budget
B. Production budget C. Cash management budget
C. Responsibility budget D. Strategic budget
D. None of the above.
42. The information contained in a cost of goods manufactured budget most directly
33. If a company wishes to establish a factory overhead budget system in which relates to the
estimated costs can be derived directly from estimates of activity levels, it should A. Materials used, direct labor, overhead applied, and ending work-in-process
prepare a budgets.
A. Flexible budget
 B. Materials used, direct labor, overhead applied, and work-in-process
inventories budgets. 63. The following is the sales budget of Ruth Company for the period January to June
C. Materials used, direct labor, overhead applied, and work-in-process inventories, 2010:
and finished goods inventories budgets.
D. Materials used, direct labor, overhead applied, and finished goods inventories Months Units
budgets. January 100,000
February 90,000
44. Budgets that are prepared for various degree of plant operations and are used to March 90,000
control costs at April 80,000
different levels of productive capacity is May 70,000
A. Operating budgets June 70,000
B. Rolling budgets
C. Flexible budgets The company’s projection is to have inventory on hand at the end of each month
D. Out-of-pocket costs equal to 70% of the sales for the month following. It is assumed that the inventory at
the end of December 2010 will meet this requirement. It is also estimated that the
46. In flexible budget, when production levels are expected to decline within a relevant 80,000 units will be sold in July 2010. What is the total production budget in units for
range, the effects would be the six months period ending June 30, 2010?
A. Increase in both fixed and variable costs per unit A. 556,000
B. Increase in fixed costs per unit B. 486,000
C. Decrease in fixed costs per unit C. 524,000
D. No effect on both fixed and variable costs per unit D. 479,000

47. ABC Co. wishes to establish a factory overhead budget system in which estimated 64. Tin-tin Corporation plans to sell 200,000 units of Product X in July and anticipated a
cost can be growth in sales of 5% per month. The target ending inventory in units of the product
derived directly from estimates of activity levels. You should recommend that it is 80% of the next month’s estimated sales. There are 150,000 units in inventory as
prepares a of the end of June. The production requirement in units of X for the quarter ending
A. Fixed budget September 30 would be
B. Discretionary budget A. 670,560
C. Flexible budget B. 691,525
D. Zero-based budget C. 665,720
D. 675,925
52. Considering the budgeting concepts and principles, which of the following
statements is not Materials Budget
applicable?
A. The only difference between a flexible budget and static budget is that 66. Mark, Inc. desires to reduce its inventory of a particular raw material by 40%. The
a flexible budget does not contain fixed costs. inventory at the beginning of the budget period is 240,000 units, and the company
B. A flexible budget is geared toward a range of activity rather than toward a plans to manufacture 168,000 units of output. Each of these units requires 2.5 units
single level of activity. raw materials. How much of the raw materials should be purchased during the
C. Although it is effective in measuring production control, a static budget is not budget period?
effective in measuring cost control. A. 316,000 units
D. The flexible budget is often used as a basis for preparing the pre-determined B. 276,000 units
overhead rate. C. 324,000 units
D. 139,600 units
Production Budget

62. ABC Company had data relating total production costs to volume for each quarter 67. Ray Company is budgeting sales of 42,000 units of Product Y for March 2010. To
during the past five years. During this period, production volume has varied make one unit of finished product, three pounds of raw material A are required.
substantially, method of production has been relatively unchanged, and the cost Actual beginning and desired ending inventories of raw material A and Product Y are
behavior has been complex. What is the most appropriate method for estimating as follows:
future production costs? March 1, 2010 March 31, 2010
A. Linear programming Raw Material A 100,000 pounds 110,000 pounds
B. Cost-volume-earnings analysis Product Y 22,000 units 24,000 units
C. Time-series or trend-regression analysis
D. Program evaluation review technique (PERT)
 There is no work-in-process inventory for Product Y at the beginning and end of
March. For the The projected merchandise purchases for the month of July would be
month of March, how many pounds of raw material A is Ray planning to purchase? A. P 995,500
A. 126,000 B. P 850,000
B. 132,000 C. P 950,000
C. 136,000 D. P1,050,000
D. 142,000 The projected merchandise purchases for the month of August would be:
Q68-69are based on the following information. A. P1,237,000
Matt Corporation has the following budget estimates for its second year of B. P1,040,000
operations: C. P1,360,000
D. P1,050,000
Projected sales P3,500,000
Projected income before tax 12% of sales 72. Each unit of product O requires 3 kilos of raw material. Next month’s production
Estimated selling and administrative expenses 25% of sales budget for Product O is as follows:
Direct labor and factory overhead are budgeted at
70% of the total manufacturing cost. Opening inventory:
Raw materials 15,000 kgs.
Inventories are estimated as follows: Finished goods 2,000 units
Budgeted sales 60,000 units
Finished goods, ending inventory:
Raw Materials Goods-in-process Finished
Raw materials 7,000 kgs.
Goods
Finished goods 3,000 units
Beginning P220,000 P250,000
P350,000
The number of kilograms of raw materials to be purchased next month is?
Ending 270,000 300,000
A. 172,000
420,000
B. 175,000
C. 183,000
The estimated cost of goods sold would be:
D. 191,000
A. P2,275,000
B. P2,205,000
73. Each unit of Product X uses 6 kilograms of raw materials. The production and
C. P2,325,000
inventory budgets for June 2010 are as follows:
D. P1,750,000
Opening inventories:
Raw materials 21,000 kgs.
The estimated purchases of raw materials would be
Finished goods 15,000 units
A. P967,500
Closing inventories:
B. P732,500
Raw materials 24,400 kgs.
C. P697,500
Finished goods 11,400 units
D. P747,500
Budgeted sales of Product X for June are 18,000 units. During the production
Q70-71 are based on the following information.
process, it is usually found that 10% of production units are scrapped as defective
and this loss occurs after the raw materials have been placed in process. What will
The sales manager of Rose Trading has budgeted the following sales for the third
the raw materials purchases be in June?
quarter of 2009:
A. 89,800 kgs.
B. 96,000 kgs.
July P1,235,000
C. 98,440 kgs.
August 1,560,000
D. 99,400 kgs.
September 2,080,000
74. Joy Corporation uses flexible budgeting for cost control. It produced 5,400 units of
Other budget estimates are:
product for the month just ended incurring an indirect materials cost of P26,000. Its
All merchandise are to sell at its invoice cost plus 30% mark up.
mater budget for the year showed an indirect materials cost of P360,000 at a
Beginning inventories of each month are budgeted at 40% of that month’s
production volume of 72,000 units. A flexible budget for the month just ended’s
projected cost
production would show indirect material cost of
of goods sold.
A. P27,000
B. P26,000
 C. P27,950 B. P2,180,000
D. P23,400 C. P2,240,000
D. P2,320,000

Operating expenses Budget

Direct labor Budget 91. As you are doing an analysis of the cash flow, you found these data belonging to
78. Each unit of Product Z takes five direct labor hours to make. Quality standards are the Yellow
high and 8% of units produced are normally rejected due to substandard quality. Company:
Next month budget are as follws: Taxes: Beginning of the year P 6,000
End of the year 4,000
Beginning inventory of finished goods 3,000 units Interest Expense 50,000
Planned ending inventory of finished goods 7,600 units General and Administrative expense 155,765
Budgeted sales of Product Z 36,800 units Tax expense per income statement 20,000

All stocks of finished goods must have successfully passed the quality control check. A. The deferred tax account must have a debit balance
What is the B. The general and administrative expenses must be understated
direct labor budget for the month? C. Cash used to pay taxes must have been P22,000.
A. 198,720 hours D. Tax expense must have been inaccurate.
B. 200,000 hours
C. 223,560 hours 93 Premised on past experience Angelica Corp. adopted the following budgeted formula
D. 225,000 hours for estimating shipping expenses. The company’s shipments averaged 12 kilos per
shipment ( Shipping costs = P8,000 + (P0.25 x standard kgs. shipped). Pertinent
Factory overhead Budget data for the current month are given below

82. Ronald Company is preparing a flexible budget for 2010 and the following maximum Planned Actual
capacity Sales order 800 780
estimates for Department M are available: Shipments 800 820
At Maximum Capacity Units shipped 8,000 9,000
Direct labor hours 60,000 Sales 240,000 288,000
Variable factory overhead P150,000 Total pounds shipped 9,600 12,300
Fixed factory overhead P240,000
The actual shipping costs for the month amounted to P10,500. The appropriate
Assume that Ronald’s normal capacity is 80% of maximum capacity. What would be monthly flexible
the total budget allowance for shipping costs for purposes of performance evaluation would
factory overhead rate, based on direct labor-hours, in a flexible budget at normal be
capacity? A. P10,250
A. P6.00 B. P11,075
B. P6.50 C. P10,340
C. P7.50 D. P10,460
D. P8.13
Cash budget
90. A company has the following 2010 budget data:
94. A cash flow statement is an integral part of the company’s financial statements. It is
Beginning Finished Goods Inventory 40,000 units required
Sales 70,000 units because
Ending Finished Goods Inventory 30,000 units A. It is a substitute for the balance sheet and the income statement
Direct Materials P10 per unit B. It is necessary to comply with government regulations.
Direct Labor P20 per unit C. Top management depends on it for critical information in making economic
Variable factory overhead P5 per unit decisions.
Selling costs P2 per unit D. It summarizes cash movements during the accounting period, linking the
Fixed factory overhead P80,000 balance sheet and the income statement.

What are 2010 total budgeted production costs? 95. Given the following events, which affect cash flows from operations?
A. P2,100,000 1. Cash sale
 2. Cash dividends paid 102. MDG Inc. prepared the following sales budget:
3. Purchase of a long-term asset
4. Purchase of inventory Month Cash Sales Credit Sales
5. Paid employees February P 80,000 P340,000
March 100,000 300,000
A. 1 and 5 April 90,000 370,000
B. 1, 3, 4, and 5 May 120,000 460,000
C. 1, 2 and 5 June 110,000 380,000
D. 1, 4 and 5
Collections are 40% in the month of sale, 45% in the month following the sale, and
96. After generating a sizeable year-end profit, Ruth, Inc. declared and issued a 50% 10% two months following the sale. The remaining 5% is expected to be
stock dividend. In the preparation of cash flows, the transaction would be included uncollectible. The company’s budgeted collections from April to June amounts to:
as A. P1,090,250
A. An operating activity B. P1,325,500
B. An investing activity C. P1,468,500
C. Would not appear at all in the statement of cash flows. D. P1,397,500
D. A financing activity.
109. In preparing its cash budget for May 2010, LR Company made the following
98. On January 1, Rachelle Company has a beginning balance of P42,000. During the projection:
year, the company expects cash disbursements of P340,000 and cash receipts of
P290,000. If the company a cash balance of P40,000, Rachelle Company should
Sales P3,000,000
borrow by what amount?
Gross margin (based on sales) 25%
A. P32,000
Decrease in inventories P 140,000
B. P40,000
Decrease in accounts payable for inventories P 240,000
C. P48,000
D. P92,000
For May 2010, the estimated cash disbursements for inventories were:
A. P2,350,000
100. The Rupert Corporation has the following historical pattern on its credit sales:
B. P2,110,000
70% during the month of sale
C. P2,100,000
15% in the first month after sale
D. P1,870,000
10% in the second month after sale
4% in the third month after sale
110. The following purchases budget was prepared by JC Corp.:
1% uncollectible
Month Budgeted Purchases
The sales on account of the last six months of the year were reported as follows:
January P460,000
July P120,000 October P180,000
February 380,000
August 140,000 November
March 400,000
200,000
April 440,000
September 160,000 December
May 420,000
170,000
Purchases are paid for in the following manner:
Cash collection in October amounted to
10% in the month of purchase
A. P168,800
50% in the month after purchase
B. P 42,800
40% two months after purchase
C. P178,200
D. P126,000
Total disbursements for the period March to May amounts to:
A. P1,825,000
Total cash collections during the fourth calendar quarter from sales made on account
B. P1,352,000
during the fourth calendar quarter would be?
C. P1,285,000
A. P345,000
D. P1,232,000
B. P550,000
C. P502,800
111. RDG Company expects to sell 150,000 units during the first quarter of 2010 with an
D. P460,000
ending
 inventory for the quarter of 20,000 units. Variable manufacturing costs are budgeted Estimated write-off in July for uncollectible credit sales
at P50 per unit with 70% of total variable manufacturing costs requiring cash 16,000
payment during the quarter. Fixed manufacturing costs are budgeted at P120,000 Estimated provision for uncollectible accounts for credit sales in July
per quarter, 40% of which are expected to require cash payments during the quarter 12,000
will total
A. P8,500,000 What is the projected balance of accounts receivable at July 31, 2010?
B. P5,950,000 A. P402,000
C. P5,998,000 B. P414,000
D. P5,298,000 C. P426,000
D. P430,000
114. The following information were made available for Euro Pacific Co.:
 June 30, cash balance, P900,000. 117. Nikka Company has budgeted its operations for February 2010. No change in
 Dividends paid in July, P240,000. inventory level
 Cash expenditures in July for operating expenses, P736,000. during the month is planned. Selected data from estimated amounts are as follows:
 Depreciation expense in July, P90,000.
 Cash collections in July, P1,780,000. Net loss P100,000
 Merchandise purchases paid in cash in July, P1,124,000. Increase in accounts payable
 Purchased equipment for cash in July P350,000. 40,000
Depreciation expense
35,000
It was the company’s policy to keep a minimum cash balance of P200,000. The Decrease in gross amount of trade accounts receivable 60,000
company: Purchase of office equipment on 45-day credit terms 15,000
A. Had to borrow P200,000. Provision for estimated warranty liability 10,000
B. Need not borrow since its ending balance amounted to P200,000.
C. Need not borrow since ending balance amounted to P230,000. How much change in cash position is expected for February?
D. Had to borrow P60,000. A. P15,000 decrease
B. P25,000 decrease
115. Morris Company had the following transactions in 2009, its first year of operations C. P30,000 increase
D. P45,000 increase
Sales (90% collected in 2009) P1,500,000
Bad debts written off 60,000 118. Mars Corporation has estimated its activity for January 2010. Selected data from
Disbursements for costs and expenses 1,200,000 these estimated
Disbursements for income taxes 90,000 amounts are as follows:
Purchases of fixed assets 400,000
Depreciation of fixed assets 80,000 Sales P1,400,000
Proceeds from issuance of common stock 500,000 Gross profit (based on sales) 30%
Proceeds from short-term borrowings 100,000 Increase in trade accounts receivable during month P 40,000
Payments on short-term borrowings 50,000 Change in accounts payable during month P 0
Increase in inventory during the month P 20,000
What is the cash balance at December 31, 2009? Variable selling, general and administrative expense
A. P210,000 include a charge for uncollectible accounts of
B. P150,000 1% of sales.
C. P280,000 Total Selling, General & Administrative is P142,000
D. P170,000 per month plus 15% of sales.
Depreciation expense of P80,000 per month is
116. In preparing its budget for July 2010, Louie Company has the following accounts included in Fixed Selling, Administrative, and
receivable General expense.
information available:
Accounts receivable at June 30, 2010 What are the estimated cash disbursements for January 20010?
P 350,000 A. P1,238,000
Estimated credit sales for July B. P1,252,000
400,000 C. P1,258,000
Estimated collections in July for credit sales in July and prior years D. P1,272,000
320,000
Income statement B. P167,500
C. P167,900
125. Angelo Company has budgeted its activity for October 2010 based on the following D. P148,100
information:
 Sales are budgeted at P300,000. All sales are credit sales and a provision for 128. Leonor Corporation expects to sell 150,000 board games for July. Its master budget
doubtful accounts is made monthly at the rate of 3% of sales. related to the
 Merchandise inventory was P70,000 at September 30, 2010, and an increase of sale and production of these items is presented below:
P10,000 is planned for month.
 All merchandise is marked up to sell at invoice cost plus 50%.
 Estimated cash disbursements for selling and administrative expenses for the Revenue P480,000
month are P40,000. Less: Cost of goods sold:
 Depreciation for the month is projected at P5,000. Direct materials P135,000
Direct labor 60,000
Angelo is projecting operating income for October 2010 in the amount of Variable overhead 90,000 285,000
A. P86,000 Contribution margin P195,000
B. P56,000 Less: Fixed overhead P 50,000
C. P55,000 Fixed Selling & Adm. Costs 100,000 150,000
D. P46,000 Operating income P 45,000

126. Lorna Trading, which is marketing a single product, has the following preliminary July’s sales registered at 180,000 board games. Using the flexible budget, the
forecast for company expects the operating income for July to be
2011: A. P102,000
No. of units 150,000 units B. P270,000
Selling price per unit P 15 C. P 84,000
Variable costs P1,200,000 D. P 45,000
Fixed costs P 850,000
129. It is budgeting time for Paul Company. The following assumptions were agreed upon
Advertising expense was not included in the above. Based on a market study in for the next year after a strategic planning which covered a five-year horizon:
December 2010, the company estimated that it could increase the unit selling price  Sales are estimated to be at 70,000 units at its national selling price of P126.00.
by 10% and increase the unit sales volume by 20% if P200,000 would be spent on  Sales discounts are given to various customers at different rates and net to
advertising. If Lorna will incorporate these changes in its 2011 forecast, what would gross ratio is at 93%.
be the operating income?  Mark-up on merchandise is at 45% of invoice cost. Beginning inventory is
A. P480,000 P80,900 and is expected to be reduced by P15,000 at the end of the period.
B. P720,000  Selling and administrative expenses are expected to be 15% of gross sales.
C. P680,000  Depreciation is computed at P500,000.
D. P420,000  Seventy-five percent (75%) of sales are on account. Doubtful accounts expense
is estimated to be 1.5% of credit sales.
127. Euro Corp. is preparing its budget for 2011. For 2010, the following were reported:
The projected operating income for the year is:
Sales (100,000 units) P1,000,000 A. P623,409
Cost of goods sold 600,000 B. P590,334
Gross profit p 400,000 C. P682,944
Operating expenses* 240,000 D. P723,775
Net income P 160,000
135. Tiny Company’s total costs of operating five sales offices last year were P500,000 of
*Including depreciation of P40,000. which
P70,000 represented fixed costs. Tiny has determined that the total costs are
Selling prices will increase by 10% and sales volume in units will decrease by 5%. significantly influenced by the number of sales offices operated. Last year’s costs
The cost of and number of sales offices can be used as the bases for predicting annual costs.
goods sold as a percent of sales will increase to 62%. Other than depreciation, all What would be the budgeted cost for the coming year is Tiny were to operate seven
operating costs sales offices?
are variable. Euro will budget a net income for 2011 of A. P700,000
A. P167,100 B. P672,000
 C. P602,000 LRV Labor Rate Variance SH Standard Hours SR
D. P586,000 Standard Rate

137. Which of the following statements is true? 2-WAY ANALYSIS 3-WAY ANALYSIS
A. Under zero-based budgeting, a manager is required to start at zero LRV = (AR – SR) x AH LRV = (AR – SR) x SH
budget levels each period, as if the programs involved were being LEV = (AH – SH) x SR LEV = (AH – SH) x SR
initiated for the first time. Joint Labor Variance = (AR – SR) x
B. The primary purpose of the cash budget is to show the expected cash balance (AH – SH)
at the end of the budget period.
C. Budget data are generally prepared by top management and distributed
C. OVERHEAD VARIANCE
downward in an organization.
D. The budget committee is responsible for preparing detailed budget figures in an
AFOH Actual Factory Overhead SR Standard rate
organization.
SFOH Standard Factory Overhead BASH Budget Allowed on
Standard Hours
139. Nikka was considering to sell flowers in baskets on the eve of All Saint’s Day. He
FxOHR Fixed Overhead Rate BAAH Budger Allowed on Actual Hours
would buy the
VOHR Variable Overhead Rate
flowers and baskets, organized them and negotiate with a store by the bus stop to
occupy a stall for P250 for that day only. It would cost him P60 per basket
arrangement. He was planning to come up with 500 baskets to be sold at P200 per C-1. FxOHR (Budgeted Fx. OH / Normal Capacity) Px/ hr.
basket. He was aware that any unsold inventories would be worthless. If he could VOHR (Budgeted VOH / Budgeted Capacity) x/hr
only sell 300 baskets, the forecasting error would cost Total Std. OH Rate Px/hr
A. P28,000
B. P12,000
C. P40,000 Fixed Variable Total
D. P28,100 AFOH xx xx xx
SFOH (SH x SR) xx xx xx
OH Variance – UF(F) xx xx xx
STANDARD COSTING & VARIANCE ANALYSIS
 Spending variance (AFOH – BAAH)
Std. DM : No. of lbs. @ Px / lb = Px / u AFOH xxx
Std. DL : No. of hrs. @ x/ hr = x / u -BAAH:
Std VOH:No. of hrs. @ x/ hr = x / u Fx (NC x FxOHR) xxx
Std FOH: No. of hrs. @ x/ hr = x / u Var(AH x VOHR) xxx xxx
Std. Unit Cost Px/u Spending var. – UF (F) xxx
FORMULAS;  Variable OH Efficiency variance [ (AH – SH) x Std VOH Rate ]
A. DIRECT MATERIALS
 Capacity variance [(NC – AC) x FxOH Rate ]
MQV Material Quantity Variance AQ Actual Quantity
2-way analysis (Con Vo)
MPV Material Price Variance SQ Standard Quantity
Controllable Variance:
MPPV Material Purchase-Price Variance AP Actual Price
AFOH xxx
MUPV Material Usage-Price Variance SQ Standard Price
-BASH:
Fx (NC x FxOHR) xxx
2-WAY ANALYSIS 3-WAY ANALYSIS Var(SH x VOHR) xxx xxx
MPPV = (AP – SP) x AQ MPPV = (AP – SP) x SQ Controllablevar. – UF (F) xxx
MQV = (AQ – SQ) x SP MQV = (AQ – SQ) x SP
Joint material variance = (AP – SP) x Volume Variance:
(AP – SP) BASH xxx
-SOH xxx
B. DIRECT LABOR Vol Variance xxx

LEV Labor Efficiency Variance AH Actual Hours AR Actual 3-way variance (SVV) OR:
Rate
 Budget Spending Variance: Budget 2. Which of the following is a purpose of standard costing?
Spending Variance: A. Determine breakeven production level.
AFOH xxx AFOH B. Control costs.
xxx C. Eliminate the need for subjective decisions by management.
-BAAH: -BAAH: D. Allocate cost with more accuracy.
Fx (NC x FxOHR) xxx Fx
xxx 3. A standard cost system may be used in
Var(AH x VOHR) xxx xxx Var xxx A. Job-order costing but not process costing.
xxx B. Either job-order costing or process costing.
Spending var. – UF (F) xxx C. Process costing but not job-order costing.
xxx D. Neither process costing nor job-order costing.

Variable Spending Variance: Capacity 4. When a manger is concerned with monitoring total cost, total revenue, and net profit
Variance: conditioned upon the level of productivity, an accountant should normally
BAAH xxx BAAH recommend
xxx Flexible Budgeting Standard Costing
-BASH xxx - AH x SR A. Yes Yes
xxx B. Yes No
xxx C. No Yes
xxx D. No No

Volume Variance: Volume Variance: 5. The absolute minimum cost that would be possible under the best operating
BASH xxx AH x SR conditions is a description of which type of standard cost?
xxx A. Currently attainable (expected)
-SOH xxx SH x SR B. Theoretical
xxx C. Normal
Vol Variance xxx D. Practical
xxx
6. Management scrutinizes variances because
Summary of FOH Variances A. Management desires to detect such variances to be able to plan for promotions.
B. Management needs to determine the benefits forgone by such variances.
2-WAY 3-WAY(SVV) 3-WAY(BuCE) C. It is desirable under conventional knowledge on good management.
AFOH----------] ----------] Spending ----------]Budget D. Management recognizes the need to know why variances happen to be able to
] ] ] make corrective actions and fairly reward good performers.
BAAH ] Controllable ______] ______]
] ]Variable Spending ] 8 A difference between standard costs used for cost control and the budgeted costs of
BASH______ ] ______] ]Capacity the same
] ] ] manufacturing effort
AH x SR ]Volume ]Volume ______] A. Can exist because standard costs represent what costs should be
] ] ] whereas budgeted costs are expected actual costs.
Efficiency B. Can exist because budgeted costs are historical costs, whereas standard costs
SH x SR_____] ______] ______] are based on engineering studies.
C. Can exist because budgeted costs include some slack, whereas standard costs
do not.
D. Can exist because the amounts should be the same.
1. Which one of the following is true concerning standard costs?
A. Standard costs are estimates of costs attainable only under the most ideal 9. The best basis upon which standard cost should be set to measure controllable
conditions, but rarely practicable. production
B. Standard costs are difficult to use with a process costing system. inefficiencies is
C. If properly used, standards can help motivate employees. A. Engineering standards based on ideal performance
D. Unfavorable variance, material in amount, should be investigated, but large B. Normal capacity
favorable variance need not be investigated. C. Engineering standards based on attainable performance.
D. Practical capacity.
12. Which of the following cost allocation methods would be used to determine the
lowest price that 21. The standard unit cost is used in the calculation of which of the following variances?
could be quoted for a special order that would utilize the capacity with in a Material Price Variance Materials Usage Variance
production area. A. No No
A. Job order B. No Yes
B. Standard C. Yes No
C. Variable D. Yes Yes
D. Process
23. If a company follows a practice of isolating variances as soon as possible, the
13. If the total materials variance (actual cost of materials used compared with the appropriate time to
standard cost of the standard amount of material required) for a given operation is isolate and recognize a direct materials price variance is when
favorable, why must this variance be further evaluated as to a price and usage? A. Materials are issued
A. There is no need to further evaluate the total materials variance if it is B. Materials are purchased
favorable. C. Materials are used in production
B. Generally accepted accounting principles require that all variances be analyzed D. The purchase order originates.
in three stages.
C. All variances must appear in the annual report to equity owners for proper 24. An unfavorable price variance occurs because of
disclosure. A. Price increases for raw materials
D. Determining price and usage variance allows management to evaluate B. Price decreases for raw materials
the efficiency of the purchasing and production functions. C. Less-than-anticipated levels of waste in the manufacturing process.
D. More-than-anticipated levels of waste in the manufacturing process.
17. The flexible budget variance in operating income is
A. Actual operating income minus flexible budget operating income. 25. The Purchasing Manger of AB Company decided to buy 65,000 bags of flour with a
B. Budgeted unit price times the difference between actual inputs and budgeted quality rating two grades below that which the company normally purchased. This
inputs for the actual activity levels achieved. purchase covered about 90% of the flour requirements for the period. As to the
C. A flexible budget amount minus a static budget amount. material variances, what will be the likely effect?
D. Actual unit price minus budgeted unit price times the actual units produced. A. Unfavorable price variance, favorable usage variance.
B. Favorable price variance, unfavorable usage variance.
18. An efficiency variance equals C. No effect on price variance, unfavorable usage variance.
A. A flexible budget amount minus a static budget amount. D. Favorable price variance, favorable usage variance.
B. Actual operating income minus flexible budget operating income.
C. Actual unit price minus budgeted unit price, times the actual units produced. 26. In a standard cost system, the materials price variance is obtained by multiplying
D. Budgeted unit price times the difference between actual inputs and the
budgeted inputs for the actual activity level achieved. A. Actual price by the difference between actual quantity purchased and standard
quantity used.
19. The budget for a given cost during a given period was P80,000. The actual cost for B. Actual quantity purchased by the difference between actual price and
the period was P72,000. Considering these facts, the plant manger has done a standard quantity used.
better-than- expected job in C. Standard price by the difference between standard quantity purchased and
controlling the cost if standard quantity used.
A. The cost is variable and actual production was 90% of budgeted production. D. Standard quantity purchased by the difference between actual price and
B. The cost is variable and actual production equaled budgeted standard price.
production.
C. The cost is variable and actual production was 90% of budgeted production. 29. A favorable materials price variance coupled with an unfavorable materials usage
D. The cost is a discretionary fixed cost and actual production equaled budgeted variance would most likely result from
production. A. Machine efficiency problems.
B. Product mix production changes
Material cost variance C. Labor efficiency problems.
D. The purchase of lower-than-standard-quality materials.
20. Which department is customarily held responsible for an unfavorable materials
usage variance? 30. CMP Company had budgeted 50,000 units of output using 50,000 units of raw
A. Quality control materials at a total
B. Purchasing material cost of P100,000. Actual output was 50,000 units of product requiring
C. Engineering 45,000 units of raw materials at a cost of P2.10 per unit. The direct material price
D. Production variance is:
 A. P 4,500 unfavorable Excel Company uses a standard costing system in the manufacture of its single
B. P 5,000 favorable product. The 35,000 units of raw material in inventory were purchased for P105,000,
C. P 5,000 unfavorable and two units of raw materials are required to produce one unit of final product. In
D. P10,000 favorable November, the company produced 12,000 units of product. The standard allowed for
material was P60,000. And there was an unfavorable quantity variance of P2,500.
The usage variance is:
A. P10,000 favorable Excel’s standard price for one unit of materials is
B. P10,500 unfavorable A. P 2.50
C. P10,500 favorable B. P 3.00
D. P4,500 unfavorable C. P 5.00
D. P 6.00
31. Information on Good Company’s direct material costs for the month of January 2010
was as follows: The units of material used to produce November output totaled
Actual quantity purchased 18,000 A. 12,000 units
Actual unit purchase price P 3.60 B. 23,000 units
Materials purchase price variance – unfavorable P3,600 C. 24,000 units
Standard quantity allowed for actual production 16,000 D. 25,000 units
Actual quantity used 15,000
The materials price variance for the units used in November was
For January 2010 there was a favorable direct material usage variance of A. P 2,500 unfavorable
A. P3,360 B. P15,000 unfavorable
B. P3,375 C. P12,500 unfavorable
C. P3,400 D. P 2,500 favorable
D. P3,800
Direct labor cost variances
32. Information on Pretty Company’s direct material costs is as follows:
43. Which of the following is the most probable reason a company would experience an
Standard unit price P 3.60 unfavorable
Actual quantity purchased 1,600 labor rate variance and a favorable labor efficiency variance?
Standard quantity allowed for actual production 1,450 A. The mix of workers assigned to the particular job was heavily
weighted towards the use of highly paid experienced individual.
What was the actual purchase price per unit, rounded to the nearest cent? B. The mix of workers assigned to the particular job was heavily weighted towards
A. P 3.00 the use of new relatively low paid unskilled workers.
B. P 3.11 C. Because of the production schedule workers from other production areas were
C. P 3.45 assigned to assist this particular process.
D. P 3.75 D. Defective materials caused more labor to be used in order to produce a
standard unit.
33. Information on Wise Company’s direct material costs for May 1020 is as follows:
Actual quantity of direct materials purchased and used 44. Excess direct labor wages resulting from overtime premium will be disclosed in
30,000 lbs. which type of
Actual cost of direct materials P variance?
84,000 A. Yield
Unfavorable direct materials usage variance P B. Quantity
3,000 C. Labor efficiency
Standard quantity of direct materials allowed for May production 29,000 D. Labor rate
lbs.
45. A debit balance in the labor efficiency variance indicates that
For the month of May, what was wise direct materials price variance? A. Standard hours exceed actual hours
A. P2,800 favorable B. Actual hours exceed standard hours
B. P2,800 unfavorable C. Standard rate and standard hours exceed actual rate and actual hours
C. P6,000 unfavorable D. Actual rate and actual hours exceed standard rate and standard hours
D. P6,000 favorable
47. Which of the following unfavorable variances is directly affected by the relative
Q 35 through 37 are based on the following information. position of a
 production process on a learning curve? 55. The information on Ramon Company’s direct labor costs for the month of January
A. Material mix 2010 is as
B. Materials price follows:
C. Labor rate Actual direct labor hours 34,500
D. Labor efficiency Standard direct labor hours 35,000
Total direct labor payroll P241,500
49. How is labor rate variance computed? Direct labor efficiency variance – favorable P 3,200
A. The difference between standard and actual rates, times standard hours.
B. The difference between standard and actual hours, times actual rate. What is Ramon’s direct labor rate variance?
C. The difference between standard and actual rates, times actual hours. A. P17,250 unfavorable
D. The difference between standard and actual hours, times the difference B. P20,700 unfavorable
between standard and actual rates. C. P21,000 unfavorable
D. P21,000 favorable
50. The difference between the actual labor rate multiplied by the actual hours worked
and the standard labor rate multiplied by the standard labor hours is the 56. Francine Company’s direct labor costs for the month of January 2010 were as
A. Total labor variance follows:
B. Labor rate variance
C. Labor usage variance Actual direct labor hours 20,000
D. Labor efficiency variance Standard direct labor hours 21,000
Direct labor rate variance – unfavorable P 3,000
51. Listed below are four names for different kinds of standards associated with a Total Payroll P126,000
standard cost system. Which one describes the labor costs that should be incurred
under efficient operating conditions? What was direct labor efficiency variance?
A. Ideal A. P6,000 favorable
B. Basic B. P6,150 favorable
C. Maximum-efficiency C. P6,300 favorable
D. Currently attainable D. P6,450 favorable

53. Below are Petite Corporation’s standard costs to produce one concrete table: 57. For the month of April, Elvie Company’s records disclosed the following data relating
Direct raw materials 2 kgs @ P 375 per kg to direct
Direct labor 30 minutes @ P31.25 per hour labor:
Actual cost P10,000
In September, Petite produced 250 concrete tables. Five hundred twenty (520) kgs Rate variance P 1,000
of raw materials were used at a total costs of P193,440. A total of 128 direct labor favorable
hours were used at a cost of p4,096. The direct labor variance is: Efficiency variance P 1,500
A. P22.50 unfavorable
B. P93.00 Standard cost P 9,500
C. P64.75
D. P96.00 For the month of April, actual labor hours amounted to P2,000. In April, Elvie’s
standard direct
54. Remy Company uses a standard cost system. Data relating to direct labor for the labor rate per hour was:
month of August 2010 is as follows: A. P 5.50
Direct labor efficiency variance – favorable P 5,250 B. P 5.00
Standard labor rate P 7.00 C. P 4.75
Actual direct labor rate P 7.50 D. P 4.50
Standard hours allowed for actual production 9,000

What are the actual hours worked for the month of August 2010? 58. Aurie Company manufactures one product with a standard direct labor cost of 4
A. 9,750 hours at P12.00 per hour. During June 1,000 units were produced using 4,100 hours
B. 8,400 at P12.20 per hour. The unfavorable direct labor efficiency variance was
C. 8,300 A. P1,220
D. 8,250 B. P1,200
C. P 820
D. P 400
 B. P252,000
59. Information on Romy’s direct labor costs for the month of January is as follows: C. P264,600
Actual direct labor rate P 7.50 D. P260,400
Standard direct labor hour allowed 11,000
Actual direct labor hours 10,000
Direct labor rate variance – favorable P Overhead cost Variance
5,500
63. Under the two-variance method for analyzing factory overhead and the factory
The standard direct labor rate in January was overhead applied to production is the
A. P 6.95 A. Controllable variance
B. P 7.00 B. Net overhead variance
C. P 8.00 C. Efficiency variance
D. P 8.05 D. Volume variance

60. Rose Company uses standard cost system. The following information pertains to 64. Under the two-variance method for analyzing factory overhead, the budget
direct labor for allowance based on
Product B for the month of October: standard hours allowed is used in the computation of the
Standard hours allowed for actual production 2,000 Controllable (budget) variance Volume variance
Actual rate paid per hour P 8.40 A. Yes Yes
Standard rate per hour P B. Yes No
8.00 C. No No
Labor efficiency variance P1,600 U D. No Yes

What were the actual hours worked? 65. Under the three-variance method for analyzing factory overhead, which of the
A. 1,800 following is used in the computation of the spending variance?
B. 1,810 Budget Allowance Based on Standard Hours Factory overhead applied to
C. 2,190 production
D. 2,200 A. Yes Yes
B. Yes No
61. The following direct labor information pertain to the manufacture of Product Z: C. No Yes
Time required to make one unit 2DLH D. No No
Number of direct workers 50
Number of productive hours per week, per worker 40 66. Under the three-variance method for analyzing factory overhead, the difference
Weekly wages per worker P500 between the actual factory overhead and the factory overhead applied to production
Worker’s benefits treated as direct labor costs 20% of is the
wages A. Net overhead variance
B. Controllable variance
What is the standard direct labor cost per unit of Product Z? C. Efficiency variance
A. P 30 D. Spending variance
B. P 24
C. P 15 67. When using the two-variance method for analyzing factory overhead, the difference
D. P 12 between the
budget allowance based on standard hours allowed and the factory overhead
62. Aida Corporation’s direct labor costs for the month of March were as follows: applied to production is the
Standard direct labor hours A. Net overhead variance
42,000 B. Controllable variance
Actual direct labor hours 40,000 C. Volume variance
Direct labor rate variance – favorable D. Efficiency variance
P8,400
Standard direct labor rate per hour P 6.30 68. You used predetermined overhead rates and the resulting variances when compared
with the results using the actual rates were substantial. Production data indicated
that volumes were lower than the plan by a large difference. This situation can be
What was Aida’s total direct labor payroll for the month of March?
due to:
A. P243,600
A. Overhead being substantially composed of fixed costs.
 B. Overhead being substantially composed of variable costs.
C. Overhead cost being recorded as planned. 82. The fixed factory overhead application rate is a function of a predetermined activity
D. Products being simultaneously manufactured in single runs. level. If
standard hours allowed for good output equal this predetermined activity level for a
70. Which of the following standard costing variances would be least controllable by a given period, the volume variance will be
production A. Zero
supervisor? B. Favorable
A. Overhead volume C. Unfavorable
B. Overhead efficiency D. Either favorable or unfavorable, depending on the budgeted overhead.
C. Labor efficiency
D. Materials usage 83. During the current year, a department’s three- variance factory overhead standard
costing system
71. Under the three-variance method for analyzing factory overhead, the difference reported unfavorable spending and volume variances. The activity level selected for
between the actual factory overhead and the budget allowance based on actual allocating
input is the factory overhead to the product cost was based on 80% of practical capacity. If
A. Efficiency variance 100% of practical
B. Spending variance capacity had been selected instead, how would the reported unfavorable spending
C. Volume variance and volume
D. Idle capacity variance variances have been affected?
Spending Variance Volume Variance
72. A spending variance for variable factory overhead based on direct labor hours is the A. Increased Unchanged
difference B. Increased Increased
between actual variable factory overhead and the variable factory overhead that C. Unchanged Increased
should have been incurred for the actual hours worked. This variance results from D. Unchanged Unchanged
A. Price and quantity differences for factory overhead costs.
B. Price differences for factory overhead costs. 84. The following data are presented:
C. Quantity differences for factory overhead costs. Budgeted Actual
D. Differences caused by variations in production volume. Production in units 50,000 55,000
Manufacturing overhead P750,000 P800,000
75. Under the two-variance method for analyzing factory overhead, which of the Sales in units No data 47,000
following is used in
the computation of the controllable (budget) variance? The underapplied or overapplied overhead is:
Budget allowance based on actual hours Budget allowance based on standard A. P25,000 underapplied
hours B. P25,000 overapplied
A. Yes Yes C. P75,000 overapplied
B. Yes No D. P75,000 underapplied
C. No No
D. No Yes 85. Rose Company uses a standard cost system and prepared the following budgeted
amounts at normal capacity for the month of January 2010:
76. Under the three-variance method for analyzing factory overhead, which of the Direct labor hours 24,000
following is used in the computation of spending variance? Variable factory overhead P 48,000
Actual Factory Overhead Budgeted Allowance Based on Actual Input Fixed factory overhead P108,000
A. No Yes Total factory overhead per direct labor hour P 6.50
B. No No
C. Yes No Actual data for January 2010 were as follows:
D. Yes Yes Direct labor hours worked 22,000
Total factory overhead P147,000
77. Differences in product costs resulting from the application of actual overhead rates Standard direct labor hours allowed for capacity attained 21,000
rather than
predetermined overhead rates could be immaterial if Using the two-way analysis of overhead variances, what is the budget (controllable)
A. Production is not stable. variance for
B. Fixed factory overhead is a significant cost. January 2010?
C. Several products are produced simultaneously. A. P 3,000 favorable
D. Overhead is composed only of variable costs. B. P 5,000 favorable
 C. P 9,000 favorable variance?
D. P10,500 unfavorable A. P750 favorable
B. P750 unfavorable
86. Pilipinas Company uses a standard cost system. For the month of April 2010, total C. P950 favorable
overhead is D. P200 unfavorable
budgeted at P80,000 based on the normal capacity of 20,000 direct labor hours. At
standard each
unit of finished product requires 2 direct labor hours. The following data are Q 89 and 90 are based on the following data:
available for the April 2010 production activity: Based on a month’s normal volume of 50,000 units (100,000 direct labor hours),
Equivalent units of production 9,500 Ruffa’s standard cost system contains the following overhead costs:
Direct labor hours worked 19,500 Variable P 6 per unit
Actual total overhead incurred P79,500 Fixed P 8 per unit

The following information pertains to the month of March 2010:

What amount should Pilipinas credit to the applied factory overhead account for the
Units actually produced 38,000
month of April 2010?
Actual direct labor hours worked 80,000
A. P76,000
Actual overhead incurred:
B. P78,000
Variable P250,000
C. P79,500
Fixed 384,000
D. P80,000
For March 2010, the unfavorable variable overhead spending variance was
87. Fountain Company uses a flexible budget system and prepared the following
A. P 6,000
information for 2010:
B. P10,000
Normal Capacity
C. P12,000
Maximum Capacity
D. P22,000
Percent of capacity 80%
100%
For March 2010, the fixed overhead volume variance was
Direct labor hours 32,000
A. P96,000 unfavorable
40,000
B. P96,000 favorable
Variable factory overhead P 64,000 P
C. P80,000 unfavorable
80,000
D. P80,000 favorable
Fixed factory overhead P160,000
P160,000
91. Standard Company uses a standard cost accounting system. The following overhead
Total factory overhead rate per direct labor hour P7 P
and production data are available for August:
6
Standard fixed overhead rate per DLH P 1
Standard variable overhead per DLH P 4
Fountain operated at 90% of capacity during 2010. The actual factory overhead for
Budgeted monthly DLH 40,000
2010 was
Actual DLH worked 39,500
P252,000. What was the budget (controllable) overhead variance for the year?
Standard DLH allowed for actual production 39,000
A. P36,000 unfavorable
Overall overhead variance – favorable P2,000
B. P20,000 unfavorable
C. P18,000 unfavorable
The applied factory overhead for August should be
D. P 0
A. P195,000
B. P197,000
88. The following information is available from the Hospicio Company:
C. P197,500
Actual factory overhead P15,000
D. P199,500
Fixed overhead expenses, actual P 7,200
Fixed overhead expenses, budgeted P 7,000
92. Camel Company uses flexible budget system and prepared the following information
Actual hours 3,500
for the year:
Standard hours 3,800
Percent of capacity 80%
Variable overhead rate per DLH P 2.50
90%
Direct labor hours 24,000 27,000
Assuming that Hospicio uses a three-way analysis of overhead variances, what is the
Variable factory overhead P 48,000 P 54,000
spending
Fixed factory overhead P108,000 P108,000
 Total factory overhead rate per DLH P 6.50 P 6.00 B. Allocated among work-in-process inventory, finished goods inventory,
and cost of goods sold.
Camel operated at 80% of capacity during the year but applied factory overhead C. Charged or credited to cost of goods manufactured.
was equal to the D. Allocated among cost of goods manufactured, finished goods inventory, and
budgeted amount for the attained capacity, what is the amount of overhead cost of goods sold.
variance for the year?
A. P 6,000 overabsorbed 107. Standard costing will produce the same income before extraordinary items as actual
B. P 6,000 underabsorbed when standard cost variances are assigned to
C. P12,000 overabsorbed A. Work-in-process and finished goods inventories.
D. P12,000 underabsorbed B. An income or expense account
C. Cost of goods sold and inventories.
93. High Tech Company uses predetermined factory overhead application rate based on D. Cost of goods sold.
direct labor
cost. For the year ended December 31, the company budgeted factory overhead 108. At the end of its fiscal year, Sky Company had several substantial variances from
was P600,000, based on budgeted volume of 50,00 direct labor hours, at a standard standard variable manufacturing costs. The one that should be allocated between
direct labor rate of P6 per hour. Actual factory overhead amounted to P620,000, with inventories and cost of sales is the one attributable to
actual direct labor cost of P325,000. For the year, overapplied factory overhead was A. Additional cost of raw material acquired under a speculative purchase contract.
A. P20,000 B. A breakdown of equipment.
B. P25,000 C. Overestimates of production volume for the period resulting from failure to
C. P30,000 predict.
D. P50,000 D. Increased labor rates won by the union as a result of a strike.

Q94 and 95 are based on the following information relates to a given department of 109. What is the normal year-end treatment of immaterial variances recognized in a cost
Martomart accounting
Company for the fourth quarter of 2009: system using standard costs?
Actual total overhead (fixed plus variable) P178,500 A. Reclassified as deferred charges until all related production is sold.
Budget formula P110,000 plus P0.50 / B. Allocated among cost of goods manufactured and ending work-in-process
hr. inventory.
Total overhead application rate P1.50 / hr. C. Closed to cost of goods sold in the period in which they arose.
Spending variance P 8,000 D. Capitalized as a cost of ending finished goods inventory.
unfavorable
Volume variance P 5,000 favorable RESPONSIBILITY ACCOUNTING

The total overhead variance is divided into three variances – spending, efficiency 1. Which of these assertions refer to responsibility accounting?
and volume 1. Costs and revenues are identified with individuals for better control and
What were the actual hours worked in the department during the quarter? performance appraisal.
A. 110,000 2. Performance reports under this concept include variance of actual amounts
B. 121,000 versus plan.
C. 137,000 3. Third parties who are external users are the main recipients of information.
D. 153,000 4. Only expenses which are directly under the control of managers should ideally
be charged to them.
What were the standard hours allowed for good output in this department during the A. Assertions 1, 2 and 4 only
quarter? B. Assertions 1 and 4 only
A. 105,000 C. Assertions 1 and 2 only
B. 106,667 D. All four assertions.
C. 110,000
D. 115,000 2. The basic purpose of a responsibility accounting system is
A. Budgeting C. Authority
Variance disposition B. Motivation D. Variance analysis
106. How should a usage variance that is significant in amount be treated at the end of
an accounting 3. Responsibility accounting
period? A. Is the most formal communication device within an enterprise
A. Reported as a deferred charge or credit. B. Encourages managers and other employees to achieve enterprise
goals, not just their own individual goals.
 C. Encourages managers to focus on a single issue of evaluation C. Management accounting identifies elements or activities which
D. Deals with the reporting of information to facilitate control of operations and management can or cannot influence, and seeks to arrest risk and
evaluation of performance. sensitivity factors.
D. Accounting information must be of such quality that confidence can be placed in
4 That kind of accounting concerned with providing information to management in it.
making decisions about the operations of the business
A. Responsibility accounting C. Management 19. The process of attributing proportion of items of costs among cost centers is called
accounting A. Overhead absorption. C. Cost apportionment.
B. Cost accounting D. Full cost accounting B. Absorption of indirect cost. D. Cost allocation.

6 In responsibility accounting, there are two (2) types of reports distinguished as to Cost centers
goals or objectives
A. Trend analysis reporting and comparative reporting 22. What is the name given to a unit or a function of an organization that is headed by a
B. Responsibility performances reporting and information reporting. manger who has direct responsibility for its performance?
C. Operations reporting and financial condition reporting. A. Responsibility center C. Business
D. Horizontal reporting and vertical reporting. entity
B. Cost unit D. Budget center
7 When used for performance evaluation, the generated reports in a responsibility
accounting system should 23. Cost centers are
A. Not be related to the organization structure. A. Units of product or service for which costs are ascertained.
B. Not include variances between actual results and budgeted amounts of B. Amounts of expenditure attributable to various activities.
controlled costs. C. Function or locations for which costs are ascertained for control purposes.
C. Not distinguish between controllable and uncontrollable costs. D. A section of an organization for which budgets are prepared and
D. Not include allocated fixed manufacturing overhead. control exercised.

14. Costs are accumulated by a responsibility center for control purposes when using 27. Which of the following items of cost would be least likely to appear in a
Job-Order Costing Process costing Job-Order Costing performance report based on responsibility accounting techniques for the supervisor
Process costing of an assembly line in a large
A. Yes Yes C. No manufacturing situation?
No A. Materials C. Repairs and
B. Yes No D. No maintenance
Yes B. Supervisor’s salary D. Direct labor

15. In deciding how or which costs should be assigned to a responsibility center is the Profit centers
degree of
A. Avoidability C. Controllability 30. In what type of center are managers usually evaluated on the basis of their fixed
B. Variability D. Relation to costs and the
department contribution margin they provide to the company?
A. Profit center C. Investment
16. In a responsibility accounting a center’s performance is measured by controllable center
costs. Controllable costs are best described as including: B. Cost center D. Marketing center
A. Differential costs.
B. Only those costs that the manger can influence in the current time 31. A center that incurs costs and expenses, generates revenue but does not have
period. control over idle funds used for investment purposes
C. Incremental and fixed costs. A. Profit center C. Cost center
D. Only discretionary cost. B. Investment center D. Responsibility center

18. Among the management accounting concepts is controllability which means 33. Which of the following types of responsibility centers has accountability for
A. It is necessary at all times to identify the responsibilities and key result areas of revenues?
the individuals within the organization. A. Cost centers and investment centers
B. Management accounting must ensure that flexibility is maintained in B. Profit centers and investment centers
assembling and interpreting information. C. Cost centers and profit centers
D. Expense and investment centers
34. Profit centers B. P29.17 D. P31.20
A. Have responsibility for controlling costs as well as capital
B. Control and reports costs only 54. Information concerning Product Z of Pia Corporation for the year ended 2009 is as
C. Are the same as investment centers follows:
D. Measures income and relate that income to their invested capital

40. Jane Cruz is the manager of Profit Center # 8. His unit reported the following for the
Sales P1,850,000
period just
Margin 10%
ended:
Return on investment 20%
Contribution margin
Minimum required rate of return on investment 15%
P350,000
Period expenses:
The residual income of Product Z is
Manager’s salary P100,000
A. P138,750 C. P 92,500
Depreciation expense 40,000
B. P 46,250 D. P185,000
Allocated administrative costs 25,000 165,000
Profit Center #8 income P185,000
57. Matt, Inc. generated the following results for the period just ended:
Sales P1.0 million
Of the foregoing, in all likelihood, Ms. Cruz controls
Net income .1 million
A. P165,000 C. P100,000
Capital investment .5 million
B. P185,000 D. P350,000
To arrive at the return on investment, the following should be used.
A. ROI = (5/10) X (10/1) C. ROI = (5/10) X (1/10)
B. ROI = (10/5) X (10/1) D. ROI = (10/5) X
(1/10)
Investment center
58. Mark Corporation has two divisions A and B. division A is evaluating a project that
will earn a rate of return which is more than the imputed interest charge for the
44. I. The main difference between a profit center and an investment center is
invested capital, but less than the division’s historical return on invested capital.
that the emphasis
Division A is evaluating a project that will earn a rate of return which is less than the
is on the rate of return in the investment center rather than an absolute
imputed interest charge for the invested capital, but is more than the division’s
profit.
historical return on invested capital. If the corporate objective is to maximize
II. Marginal cost is the amount of cost increase caused by a unit increase in the
residual income, the division should decide as follows:
output of
A. B accept and A reject C. B reject and A
product.
accept
B. B reject and A reject. D. B accept and A
A. False; True C. True; True
accept.
B. False; False D. True; False
78. Transfer pricing schemes can be based on
48. The invested capital-employed turnover rate would include
A. Market price C. Negotiated price
A. Invested capital in the denominator
B. Cost-based price D. All of the above.
B. Net income in the numerator
C. Invested capital in the numerator
88. In a decentralized company in which decisions may buy goods from one another, the
D. Sales in the denominator
transfer- pricing system should be designed primarily to
A. Aid in the appraisal and motivation of managerial performance.
53. Euro Corporation has these selected data:
B. Increase the consolidated value of inventory.
C. Allow division managers to buy from outside.
Units to be sold 25,000 D. Minimize the degree of autonomous of division managers.
Total cost of the units P 500,000
Fixed capital investment 1,000,000 Questions 97 and 98 are based on the following information:
Variable capital on sales 20% Maganda Company operates Division A and Division B. division A manufactures
machine tools on special order for outside market. Division B manufactures metal
What should be the unit selling price to have a 20% return on investment? lathes which are sold to Division A as well as to outside market. Division A has job
A. P28.00 C. P30.00 order cost system and applies factory overhead at 75% of direct labor, as of June 30,
 2010, Division A has only Job Order 1 in process and has been charged with factory requires P40 of direct materials and P30 of direct labor. The plant overhead is 200%
overhead of P25,200 and work-in-process account consisted of the following: of direct labor peso cost, and 40% of the overhead is fixed cost. A decision to
Balance, June 1 P 58,500 manufacture component 201 will result in a gain or (loss) for each component of
Direct materials, including transferred-in cost 170,000 A. P28 C. P(20)
Direct labor 125,000 B. P16 D. P4
Factory overhead 95,000
Transferred to finished goods (350,000) 16. Sunshine manufactures a particular computer component. Manufacturing cost per
unit are as
Division B has a process cost system and the cost to manufacture its product is follows:
P12.00 per unit Direct materials P 50
which is sold to Division A at 15% less than the selling price to outside market. Sales Direct labor 500
price to Variable overhead 250
outside market is P20.00. Fixed overhead 400
Total manufacturing costs P1,200
How much direct materials were charged to Job Order 1?
A. P33,600 C. P73,300 Rainbow, Inc. has contracted Sunshine with an offer to sell 10,000 of the component
B. P39,700 D. P64,900 for P1,100 per unit. If Sunshine accepts the proposals, P2,500,000 of the fixed
overhead will be eliminated. Should Sunshine make or buy the component and why?
How much is the transfer price for the machine lathes? A. Buy due to savings of P1,000,000
A. P17.00 C. P20.00 B. Make due to savings of P500,000
B. P18.00 D. P12.00 C. Buy due to savings of P2,500,000.
D. Make due to savings of P3,000,000

19. Green Company makes hoses for its sprayers. Unit costs applicable to these hoses
are:
Direct materials P35.00
SHORT-TERM NON-ROUTINE DECISIONS Direct labor 20.00
General and administrative cost 16.00
1. The term relevant cost applies to all of the following decision situations except the Fixed manufacturing overhead 21.00
A. Acceptance of special product order. Variable manufacturing overhead 9.00
B. Determination of product price
C. Manufacture of purchase of a component part. Five thousand units (5,000) are required for the year. The space that is used for the
D. Replacement of equipment. hoses production can be used as warehouse and will save rental cost of P48,000 per
year. The hoses can be bought for P70.00 a piece. Should Green Co. buy or make the
7. Among the costs relevant to a make-or-buy decision, include variable manufacturing hoses? Why?
costs as well as A. Buy because there will be savings of P3.60 per hose.
A. Unavoidable costs C. Avoidable fixed B. Make, there will be a savings of P6.00 per hose.
cost C. Make, because there will be savings of P31.00 per hose
B. Plant depreciation D. Real estate taxes D. Buy, because there will be savings of P31.00 per hose.

9. What is the opportunity cost of making a component part in factory given no 20. The White Plain Company is operating at 50% capacity producing 100,000 units
alternative use of the capacity? ceramic plates a year. With the economic boom that the country is expected to have
A. The total cost of the component. in the coming year, the company plans to utilize 75% of capacity. Part of the
B. Zero manufacturing process is hand-painting which has a variable cost of material at
C. The fixed manufacturing cost of the component. P4.50 and labor at P5.50 per plate. This painting process has variable overhead at
D. The variable manufacturing cost of the component. P1.00 which is 40% of total variable factory overhead. Total factory overhead is set
at P500 per 100 plates. No increase in fixed factory overhead is expected even with
Make or Buy the substantial increase in production. An offer to sub-contract the incremental hand
painting job was given at P10.50 per plate but the company will have to lease an
14. General Electronics is operating at 70% capacity. The plant manager is considering equipment at P10,000 annual rental. The plate sell for P50.00 a piece at a
making contribution margin rate of 45%. Should White Plain Company sub-contract? Why?
component 201 now being purchased for P110 each, a price that is projected to A. No because the company will lose P135,000
increase in the near future. The plant has the equipment and labor force required to B. Yes, because the company will save P165,000.
manufacture the component. The design engineer estimates that each component C. Yes, because the company will earn P15,000 more.
 D. No, because there is no benefit for the company. 24. Joy Inc. has excess production capacity. At times, it buys the same product from
third party. Below are pertinent information:
21. Part A is a component that Motors Company uses in the assembly of motors. The Selling price per unit P70.00
cost to produce Fixed cost per unit* 20.00
one Part A is presented below: Variable cost per unit 35.00
Direct materials P 4,000
Materials handling (20% of direct materials) 800 *At present value
Direct labor 32,000
Overhead (150% of direct labor) 48,000 The most it should pay for buying this product it currently makes would be the
Total manufacturing costs P84,400 A. Selling price of P70.00
B. Total variable cost of producing the product of P35.00 per unit.
Materials handling which is not included in manufacturing overhead, represents the C. Total variable cost per unit of P35.00 plus the reduced fixed cost per unit after
direct variable costs of the receiving department that are applied to direct materials accounting for the effects of the added volume.
and purchased components on the basis of their cost. The company’s annual D. Total cost of production or P55.00 per unit.
overhead budget is one-third variable, and two-thirds fixed. Motors Company offers
to supply Part A at a unit price of P60,000. Should the company buy or manufacture 25. Plastic Items, Inc. manufactures coolers of 10,000 units that contain a freezable ice
Part A? bag. For an
A. Buy, due to advantage of P24,800 per unit. annual volume of 10,000 units, fixed manufacturing costs of P500,000 are incurred.
B. Manufacture, due to advantage of P7,200. Variable costs per unit are:
C. Buy, due to advantage of P12,800 per unit. Direct materials P80
D. Manufacture, due to advantage of P19,200 per unit. Direct labor 15
Variable overhead 20
22. Botanical Producers, Inc., manufactures various scents out of Philippine flowers and
plants. It also manufactures exotic oils that it subsequently uses in the scents Igloo Corp. offered to supply the assembled ice bag for P40 with a minimum order of
production. The cost per unit of measure for 15,000 units of exotic oils are as 5,000 units. If Plastic accepts the offer, it will be able to reduce variable labor and
follows: overhead by 50%. The direct materials for the freezable bag will cost Plastic P20 if it
Direct materials P 20 will produce it. Considering Igloo Corp. offer, Plastic should
Direct labor 34 A. Buy the freezable ice bag due to P150,000 advantage.
Variable factory overhead 24 B. Produce the freezable ice bag due to P225,000 advantage.
Unavoidable fixed factory overhead 32 C. Produce the freezable ice bag due to P50,000 advantage.
Total P 110 D. Buy the freezable ice bag due to P50,000 advantage.

Mild Oils, Inc. offered Botanical to supply 15,000 units of measure of the exotic oil for
P1,260,000. Assuming the facilities for exotic oils have no alternative use, Botanical Accept or reject a special sales order
Producers, Inc., should
A. Continue to produce exotic oils at P1,170,000 relevant costs against 37. Idle capacity in the interim (normally temporary) will generate short-term benefit in
purchase cost of P1,260,000. accepting sales at price that
B. Produce 7,500 units and buy 7,500 units from Mild Oils to save P300,000. A. Positively motivate employees.
C. Buy from Mild Oils, Inc. at P1,260,000 against cost to produce of P1,650,000 or B. Result in less than normal contribution margin.
savings of P390,000. C. Increase total fixed costs.
D. Produce 7,500 units from Mild Oil save P240,000. D. Reduce the overall operating income to sales ratio.

23. Pacific Company manufactures plugs used in its electrical gadgets at a cost of P108 39. When only differential manufacturing costs are taken into account for special-order
per unit that pricing, an
includes P24 of fixed overhead. It needs 30,000 of these plugs yearly, and Euro essential assumption is that
Corp. offers to sell these items to Pacific at P99 per unit. If Pacific decides to A. Manufacturing fixed and variable costs are linear.
purchase the plugs, P180,000 of the annual fixed overhead applied will be B. Selling and administrative fixed and variable costs are linear.
eliminated, and the company may be able to rent the facility previously used for C. Acceptance of the order will not affect regular sales.
manufacturing the plugs. If Pacific purchases the plugs but does not rent the unused D. Acceptance of the order will not cause unit selling and administrative variable
facility, the company would costs to increase.
A. Save P6.00 per unit C. Save P9.00 per unit 40. Production of a special order will increase gross profit when the additional revenue
B. Lose P18.00 per unit D. Lose P9.00 per unit from the special order is greater than
A. The direct material and labor cost in producing the order.
B. The fixed costs incurred in producing the order.
 C. The indirect costs of producing the order. 46. M&R Inc., has an annual capacity of 2,800 units of output. Its predicted operations
D. The marginal cost of producing the order. for the year as follows:
Sales (2,000 units @ P760 each) P1,520,000
42. Which of the following cost allocation methods is used to determine the lowest price Manufacturing costs:
that can be Variable P500 per unit
quoted for special order that will use idle capacity within a production area? Fixed P360,000
A. Job order C. Variable Marketing and administrative costs:
B. Process D. Standard Variable (sales and commissions) P120 per unit
Fixed P40,000
43. Joy has a stall which specializes in hand-crafted fruit baskets that sell for P60 each.
Daily fixed costs are P15,000 and variable costs are P30 per basket. An average of Assume there would be no effect on regular sales at regular prices and that the
750 baskets are sold each day. Joy has a capacity of 800 baskets per day. By closing usual sales
day time yesterday, a bus load of teachers whoattended a seminar stopped by Joy’s commissions will be reduced to half. Should the company accept at one-time only
stall. Collectively, they offered Joy P1,500 for 40 baskets. Joy should have special order for 600 units at a selling price of P640 each?
A. Rejected the offer since she could have lost P500. A. Yes, due to incremental income of P48,000.
B. Rejected the offer since she could have lost P900. B. Either would do as the net effect would be the same.
C. Accepted the offer since she could have lost P300 contribution margin. C. Yes, due to incremental income of P30,000.
D. Accepted the offer since she could have lost P700 contribution margin. D. No, due to resulting los of P37,714.

44. Wil Company sells product A at a selling price of P21 per unit. Wil’s cost per unit on 47. Red and White Co. has an offer for a special order of 100,000 units at a unit price of
the full P6.00
capacity of 200,000 units are as follows: presented below:
Direct materials P 4 1. Present production at 85% capacity, 450,000 units.
Direct labor 5 2. Fixed factory overhead is P1,250,000 at 100% capacity.
Overhead (2/3 of which is fixed) 6 3. Variable direct costs per unit are : Materials, P1.80; direct labor P1.40.
Total P15 4. Variable factory overhead per unit, P0.50.
5. Variable marketing expense per unit, P0.50.
A special order offering to buy 20,000 units was received from a foreign distributor. 6. Fixed general and administrative expenses, P800,000.
The only 7. Additional lease cost for additional equipment required for the special order,
selling costs that would be incurred on this order would be P3 per unit for shipping. P10,000.
Wil has
sufficient existing capacity to manufacture the additional units. Wil should consider The accountant estimated that the order will result as follows:
that the
minimum selling price per unit should be Revenue P600,000
A. P14 C. P16 Differential cost of goods sold:
B. P15 D. P18 Direct materials P180,000
Direct labor 140,000
45. The manufacturing capacity of Yoly Company’s facilities is 30,000 units of product a Variable factory overhead 50,000
year. A Fixed factory overhead 250,000 620,000
summary of operating results for the year ended December 31, 2009, is as follows: ( 20,000)
Sales (18,000 units @P100) P1,800,000 Variable marketing expenses 50,000
Variable manufacturing and selling costs 990,000 Loss on this order P(70,000)
Contribution margin 810,000
Fixed costs 495,000 The calculation has these problems:
Operating income P 315,000 A. Fixed factory overhead has been overapplied.
B. Fixed general and administrative expenses and incremental lease cost have
A foreign distributor has offered to buy 15,000 units at P90 per unit during 2010. been ignored.
Assume that all of Yoly’s costs would be at the same levels and rates in 2010 as in C. Lease cost has been ignored and fixed factory overhead has been overapplied.
2009. If Yoly accepted this offer and rejected some business from regular customers D. Fixed factory overhead has been allocated and additional lease cost
so as not to exceed capacity, what would be the total operating income for 2010? has been ignored.
A. P390,000 C. P840,000
B. P705,000 D. P855,000 48. Rice Milling Co. has a plant capacity of 40,000 units per month. Unit cost capacity
are:
Direct materials P100
 Direct labor 150 B. Decrease of P48,000 D. Decrease of P6,000
Variable overhead 75
Fixed overhead 75 61. The Top-notch Corp. produces three products, “Me”, “Mi” and “Mo”. The owner
Marketing fixed cost 175 desires t reduce production load to only one product line due to prolonged absence
Marketing variable cost 90 of the production manger. Depreciation expense amounts to P600,000 annually.
Other fixed operating expenses amount to P660,000 per year. The sales and variable
Present monthly sales are 39,000 units at P630 each. Jack Corporation contacted cost data of the three products are (000’s omitted):
Rice about
purchasing 1,000 units at P600 each. The present sales would not be affected by the Me Mi Mo
special order. Rice should Sales P6,600 P5,300 P10,800
A. Accept the special order due to P185,000 incremental income Variable costs 3,900 1,700 8,900
B. Accept the special order due to P110,000 incremental income
C. Accept the special order due to P215,000 incremental income Which product must be retained and what is the opportunity cost of selecting such
D. Accept the special order due to P10,000 incremental income product line?
A. Retained product “Mi”; opportunity cost is P4.6 million.
49. The Maganda Corp. which has experienced excess production capacity received a B. Retained product “Mi”; opportunity cost is P3.14 million.
special offer for its product B at P78 per unit for 100,000 units. It has been using the C. Retained product “Me”; opportunity cost is P4.04 million.
variable costing method and has been pricing its product at P96 per unit based on a D. Retained product “Mo”; opportunity cost is P4.48 million.
mark-up of 60% as follows:
62. Pia Corporation’s Outlet No. 5 reported the following results or operations for the
period just ended:
Overhead materials P30
Direct labor 20
Sales P2,500,000
Variable overhead 6
Less: Variable expenses 1,000,000
Variable selling and administrative 4
Contribution margin P1,500,000
Total variable expenses P60
Less: Fixed expenses:
60% mark-up 36
Salaries and wages P750,000
Selling price P96
Insurance on inventories 50,000
Depreciation on equipment 325,000
Assuming that this special offer will not affect the market for the product, should the
Advertising 500,000 1,625,000
company
Net income (Loss) (P 125,000)
accept this special offer?
A. Yes, since it will contribute P2.8 million margin.
The management is contemplating the dropping of Outlet No. 5 due to the
B. Yes, since it will contribute P1.8 million margin.
unfavorable operational results. If this would happen, one employee will have to be
C. No, it will mean a loss of P1.8 million.
retained with an annual salary of P150,000. The equipment has no resale value.
D. No, it will mean a loss of P1.16 million.
Outlet No. 5 should
A. Not be dropped due to foregone overall income of P850,000.
B. Be dropped due to foregone overall income of P325,000.
Drop or continue a business segment
C. Not be dropped due to foregone overall income of P25,000.
D. Be dropped due to overall operational loss of P25,000.
57. Division A of Division Mix Corporation is being evaluated for elimination. It has
Optimization of scarce resources
contribution to
overhead of P400,000. It receives an allocated overhead of P1 million, 10% of which
67. When a multi-product plant operates at full capacity, quite often decisions must be
cannot be
made as to which products to emphasize. These decisions are frequently made with
eliminated. The elimination of Division A would affect a pre-tax income by
a short-run focus. In making such decisions, manager should select products with
A. P400,000 decrease C. P500,000 decrease
the
B. P400,000 increase D. P500,000 increase
A. Highest sales price per unit.
B. Highest individual unit contribution margin.
58. Kate Company plans to discontinue a department with P48,000 contribution to
C. Highest volume potential.
overhead, and
D. Highest contribution margin per unit of the constraining resource.
allocated overhead of P96,000, of which P42,000 cannot be eliminated. What would
be the effect of this discontinuance of Kate’s pretax profit?
A. Increase of P48,000 C. Increase of P6,000
68. Joy Company temporarily has excess production capacity. The idle plant capacity D. Not replace due to P100,000 disadvantage.
facilities can be used to manufacture a low-margin item. The low-margin item should
be produced if it can be sold for more than its 76. Cherry Foods operates a cafeteria for its employees. The operations of the cafeteria
A. Variable costs plus any opportunity costs of idle facilities. require fixed
B. Indirect costs of the idle facilities. cost of P470,000 per month and variable costs of 40% of sales. Cafeteria sales are
C. Fixed costs currently
D. Variable costs averaging P1,200,000 per month. The company has the opportunity to replace the
cafeteria with
69. Matt Co. has a limited number of machine hours that it can use for manufacturing vending machines. Gross customer spending at the vending machine is estimated to
two products, A and B. each product has a selling price of P160 per unit but product be 40% greater than the current sales because the vending machines are available a
A has 40% contribution margin and product B has a 70% contribution margin. One all hours. By replacing the cafeteria with vending machines the company would
unit of B takes twice as many machine hours to make as a unit of A. Assume either receive 165 of the gross customer spending and avoid cafeteria costs. A decision to
product can be sold in whatever quantity is produced, which product or products replace the cafeteria with vending machines will result in a monthly increase
should the limited number of machine hours be used for? (decrease) in operating income of
A. A C. Either A or B A. P182,000 C. P(588,000)
B. Both A and B D. B B. P258,800 D. P 18,800

70. Product A has a contribution margin of P80 per unit, a contribution margin ratio of 50 77. Dennis Corp. produces motherboard at a special economic zone in Central Luzon. It
percent, and requires 4 machine hours to produce. Product B has a contribution is now
margin of P120 per unit, a considering to shift to new automated equipment instead of its present facility.
contribution margin ratio of 40 percent, and requires 5 machine hours to produce. If Management was
the company has limited machine hours available, then it should produce and sell given the mandate to shift it. Its break even point will materially be improved with a
A. Product B since it has the higher contribution margin per unit. minimum of
B. Product A since it requires fewer machine hours per unit than does Product B. 10% reduction in volume. Below are the pertinent information:
C. Product B since it has the higher contribution margin per machine hours.
D. Product a since it has the higher contribution margin per machine hour. Existing With automation
Sales in units 800,000 900,000
Selling price P 30
Retain or replace an old asset Variable cost per unit P 15 P 13
Fixed cost P775,000 P892,500
74. At December 31, 2010, Francis had a machine with an original cost of P84,000,
accumulated The company should
depreciation of P60,000, and an estimated salvage value of zero. On December 31, A. Not shift since the break even volume will not change.
2010, Francis B. Shift since the break even volume will even increase by 1% with the
was considering the purchase of a new machine having a five-year life, costing automation.
P120,000, and C. Shift to automation since the 10% reduction in break even volume could be
having an estimated salvage value of P20,000 at the end of five years in its decision achieved.
concerning the possible purchase of the new machine, how much should Francis D. Shift to automation since the reduction in break even volume will be more than
consider as sunk cost at December 31, 2010? 10%.
A. P120,000 C. P24,000
B. P100,000 D. P 4,000 78. n the manufacturing process of Ryan Company, an output called substance “pooz” is
disposed of as waste. Recently, the research Department has discovered a process
75. John Industries, Inc. has an opportunity to acquire a new equipment to replace one to convert this waste to detergent. The following data are available:
of its existing 1. Cost of disposal is P20.00 per liter.
equipment. The new equipment would cost P900,000 and has a five-year useful life, 2. Additional processing cost will be P6.00 per liter.
with a zero 3. Selling price of the new detergent is P14.00 per liter.
terminal disposal price. Variable operating cost would be P1 million per year. The 4. Joint costs to manufacture all products is P1.5 billion, of which P250,000 can be
present equipment has a book value of P500,000 and a remaining life of five years. allocated to “pooz”.
Its disposal price now is P50,000 but would be zero after five years. Variable Which of the amounts are relevant in the decision to dispose or sell “pooz” as
operating costs would be P1,250,000 per year. Considering the five years in total, detergent?
but ignoring the time value of money and income taxes, John should A. P20, P6, P14, P250,000 C. P1.5 billion, P250,000
A. Replace due to P400,000 advantage. B. P20, P6, P14 D. P20, P14, P1.5 billion,
B. Not replace due to P150,000 disadvantage. P250,000
C. Replace due to P350,000 advantage.
80. Beverly International produces weekly 15,000 units of Product JI and 30,000 units of A. P1,140,000 C. P700,000
product JII for which P800,000 common variable costs are incurred. These two B. P1,040,000 D. P964,000
products can be sold as is or
processed further. Further processing of either product does not delay the
production of subsequent batches of the joint products. Below are information: Temporarily shut down the operations or continue it

88. Dennis Corp. contemplates the temporary shutdown of its plant facilities in a
JI
provincial area which are economically depressed due to natural disasters. Below
JII
are certain manufacturing and selling expenses:
Unit selling price without further processing P24 P18
1. Depreciation 5. Sales commissions
Unit selling price with further processing P30 P22
2. Property tax 6. Delivery expenses
Total separate weekly variable costs of further processing P100,000
3. Interest expense 7. Security of premises
P90,000
4. Insurance of facilities
To maximize Beverly’s manufacturing contribution margin, the total separate
Which of the following expenses will continue during the shut down period?
variable costs of
A. All expense in the list C. Items 1,2 and 3 only
further processing that should be incurred each week are
B. All except items 5 & 6 D. Items 1, 2, 3, 4, 6 and
A. P95,000 C. P100,000
7 only
B. P90,000 D. P190,000
Scrap or rework defective units
Bid price
92. Marjorie Corporation is considering to keep or dispose P1 million obsolete inventory
acquired
84. Romulo engines company manufactures engines for the military equipment on a
several years ago, this cost is
cost-plus basis. The cost of a particular machine the company manufactures is
A. Discretionary cost C. Relevant cost
shown below:
B. Sunk cost D. Prime cost

Direct materials P400,000

Direct labor 300,000
Overhead: Misc. topics
Supervisor’s salary 40,000
Fringe benefits on direct labor 30,000 109. Marc Corporation sells product T at a unit price of P5 deriving annual gross sales of
Depreciation 24,000 P50,000. The variable cost to produce T is P4.50 per unit and total fixed costs is
Rent 22,000 P10,000. If Marc increases T’s unit price to P8 a decrease of sales to only 4,000 units
Total P816,000 would result. The effect of the price increase on Marc’s net income from the sales of
product T will be a:
If the production of the engine were discontinued the production capacity would be A. P9,000 increase C. P4,000 increase
idle, and the B. P18,000 decrease D. No effect.
supervisor will be laid off. Should there be a next contract for this engine, the
company should bid a minimum price of 113. Data covering John Corporation’s two product lines are as follows:
A. P816,000 C. P730,000
B. P700,000 D. P770,000
Product “W” Product “Z”
Sales P36,000 P25,200
86. Romulo, Inc., has its own cafeteria with the following annual costs:
Income before income tax 15,936 (8,388)
Food P 400,000
Sales price per unit 30 14
Labor 300,000
Variable cost per unit 8.50 15
Overhead 440,000
Total P1,140,000
The total units sold of “W” was 2,400 and that “Z” was 3,600 units. If product “Z” is
discontinued and this results in a 400 units decrease in sales of Product “W”, the
The overhead is 405 fixed. Of the fixed overhead, P100,000 is the salary of the
total effect on income will be:
cafeteria supervisor.The remainder of the fixed overhead has been allocated from
A. P13,600 decrease C. P8,600 decrease
total company overhead. Assuming the cafeteria supervisor will remain and that
B. No effect D. P5,000 decrease
Romulo will continue to pay said salary, the maximum cost Romulo will be willing to
pay an outsider firm to service the cafeteria is:
114. Kim Bottling Corporation makes and sells two softdrinks COLA and ORANGE. The B. P36,700 favorable D. P 0 unfavorable
comparative data for the two shows:
COLA ORANGE The Cost Volume variance:
Selling price per bottle P9.50 P9.80 A. P 0 unfavorable C. P5,820 unfavorable
Variable cost 6.50 7.20 B. P9,000 favorable D. P9,000 unfavorable
Production capacity per hour 250 bottles 300 bottles

There are 500 available production hours per month. Based on the above FINANCIAL STATEMENTS ANALYSIS
information
A. Orange and Cola unit contribution margin is the same hence, it is equally 1. Which of the following does not belong to the list?
profitable to produce either A. Common-size financial statements
B. It is more profitable to produce Orange. B. Peso and percentage changes on financial statements.
C. Cola’s contribution margin is higher than that of Orange hence more profitable C. Financial ratios.
to produce. D. Long-form report.
D. It is more profitable to produce Cola.
2. When a balance sheet amount is related to an income statement amount in
116. Pia Computers Inc. has unutilized plant capacity which it could use to produce a low- computing a ratio:
margin item. It should produce the low-margin item if the same can be sold for more A. The income statement amount should be converted to an average for the year.
than its B. Comparison with industry ratios is not meaningful.
A. Indirect costs plus fixed cost. C. The balance sheet amount should be converted to an average for the
B. Variable costs plus any opportunity cost of the unutilized plant year.
capacity. D. The ratio loses its historical perspective because a beginning of the year
C. Fixed costs plus variable cost. amount is combined with an end of the year amount.
D. Variable cost.
4 In 2009, MDG Corporation’s net income was P800,000 and in 2010 it was P200,000.
What
Gross Profit Variation Analysis percentage increase in net income must MDG achieve in 2011 to offset the 2010
decline in net
3 From the records of Dennis Co. the following were taken: income?
A. 60% C. 400%
Quantity Sales B. 600% D. 300%
Cost of Sales 10. Horizontal, vertical, and common-size analyses are techniques that are used by
Product Budget Actual Budget Actual analysts in
Budget Actual understanding the financial statements of companies. Which of the following is an
Green 45,000 45,800 450,000 458,000 270,000 example of
274,800 vertical, common-size analysis?
Red 30,000 26,700 180,000 186,900 108,000 A. Commission expense in 2010 is 10% greater than it was in 2009.
96,120 B. A comparison in financial ratio between two or more firms in the same industry.
White 5,000 9,300 25,000 55,800 15,000 C. A comparison in financial form between two or more firms in different industry.
27,900 D. Commission expense in 2010 is 55 of sales.
80,000 81,800 655,000 700,700 393,000
398,820 11. It refers to the practice of financing assets with borrowed capital. Its extensive use
may impact on the return on common stockholders’ equity to be above or below the
The Sales Price variance: rate or return on total assets.
A. P9,700 favorable C. P36,000 A. Discounting C. Leverage
unfavorable B. Mortgage D. Arbitrage
B. P5,820 favorable D. P36,700 favorable
12. Securing of funds for investment at a fixed rate of return to fund suppliers to
The Sales Volume variance: enhances the well being of the common stockholders is known as:
A. P36,000 favorable C. P9,700 unfavorable A. Financial leverage C. Prudent borrowing
B. P 0 D. P5,820 favorable B. Fund management D. Financial arbitrage

The Cost Price variance: 13. In the process of investing of surplus cash, the term “riding the yield curve” refers to
A. P5,820 favorable C. P 0 favorable
 A. Diversifying securities portfolio so that the firm has an equal balance of long-
term versus short-term securities. 27. If the return on total assets is 10% and if the return on common stockholders’ equity
B. Swapping different maturities of similar quality debt securities in order is 12% then
to obtain higher yield. A. The after-tax cost of long-term debt is probably greater than 10%.
C. Purchasing only the longest maturities for given rates of return. B. The after-tax cost of long-term debt is 12%.
D. Adherence to the liquidity preference theory of securities investment. C. Leverage is negative.
D. The after-tax cost of long-term debt is probably less than 10%.
14. When compared to a debt-to-equity ratio would
A. Be lower than the debt-to-asset ratio. 30. Mayo Corporation has stockholders’ equity equal to 60% of total assets and
B. Be higher than the debt-to-asset ratio. stockholders’ equity of P120 million. If the return on total assets invested registers
C. Be about the same as the debt –to-asset ratio. at 9% what is the return on stockholders’ equity?
D. Have no relationship at all to the debt-to-asset ratio. A. 10.00% C. 15.00%
B. 6.00% D. 12.00%
15. If the ratio of total liabilities to stockholders equity increases, a ratio that must would
also increase is 31. Financial ratios, which assess the profitability of a company, include all of the
A. Time interest ratio C. Total liabilities to following except the
total assets. A. Dividend yield ratio C. Earnings per share ratio
B. The current ratio. D. Return on B. Gross profit percentage. D. Return on sale ratio.
stockholders equity
32. Which of the following statements is incorrect?
16. A measure of the company’s long-term debt paying ability is A. Profitability evaluation ratios have a higher power than solvency determination
A. Return on assets C. Dividend payout. ratios predicting for performance for both income and solvency.
B. Times interest earned. D. Length of the B. Gross profit percentages do not vary a great deal among industries.
operating cycle. C. It is appropriate to compare a company’s current financial ratio with same
financial ratio for (1) that company is prior years and/or (2) the ratio for the
17. All of the following statements are correct except: industry in which the company is affiliated.
A. The matching of asset and liability maturities is considered desirable because D. Companies where product costs present a high percentage of total costs could
this strategy minimizes interest rate risk. be expected to have a low gross profit percentage.
B. Default risk refers to the inability of the firm to pay off its maturing obligations.
C. The matching of assets and liability maturities lowers default risk. 33. This ratio of analytical measurement measures the productivity of assets regardless
D. An increase in the payables deferral period will lead to reduction in the of capital
need to non-spontaneous funding. structures.
A. Return on total assets C. Current ratio.
18. The following situations are descriptive of Euro Corporation. Which would be B. Quick ratio D. Debt ratio
considered as the
most favorable for the common stockholders? 34. MG Goods, Inc. has a total asset turnover of 0.30 and a profit margin of 10 percent.
A. Book value per share of common stock is substantially higher than market value The president is unhappy with the current return on assets, and he thinks it could be
per share; return on common stockholders’ equity is less than the rate of doubled. This could be accomplished (1) by increasing the profit margin to 15 % and
interest paid to creditors. (2) by increasing the total assets turnover. What new asset turnover ratio, along with
B. Equity ratio is high; return on assets exceeds the cost of borrowing. the 15% profit margin, is required to double the return on assets?
C. Euro stops paying dividends on its cumulative preferred stock, the price A. 35% C. 40%
earnings ratio of common stock is low. B. 45% D. 50%
D. Equity ratio is low, return on assets exceeds the cost of borrowing.
35. A fire has destroyed many of the financial records of M Company. You are assigned
21. Which of this ratios are measures of a company’s profitability: to put together a financial report. You have found the return on equity to be 12% and
1. Earnings per share 5. Return on assets the debt ratio was 0.40. What was the return on assets?
2. Current ratio 6. Inventory turnover A. 5.35% C. 6.60%
3. Return on sales 7. Receivables turnover B. 8.4% D. 7.20%
4. Debt-equity ratio 8. Price earnings ratio
36. G and Company has a debt ratio of 0.50, a total assets turnover of 0.25, and a profit
A. All eight ratios. margin of 10%. The president is unhappy with the current return on equity, and he
B. 1, 3, 5 and 8 only. thinks it could be doubled. This could be accomplished (1) by increasing the profit
C. 1, 3, 5, 6, 7 and 8 only. margin to 14% and (2) by increasing debt utilization. Total assets turnover will not
D. 1, 3 and 5 only.
 change. What new debt ratio, along with the 14% profit margin, is required to double 53. Given a year’s end net income of 1.5 million and 50,000 common shares
the return on equity? outstanding throughout the year with market price per share at year’s being p10,
A. 0.75 C. 0.65 the price-earning ratio is:
B. 0.70 D. 0.55 A. 2 times C. 4 times
B. 3 times D. 5 times

Q 38-41 are based on the following information: The management of Lanie Liquidity ratio
Corporaion is preparing its plans for the year 2011. The average assets to be
employed for the year are estimated at P2,600,000 with 20% of this amount 58. Mr. Co, the owner of Galaxy Company is arguing with his accountant as to the best
borrowed at no interest cost. Materials and labor cost for the year is budgeted at measure of
P4,000,000, while operating costs is estimated at P1,500,000. All sales are to be liquidity. He was considering the following and you are to advise him which one is
billed at 162.5% of materials and labor cost. Income taxes are at an average of 35% the best. Which one will you choose?
of income before income tax. A. Current assets minus inventories to current liabilities.
B. Total assets minus goodwill to total liabilities.
38. The estimated rate of return on sales for 2011 is: C. Net income minus dividends to interest expense.
A. 10.00% C. 14.29% D. Sales minus returns to total debt.
B. 12.50% D. 27.86%
59. Zip Corporation has an acid test ratio 1.5 to 1.0. Which of the following will cause
39. The estimated rate of return on average total assets for 2011 is this ratio to
A. 20.00% C. 31.25% deteriorate?
B. 25.00% D. 40.50% A. Payment of cash dividends previously declared.
B. Borrowing short-term loan from a bank.
40. The expected asset turnover for 2011 is C. Sale of inventory on account.
A. 1.5 times C. 3.36 times D. Sale of equipment at a loss.
B. 2.5 times D. 3.75 times
63. Che, Inc. has a current ratio of 4:1. Which of the following transactions would
Growth ratio normally increase its current ratio?
A. Purchasing inventory on account.
41. The rate of return on stockholders’ equity for 2011 is B. Purchasing machinery for cash.
A. 20.00% C. 31.25% C. Selling inventory on account.
B. 25.00% D. 40.50% D. Collecting on account receivable.

43. Data pertaining to Daz Corp.’s common stock are presented for the fiscal year 64. Wil Corporation has current assets totaling P15 million and a current ratio of 2.5 to 1.
ending May 31, 2010: What is Wil’s current ratio immediately after it has paid P2 million of its accounts
payable?
Common stock outstanding P750,000 A. 3.75 to 1 C. 3.25 to 1
Stated value per share 15.00 B. 2.75 to 1 D. 4.75 to 1
Market price per share 45.00
2009 dividends paid per share 4.50 67. On December 31, 2009, Ilocos Company collected a receivable due from a major
2010 dividends paid per share 7.50 customer. Which of the following ratios would be increased by this transaction?
Primary earnings per share 11.25 A. Inventory turnover ratio. C. Receivable turnover ratio.
Fully diluted earnings per share 9.00 B. Quick ratio. D. Current ratio.

The price earnings ratio of common stock of Daz Corp. is: 70. Selected information from the operating records of May Company is as follows:
A. 3.0 times C. 6.0 times Net sales P1,800,000
B. 7.0 times D. 5.0 times Cost of goods sold for 2010 1,200,000
Inventory at 12/31/09 360,000
44. Ashley Company paid out one-half of its 2010 earnings by dividends. Its earnings Inventory at 12/31/10 312,000
increased by 20% and the amounts of its dividends increased by 15% in 2009.
Ashley dividend payout ratio for 2010 was May’s inventory turnover for 2010 is
A. 51.5 % C. 75.00% A. 3.57 times C. 5.36 times
B. 52.3% D. 47.90% B. 3.85 times D. 5.77 times
72. During 2010, Lou Company purchased P960,000 of inventory. The cost of goods sold A. P400,000 C. P266,667
for 2010 was P900,000, and the ending inventory at December 31, 2010 was B. P300,000 D. P800,000
P180,000. What was the inventory turnover for 2010?
A. 6.4 C. 5.3 86. Selected data from the year-end financial statements of Vina Cup Corporation are
B. 6.0 D. 5.0 presented below. The difference between average and ending inventories is
immaterial.
74. The following computations were made from Bay Company’s 2010 books Current ratio 2.0
Quick ratio 1.5
Number of days sales in inventory 61 Current liabilities P6,000,000
Number of days sales in trade accounts receivable 33 Inventory turnover (based on cost of sales) 8 times
Gross profit margin 40%
What was the number of days in Bay’s 2010 operating cycle?
A. 33 C. 61 Vina’s net sales for the year were
B. 94 D. 47 A. P2.4 million C. P1.2 million
B. P4.0 million D. P6.0 million
77. Which of the following ratios should be used in evaluating the effectiveness with
which the
company uses its assets? 87. Romulo Corporation made a substantial one time sale to a provincial based
Receivable turnover ratio Dividend payout ratio customer which was on credit and had been outstanding for six months. Before the
A. No No company could refer the account to a lawyer for collection, the customer paid in
B. Yes No full. Which of the following ratios would be increased by the unexpected receipt?
C. Yes Yes A. Acid-test ratio C. Current ratio
D. No Yes B. Receivable turnover ratio. D. inventory turnover ratio.

82. Dennis Company has a high sales-to-working-capital ratio. This could indicate 88. The ratio of sales to working capital is a measure of
A. The firm is undercapitalized. A. Collectability C. Liquidity
B. The firm is likely to have liquidity problems. B. Operational leverage. D. Financial leverage.
C. Working capital is not profitably utilized.
D. The firm is not profitable. 89. John Corporation has a 2 to 1 current ratio. This ratio would increase more than 2 to1
if
83. For the year ending August 31, 2010, Charles Inc. reported the following statistics: A. The company wrote off an uncollectible receivable.
B. The company purchased inventory on open account.
In thousand Pesos C. The company sold merchandise on open account that earned a normal
2010 2009 gross margin.
Net credit sales 2,482 D. Previously declared stock dividends were distributed.
Gross receivables 140 128
Inventory 384 312 90. Dennis & Sons, Inc. has a 2 to 1 acid test (quick) ratio. This ratio would decrease to
Cost of goods sold 1,752 less than 2 to 1 if
A. The company purchased inventory on open account.
For the current year, using a 365-day year, the average number of days to convert B. The company sold merchandise on open account that earned a normal gross
inventory to sales is margin.
A. 65.00 days C. 72.56 days C. The company collected an account receivable.
B. 51.18 days D. 71.51 days D. The company paid an account payable.

84. If the average age of the inventory is 90 days, the average age of accounts payable 91. On December 31, 2010, Vic Company collected a receivable due from a major
is 60 days, and the average age of accounts receivables is 65 days, the number of customer. Which of the following ratios would be increased by this transaction?
days in the cash flow cycle is A. Inventory turnover ratio C. Receivable turnover
A. 95 days C. 215 days ratio
B. 125 days D. 85 days B. Quick ratio D. Current ratio

85. It is the policy of Marc Corporation that the current ratio cannot fall below 1.5 to 1.0. 92. Euro Inc.’s financial statements as the year ended December 31, 2010 show
its current accounts receivables, net of P750,000 and sales at P15 million. Accounts receivable
liabilities are P400,000 and the present current ratio is 2 to 1. How much is the remained relatively constant during the year. Euro’s accounts receivable turnover in
maximum level of new short-term loans it can secure without violating the policy? days is:
 A. 18.25 C. 15.25 During 2009, Marjo officers exercised stock options for 1,000 shares of stock at an
B. 20.25 D. 16.25 option price of P8 per share. What was the effect of exercising the stock option?
A. No ratios were affected.
93. Inventory turnover indicates: B. Assets turnover increased to 5.4%.
A. How many times in the course of a year the company is able to sell the C. Debt to equity ratio decreased to 12%.
amount of its average inventory. D. Earnings per share increased by P0.33.
B. The flow assumption, which provides the most current valuation in the balance
sheet. CAPITAL BUDGETING
C. The average time period between the purchase of inventory and conversion of
this inventory back to cash. 3. In capital expenditures decisions, the following are relevant in estimating operating
D. A pattern of transferring unit cost from the inventory account to the cost of costs except
goods sold. A. Future costs. C. Differential costs.
B. Cash costs. D. Differential costs
95. All of the following statements are valid except.
A. The short-term creditor is more interested in cash flow and in working capital 4. In capital budgeting decisions, the following items are considered among others:
management than he is in how much accounting net income is reported. 1. Cash outflow for the investment.
B. If the return on total assets is higher than the after-tax cost of long-term debt 2. Increase in working capital requirement.
then leverage is positive, and the common stockholders will benefit. 3. Profit on sale of old asset.
C. The results of financial statements analysis are of value only when viewed in 4. Loss on write-off of old asset.
comparison with the results of other periods or other firms.
D. The inventory turnover is computed by dividing sales by average
For which of the above items would taxes be relevant?
inventory.
A. Items 1 and 3 only. C. All items.
B. Items 3 and 4 only. D. Items 1, 3 and 4 only.
96. Which of the following statements is correct?
A. An increase in a firm’s inventories will call for additional financing
5 All of the following are methods that aid management in analyzing the expected
unless the increase is offset by an equal or larger decrease in some
result of capital
other asset account.
budgeting decisions, except
B. A high quick ratio is always a good indication of a well-managed liquidity
A. Accrual accounting rate of return
position.
B. Payback method.
C. A relatively low return on assets (ROA) is always an indicator of managerial
C. Future value cash flow.
incompetence.
D. Discounted cash flow rate of return.
D. A high degree of operating leverage lowers the risk by stabilizing the firm’s
earnings stream.
6 The consulting firm of Francis Corporation is considering the replacement of their
computer system. Taking into account the income tax effect and considering the
97. The company issued a new common shares in a three-for-one stock split. Identify the
carrying value of the old system (CVOS) and the salvage value of the new system
statements
(SVNS), which combination below applies to the decision making process?
that indicate the correct effect(s) of this transaction.
A. CVOS, irrelevant and SVNS, irrelevant.
1. It reduces equity per share of common stock.
B. CVOS, irrelevant and SVNS, relevant.
2. Share of each common stockholder is reduced.
C. CVOS, relevant and SVNS, irrelevant
3. The peso amount of capital stock is increased.
D. CVOS, relevant and SVNS, relevant
4. Working capital and current ratio are increased.
7 As a capital budgeting technique, the payback period considers depreciation
A. Statements 1 and 4 only are correct.
expense (DE) and time value money (TVM) as follows:
B. Statement 1 only is correct.
A. DE, relevant and TVM, relevant.
C. All four statements are correct.
B. DE, irrelevant and TVM, irrelevant.
D. Statements 3 and 4 only are correct.
C. DE, irrelevant and TVM, relevant.
D. DE, relevant and TVM, irrelevant.
98. The following information pertains to Marjo Corporation as of the year ended
December 31, 2010:
8 John Movers, Inc. is planning to purchase equipment to make its operations more
Liabilities P 60,000
efficient. This
Stockholders’ equity 500,000
equipment has an estimated useful life of six years. As part of this acquisition, a
Shares of common stock issued and outstanding 10,000 shares
P150,000
Net income P 30,000
 investment in working capital is required. In a discounted cash flow analysis, this purchase of a new machine costing P1,200,000 that would increase cash revenues
investment in to P2,900,000 and operating costs (including depreciation) to P2,050,000. The new
working capital machine would increase
A. Should be amortized over the useful life of the equipment. depreciation to P500,000 per year. Revenues are expected to increase to P2,900,000
B. Should be disregarded because no cash is involved. and assuming a 35% income tax rate, Romulo’s incremental after tax cash flows
C. Should be treated as a recurring annual cash flow that is recovered at the end of from the machine would be:
six years. A. P330,000 C. P295,000
D. Should be treated as an immediate cash outflow that is recovered at B. P345,000 D. P300,000
the end of six years.
Traditional evaluation models
9 Depreciation tax shield
A. The expense caused by depreciation. 6 Rain, Inc. plans to undertake a capital expenditure requiring P2 million cash outlay.
B. The cash provided by recording depreciation. Below are the projected after-tax cash inflows for the five-year period covering the
C. A reduction in income tax. useful life. The company’s tax rate is 35%
D. As after-tax cash flow. Year P000
1 600
10. If income tax consideration are ignored, how is depreciation used in the following 2 700
capital budgeting techniques? 3 480
A. Internal Rate of Return, Included; Acctg. Rate of Return, Excluded. 4 400
B. Internal Rate of Return, Excluded; Acctg. Rate of Return, Included. 5 400
C. Internal Rate of Return, Excluded; Acctg. Rate of Return, Excluded.
D. Internal Rate of Return, Included; Acctg. Rate of Return, Included. The founder and president of the company believes that the best gauge for capital
expenditures is
Net Cost of Investment cash payback period and that the recovery period should not be more than 755 of
the useful life of the project or the asset. Should the company undertake the
11. Dagupan Publishers, Inc. is considering replacing an old press that cost P800,000 six project?
years ago with a new one that would cost P2,250,000. Shipping and installation A. No, since the payback period is 4 years or 80% of the useful life of the project.
would cost an additional P200,000. The old press has a book value of P150,000 and B. Yes, since the payback period is 3.55 years or 71% of the useful life of
could be sold currently for P50,000. The increased production of the new press the project.
would increase inventories by P40,000, accounts receivable by P160,000 and C. No, since the payback period extends beyond the life of the project.
accounts payable by P140,000. Dagupan’s net initial investment for analyzing the D. Yes, since the payback period is 4 years and still shorter than the useful life of
acquisition of the new press assuming a 35% income tax rate would be the project.
A. P2,450,000 C. P2,600,000
B. P2,425,000 D. P2,250,000 9 Given these data:
 Net after tax infows are: P24,000 for year1 P30,000 for year 2, P36,000 for year
12. Francis Corp. plans to replace a production machine that was acquired several years 3, and P30,000 for year 4.
ago. Acquisition cost is P450,000 with salvage value of P50,000. The machine being  Initial investment outlay is P60,000.
considered is worth P800,000 and the supplier is willing to accept the old machine at  Cost of capital is 18%.
a trade-in value of P60,000. Should the company decide not to acquire the new
machine, it needs to repair the old one at a cost of P200,000. Tax wise, the trade- in Determine the payback period for this investment:
transaction will not have any implication but the cost to repair is tax-deductible. The A. 2.5 years. C. 3.00 years.
effective corporate tax rate is 35% of net income subject to tax. For purposes of B. 2.17 years. D. 3.17 years.
capital budgeting, the net investment in the new machine is
A. P540,000 C. P660,000 11. The payback reciprocal is an estimate of the internal rate of return. The Cherry, Inc.
B. P610,000 D. P800,000 is considering the acquisition of a merchandise picking system to improve customer
service. Annual cash returns on investment cost of P1.2 million is P220,000. Useful
Net returns life is estimated at 8 years. The company’s cost of capital is 14% and income tax
rate is 35%. Calculate Cherry, Inc’s payback reciprocal for this investment:
19. Romulo Inc. currently has annual cash revenues of P2,400,000 and annual operating A. 20.5% C. 11.9%
costs of B. 18.3% D. 22,2%
P1,850,000 (all cash items except depreciation of P350,000). The company is
considering the 15. The following statements refer to the accounting rate of return (ARR):
1. The ARR is based on the actual basis, not cash basis.
 2. The ARR does not consider the time value of money. D. Due to statements A and C above.
3. The profitability of the project is not considered.
29. Several proposed capital projects, which are economically acceptable, may have to
From the above statements, which are considered limitations of the ARR concept? be ranked due to constraints in financial resources. In ranking those projects, the
A. Statements 2 and 3 only. C. All the 3 statements. least pertinent in this statement
B. Statements 3 and 1 only. D. Statements 1 and 2 A. If the internal rate of return is used in the capital rationing problem the higher
only. the rate the better the project.
16. A capital budgeting method that provides a rough approximation of an investment’s B. In selecting the required rate of return, one may either calculate the
profitability as measured with net income from the income statement is known as: organization’s cost of capital or use a rate generally acceptable in the industry.
A. Average rate of return method C. Payback period method C. A ranking procedure on the basis of quantitative criteria may be established by
B. Net present value method D. Internal rate of return specifying a minimum desired rate of return, which rate is used in calculating
method the net present value of each project.
D. In the net present value method is used, the profitability index is
17. Mel Inc. is planning to spend P600,000 for a machine that it will depreciate on a calculated to rank the projects. The lower the index, the better the
straight-line basis over a ten-year period with no terminal disposal price. The project.
machine will generate cash flow from operations of P120,000 a year. Ignoring
income taxes, what is the accounting rate of return on the net initial investment?
A. 5% C. 10% 30. The “inflation element” refers to the
B. 12% D. 15% A. Impact that future prices increases will have on the original cost of capital
expenditure.
Discounted cash flows model – general concepts B. Fact that real purchasing power of a monetary unit usually increases over time.
C. Future deterioration of the general purchasing power of the monetary
20. Which of the following methods measures the cash inflows and outflows of a project unit.
as if they D. Future increases in the general purchasing power of the monetary unit.
occurred at a single point in time?
A. Cash flow based payback method 31. All of the following refer to the discount rate used by a firm in capital budgeting
B. Capital budgeting except
C. Payback method A. Hurdle rate. C. Opportunity cost.
D. Discounted cash flow. B. Required rate of return. D. Opportunity cost of capital.

21. The method of project selection which considers the time value of money in a capital 32. You are the treasurer of the Elite Corporation. The company is considering a
budgeting proposed project,
decision is accomplished by computing the which has an economic life of seven years. Net present value is the capital
A. Accounting rate of return on initial investment. budgeting technique the president wants you to use. Salvage value of the project
B. Payback period would be:
C. Accounting rate of return on average investment. A. Treated as cash inflow at estimated salvage value.
D. Discounted cash flow. B. Treated as cash inflow at its present value.
C. Irrelevant cash flow item.
24. When using one of the discounted cash flow methods to evaluate the desirability of D. Treated as cash inflow at the future value.
a capital
budgeting project, which of the following factors generally is not important? 33. Depreciation tax shield is
A. The method of financing the project under consideration. A. The expense caused by depreciation.
B. The impact of the project on income taxes to be paid. B. The cash provided by recording depreciation.
C. The timing of the cash flows relating to the project. C. A reduction in income tax.
D. The amount of cash flows relating to the project. D. An after- tax cash flow.

28. Your company is purchasing a transport equipment as part of its territorial expansion 34. Sensitivity analysis, if applied in capital budgeting evaluation,
strategy. The technical services department indicated that this equipment needs A. Is used extensively when cash flows are known with certainty.
overhauling in year 4 and 5 of its useful life. The overhauling cost will be expected B. Is “what if” techniques that ask how a given outcome will change if
during the year the overhauling is done. The Finance Officer insist that the the original estimates of the capital budgeting model are changed.
overhauling be done in year 4, not in year 5. The most likely reason is: C. Measures the amount of time it will take for a project to recover its initial capital
A. There is lower tax rate in year 5. outflow.
B. There is higher tax rate in year 5. D. Is a technique used to rank capital expenditures request.
C. The time value of money is considered.
35. You just passed the CPA licensure examination and took your oath. As you started 53. A disadvantage of the net present value method of capital expenditure evaluation is
your practice, that it
Faith Inc. came to you for help in establishing a minimum desired rate of return to be A. It is difficult to apply because it uses a trial and error approach.
used in the B. Does not provide the true rate of return on investment.
evaluation of a capital project with a five-year life. The following data were provided: C. Is calculated using sensitivity analysis.
Inflation rate for the past 5 years 13% D. Computes the true rate of return.
Expected inflation rate for the next 5 years 9%
“Risk-free” element 5% 59. It is the start of the year and Dennis Company plans to replace its old sing-along
“Risk” premium demanded for the project 7% equipment. These information are available:
Old New
You will advice the client to consider a minimum desired rate of return of Equipment cost P70,000 P120,000
A. 20% C. 16% Current salvage value 10,000
B. 21% D. 25% Salvage value, end of useful life 2,000 16,000
Annual operating costs 56,000 38,000
36. The common assumption in capital budgeting analysis that cash inflows occur in Accumulated depreciation 55,300
lump sums at the end of individuals years during the life of an investment project Estimated useful life 10 years 10 years
when in fact they flow more or less continuously during those years
A. Results in understated estimate of NPV. The company’s income tax rate is 35% and its cost of capital is 12%. What is the
B. Is done because present value tables for continuous flows can not be present value of all the relevant cash flows at time zero?
constructed. A. (P54,000) C. (P120,000)
C. Will result in inconsistent errors being made on estimating NPV’s such that B. (P110,000) D. (P124,000)
project cannot be evaluated reliably.
D. Results in higher estimates for the IRR on the investment. 60. The net present value of a proposed project is negative therefore, the discount rate
must be
37. You have determined the profitability of a planned project by finding the present A. Less than the project’s internal rate of return.
value of all cash flows from that project. Which of the following would cause the B. Less than the risk free rate.
project to look less appealing, that is, have lower present value? C. Greater than the firm’s cost of equity.
A. The discount rate increases. D. Greater than the project’s internal rate of return.
B. The cash flows are extended over a longer period of time.
C. The investment cost decreases without affecting the expected income and life
of the project.
D. The cash flows are accelerated and the project life is correspondingly shortened. 61. You have been consulted to advice Cynth Corporation on the projected acquisition of
another
45. Daz Company plans to invest P2,000 at the end of the next ten years. Assume that production line costing P1 million. The line has an expected useful life of 5 years
Daz will earn without any
interest at an annual rate of 6% compounded annually. The future amount of an salvage value. The company’s hurdle rate is 20% and the following additional
ordinary annuity of P1 for 10 periods at 6% is 13.181. The present value of P1 for ten information were
periods at 6% is 0.558. the present value of an ordinary annuity of P1 for ten periods made available to you.
at 6% is 7.360. the investment after the end of ten years would be Year Estimated Annual Cashflow Present value of P1 at
A. P26,362 C. P14,720 20%
B. P21,200 D. P27,478 1 P 600,000 0.91
2 300,000 .76
Net present value 3 200,000 .63
4 200,000 .53
52. Vida & Company is considering an investment proposal for P10 million yielding a net 5 200,000 .44
present value of P450,000. The project has a life of 7 years with salvage value of P1,500,000 3.27
P200,000. The company uses a discount rate of 12%. Which of the following would
decrease the net present value? Assuming that the cash flow is generated evenly during the year, your advice is
A. Extend the project life and associated cash inflows. A. To invest due to net present value of P94,000.
B. Increase the discount rate to 15%. B. To invest due to net present value of P541,280.
C. Decrease the initial investment amount to P9.0 million. C. To invest due to net present value of P635,000.
D. Increase the salvage value. D. To invest due to net advantage of P500,000.
62. Cherry Corporation is considering the purchase of a new machine that will cost Present value of an annuity of P1 for 5 period 3.6 3.4 3.3
P320,000. It has an estimated useful life of 305 in the first year, 40 % in the second
year, and 30% in the third year. It has a resale value of P20,000 at the end of its The net present value of the project is
economic life. Savings are expected from the use of machine estimated at P170,000 A. P170,000 C. P182,000
annually. The company has an effective tax rate of 40%. It uses 16% as hurdle rate B. P625,000 D. P450,000
in evaluating capital projects. Should the company proceed with the P320,000
capital investment? 66. Dennis Corporation bought a major equipment which is depreciable over 7 years on
a straight line basis without any salvage value. It is estimated that it will generate
Discount factors at 16% cash flow from operations, net of income taxes, of P800,000 in each of the seven
Year Present value of 1 Present value of an ordinary years. The company’s expected rate of return is 12%. Based on estimates, the
annuity of P1 project has a net present value of P127,200. What is the cost of the equipment? To
1 .862 .862 facilitate the computation, below are present value factors:
2 .743 1.605 Present value of P1 and 12% for seven periods is
3 .641 2.246 0.452
Present value of an ordinary annuity of P1 for seven periods is 4.564
A. Yes, due to NPV of P6,556.
B. Yes, due to NPV of P11,684. A. P3,651,200 C. P2,404,000
C. Yes, due to NPV of P61,820. B. P3,524,000 D P3,778,400
D. No , due to negative NPV of P1,136.
67. The General Manager of John Mill Inc. is considering the purchase of some new
63. Annie has P750,000 in a bank account as of the end of the last year. If she deposits machines. The
P10,000 in the account at the end of each of the next three years, and all amounts machine would cost P4,000,000 with an economic life of 8 years without any salvage
in the account can earn 8% per annum, will she become a millionaire by the end of value. Once set up, they would generate P12,500,000 additional revenues but yearly
the said period? (disregard income tax expenses for additional labor and materials would also increase by
implications). P11,500,000.assume the company uses straight-line depreciation for taxes and that
the appropriate tax rate is 35%. The required after-tax rate on return is 14%.
Below are the factors that may be used:
8% Interest rate factors The following data are an interest rate of 15% and 8 periods:
Period Future value of Future value on annuity of P1 Present value of P1 0.3506
1 1.08 1.00 Future value of P1 2.8526
2 1.17 2.08 Present value of an annuity of P1 4.6389
3 1.26 3.25 Future value of annuity of P1 13.2328
4 1.36 4.51
The company should
A. Yes, with P1,075,000. C. Yes, with P1,200,000. A. Purchase the machines due to positive NPV of P638,900.
B. No, with only P870,000. D. No, with only P880,000. B. Not purchase the machines due to negative NPV of P984,715.
C. Not purchase the machines due to negative NVP of P172,907.50.
64. The net present value method of investment analysis assumes that the projects cash D. Be indifferent as the option does not bring about any advantage nor
flows are disadvantage.
invested at the
A. Computed internal rate of return. 68. Marc Assembly Inc. is considering the purchase automatic wirebonder which costs
B. Discounted rate in the NPV calculation. P750,000. It has ten-year life without any salvage value. Marc would save P200,000
C. Firm’s average rate of return. in labor cost annually as a result of the use of the new machine. Power cost would
D. Risk free interest rate. however increase by P25,000 annually. The cost of capital is 16%. The present value
factor for 10 years at 16% is 4.8332. the present value of the net annual cost
65. Ina Foundation, Inc., a non stock, nonprofit and tax exempt foundation, invested P1 savings is:
million in a A. P845,810 C. P745,810
five-year project at the beginning of the year. The foundation estimates that the B. P575,000 D. P966,640
annual savings from the project will amount to P325,000. The P1 million asset is
depreciable over five (5) years on a straight-line basis. The foundation’s hurdle rate 74. Cherry and Company is considering an investment proposal for P10 million yielding a
is 12%. To facilitate computations, below are present value factors: net present value of P450,000. The project has a life of 7 years with salvage value of
12% P200,000. The company uses a discount rate of 12%. Which of the following would
14% 16% decrease the net present value?
Present value of P1 for 5 periods 0.57 0.52 0.48 A. Extend the project life and associated cash inflows.
 B. Increase the discount rate to 15%. foundation, you are asked to determine the internal rate of return and advise if the
C. Decrease the initial investment amount to P9.0 million. project should be pursued. To facilitate computations, below are the present value
D. Increase the salvage value. factors:
12%
Internal rate of return 15%
Present value of p1 for 5 periods 0.57 0.52
79. MDG Corporation is evaluating the purchase of P500,000 die attach machine. The Present value of an annuity of P1 for 5 periods 3.6 3.4
cash inflows
expected from the investment is P145,000 per year for five years with no equipment Your advice is
salvage value. The cost of capital is 12%. The net present value factor for five (5) A. To proceed due to an estimated IRR of less than 14% but not more than 12%.
years at 12% is 3.4331. The internal rate of return for this investment is: B. To proceed due to an estimated IRR of less than 16% but not more than 14%.
A. 3.45% C. 13.80% C. Not to proceed due to an estimated IRR of less than 12%.
B. 2.04% D. 15.48% D. To proceed due to an estimated IRR of not more than 16%.

80. A number of techniques are commonly used in the analysis of capital budgeting 88. Which of the following statements is false?
decisions. Each A. The net present value (NPV) of a project with cash flows that comes in relatively
method involves the measurement of cash flows, except the: slowly is more sensitive to changes in the discount rate than is the NPV of a
A. Internal rate of return C. Average rate of return method. project with cash flows that come in rapidly.
B. Payback period method D. Net present value method. B. Other things held constant, a decrease in the cost of capital (discount
rate) will cause an increase in a project’s internal rate of return (IRR).
81. Marjorie, Inc. is considering an investment that has a positive net present value C. The IRR method can be used in place of the NPV method for all independent
based on its 16% projects because the two methods then result in identical decisions.
hurdle rate. The internal rate of return would be D. The NPV method is preferred over the IRR method because the NPV method’s
A. More than 16%. C. 16%. reinvestment ate assumption is the correct assumption.
B. Less than 16%. D. Zero.
89. You are engaged by the Jon Company to evaluate the introduction of a new product
84. The following data pertain to Romulo Corporation whose management is planning to line with an
purchase innovative packaging. You computed the net present value (NPV) and internal rate of
automated tanning equipment: return (IRR). If you client would reduce the estimate for its sales of the new product
1. Economic life of equipment: 8 years. and increase the projected cost of capital, what would be the impact of these
2. Disposal value after 8 years: nil. revisions in the estimates on NPV and IRR?
3. Estimated net annual cash inflows for each of the 8 years: P81,000. A. NPV will increase, IRR will increase.
4. Time-adjusted internal rate of return: 14%. B. NPV will decrease, IRR will increase.
5. Cost of capital of Romulo Corporation: 16%. C. NPV will increase, IRR will decrease.
6. The table of present values of P1 received annually for 8 years has these D. NPV will decrease, IRR will decrease.
factors: at 14%= 4.639, at 16%= 4.344.
7. Depreciation is approximately P46,970 annually. 96. Euro Corporation is reviewing a capital budgeting decision regarding the acquisition
of a capital
Find the required increase in annual cash inflows in order to have the time-adjusted equipment. Below are the relevant information:
rate of return approximately equal the cost of capital. Investment P300,000
A. P5,501 C. P4,344. Excess PV of net cash inflows 200,000
B. P6,501 D. P5,871 Cash-flow tax shield from depreciation 100,000

86. The internal rate of return (IRR) is the The company is used to have as benchmark for similar projects an excess present
A. Rate of return for which the net present value is greater than 1.0. value index of
B. Rate of return for which the net present value is equal to 0. 0.50, that is, the project’s index should be no less than 0.50. Should this project be
C. Rate of return generated from the operational cash flows. pursued?
D. Hurdle rate. A. No, since the excess present value index is 0.33.
B. Yes, since the excess present value index is 0.67.
87. A tax-exempt foundation, Kapuso Foundation, Inc. intends to invest P1 million in a C. No, since the excess present value index is less than 0.50.
five-year D. Yes, since the excess present value index is 1.50.
project. The foundation estimates that the annual savings from the project will
amount to P325,000. The P1 million asset is depreciable over five (5) years of 102. Payback period (PP) profitability (present value) index (PI), and simple accounting
straight-line basis. The foundation’s hurdle rate is 12% and as a consultant of the rate of return
 (SARR) are some of the capital budgeting techniques. What is the effect of an 3 113 150 130
increase in the cost of capital on these techniques? 120
A. PP will increase, PI will decrease, and SARR will increase. 4 113 110 140
B. PP will have no change, PI will decrease, and SARR will have no 130
change. 5 113 100 150
C. PP will have no change, PI will increase, and SARR will decrease. 150
D. PP will decrease, PI will have no change, and SARR will have no change.
Net present value P7,540 P59,654 P54,666 P(15,708)
103. UFO Corporation’s Project Sky has a net investment of P1.2 million. The present Internal rate of return 12.7% 17.6% 17.2%
value of all future net cash inflows is P2.4 million. The company’s tax rate is 40%the 10.6%
profitability index is Excess present value index 1.02 1.13 1.14
A. 0.50 C. 0.83 0.96
B. 1.20 D. 2.00
The company will choose
104. MJ Company uses a 12% hurdle rate for all capital expenditures. It has lined up four A. Projects M, N, and O C. Projects L and N
projects and B. Projects M and N D. Projects L and M
below is the summary thereof.
Projects in thousand pesos 106. A capital budgeting decision model has provided the following information:
1 2 3 4 Proposal A Proposal B
Initial cash inflows 400 596 496 544 Investment P1,000,000 Investment
Annual cash inflows: P1,800,000
Year 1 130 200 160 190 Profitability index 1.2 Profitability index
2 140 270 190 250 2.1
3 180 180 180 Net present valueP 600,000 Net present valueP
4 130 160 120 300,000

Net present value (7.5) 8.552 28.128 29.324 The better project is
Profitability index 98% 101% 106% 105% A. Proposal A because it has the higher net present value.
Internal rate of return 11% 13% 14% 15% B. Proposal B because it has the higher profitability index.
C. Proposal B because its profitability index is over 2.0..
If the company has no budgetary limitations, which projects should be pursued? D. Proposal A because it has the higher net present value even though its
A. Project 1. C. Project 2, 3 and 4. investment base is smaller.
B. Project 3 and 4. D. All of the four projects.
107. Information on three (3) investment projects is given below:
105. Television Corporation is contemplating four projects: L, M, N and O. the capital cost
for the
Project Investment NPV
initiation of each mutually exclusive project and its estimated after-tax net cash flow
X P150,000 P34,005
are listed
C 100,000 22,670
below. The company’s desired after-tax opportunity costs is 12%. It has P900,000
W 60,000 13,602
capital budget
for the year. Idle funds cannot reinvest at greater than 12%.
Rank the projects in terms of preference:
In Thousand pesos
A. 1st W, 2nd C, 3rd X C. 1st X, 2nd C, 3rd W
B. 1st C, 2nd W, 3rd X D. The ranking is the
L M N same.
O
470 380 400 111. The profitability index approach to investment analysis
420 A. Considers only the project’s contribution to net income and does not consider
Annual cash flows: cash flow effect.
Year 1 113 180 90 B. Always yield the same accept/reject decision for mutually-exclusive project as
80 the net present value method.
2 113 170 110 C. Always yield the same accept/reject decision for independent project
100 as the net present value method
 D. Always yield the same accept/reject decision for dependent project as the net D. Cash sales less cash operating costs less taxes paid.
present value method
6 Which of the following is not a use of working capital?
112. The capital budgeting technique known as internal rate of return uses: A. Repurchase of common stock.
A. Cash flow over entire life of project – No B. Purchase of inventory on account.
Time value of money – Yes C. Purchase of equipment on account.
B. Cash flow over entire life of project – Yes D. Repayment of long-term debt.
Time value of money – Yes
C. Cash flow over entire life of project – No 7 Determining the appropriate level of working capital of the firm requires
Time value of money – No A. Evaluating the risk associated with various levels of fixed assets and the types
D. Cash flow over entire life of project – Yes of debt used to finance those assets.
Time value of money – No B. Changing the capital structure and dividend policy of the firm.
C. Maintaining a high proportion of liquid assets to total assets in order to
NPV Index maximize the return on total investment.
D. Offsetting the profitability of technical insolvency.
113. What is the effect of changes in cash flows, investment cost and cash outflows on
profitability
(present value) index (PI). 8 The amortization of goodwill appearing in the income statement is
A. PI will increase with an increase in cash flows, a decrease in A. Deducted from net income to obtain “Funds provided by operations”.
investment costs, or a B. Added to net income to obtain “Funds provided by operations”.
decrease in cash outflows C. A source of working capital separate from net income.
B. PI will increase with an increase in cash inflows, a increase in investment costs, D. A use of working capital.
or a increase in cash outflows
C. PI will decrease with an increase in cash flows, a decrease in investment costs, 9 Compared to other firms in the industry, a company that maintains a conservative
or a decrease in cash outflows working capital policy will tend to have a
D. PI will decrease with an increase in cash outflows, an increase in investment A. Greater percentage of short-term financing.
costs, or an increase in cash inflows B. Greater risk of needing to sell current assets to repay debt.
C. Higher ratio of current assets to fixed assets.
124. Which of the following statements is correct? D. Higher total assets turnover.
A. One key shortcoming of discounted cash flow method is that they ignore the
recovery of original investment. 10. Which of the following account changes would be classified as a use of funds?
B. Although a cash outlay for non-current assets such as a machine would be A. An increase in accounts payable.
considered, in a capital budgeting analysis, a cash outlay for working capital B. An increase in retained earnings.
item such as inventory would not be considered. C. A decrease in bonds payable.
C. To be acceptable, a project’s time adjusted rate of return cannot be D. A decrease in accounts receivable.
less than the company’s cost of capital.
D. If the net present value of an investment is zero, then the project should be 11. Which of the following would reduce the additional funds required if all other things
rejected since it is not providing any return on the investment. are held
constant?
131. In the capital budgeting, these techniques are applied: payback (PB) , net present A. A decrease in the company’s tax rate.
value (NPV), and time adjusted rate of return (TARR) method. PB has this in common B. An increase in the expected sales growth rate.
with NPV and TARR methods: C. An increase in the dividend payout ratio.
A. Use of cash flows. D. A decrease in the profit margin.
B. Consideration of time value of money.
C. Use of discounting. 14. Dennis Company used the working capital basis of preparing its Fund Flow
D. Use of accrual method of accounting. Statement. The
following data are presented for the year just ended:
GENERAL WORKING CAPITAL CONCEPTS Depreciation expense P48,500
Amortization of patents 12,000
5. The fundamental analysis of cash flow generated from operations may be Cash dividends declared 27,000
determined using any of the following except Cash dividends paid 34,000
A. After tax income plus depreciation. Bonds payable issued 90,000
B. Net income less depreciation plus taxes Sale of common stock 175,000
C. Net income plus depreciation. Amortization of bonds discount 1,500
 Gain on sale of equipment 9,500 1. Sales personnel are unequivocally responsible for collecting their credit
Working capital provided by operations 121,000 sales.
Purchase of land 310,000 2. Sales commissions are based on collected invoices.
Decrease in deferred income taxes 18,000 3. Statements of accounts receivable are reconciled with customers and
regularly sent for confirmation.
Calculate the net income or loss for the period from the above data. 4. Automatic transfer of funds is arranged with banks regarding deposits of
A. P68,500 C. P113,500 branches.
B. P86,500 D. P351,500
Of the above, which will result to better cash flow?
15. The working capital of Cherry Company at December 31, 2009 was P10,000,000.
A. All statements C. Statements 3 and 4
Selected
only.
information for the year 2010 for Cherry Company is as follows:
B. Statements a, 3, and 4 only. D. Statement 4 only.
Working capital provided from operations P1,700,000
Capital expenditure 3,000,000
10. Given the following events, which affect cash flows from operations?
Proceeds from short-term borrowings 1,000,000
1. Cash sale
Proceeds from long-term borrowings 2,000,000
2. Cash dividend paid
Payments on short-term borrowings 500,000
3. Purchase of a long-term asset
Payments on long-term borrowings 600,000
4. Paid employees
Proceeds from issuance of common stock 1,400,000
Dividends paid on common stock 800,000
A. 1 and 5 C. 1, 2, and 5
B. 1, 3, 4, and 5. D. 1, 4, and 5
What is Cherry’s working capital at December 31, 2010?
A. P11,200,000 C. P10,700,000
12. Marc and John’s Store is on the cash basis of preparing its funds statement. These
B. P11,500,000 D. P12,000,000
data are available:

Cash and marketable securities management Decrease in working capital P50,000

Depreciation 13,000
1. Which of the following actions would not be consistent with good management? Increase in cash 25,000
A. Increased synchronization of cash flows. Repairs and maintenance 19,500
B. Minimize the use of float. Total uses of cash 454,000
C. Maintaining an average cash balance equal to that required as a compensating
balance or that which minimizes total cost. Calculate the total sources of cash of Marc and John’s Store.
D. Use of checks and drafts in disbursing funds. A. P472,500 C. P479,500
B. P492,000 D. P467,000
2. Which of the following investments is not likely to be a proper investment for
temporary idle cash? 28. Resto-bar Inc. has been very successful. It is the newest fast food outlet at the
A. Initial public offering of an established profitable conglomerate. Greenbelt of Makati featuring ordinary Filipino food packed with banana leaves. After
B. Commercial paper. six months of operations, it needs to expand. The owner, Mr. Pert Garcia estimates
C. Treasury bills. that 2.4 million will be required to put up another outlet in the Ortigas area.
D. Treasury bonds due within one year.
Financing was offered by a friendly banker at 10 percent discounted interest.
3. A precautionary motive for holding excess cash is Alternatively, Mr.
A. To enable a company to meet the cash demands from the normal flow of Garcia is thinking of just delaying payment to its suppliers. All his sales are on cash
business activity. basis. The
B. To enable a company to avail itself of a special inventory purchase before prices company purchases under terms of 2/10, net 40 but Mr. Garcia believes that he
rise to higher levels. could delay
C. To enable a company to have cash to meet emergencies that may arise payments by another 30 days without any problem. This means of payment could be
periodically. made in 70
D. To avoid having to use the various types of lending arrangements available to delays. Assuming 360days a year, Rest-bar Inc. should opt for
cover projected cash deficits. A. Bank loan since its cost of 11.11 % is cheaper than the cost of delaying
payments of 12.24%.
4. The following practices will impact the cash flow of the company: B. Delaying payments since it has no cost compared to the 10% discounted bank
interest.
 C. Bank loan since its cost of 10% is cheaper than the cost of delaying payments 4 The level of accounts receivable will most likely increase as:
of 12%. A. Cash sales increase and number of days sales.
D. Delaying payments since it cost 2% compared to the 10% discounted bank B. Credit limits are expanded, credit sales increase, and credit terms
interest. remain the same.
C. Credit limits are expanded, cash sales increase and aging of the receivables
29. Bohol Company recently received a commercial bank loan of 16% discounted rate improved.
with a 20% D. Cash sales increase, current receivables ratio to past due increase, credit limits
Compensating balance. The term of the loan in one year. The effective cost of remain the same.
borrowing is:
A. 19.05% C. 22.85% 5 A strict credit and collection policy is in place in Sun Company. As Finance Director
B. 20.00 % D. 25.00% you are asked to advise on the propriety of relaxing the credit standards in view of
stiff competition in the market. Your advise will be favorable if:
30. Euro obtained a short-term bank loan for P1 million at an annual interest of 12%. As A. The competitor will do the same thing to prevent lost sales
a condition of the loan, the company is required to maintain a compensating balance B. There is a decrease in the distribution level of your product and a more
of p200,000 in its savings account which earns interest at an annual rate of 6%. The aggressive stance is necessary to retain market share.
company would otherwise maintain only P100,000 on the savings account for C. The projected margin from increased sales will exceed the cost of
transactional purposes. The effective cost of the loan is carrying the incremental receivables.
A. 13.20% C. 12% D. The account receivable level is improving so the company can afford the
B. 12.67% D. 13.5% carrying cost of receivables.

31. Dennis, Inc. signed a loan agreement subject to the following terms: 6 A change in credit policy has caused an increase in sales, an increase in discounts
1. Stated interest rate of 18% on a one-year discounted loan; and taken, a reduction in the investment in accounts receivables, and a reduction in the
2. 15% compensating non-interest bearing checking account balance to be number of doubtful accounts. Based on this information we know that
maintained by Dennis Inc., with Manila Commercial Bank. A. The net profit has increased.
The net proceeds of the loan was P1 million. The principal amount of the loan was B. The bad debt percentage has increased.
A. P1,176,471 C. P1,492,537 C. The size of the discount offered has decreased.
B. P1,000,000 D. P1,219,512 D. The average collection period has decreased.

Receivables Management 7 If a firm had been extending trade credit on a 2/10, net/30 basis, what change would
be expected on the balance sheet of its customer if the firm went to a net cash 30
Credit and collection policy policy?
A. Increased payables and increased bank loan.
1. The goal of credit policy is to B. Increased receivables.
A. Extend credit to the point where marginal profits equal marginal costs. C. Decreased receivables.
B. Minimize bad debt losses. D. Decreased in cash.
C. Minimize collection expenses.
D. Maximize sales. 8 The credit and collection policy of Green Company provides for the imposition of
credit block when the credit line is exceeded and/or the account is past due. During
2. It is held that the level of accounts receivable that the firm has or holds reflects both the month, because of the campaign to achieve volume targets, the general
the volume of the firm’s sales on account and a firm’s credit policies. Which one of manager has waived the credit block policy in a number of instances involving big
the following items is not considered as part of the firms’ credit policies? volume accounts. The likely effect of this move is
A. The minimum risk group to which credit should be extended. A. Deterioration of aging of receivables only.
B. The extent (in terms of money) to which a firm will go to collect an B. Increase in the level of receivables only.
account. C. Deterioration of aging of receivables and increase in the level of
C. The length of time for which credit is extended. receivables.
D. The size of the discount that will be offered. D. Decrease in collections during the month the move was done.

3. In a set of comparative financial statements, you observed a gradual decline in the 12. The sales director of Red Company suggests that certain credit terms be modified.
net to gross ratio, (i.e., between net sales and gross sales). This indicates that: He estimates the following effects:
A. There is stiffening in the grant of discounts to the customers.  Sales will increase by at least 20%.
B. The discount period is being lengthened.  Accounts receivable turnover will be reduced to 8 times from the present
C. There is adherence to the collection policies of the company. turnover of 10 times.
D. Sales volume is decreasing.
  Bad debts, now at 1% of sales will increase to 1.5%. Sales before the B. No change. D. Decrease of P6,666,667
proposed changes is at P900,000. Variable cost ratio is 55% and desired
rate of return is 20%. Fixed expenses amount to P150,000. 22. The Green sales Company’s budgeted sales for the coming year are P30 million of
which 80% are expected to be made on credit. The company wants to change its
Should the company allow the revision of its credit terms? credit terms from n/30 to 2/10, n/30. If the new credit terms are adopted, the
A. Yes, because income will increase by P64,800. company estimates that cash discounts would be taken on 40 % of the credit sales
B. Yes, because losses will be reduced by P78,800. and the uncollectible amount would be unchanged. The adoption of the new credit
C. No, because income will be reduced by P13,000. terms would result in expected discount availed of in the coming year of
D. No, because losses will be reduce by P28,000. A. P600,000 C. P480,000
B. P288,000 D. P192,000
14. Cherry Inc. sells on terms 3/10, net 30 days. Gross sales for the year are P2,400,000
and the 23. Mr. R. Sim assumed the presidency of Green Corp. he instituted new policies with
collections department estimates that 30 percent of the customers pay on the tenth respect to credit policy. Below is a summary of relevant information:
day and take Credit policy
discounts; 40 percent pay on the thirtieth day; and the remaining 30 percent pay, on Old New
the average, 40 days after the purchase. Assuming 360 days per year, what is the Sales P1,800,000
average collection period? P1,980,000
A. 40 days C. 20 days Average collection period 30 days 36 days
B. 15 days D. 27 days
The company requires a rate of return of 10% and a variable cost ratio of 60%. Using
16. Dennis, Inc. has an inventory conversion period of 60 days, a receivable conversion a 360-day
period of 35 year, the pre-tax cost of carrying the additional investment in receivables under the
days, and a payment cycle to 26 days. If its sales for the period just ended new policy
amounted to P972,000, would be
what is the investment in accounts receivable? (Assume 360 days in a year). A. P4,800,000 C. P3,000,000
A. P85,200 C. P94,500 B. P2,880,000 D. P4,080,000
B. P72,450 D. P79,600
24. Cherry Resource Company has annual credit sales of P4 million. Its average
17. Mar & Company buys on terms 2/10, net 30, but generally does not pay until 40 collection period is 40 days, and bad debts are 5% of sales. The credit and collection
days after the manager is considering instituting a stricter collection policy, whereby bad debts
invoice date. Its purchases total P2,160,000 per year. Assuming 360 days a year, the would be reduced to 2% of total sales, and the average collection period would fall
amount of to 30 days. However, sales would also fall by an estimated P500,000 annually.
“non-free” trade credit used by the company on the average Variable cost is 60% of sales and the cost of carrying receivables is 12%. Assuming a
A. P180,000 C. P 60,000 tax rate of 35% and 360 days a year, the incremental change in the profitability of
B. P240,000 D. P120,000 the company if stricter policy would be implemented would be
A. Zero as the positive and negative effects offset each other.
20. Pert Company has the opportunity to increase annual sales by P1 million by selling B. A reduction in net income by P70,000.
to new riskier C. A reduction in net income by P38,350.
customers. It has been estimated that uncollectible expenses would be 15% and D. A reduction in net income by P35,400.
collection costs, 5%. The manufacturing and selling costs are 70% of sales and
corporate tax is 35%. If they pursue this opportunity, the after-tax profit will: Effective discount rate
A. Increase by P35,000 C. Increase by P65,000
B. Increase by P97,500 D. Remain the same. 34. Three suppliers of Joy Corporation offer different credit term. A Co. offers term of 1 ½
/15, net 30. B Co. offers terms of 1/10, net 30. C Co. offers terms of 2/10, net 60. Joy
21. May Corporation plans to tighten it credit policy. Below is the summary of changes Corporation would have to borrow from a bank at an annual rate of 12% in order to
take any cash discounts. Which of the following would be the most attractive for Joy
Old New Corp.? (Assume 360 days a year).
Average number of days collection 75 50 A. Purchase from A Co., pay in 15 days and borrow any money needed
Ratio of credit to total sales 70% 60% from the bank.
B. Purchase from A Co., pay in 30 days and borrow any money needed from the
Projected sales for the coming year is P100 million and it was estimated that the bank.
new policy will be a 5% less if the new policy is implemented. Assuming a 360-day C. Purchase from C Co., pay in 60 days and borrow any money needed from the
year, what is the effect of the new policy on accounts receivable? bank.
A. Decrease of P13 million. C. Decrease of P5 million. D. Purchase from B Co., pay in 30 days.
 C. With trade terms of 2/15, net 60, if the discount is taken the buyer
35. Dennis, Inc. purchased an item on credit with terns of 3/10, net 45. Based on a 360- receives 45 days of free credit.
day year, the D. The cost of not taking the discount is higher for terms of 2/10, net 60 than for
company’s interest cost of foregoing the cash discounts and making payment on the 2/10, net 30.
last day of the credit period is:
A. 24.00% C. 24.74% 43. Mark Corporation intends to acquire a new equipment to increase its capacity. It is
B. 31.81% D. 30.86% estimated to cost P2.4 million. A bank loan can finance the acquisition at ten percent
(10%) discounted interest. Alternatively, the company may adjust delay payment to
36. The official terms of purchases of Z Company are 2/10, net/30 but generally the its suppliers. Presently, the company buys under terms 2/10, net 40, but
company does not pay until 40 days after the invoice date. The purchases total management believes payment could be delayed 30 additional days, without
P3,600,000 per year. Assuming 360 days a year, the approximate cost of the non- penalty, that is, payment could be made in 70 days.
free trade credit amounts to
A. 18.36% C. 21.90%
Assuming 360 days a year, the company should
B. 24.50% D. 19.40%
A. Borrow since it is cheaper by 1.13% than delaying payment to
suppliers.
37. If a firm purchases raw materials form its suppliers on a 2/10, n/60 cash discount
B. Borrow since it is cheaper by 2.5% than delaying payment to suppliers.
basis, the
C. Delay payments to suppliers since it would cost 12% as against bank loan of
equivalent annual interest rate (using a 36-day year) of foregoing the cash discount
10%.
and making
D. Delay payments to suppliers since it does not cost anything.
payment on the 60th days is
A. 36.7% C. 73.5%
Accounts receivable portfolio analysis
B. 14.7% D. 12.2%
Questions 46 and 47 are based on the following information:
38. Matt Center, Inc.’s new controller is reviewing the company’s cash management.
To improve the credit and collection policies of Mine Corporation, the following data
Below are relevant information regarding trade credits from the suppliers of the
for 2010 were gathered for study:
company:
Suppliers Average Monthly Purchases Credit Terms
Accounts receivable, January 1 P112,000
AB Co. P 100,000 net /30
Accounts receivable, December 31 140,000
CD Co. 300,000 2/10, n/30
Bad debts losses 6,300
EF Co. 1,000,000 5/10, net 120
Allowance for uncollectible accounts, January 1 10,500
GH Co. 600,000 3/10, net 45
Allowance for uncollectible accounts, December 31 7,000
Sales (all sales were made on credit) 630,000
The company uses a 360-day year. Assumes that all of the suppliers can supply any
and all of the
46. What was the total cash collected from customers during 2010?
requirements of software and can provide unlimited credit line to the company and
A. P592,200 C. P599,200
that the company can have only one supplier. With a cost of bank borrowing of 18%
B. P598,500 D. P605,500
per annum, which supplier should Matt will choose?
A. EF Co. due to the longest credit term of 120 days.
47. What was the accounts receivable turnover (rounded to the nearest centavo)?
B. CD Co. due to cost to trade credit of 36.7%.
A. 5.37 C. 4.70
C. EF Co. due to the highest trade discount at 5%.
B. 5.00 D. 4.68
D. AB Co. due to no discount policy.
48. By the end of this you expect to have a cash balance of P500,000. Which of these
39. Pia Corporation purchased an item on credit with terms 3/10, n/45. Using 360-day
transactions/indicators (not considered in your estimate) will reduce this balance.
year, the
A. A modification on credit terms to customers will reduce credit sales.
company’s annual interest cost of foregoing the cash discount and making payment
B. A dialogue with key suppliers will allow discounts on extended
on the last day of the credit period is
payment terms.
A. 30.93% C. 24.74%
C. A new machine will be bought with proceeds from a bank loan that will carry a
B. 31.81% D. 30.86%
17% interest per annum and monthly payments over 2 years.
D. The ratio of current trade receivables to total receivables will decrease.
40. On cash discounts, all of the following statements do not apply except
A. If a firm buys P10,000 of goods on terms of 1/10, net 30 and pays within the
49. Francis Corp.’s account balance at June 30, 2010 for accounts receivable and related
discount period, the amount paid would be P9,000.
allowances for doubtful accounts were P600,000 and P3,000, respectively. Aging of
B. The cost of not taking the cash discount is always higher than the cost of a bank
loan.
 accounts receivable indicated that P48,000 of the June 30, 2010 receivable may be 16. Alma company sells 10,000 RTW pants evenly throughout the year. The cost of
uncollectible. Net realizable value of accounts receivable were carrying one unit in inventory for one year is P6.00 and the purchase cost is P108.00
A. P597,000 C. P539,000 per order. What is the economic order quantity?
B. P552,000 D. P540,000 A. 468 C. 1,208
B. 600 D. 1,000
50. In preparing its budget for July 2010, Marc Company has the following accounts
receivable 17. The following data relate to inventories for a given year of May Company:
information available: Economic order quantity 7,500 units
Accounts receivable at June 30, 2010 Cost to place one purchase order P 75
P350,000 Total cost to place purchase orders for the year P15,000
Estimated credit sales for July Cost to carry one unit for one year P 6
400,000
Estimated collection in July for credit sales in July and prior months 320,000 The estimated annual usage in units would be
Estimated write-offs in July for uncollectible credit sales A. 2,250,000 C. 1,250,000
16,000 B. 2,000,000 D. 5,625,000
Estimated provision for doubtful accounts for credit sales in July
12,000 18. State whether the following statements are true or false.
I – The two main types of inventory cost relevant to inventory decision-making are
What is the projected balance of accounts receivable at July 31, 2010? carrying
A. P402,000 C. P414,000 costs and ordering costs.
B. P430,000 D. P426,000 II – The optimal ordering quantity in the EOQ model occurs at the point where the
sum of the
51. On September 15, 2010, Cherry Corp. accepted from a customer a P100,000, 90-day carrying costs and ordering costs are minimized.
20% interest bearing note dated on the same day. On October 15, 2010, Cherry
discounted the note at the Chinabank at a 23% discount rate. The customer paid A. False; True
the note at maturity. Based on the 360-day, what amount should Cherry report as B. True; False
net interest revenue from the note transaction? C. False; False
A. P 975 C. P5,000 D. True; True
B. P20,000 D. P4,025
19. In inventory management, the problem of avoiding excessive investment in
Inventory management inventories and at the
same time avoiding inventory shortages can be solved by applying a quantitative
3. Marc & Francis Company’s financial plan for next year shows sales of P72 million and technique known as
cost of sales of P45 million. It expects short-term interest rate to average 10% for A. Payback analysis C. Economic order
the coming year. It aims to increase inventory turnover from the present level of 9 quantity model.
times to 12 times next year. If its plans and objectives are carried out, how much is B. Probability analysis. D. High-low point method.
the cost savings for the coming year?
A. P125,000 C. P375,000 20. The carrying cost pertaining to inventory include:
B. P300,000 D. P500,000 A. Insurance costs, incoming freight costs and storage costs.
B. Insurance costs, incoming freight costs and setup costs.
14. The production department of a manufacturing company has been plagued with C. Setup costs and opportunity cost of capital invested in inventory.
excessive number of defective units of standards machine parts that are purchased D. Storage costs and opportunity cost of capital invested in inventory.
from vendors on a regular basis. The most relevant quantitative management
technique for designing a formal inspection system for incoming parts is: 21. The order size determined by the economic order quantity formula minimizes the
A. Economic order quantity methods C. Statistical quality control annual inventory cost which is comprised of ordering costs and
B. Regression analysis D. Standard cost variance analysis A. Safety stock cost C. Stock out cost
B. Carrying cost D. No answer.
15. Jona Company sells 20,000 radios evenly throughout the year. The cost of carrying
one unit of 22. You computed the economic order quantity of the main raw material of Sun
inventory for one year is P8.00 and the purchase order cost per order is P32. What is Company at 10,000
the economic order quantity? units. However, the chief purchasing officer decided to order in quantities of 12,000
A. 200 C. 283 units. What is the probable effect of this decision on the company’s annual purchase
B. 400 D. 625 order cost compared with those amounts had the order been made at the economic
order quantity?
 A. Lower purchase order cost and higher carrying cost. 30. If one optimizes the inventory turnover ratio, which costs will not increase?
B. Lower purchase order cost and lower carrying cost. A. Total reorder costs. C. Unit reorder costs.
C. Higher purchase order cost and lower carrying cost. B. Stockout costs. D. Carrying costs.
D. Higher purchase order cost and higher carrying cost.
31. In computing the economic order quantity (EOQ), which of the following costs should
be included?
23. In the Economic Order Quantity (EOQ) model, some of the underlying assumptions A. The shipping cost to deliver the products to the customer.
are: B. Capital cost.
A. Unlimited production capacity, declining demand, decreasing ordering cost, C. Purchasing staff’s salaries.
decreasing carrying cost, and unlimited inventory capacity. D. Expected value analysis.
B. Constant demand, constant ordering cost constant carrying cost,
unlimited production and inventory capacity. 32. GG Distributors, which buys in a pre-sell basis, is discussing with the route salesmen
C. Limited production capacity, declining demand, constant ordering cost, constant on the proper cases to be ordered and the frequency of call. From the route book
carrying cost, and unlimited inventory capacity. and other records, the following are available: prior year’s purchases, 50,000 cases;
D. Increasing demand, limited production capacity, increasing ordering cost, carrying cost per case of inventory, P1.20; distributor’s discount, 1 case for every 10
increasing carrying cost, and limited inventory capacity. cases bought; cost of placing an order, P3.00; weekly demand is approx. 952 cases.
Safety stock required is 140 cases. No change in demand is expected this year. (Use
24. Minnie Company has correctly computed its economic order quantity at 500 units. a 365-day, 52-week year).
However,
management feels it would rather order in quantities of 600 units. How should Determine the economic order quantity (EOQ)
Minnie’s total annual purchase-order costs and total annual carrying cost for an A. EOQ is 482 cases C. EOQ is 962 cases
order quantity of 600 units compare to the respective amounts for an order quantity B. EOQ is 500 cases D. EOQ is 250 cases
of 500 units?
A. Lower purchase-order cost and lower carrying cost. Determine the reorder point assuming a two-day lead-time.
B. Higher purchase-order cost and higher carrying cost. A. Reorder point is 500 cases C. Reorder point is 275 cases.
C. Lower purchase-order cost and higher carrying cost. B. Reorder point 414 cases D. Reorder point is 280 cases
D. Higher purchase-order cost and lower carrying cost.
33. One of the products Health-s-Wealth Products sells is a magnetic back support. The
25. Economic order quantity models and two-bin system are commonly used controls for ordering costs related to this product is P12.50 per order. The cost of carrying one
a company’s materials function. Those controls primarily relate to what part of the item of inventory for one year is P16.00. The business sells 40,000 of this type of
cycle? product evenly throughout the year. How much is the total ordering costs per year
A. Materials requirements C. Physical storage. and total carrying costs per year at the economic order quantity?
B. Raw materials acceptance. D. Production distribution.
Total Ordering costs
26. The selling price of the product is relatively high and the purchase cost of the A. P1,562.50 C. P1,500.50
product is relatively low. In this situation: B. P2,000.00 D. P4,000.00
A. Management must increase the price to cover the cost of carrying higher
inventory. Total Carrying costs
B. The EOQ model will indicate frequent larger orders. A. P1,562.50 C. P2,560.00
C. The EOQ of the product is affected by the selling price. B. P2,000.00 D. P4,000.00
D. The selling price has nothing to do with the EOQ of the product.
34. Marta works for a local ceramic company. She just completed her accountancy
28. A decrease in inventory cost will degree and learned the EOQ model in one of her subjects. She suggested to her
A. Increase the reorder point. employer to adopt it. The company sells 20,000 pieces of specialty ceramic items
B. Decrease the economic order quantity. each year. Traditionally they have produced these items four times a year, making
C. Have no effect on the economic order quantity. 5,000 pieces at a time. They carry no safety, as customers do not mind waiting for
D. Decrease the holding cost percentage. orders. The average piece of ceramic items cost P400 to make and cost the
company P20 to carry in inventory for a year. The setup costs for each production
29. An increase in inventory holding costs will run total P80. The company should
A. Have no effect on the economic order quantity. A. Adopt EOQ due to savings of P35,675.
B. Increase the economic order quantity. B. Continue the existing system due to P38,950 advantage.
C. Decrease the number of orders issued per year. C. Adopt EOQ due to savings of P42,320.
D. Decrease the economic order quantity. D. Continue the existing system due to P41,820 advantage.
35. Euro, Inc., currently places orders for a particular stock item at quarterly intervals. A. Depreciation and obsolescence. C. Loss of sales.
Information B. Loss of customer goodwill. D. Disruption of production schedules.
concerning these items is as follows:
Cost of placing an order P10 63. When a specific level of stock is carried for an item in inventory, the average
Annual demand 20,000 units inventory level for that item
Purchasing price per unit P1.00 A. Is not affected by the safety stock.
Carrying cost rate 10% B. Increase by the amount of the safety stock.
C. Increase by the one-half the amount of the safety stock.
What annual cost saving would result if Euro used the economic order quantity for D. Decrease by the amount of the safety stock.
order sizes instead of their current policy?
A. P80 C. P150 64. For a 300-day year Wilvina corp. consumes 420,000 units of an inventory item. The
B. P90 D. P240 usual lead-time for the inventory item is six (6) days; however, at times, the leas-
time has gone high as eight (8) days. Wilvina now desires to adjust its safety stock
Reorder point policy. The likely effect on stockout costs and carrying costs, respectively, would be
A. Increase and decrease C. Increase and increase
55. Dong Company sells 200 units of discs per week purchase order lead-time is 3 B. Decrease and decrease D. Decrease and increase
weeks and the
economic order quantity is 450 units. What is the reorder point? 65. Each stockout of product T sold by XTM Inc. costs P8,750 per occurrence. The
A. 425 units C. 600 units carrying cost per
B. 1,750 units D. 2,250 units unit of inventory is P250 per year, and the company orders 1,500 units of product 24
times a year at a cost of P5,000 per order. The probability of stockout at various
56. M & R Company has the following information on inventory: levels of safety stock is
Sales 20,000 units per year
Order quantity 4,000 units
Units of safety stock Probability of stockout
Safety stock 2,600 units
1 .50
Lead-time 4 weeks
100 .30
200 .14
What is the re-order point? (For calculation purposes, use 50-week year)
300 .05
A. P4,200 units. C. 2,600 units
400 .01
B. 5,600 units D. 1,600 units

57. Assorted Discs sells 200 discs per week. Purchase order lead-time averages three The optimal safety stock level for the company is
weeks. Based on most updated calculation, the economic order quantity is 450 A. 0 units C. 200 units
units. The reorder point is B. 100 units D. 300 units
A. 600 discs C. 1,750 discs
B. 425 discs D. 2,250 discs 66. Miles Company uses 840,000 units of component M in manufacturing Product Z over
a 300-day
59. The Chinese Store sells 100,000 tea bags a year. Additional data are presented work year. The usual lead-time for the part is six days, however at times, the lead
below: time has gone high as eight days. Miles now desires to adjust its safety stock policy.
1. Selling price per bag P2.50 The increase in safety stock size is:
2. Purchase cost per bag P1.50 A. 6,800 units. C. 7,200 units.
3. Ordering cost: P5.40 an order B. 2,800 units. D. 5,600 units.
4. Carrying cost: 20% of unit cost
5. Number of days the comp[any operates in a year : 250 67. Francis Corporation consumes 300,000 units of spare part X per year. The average
6. Average lead time on purchases: 6 days purchase lead-time is 20 working days while maximum is 27 working days. The
company’s annual operations cover 240 days allowing for shutdowns for plant
What is the reorder point if the company will keep a 10-day safety stock of maintenance, holidays and Sundays. The company would like to keep safety stock or
inventory? extra stock to guard against stockouts. How much is the safety stock?
A. 2,400 bags C. 6,400 bags A. 25,000 units. C. 33,750 units.
B. 5,400 bags D. 8,800 bags. B. 1,250 units. D. 8,750 units.

Safety stock 85. Indicate whether the following statements are true or false.
I - The cost of warehousing and storage, property taxes, insurance of inventory,
62. The costs of stock-out do not include losses from
 spoilage are examples of ordering costs. quantitative techniques would generally be employed to arrive at an optimal
II – One of the relevant costs in inventory management is “ carrying cost” which solution?
refers to the A. Markov analysis. C. Monte-Carlo analysis.
total effect of the failure of a company to service customers or conduct B. Regression analysis. D. Simplex-method analysis.
manufacturing
operations smoothly because goods, raw material and/or suppliers are out of 68. Dagupan Company manufactures two types of electronic components, both of which
stock. must pass
through the Assembly and Finishing departments. The following constraints apply:
A. True; True
B. False ; False Product Sales price / unit Contribution per Unit Hours required / unit
C. True ; False Assembly
D. False ; True Finishing
A P120 P30 3
86. In inventory control system which employs mathematical models as an aid in 4
making inventory B 180 45 4
decisions is known as 6
A. Order cycling system. C. Statistical inventory control
systems. Demand for Prod A far exceeds the company’s capacity, but the company can only
B. Two-bin system. D. Mini-max system. sell 60 units of Prod. B each week. Workers in the Assembly department work a total
of 200 hours per week, and workers in the Finishing department work a total of 250
hours per week. The company wants to know how many units of each of each
Quantitative techniques in business products to produce to maximize profit. If X represents the number of units of Prod A
and Y represents the Prod. B, the objective function would be
20. A quantitative technique used to discover and evaluate possible cause-and-effect A. Maximize 120X + 180 Y C. Minimize 90X + 135Y.
relationship is B. Maximize 30X + 45Y. D. Minimize 30X +45Y.
A. Correlation analysis C. Program evaluation review
techniques(PERT) 69. Quantitative technique used for selecting the combination of resources that
B. Linear programming D. Poisson distribution models. maximizes profits or
minimizes profits or minimizes cost is:
28. Regression analysis is superior to other cost behavior analysis techniques because it A. Linear programming C. Economic order quantity.
A. Examines only one variable. B. PERT/CPM. D. Correlation analysis.
B. Produces measures of probable error.
C. Proves a cause and effect of relationships. 70. Linear programming is used most commonly to determine
D. Is not a sampling technique. A. The fastest timing.
B. The best use of scarce resources.
55. In evaluating projects, a popular approach to recognize uncertainty about individual C. The most advantageous prices.
items and to D. The mix of variable that will result in the largest quantity.
obtain an immediate financial estimate of the consequences of possible predicting
errors is? 71. A mechanized system of handling parts from one assembly line to another is being
A. Exponential analysis C. Learning curve analysis. contemplated by the Sunshine Co. the technical evaluation indicated that the
B. Sensitivity analysis. D. Expected value analysis. system will reduce labor and waiting time costs substantially. An assessment has to
be made of cost/benefit relationships including the effects of interest. The most
63. A quantitative technique used for selecting the combination of resources that relevant quantitative technique to evaluate the project is:
maximized profits or minimized costs is A. Regression analysis. C. Time adjusted rate of return
A. Curvilinear analysis C. Linear programming analysis.
B. Queuing theory D. Dynamic programming B. PERT/CPM. D. Payback period analysis.

64. A transportation Model is a special case of 72. Linear programming models are mathematical techniques in which an objective
A. Dynamic programming model C. Linear programming model. function is
B. PERT/CPM. D. Economic order quantity. maximized or minimized subject to constraints. These constraints must be fully
specified before a linear programming problem can be solved, and generally
65. Given the basic equations for maximization of profits in linear programming model, describe:
what A. Costs C. Inefficiencies.
B. Resources. D. Dependent variables.
 99. Which of the following statements best describes a difference between basic PERT
73. In a linear programming maximization problem for business problem solving, the and the Critical Path Method (CPM) of network analysis?
coefficient of the objective function usually are A. PERT uses probability distributions on the activity times while CPM uses point
A. Usage rates for scarce resources. estimates for the activity times.
B. Profit based on allocations of overhead and all indirect costs. B. PERT does not allow for slack times on the activities while CPM does.
C. Variable costs. C. PERT does not consider activity cost while CPM does.
D. Marginal contributions per unit. D. PERT determines the least-cost path through a network while CPM determines
the least-time path through a network.
81. The “LR” Company manufactures lacquered jewelry boxes (L) and lacquered mirrors
(R). These
data are presented to you as financial consultant: INFORMATION AND COMMUNICATIONS SYSTEMS
1. The L’s need 3 kilos of material and 3 hours of labor; the R’s need 1.5 kilos
of material and 1 hour of labor.
2. Materials costs P4.00 a kilo and labor costs P20.00 an hour. 1. The time interval between the instant at which as instruction control unit initiates a
3. P20,000 in fixed factory overhead is expected for the month’s population. call for data and the instant at which delivery of the data is completed is:
4. To be available is 400 kilos of material and 240 hours of labor. A. Access time. C. Compliance time.
5. Contribution margin ration for L is 40% and 20% for R. B. Idle time. D. Throughput time.

The objective function for “LR” Company will be: 2. In computer operations, data is encoded before processing can be done by the
A. Maximize: Contribution Margin = P.4L + P.2R. computer. These
B. Maximize: Contribution Margin = P48L + P6.5R – P20,000. statements refer to batch processing except:
C. Maximize: Contribution Margin = P48L + P6.5R. A. The processing of data collected in advance so that each accumulation is
D. Maximize: Contribution Margin = P2.8L + P5.2R. processed in the same run.
B. The technique of executing a set of computer programs such that each
Network models (Project scheduling) completed before the next program of the set is started.
C. The processing of related transactions that have been grouped together.
93. When using the PERT method for network analysis, the critical path through the D. The method of using the computer system that allows a number of
network is users to execute programs currently and to interact with the programs
A. The longest path through the network. during execution.
B. The shortest path through the network.
C. The path with most slack. 3. In computer data processing systems, these are the basic elements and components
D. The least cost path. except:
A. Input/output devices. C. Graphic card and
94. Which of the following statements is the least to the Project Evaluation Review adaptor.
Technique (PERT). B. Central processing unit D. Software, procedures, and
A. It is a system, which uses network analysis and critical path method. personnel.
B. It is more useful for analyzing the relationships of time and activities to discover
potential bottlenecks. 4. Basically, in order to boot program in a computer, one would need:
C. It involves measuring progress in relation to schedule, evaluating changes to A. PC tools. C. User’s manual
schedule, forecasting future progress and predicting and controlling costs. B. Disc operating system. D. File manager.
D. Time, is the primary consideration and this technique is particularly
suited for problems, which involve the combination of resources that 5. You are working with a task force which has been mandated to develop an
maximize profits or minimize costs. integrated information system. The objective is to be able to harness computer
power to make information available to the right person in the company at the right
98. Of these statements, which is the least pertinent to the concept of “slack” in relation time at the most cost effective manner. Your present assignments is to determine
to the Project Evaluation and Review Technique (PERT)? the proper grouping of the applications. What applications are not appropriately
A. The least the amount of slack time, the more critical an activity or grouped?
path. A. Sales, accounts receivable, salesmen’s commission, cash receipts, marketing
B. Slack time information is useful for planning and continuous monitoring. equipment modules.
C. It is computed by subtracting the earliest expected time from the earliest B. Production planning and scheduling, raw materials inventory and container
allowable time. management, purchasing, sales forecasting modules.
D. If not exceeded, non-critical activities can be delayed without delaying the C. Bank reconciliation, accounts payable, disbursements, fixed assets, general
project’s completion time. ledger, payroll modules.
 D. Personnel information system, finished goods inventory, general 12. A system with several computers that are connected for communications and data
ledger, non-trade receivables modules. transmission
purpose, but were each computer can also process its own data, is known as a
6. The advent of computers has far reaching impact on the accountancy profession. A. Hybrid system. C. Distributor data
Whenever processing network.
considered, computerized demands extreme care to avoid the “horror stories” that B. Multitask network. D. Decentralized and computer
may have operators.
experienced. Among the critical areas for careful study is systems designs. Which of
the following is not related to system design? 13. The most critical aspect regarding separation of duties within information system is
A. It considers unnecessary emphasis on accuracy of certain types of economic between
data where the costs to generate exceed the benefits produced. A. Programmers and systems analyst.
B. If there is too much breaking down of job functions, there will be time- B. Project leaders and programmers.
consuming rereading of data that must be understood before it can be C. Data control and file librarian.
processed. D. Programmers and computer operators.
C. It is a symbolic presentation of the decision making process showing
alternative solutions to a problem and the possible consequences. 14. Preventive controls are an integral part of virtually all accounting processing
D. If identical information should be shown on different documents, it must be systems, and much of the information generated by the accounting system is used
captured only once simultaneously. for preventive control purposes. Which of the following is not an essential element of
a sound preventive control system?
7. There are different levels of business application systems in computerized A. Documentation of policies and procedures.
operations in many cases, the applications involve the integration of the transaction B. Sound personnel practices.
level of processing with such business functions as production, marketing, human C. Separation of responsibilities for the recording, custodial and authorization
relations and finance to provide the different levels of people with required functions.
information for planning and control. This is called D. Implementation of state-of-the-art software and hardware.
A. Transaction level.
B. Management information system level. 15. In a manual system, records of current activity are posted from a journal to a ledger.
C. Decision support system level. In a computer system, current records from a (n)
D. Office automation system level. A. Transaction file are updated to a master file.
B. Index file are updated to a master file.
8. The process of developing specifications for hardware, software, manpower, and C. Master file are updated to a year-to-date file.
data resources, and information products required to develop a system is referred to D. Current balance file are updated to an index file.
as
A. System feasibility study. C. System design. 16. Some of the more important controls that relate to automated accounting
B. System implementation. D. System analysis. information systems are
validity checks, limit checks, and sign tests. These are classified as
9. Which of the following shows a logical diagram of the flow of data through all parts A. Input validation routines. C. Control total validation routines.
of the data B. Data process validation routines. D. Output controls.
processing system?
A. Document flow chart. C. Program flow chart. 17. A network of computers located throughout an organization’s different facilities to
B. Systems flow chart. D. Activity flow chart. fulfill
information processing needs is called:
10. An operating system is A. Interactive processing. C. On-line processing.
A. All hardware and software needed to operate the computer system. B. Local area network. D. Distributed data processing.
B. The programs that manages the processing operations of the
computer. 18. How is an Accounting Information System (AIS) distinguished from a Management
C. The assembler program including the source and object programs. Information
D. The input/output control system for a computer system. System (MIS)?
A. An IAS may either be manual or computer-based, an MIS is computer based.
11. Program documentation is a control designed primarily to ensure that B. An IAS is a subsystem within an MIS.
A. Programs are kept up to date and perform as intended. C. An IAS is control oriented and MIS is used exclusively for planning.
B. Programs do not make mathematical errors. D. An IAS deals with financial information and MIS handles all other information.
C. Programmers have access to the tape library or information on disk files.
D. Data have been entered and processed. 19. Feedback, feedforward, and preventive controls are important types of control
systems and
 procedures for accounting information systems. Which of the following is in the B. Systems audit. D. Systems security
correct order of management.
feedback, feedforward, and preventive control systems?
A. Inventory control, capital budgeting, and cash budgeting. 27. Giving the following items
B. Cost accounting, variances, separation of duties, and cash planning. 1. Input 4. Storage
C. Cash budgeting, capital budgeting, hiring qualified employees. 2. Processing 5. Data
D. Cost accounting variances, cash budgeting, and organizational 3. User 6. Output
independence.
What items do not count as fundamental components of a computer system?
20. Edit checks in a computerized accounting system A. Items 3 and 5. C. Items 3, 4 and 5.
A. Must be installed for the system to be operational. B. Items 1, 2 and 5. D. Items 1, 2 and 4.
B. Should be performed immediately prior to output distribution.
C. Should be performed on transactions prior to updating a master file. 28. The technology that permits a computer in one company, an application examples of
D. Are easier to install after a system is operational. which is
computerized billings and payments among companies is
21. Euro Corporation operates in several regions, with each region performing its data A. Transfer system method. C. Electronic data
processing in a region data center. The corporate Management Information System interchange.
(MIS) staff has developed a B. Integrated information systems. D. Local area network.
database management system to handle customer service billing. The director of
MIS recommended that the new system be implemented in Region 4 to ascertain if 29. In an integrated computerized system, the following modules are logically linked
the system operates in satisfactory manner. This type of conversion is called a with the
A. Crash conversion. C. Pilot conversion. purchasing module except
B. Parallel conversion. D. Direct conversion. A. Personnel database and compensating administrative modules.
B. Accounts payable, cash disbursement and bank reconciliation modules.
22. Block coding does C. General ledger and fixed assets and modules.
A. Allow a user to number item sequentially. D. Inventory and production and planning modules.
B. Are randomly calculated groups of number used as a control check.
C. Allow a user to assign meaning to particular segments of coding 30. The general ledger system is considered the “hub” of all the systems because
schemes. A. All the other system capture their data through the general ledger system.
D. Use solely numeric coding techniques. B. The general ledger system is the central system that provides all the vital
reports to management and other interested parties.
23. The process of developing specifications of hardware, software, manpower, data C. All the other system use the same documents and forms as the general ledger
resources, and system.
information products required to develop a system is referred to as D. All the other system produce output that become inputs to the general
A. System design. C. System implementation. ledger system.
B. Systems analysis. D. System feasibility study.
31. One of the most useful applications of the computer technology is computerized
24. While systems analysis focuses on information needs and objectives, system design budgeting. These are some of its benefits except
concentrates on A. Significant reduction in time required in preparation and assembly is achieved
A. Writing programs. C. Testing completed through the use of modeling techniques.
modules. B. There is no need to be precise in understanding the discipline and
B. What to do and how to do it. D. Providing for controls. relationships in the organization and its accounting system.
C. Planning assumptions can be changed with cost and profit implications
25. A decision support system (DSS) is best characterized as estimated before commitments are made.
A. Interactive system. D. Plans can be continuously updated and planning horizons can be extended way
B. Computer-integrated manufacturing system. beyond current period.
C. Transaction processing system.
D. Data base management system. 32. Decision support systems in computerized environment have certain desirable
characteristics except
26. This concept advocates that information is valuable resource and must therefore be A. Flexible enough to accommodate a variety of management styles.
managed like B. Supports decision-makers at all levels but is most effective at the tactical and
other factors of production, manpower, materials and money. This is strategic levels.
A. Integrated information system. C. Information resource C. Executed according to pre-established production schedule.
management. D. Is capable of interfacing with corporate database.
 information system. Which of the following is/are the least likely function to be
33. A function-based information system is designed for the exclusive support of a performed by the system analyst?
specific application area and its database and procedures are often independent of A. Examining user information requirements.
other systems. Hence, certain data for an accounting system for instance, would be B. Developing, coding and testing computer programs.
duplicated in an inventory system. Data redundancy in such cases is expensive. The C. Design of computer application.
information system which shares a common database, minimizes data redundancy D. Developing systems flowchart.
and enhances interdepartmental activity coordination is
A. Communication connectivity. C. Wide working area 41. An executive information system (EIS) focuses on long range objective and gives
B. Time-sharing system. D. Integrated information system. immediate
information about an organization’s critical success factors. It can be used on
34. It is both a technological and an organizational concept based on the premise that computers of all sizes. It is normally used by executives at the highest organizations
information levels. All of the following statements apply to EIS except
systems can be made more responsive to users by placing computer hardware and A. It is likely to be one of the most widely used and the large part of the
personnel information subsystems in a business organization.
physically close to the people who use them. B. It provides top executives with immediate and easy access to information in a
A. Distributed data processing. C. Close-ties computing. highly interactive format.
B. Customer-oriented processing D. Departmental computing. C. It provides information in a highly aggregated form.
D. It helps executives monitor business combinations in general and
35. An example of this management information system is the airline reservation assist in strategic planning to control and operate the entity.
system where all
transactions are recorded as they occur to render the system continuously up-to- 42. The concept of timeliness of data availability is most relevant to
date. A. Computerized systems. C. Online systems.
A. Network system. C. Real time information B. Packaged software. D. Microsystems.
system.
B. Online information system. D. Batch system. 43. To control purchasing and accounts payable, an information system must include
certain source
36. Which of the following does not achieve systems control over source data? documents. For a manufacturing concern like Fruit Processors Inc. these documents
A. Registration at point of entry. C. Prevention of the should include
nonprocessing of data. A. Purchase requisitions, purchase orders, receiving reports, and suppliers
B. Grouping with control totals. D. Sequential numbering. invoices.
B. Purchase orders, receiving reports, and inventory reports of goods
37. Which of the following does not relate to data processing? needed.
A. Summarizing. C. Calculating. C. Purchase requisitions, purchase orders, inventory reports of goods needed and
B. Sorting. D. Math co-processor. suppliers invoices.
D. Purchase orders, receiving reports, and suppliers invoices.
38. Which of the following represents a lack of internal control in a computer based
information system? 44. What type of EDP system is characterized by data that are assembled from more
A. Any and all changes in application programs have the authorization and than one location and records that are updated immediately?
approval of management. A. On-line real-time system. C. Batch processing system.
B. Provision exist to protect data files from unauthorized access, modification, or B. Microcomputer system. D. Minicomputer system.
destruction.
C. Both computer operators and programmers have unlimited access to 45. A system that permits suppliers and buyers to have direct access to portions of each
the programs and data files. others
D. Provisions exist to ensure the accuracy and integrity of computer processing of databases, including date, to enhance service and deliveries is
all files and reports. A. Cooperative processing. C. Electronic data
interchange.
39. An on-line access control that checks whether the user’s code number is authorized B. Interactive processing. D. Electronic mail.
to initiate a
specific type of transactions or inquiry is called 46. An auditor used data to verify the existence of controls in a certain computer
A. Compatibility test. C. Password. program. Even though the program performed well on the test, the auditor may still
B. Limit check. D. Field check. have a concern that
A. Generalized audit software must have been a better tool to use.
40. Systems analysts are fundamentally responsible for the development of an B. Data entry procedures may change and render the test useless.
organization’s C. The text data will not be relevant in subsequent audit periods.
 D. The program tested is the same one used in regular production runs. A. Maintain large inventories of their products.
B. Sell only to other manufacturing companies.
47. All of the following are included in the systems implementing process except C. Desire to meet customers’ deadlines.
A. Training C. Testing. D. Require about the same amount of space to operate.
B. Documentation. D. Systems design.
259. Classifying costs behavior is
A. Associated primarily with financial accounting.
B. Not relevant to a company that has only selling expenses.
C. Common in reports prepared for external readers.
117. JIT manufacturers are more likely than conventional manufacturers to D. None of the above.
A. Use static budget allowances for manufacturing costs.
B. Prepare production budgets without a sales forecast. 260. Which is NOT a common accounting classification of costs?
C. Budget unit production equal to budgeted unit sales. A. By the method of payment for the expenditure.
D. Experience budget variances. B. By the objective of expenditure.
C. By behavior.
154. Which cost is most likely to be mixed for a manufacturer? D. By the function incurring the expenditure.
A. Raw materials
B. Direct labor 261. Which classification of costs is most relevant for income statements to be used
C. Manufacturing overhead internally?
D. Insurance A. Behavior
B. Function
251. he controller of a company or other organization is C. Method of payment
A. A staff manger. D. Object.
B. An operating manager.
C. An accountant, not a manger. 262. The set of processes that transform raw materials into finished products is known as
D. A natural manger. a
A. Differentiation strategy.
254. Managerial accounting is similar to financial accounting in that B. Flexible manufacturing system.
A. Both are governed by generally accepted accounting principles. C. Lowest cost strategy.
B. Both deal with economic events. D. Value chain.
C. Both concentrate on historical costs.
D. Both classify reported information in the same way. 263. Income statements classifying costs by object show such items as
A. Tax expense, wages expense, depreciation expense
255. Managerial accounting differs from financial accounting in that it is B. Cost of goods sold, selling expenses, administrative expenses.
A. More concerned with the future. C. Assets, liabilities, owners’ equity
B. More concerned with segments of a company. D. All of the above.
C. Less constrained by rules and regulations.
D. All of the above. 264. The period that begins with the arrival of materials and ends with the shipment of a
completed good is the
256. One of the ways managerial accounting differs from financial accounting is that A. Cycle time
managerial B. Manufacturing cell
accounting C. Computer-integrated manufacturing
A. Is bound by generally accepted accounting principles. D. Performance period.
B. Classifies information in different ways.
C. Does not use financial statements. 265. Which function is most directly related to management by objectives?
D. Deals only with economic events. A. Planning
B. Control
257. Which activity is NOT normally performed by managerial accountants? C. Decision making
A. Assisting managers to interpret data in managerial accounting reports. D. Reporting
B. Designing systems to provide information for internal and external reports.
C. Gathering data from sources other than the accounting system. 267. A just-in-time manufacturer is more likely than a conventional manufacturer to
D. Deciding the best level of inventory to be maintained. A. Receive more frequent deliveries of materials.
B. Spend less money on advertising
258. Conventional and just-in-time manufacturers both C. Need workers with fewer skills
 D. All of the above.

268. A conventional manufacturer is more likely than a just-in-time manufacturer to

A. Have a short production cycle.
B. Produce goods in small batches.
C. Hold large inventories to serve as buffers.
D. None of the above.

271. Planning and control are

A. Different names for the same thing.
B. The basic functions of management.
C. Descried equally well by the terms “decision making” and “performance
evaluation”.
D. Exemplified by, respectively, financial statements and budgeting.

274. A characteristic of the jus-in-time manufacturing environment is

A. Frequent deliveries of materials.
B. Manufacturing cells
C. Little or no inventory of finished product.
D. All of the above.

275. Conventional and just-in-time manufacturers differ in that the conventional

manufacturer is likely to
A. Be anew entrant into its industry.
B. Need less storage space than its JIT competitors.
C. Give less credibility to management accounting reports.
D. Have a longer production cycle than its JIT competitors.