MAS-01

Batch 1
MANAGEMENT ADVISORY SERVICES (MAS)

• One of the six CPA board exam subjects (other subjects: AFAR, AUD, FAR, RFBT & TAX)
• Number of items: 70 multiple-choice questions (MCQs), mix of theories and problems
• Topics covered (based on CPA Syllabus effective May 2019):

Part I – MANAGEMENT ACCOUNTING (43%)

 Introduction to Management Accounting

 Cost Concepts and Behavior
 Cost-Volume-Profit Analysis
 Variable and Absorption Costing
 Standard Costing & Variance Analysis
 Financial Planning & Master Budget
 Activity-Based Costing & Activity-Based Management
 Strategic Cost Management
 Responsibility Accounting
 Balanced Scorecard
 Quantitative Techniques
 Relevant Costing & Differential Analysis

Part II – FINANCIAL MANAGEMENT (40%)

 Financial Statement Analysis

 Working Capital Management & Finance
 Operating Leverage, Financing Leverage and Total Leverage
 Capital Budgeting
 Cost of Capital
 Risks and Returns
 Capital Structure & Long-Term Financing Decision

Parts III, IV & V – “THE OTHERS” (17% - 12 out of 70 items)

 Macroeconomics
 Microeconomics
 Management Consultancy
 Project Feasibility Studies
 Ethical Considerations, among others
 Basic consideration in MAS

MANAGEMENT ADVISORY SERVICES- refers to that area of accounting work concerned with providing
advice on technical assistance to help clients improve the use of resources to achieve their goals.

MANAGEMENT CONSULTANT- a person who is qualified by education, experience technical ability, and
temperament to advise or assist businessmen on a professional basis in identifying, defining and solving
specific management problems involving the organization, planning, direction, control and operation of the
firm.

FACTORS FOR THE EMERGENCE AND GROWTH OF MS CONSULTANCY

1. Growth in size and complexity of business firms
2. Complexities in managing and conducting a business
3. Lack of competent staff
4. Trend towards industrialization
5. Need for adequate and timely information in management decision-making
6. Development of techniques for the solution of management problems, and
businessmen’s awareness of their usefulness

REASONS FOR HIRING MANAGEMENT CONSULTANTS

a. Help define specific problems and define solutions.
b. Provide specialized skills and experience.
c. Provide confidential service in which the entity of the clients is concealed.
d. Train client personnel.
e. Help improve intra-company communications.
f. Render an independent opinion.
g. Help get results.

MAS BY CPAs- CPAs performing management consulting and other advisory services are considered in
the practice of professional accounting and are bound by the Code of Ethics for Professional
Accountants.

CHARACTERISTICS OF MAS
1. Services are rendered for the management.
2. Involves problem solving.

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 3. Relates to the future.
4. Broad in scope.
5. Involves varied assignments.
6. Engagements are usually none-recurring.
7. Engagements require highly requires qualified staff.
8. Human relations play a vital role in each engagement.

SCOPE OF MAS
MAS are usually related to the services rendered by CPAs in the areas of auditing, tax, and
accounting and may involve activities such as:
 Counseling management in its analysis, planning, organizing, operating and
controlling functions;
 Reviewing and suggesting improvement of policies, procedures, systems, methods,
and organizational relationships;
 Introducing new ideas, concepts, and methods to management: and
 Conducting special studies, proposing plans and programs, and providing guidance
and technical assistance in their implementation.

BROAD AREAS OF MAS

A. AREAS WHICH ARE NORMALLY RELATED TO THE ACCOUNTING AND FINANCE
FUNCTIONS
1. Financial Accounting System Design and Development
2. Management Accounting System Design and Development
3. Development and Establishment of Budgetary Controls

The field covers the following:

1. Cost Accounting
a. Development of standard cost system
b. Cost analysis and control
c. Variance analysis
2. Financial Management
a. Establishment of capital budgeting procedures
b. Study of the cost of capital and cost of debt
c. Financial analysis for project studies
d. Establishment of operating and cash budgets
e. Valuation of common stock for purposes of mergers and sale

B. AREAS WHICH ARE NOT NORMALLY RELATED TO THE ACCOUNTING AND FINANCE
FUNCTIONS:
1. General Management Consultation
a. Management or Operations Audit
b. Measurement of operating Performance
c. Mergers and Acquisitions Programs
d. Development of Compensation Programs
e. Pension Plan Review
f. Special Studies on Industry Potential
g. Long-Range Planning

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 2. Project Feasibility Studies
- Involves financial, technical and marketing evaluation of proposed projects

3. Organization and Personnel

a. Review of Existing Organization Structure
b. Organization and Administrative Manual Preparation
c. Job Evaluation and Salary Administration
d. Development of Personnel Rating Program
e. Retirement Plan Studies
f. Studies of Cost reduction System
g. Determining of Cost Alternatives in Collective Bargaining Agreements

4. Industrial Engineering
a. Production, Planning, Scheduling and Control
b. Plan Layout Studies
c. Inventory Management Studies
d. Materials Cost System Design and Development
e. Preventive Maintenance System Design and Development
f. Development of Work Studies
g. Purchasing Management, including Value Analysis

5. Marketing
a. Product Profitability Analysis
b. Pricing Policy Determination
c. Market Forecasting
d. Distribution Cost Analysis
e. Salesmen’s Incentive Compensation Evaluation

6. Operations Research
- Involves the use of mathematical techniques, such as linear programming. PERT/CPM,
queuing theory, simulation, etc. to solve operational problems.

The services listed above are not necessarily exhaustive nor complete. The practitioner may offer
other services not mentioned above depending on the practitioner’s competence, experience,
technical ability, and professional integrity to meet or deliver such other services he offers.

MAS QUALIFICATIONS BASED ON REQUIRED EXPERTISE

1. Usual Services:
a. Evaluation of form of business organization
b. Analysis of financial and operating statements
c. Design and installation of accounting systems
d. Design for filing system for storing accounting records
e. Suggestions for improvement of internal control
f. Establishment of control to assist management and expedite the audit process
g. Preparation of insurance claims in case of business interruption

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 h. Research and evaluation o alternative methods of handling a transaction for its
effect on finance and tax consequences
i. Assistance in the preparation of forecasts and budgets
j. Presentation and explanation of statements
k. Assisting clients on purchase or sale of business
l. Testifying on client’s behalf
m. Determination of the effect of various employee compensation plans on net
income
n. Aid in labor union negotiations

2. Somewhat Specialized Services:

a. Assisting in the installation of a mechanized accounting system
b. Making a cost analysis of operations
c. Finding sources of capital and figuring the approximate cost of small business
loans, bond issue, and stock issuance
d. Giving advice on dividend policy and plans for expansion
e. Calculations on government contracts and allocating costs in complete with
reporting requirements
f. Advising on accounting and tax matters relative to estate planning
g. Surveying credit losses
h. Assisting in bankruptcy and receivership proceedings
i. Recruiting accounting and bookkeeping personnel for the client
j. Preparing an analysis of paper flow
k. Presenting and analyzing the pros and cons of various retirement and profit-
sharing plans
l. Advising on various wage incentive plans

3. Highly Specialized Services:

a. Reviewing the organization structure
b. Auditing management policies
c. Conducting motion studies
d. Surveying an industry of trade for current trends
e. Evaluating the desirability of a particular are for plant location
f. Preparing market analysis
g. Reviewing an insurance program
h. Advertising on data processing allocations

ADVANTAGES OF CPAs OVER OTHER PROFESSIONALS IN MAS PRACTICE

- They are already familiar with the client and his business, and enjoy the client’s confidence.
- They are members of a profession with recognized standing and equipped with technical
know-how in accounting and taxation

ANALYTICAL APPROACH AND PROCESS

1. Ascertaining the pertinent facts and circumstances
2. Seeking and identifying objectives
3. Defining the problem or opportunity for improvement
4. Evaluating and determining possible solutions
5. Presenting findings and recommendations

In case the client requests the consultant to proceed, the latter may also be involved in:

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 6. Planning and scheduling actions
7. Advising and providing technical assistance in implementing

3 BROAD STAGES
1. Analysis Stage – consists of ascertaining the pertinent facts and circumstances, seeking
and identifying objectives, and defining the problem or opportunity for improvement.
2. Design Stage – consists of evaluating and determining possible solutions and presenting
findings and recommendations.
3. Implementation Stage – consists of planning and scheduling actions and advising and
providing technical assistance in implementing.

ROLE OF CONSULTANTS AND CLIENTS IN MAS ENGAEMENTS

 IN FULL SCOPE ENGAGEMENTS. These cover all the 7 phases in the analytical process.
CONSULTANT: limited to that of an advisor; in the implementation stage, his role
is merely to provide technical assistance.
 IN SPECIAL STUDY ENGAGEMENTS. The client seeks only an impartial and objective study of
a case and the resulting recommendations. These involve only the first 5 stages in the analytical
process.
CONSULTANT: to proceed through the first five phases of the analytical process,
apply objective judgment to the facts, and present findings and
recommendations to the client for decision and further action.
CLIENT: to supply pertinent information and to make decision on the
case. Any action beyond the point of decision is solely the
responsibility of the client.
 IN INFORMAL ADVICE. Its structure is informal and no presumption should exist that an
extensive study has been performed.
CONSULTANT: to respond as practicable at the moment and express the basis
for the response.

MAS PRACTICE STANDARDS

All CPAs engaged in MAS practice should observe a set of MAS Practice Standards, which are
classified into general and technical standards. These practice standards are as follows:

GENERAL STANDARDS:

1. PROFESSIONAL COMPETENCE
The MAS practitioners shall undertake only those engagements which he or his firm can
reasonably expect to complete.

2. DUE PROFESSIONAL CARE

The MAS practitioner shall exercise due professional care when performing an
engagement.

3. PLANNING AND SUPERVISION

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 The MAS practitioner shall adequately plan and supervise an engagement in a manner
that provides reasonable assurance that the work is conducted in accordance with the
understanding with the client and with the professional standards and rules of conduct.

4. SUFFICIENT RELEVANT DATA

The MAS practitioner shall obtain sufficient relevant data to complete the engagement in
accordance with the understanding with the client and to provide a reasonable basis for
making conclusions and formulating recommendations in relation to the engagement.

5. FORECASTS
The MAS practitioner shall obtain not permit his name to be used in connection with any
forecast of future transactions in a manner that may lead to the belief that the practitioner
vouches for the achievability of the forecast.

TECHNICAL STANDARDS

1. ROLE OF MAS PRACTITIONER

The practitioner should not assume the role of management or take any position of which
may impair the practitioner’s objectivity in performing an engagement. The practitioner
should maintain his independence to enable him to render his professional judgment and
opinions with objectivity. His main role is that of an adviser.

2. UNDERSTANDING WITH THE CLIENT

A written or oral understanding should be reached with the client concerning the nature,
scope, and limitation of the engagement to be performed.

3. CLIENT BENEFIT
The MAS practitioner should obtain an understanding of the possible benefits the client
wishes to achieve from the engagement before beginning the work. The practitioner
should notify his client of any reservations he may have concerning the realization of the
anticipated benefits.

4. COMMUNICATION OF RESULTS
The MAS practitioner should communicate to the client his principal findings, conclusions,
recommendations, or other results of the engagement, including major facts and
assumptions used limitations, reservations, or other qualifications.

STAGES IN MAS MANAGEMENTS

1. Negotiating the engagements

2. Preparing for and starting the engagement
3. Conducting the engagement
4. Preparing and presenting the reports and recommendations
5. Implementing the recommendations
6. Evaluating the engagements
7. Post engagement follow-up

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 These stages constitute the specific activities involved in the MAS engagement cycle which, in general
terms, are the following:
1. Pre-engagement considerations
2. Engagement planning
3. Engagement management and execution
4. Engagement conclusion

MANAGEMENT ACCOUNTING vs. FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

1. User of information Primarily for external users Exclusively for internal users
2. Guiding principles GAAP Principle Management wants & needs
3. Optional/Mandatory Mandatory Discretionary or optional
4. Type of information Primarily monetary in nature Monetary and non-monetary
5. Emphasis of reports Reliability Relevance (timeliness of data)
6. Purpose/End result Financial reporting & compliance Management decision-making
7. Source of data From company’s info system From internal and external sources
8. Amount of detail Compressed & simplified Extensive and detailed
9. Focus of information As a whole As segments and business as a whole 10.
Frequency Periodic (annually, quarterly) As frequent as the need arises
11. Time orientation Mainly historical (past) data Future-oriented using current data
12. Unifying model Assets = Liabilities + Equity No unifying model or equation

COST accounting, while a separate discipline, is a subset of both management and financial accounting.

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MULTIPLE CHOICE: (Sources: CMA/RPCPA/Various Test Banks)
PART 1
1) Management accounting:
A) focuses on estimating future revenues, costs, and other measures to forecast activities
and their results
B) provides information about the company as a whole FA
C) reports information that has occurred in the past that is verifiable and reliable FA
D) provides information that is generally available only on a quarterly or annual basis FA

2) Managers use management accounting information to ________ strategy.

A) choose
B) communicate
C) implement
D) All of these answers are correct.

3. Financial accounting:
A) focuses on the future and includes activities such as preparing next year's operating budget
MA
B) must comply with GAAP (generally accepted accounting principles)
C) reports include detailed information on the various operating segments of the business such
as product lines or departments MA
D) is prepared for the use of department heads and other employees MA

4. The person most likely to use ONLY financial accounting information is a:

A) factory shift supervisor MA
B) vice president of operations
C) current shareholder
D) department manager

5.Which of the following people is LEAST likely to use management accounting information?
A) the controller
B) a shareholder evaluating a stock investment
C) the treasurer
D) an assembly department supervisor

6. Financial accounting provides the primary source of information for:

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A) decision making in the finishing department
B) improving customer service
C) preparing the income statement for shareholders
D) planning next year's operating budget

7. Which of the following descriptors refers to management accounting information?

A) It is verifiable and reliable.
B) It is driven by rules.
C) It is prepared for shareholders.
D) It provides reasonable and timely estimates.

8. Which of the following statements refers to management accounting information?

A) There are no regulations governing the reports.
B) The reports are generally delayed and historical.
C) The audience tends to be stockholders, creditors, and tax authorities.
D) It primarily measures and records business transactions.

9. Which of the following groups would be LEAST likely to receive detailed management
accounting reports?
A) stockholders
B) sales representatives
C) production supervisors
D) managers

10) Management accounting information includes:

A) tabulated results of customer satisfaction surveys
B) the cost of producing a product
C) the percentage of units produced that are defective
D) All of these answers are correct.

11) Cost accounting:

A) provides information on the efficiency of factory labor
B) provides information on the cost of servicing commercial customers
C) provides information on the performance of an operating division
D) All of these answers are correct.

12. Which of the following types of information are used in management accounting?
A) financial information

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B) nonfinancial information
C) information focused on the long term
D) All of these answers are correct.

13. Modern cost accounting plays a role in:

A) planning new products
B) evaluating operational processes
C) controlling costs
D) All of these answers are correct.

14. Cost accounting provides all of the following EXCEPT:

A) information for management accounting and financial accounting
B) pricing information from marketing studies
C) financial information regarding the cost of acquiring resources
D) nonfinancial information regarding the cost of operational efficiencies

15. Management accounting includes all of the following EXCEPT

A) implementing strategies
B) developing budgets
C) preparing special studies and forecasts
D) preparing the statement of cash flows

16. Financial accounting is concerned primarily with:

A) external reporting to investors, creditors, and government authorities
B) cost planning and cost controls
C) profitability analysis
D) providing information for strategic and tactical decisions

17. Financial accounting provides a historical perspective, whereas management

accounting emphasizes:
A) the future
B) past transactions
C) a current perspective
D) reports to shareholders

18. Management accounting is considered most likely to be successful when it:

A) helps creditors evaluate the company's performance
B) helps investors improve their decisions
C) is timely
D) is relevant and reported annually

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19. Control measures should:
A) be set and not changed until the next budget cycle
B) be flexible to allow for employees who are slackers
C) be kept confidential from employees so that competitors don't have an opportunity to
gain a competitive advantage
D) be linked by feedback to planning

20. Planning includes all of the following EXCEPT

A) identifying the problem and uncertainties.
B) obtaining information.
C) providing feedback to help with future decision making.
D) making predictions about the future.

21.A detailed financial plan for the future is known as a:

A) budget.
B) performance report.
C) organization chart.
D) segment.

22. A performance report is:

A) a detailed report comparing budgeted data to actual data for a specific time period.
B) a formal statement of plans for the upcoming period.
C) required to be filed monthly by the Securities and Exchange Commission.
D) not used in decentralized organizations.

23. Samantha Galloway is a managerial accountant in the accounting department of

Mustang Industries, Inc. Samantha has just discovered evidence that some of the
corporation's marketing managers have been wrongfully inflating their expense reports
in order to obtain higher reimbursements from the firm. According to the Institute of
Management Accountants' Standards of Ethical Conduct, what should Samantha do
upon discovering this evidence?
A) notify the controller.
B) notify the marketing managers involved.
C) notify the president of the corporation.
D) ignore the evidence because she is not part of the Marketing Department.

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24. Some raw materials cannot be easily associated with the finished product and cannot
be traced because their physical association with the finished products is too small in
terms of cost. These are considered:
a. Raw Materials
b. Direct Materials
c. Indirect Materials
d. Supplies

25. Prime cost and conversion cost share what common element of total cost?
A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.

26. Manufacturing Cost typically consist of:

A. Direct Materials, Direct Labor, and Manufacturing Overhead
B. Direct Materials, Direct Labor, and Selling Cost
C. Production Cost and Marketing Cost
D. Direct Materials, Direct Labor, and Marketing Expenses

27. It is also called Inventoriable Cost which include each of the manufacturing cost and they
are the costs that are necessary and integral part of producing the finished product
A. Period Cost
B. Product Cost
C. Selling Cost
D. Marketing Cost

28. It is the cost that are identifiable with specific time period rather than salable product and are
deducted outright from revenues under accrual basis of Accounting:
A. Period Cost
B. Product Cost
C. Materials used in Production
D. Indirect Labor

29. It is part of Accounting which involves measuring, recording and reporting of Product Costs
in the company.
A. Cost Accounting
B. Management Accounting
C. Financial Accounting
D. Basic Accounting

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30. Prime cost consists of:
A) direct labor and manufacturing overhead.
B) direct materials and manufacturing overhead.
C) direct materials and direct labor.
D) direct materials, direct labor and manufacturing overhead.

31. Depreciation on a personal computer used in the marketing department of a

manufacturing firm would be classified as:
A) a product cost that is fixed with respect to the company's output.
B) a period cost that is fixed with respect to the company's output.
C) a product cost that is variable with respect to the company's output.
D) a period cost that is fixed with respect to the company's output.

32. Ross Corporation shipped finished goods to a customer on credit, but the sale was not
recorded and the costs of the finished goods were incorrectly included on the period's
balance sheet as part of the finished goods inventory. Which one of the following
statements is correct concerning the effects of this error?
A) Accounts receivable was not affected, inventory was overstated, sales were
understated, and cost of goods sold was understated.
B) Accounts receivable was understated, inventory was not affected, sales were
understated, and cost of goods sold was understated.
C) Accounts receivable was understated, inventory was overstated, sales were
understated, and cost of goods sold was overstated.
D) Accounts receivable was understated, inventory was overstated, sales were
understated, and cost of goods sold was understated.

33. A cost incurred in the past that is not relevant to any current decision is classified as
a(n):
A) period cost.
B) opportunity cost.
C) sunk cost.
D) differential cost.

34. Lathe operators at KF Manufacturing are hourly employees who are paid time and a
half for hours worked in excess of 40 hours per week. Lester is a lathe operator who
worked 45 hours during the current week and had no idle time. The correct accounting
for the amounts paid to Lester would be:

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A) charge only the overtime premium earned to the overhead account.
B) charge the hourly wage earned plus the overtime premium earned to the overhead
account.
C) charge only the overtime premium earned to the direct labor cost for the project
Lester was working on when the overtime was incurred.
D) charge the hourly wage earned plus the overtime premium earned to the direct
labor cost for the project Lester was working on when the overtime was incurred.

35. Compared to financial accounting, managerial accounting places more emphasis on:
A) the flexibility of information.
B) the precision of information.
C) the timeliness of information.
D) both A and C above.

MAS-02
Batch 1
COST BEHAVIOR ANALYSIS

 Cost behavior analysis is the study of how specific costs respond to changes in the level of
activity within a company.

 The starting point in cost behavior analysis is measuring the key activities in the company’s
business.

 Activity levels may be expressed in terms of

– sales peso (retail company),
– miles driven (trucking company),
– room occupancy (hotel), or
– number of dance classes taught (dance studio).

 For an activity level to be useful in cost behavior analysis, there should be correlation between
changes in the level or volume of activity and changes in the costs.

 The activity level selected is referred to as the activity (or volume) index.

 The activity index identifies the activity that causes changes in the behavior of costs.

VARIABLE COST:

Variable costs are costs that vary in total directly and proportionately with changes in the activity level.

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A variable cost may also be defined as a cost that remains the same per unit at every level of
activity.

FIXED COST

Fixed costs are costs that remain the same in total regardless of changes in the activity level.

Since fixed costs remain constant in total as activity changes, fixed costs per unit vary inversely with
activity. As volume increases, unit cost declines and vice versa.

SUMMARY:
SALES (Increase) Sales (Decrease)

Total Variable Cost Increase Decrease

Variable Cost Per Unit Same Same
Total Fixed Cost Same Same
Fixed Cost Per Unit Decrease Increase

MIXED COST

Mixed costs contain both a variable cost element and a fixed cost element.

Sometimes called semivariable costs, mixed costs change in total but not proportionately with changes
in the activity level.

 In CVP analysis, it is assumed that mixed costs must be classified into their fixed and
variable elements.

 Firms usually ascertain variable and fixed costs on an aggregate basis at the end of a time
period, using the company’s past experience with the behavior of the mixed cost at various
activity levels.

a. HIGH-LOW METHOD - is a mathematical method that uses the total costs incurred at the high
and low levels of activity.

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 The steps in calculating fixed and variable costs under this method are as follows:

1. Determine variable cost per unit from the following formula:

High minus Low Costs  High minus Low Activity Level = Variable Cost per unit

2. Determine the fixed cost by subtracting the total variable cost at either the high or the low
activity level from the total cost at that activity level.

Please take note:

CORRECT
Cost at Cost at
Highest Low est
Activity Activity
-
-
Highest Low est
Activity Activity

WRONG
Highest Low est
Cost - Cost
-

Highest Low est

Activity Activity

b. REGRESSION ANALYSIS - refers to a technique for estimating the relationship between

variables. It helps people understand how the value of a dependent variable changes when one
independent variable is variable while another is held constant. Regression analysis is used in
forecasting future data. 

The steps in calculating fixed and variable costs under this method are as follows

1. Determine variable cost per unit from the following formula:

Where:
E = Summation
x = Activity
y = Cost
xy = Activity multiply to Cost
n = term

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 _
x = Average activity
_
y = Average cost

2. Determine the Fixed Cost:

_ _
a = Exy – n (x) (y)

COST BEHAVIOR ANALYSIS

PROBLEMS:

A. Rivera Inc. operates an automobile service facility, which specializes in replacing mufflers on
cars. The following table shows the costs incurred during a month when 750 mufflers were
replaced.
Number of Muffler Replacements
400 500 800
Total Costs
Fixed Cost 1. 50,000 P50,000 2. 50,000
Variable Cost 3. 48,000 60,000 4. 96,000
Total Costs 5. 98,000 P110,000 6. 146,000
Cost per muffler/unit
Fixed Cost 7.125. 8.100. 9. 62.50
Variable Cost 10.120. 11. 120. 12.120__
Total Costs 13.245. 14. 220. 15.182.50

Required: Fill the missing amounts.

B. Francis Villamin Company has assembled the following data pertaining to certain costs that
cannot be easily identified as either fixed or variable. Ramos Company has heard about a
method of measuring cost functions called the high-low method and has decided to use it in this
situation.
Cost Hours
$24,900 5,250
25,000 5,500
36,400 7,500
44,160 9,750
45,000 9,500

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Required:
a. Compute for Variable cost per unit.

VC Unit = _44,160 – 24,900_

9,750 – 5,250
= 4.28

b. Compute for Total Fixed Cost

High Low
TC 44,160 24,900
VC 41,730 4.28 x 9,750 22,470 4.28 x 5,250
FC. 2,430 2,430

c. What is the cost function?

TC = 4.28 (x) + 2,430

C. Bee Jay De Leon Company has provided the following data for the first five months of the
year:
Machine Hours Lubrication Cost
January 120 P750
February 160 P800
March 200 P870
April 150 P790
May 170 P840
1. Using the high-low method of analysis, compute the estimated variable lubrication cost
per machine hour rounded to the nearest centavo

VC unit = 870 - 750

200 – 120
VC = 1.50

2. Using the high-low method of analysis, the compute estimated monthly fixed component of
the lubrication cost.

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TC 870 750
VC. 300 1.50 x 200 180 1.50 x 120
FC. 570 570

3. Using the least-squares regression method of analysis, the estimated variable lubrication cost
per machine hour is closest to?
_. _ 2

X X Y Y XY X
N MHrs
1 120. 160 750. 810 90,000 14,400
2 160 160 800 810. 128,000 25,600
3 200. 160 870. 810. 174,000. 40,000
4 150. 160. 790. 810. 118,500. 22,500
5 170. 160. 840. 810. 142,800. 28,900
800. 800 4,050. 4,050. 653,300 131,400
Ex Ey. Exy. Ex2

_. _
Vc unit = EXY – N (X) (Y)
EX2 – N (X)2

VC UNIT = 653,300 – 5 (160) (810)

131,400 – 5 (160)2

VC UNIT = 1.56

4. Using the least-squares regression method of analysis, the estimated monthly fixed
component of lubrication cost is closest to:
_ _
FC = Y – VC/UNIT (X)
FC = 810 – 1.56 (160)
FC = 561

5. Using the high-low method of analysis, the estimated total lubrication cost for June if the
estimated machine hours is 130 is closest to:
TC = VC/UNIT(X) + FIXED COST
TC = 1.50 (X) + 570
TC = 1.50 (130) + 570
TC= 765

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6. Using the least-squares regression method of analysis, the estimated total lubrication
cost for June if the estimated machine hours is 130 is closest to:

TC = VC/UNIT (X) + FIXED COST

TC = 1.56 (X) + 561
TC = 1.56 (130) + 561
TC = 763.80

7. Using the high-low method of analysis, the estimated total lubrication cost for June if the
estimated machine hours is 0 is closest to:

TC = VC/UNIT(X) + FIXED COST

TC = 1.50 (X) + 570
TC = 1.50 (0) + 570
TC= 570

8. Using the least-squares regression method of analysis, the estimated total lubrication
cost for June if the estimated machine hours is 0 is closest to:

TC = VC/UNIT (X) + FIXED COST

TC = 1.56 (X) + 561
TC = 1.56 (0) + 561
TC = 561

D. The following data are available for Advanced Review Solutions, Ms. Mary Joseph Lopo, the
owner/review director wants to find out if class hours indeed drives utility costs. The following
data shows the number of hours spent in CPA review classes from January to October,

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however, for the month of May CPD (Continuing Professional Development ) seminars were
also conducted in the review school in addition to the CPA review classes.

Month Class Hours Utility Costs(P) Month Class Hours Utility Costs(P)
Jan 7,260 2,960 Jun 4,900 1,860
Feb 8,850 3,410 Jul 4,600 2,180
Mar 4,800 1,920 Aug 8,900 3,470
Apr 9,000 3,500 Sep 5,900 2,480
May 11,000 3,900 Oct 5,500 2,310

1. What is the variable costs rate under high low method?

2. What is the fixed costs under high low method?

3. What is the variable costs rate using regression analysis?

4. What is the fixed costs using regression analysis?

E. The income statement of Michael Gatchalian Foods are presented below.

Particular October(P) November(P)
Sales 80,000 90,000
Cost of Sales 48,000 54,000
Gross Profit 32,000 36,000
Operating Expenses
Selling 8,500 8,800
Administrative 9,200 9,400
Total Operating Expenses 17,700 18,200

Net Income 14,300 17,800

Michael Gatchalian, the owner enlist your help to develop a CVP relationship for planning and
control.
Required:
1. Using the high-low method, compute the variable and fixed component of the cost of
sales, selling and administrative expenses.

VC = 72,200 – 65,700
90,000 – 80,000
VC = 0.65 / UNIT

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TC 72,200 65,700
VC 58,500 90,000 X 0.65 52,000 80,000 X 0.65
FC. 13,700 13,700

TC = 0.65 (X) + 13,700

2. Prepare a contribution margin income statement based on sales of P100,000.

SALES 100,000
VC (0.65 X 100,000). 65,000
CM 35,000
FC 13,700
NI 21,300

3. Compute for the peso breakeven point.

BEP IN PESO = 13,700 / 35% = 39,142.86

F. Jimmy Balmediano Company has a 25% margin of safety. Its after tax return on sales is 6%,
and its tax rate is 40%.

Required:
1. Compute for the contribution margin ratio.

2. Compute for fixed cost assuming sales of P120,000.

G. Andrew Manacop Co. had a loss of P3 per unit when sales were 40,000 units and a loss of
P1.60 per unit at 50,000 units sales.

Required:

1. Compute contribution margin per unit.

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2. Determine fixed costs.

3. Compute for the units breakeven point.

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