PHIL.

CPA LICENSURE EXAMINATION MANAGEMENT ADVISORY SERVICES

Management Accounting Cost-Volume-Profit Analysis

Objectives, Role & Scope of Management Accounting 6. A firm is analyzing a relaxation of credit standards that is expected to increase sales 10%.
1. The approaches and activities of managers in short-run and long-run planning and control The firm is currently selling 400 units at an average sale price per unit of P575, and the
decisions that increase value for customers and lower costs of products and services are variable cost per unit is P400 at the current sales volume. The average cost per unit is P425.
known as What is the additional profit contribution from sales if credit standards are relaxed?
A. cost management C. enterprise resource planning A. P6,000 C. P16,000
B. customer value management. D. value chain management Horngren B. P7,000 D. P23,000 Gitman

2. Using product cost information to determine sales prices is an example of 7. Reliable Repair Shop has a monthly target operating income of P30,000. Variable expenses
A. controlling and planning. C. directing. are 40% of sales and monthly fixed expenses are P7,500. Assume the repair shop reaches
B. controlling, directing, and planning. D. directing and controlling. Braun & Tietz its target. By what percentage will its operating income fall if sales volume declines by 12%?
A. Decline by 10% C. Decline by 15%
3. The managerial accountant of XYZ Group Consulting reported the following information about B. Decline by 11% D. Decline by 16%
the sales budget for the period ending December 31, 2019:
XYX Group Consulting 8. Star Corporation manufactures and sells two products: A and B. The operating results of the
Sales Budget company are as follows:
Period Ending December 31, 2019 Product A Product B
Sales in units 2,000 3,000
Quarter 1 2 3 4 Total Sales price per unit P100 P50
Number of units sold 1,000 1,200 975 1,600 4,775 Variable costs per unit 70 30
Per-unit Price P32 P28 P33 P38 In addition, the company incurred total fixed costs in the amount of P90,000.
Total Sales P32,000 P33,600 P32,175 P60,800 158,575 If the company would have sold a total of 6,000 units, how many of those units would you
Observe the Sales Budget and determine which primary responsibility the managerial expect to be Product B?
accountant uses to determine which quarter generated the most per-unit product sales data A. 3,000 C. 3,600
in order to adjust the marketing strategy? B. 3,500 D. 4,000 Barfield
A. Analyzing. C. Directing.
B. Controlling. D. Planning. Braun and Tietz 9. Dana sells a single product at P20 per unit. The firm’s most recent income statement
revealed unit sales of 100,000, variable costs of P800,000, and fixed costs of P400,000. If a
Cost Behavior P4 drop in selling price will boost unit sales volume by 20%, what will the company
4. When 40,000 units are produced, fixed costs are P16 per unit. Therefore, when 80,000 units experience?
are produced, fixed costs will A. An P80,000 drop in profitability.
A. decrease to P8 per unit. C. increase to P32 per unit. B. A P240,000 drop in profitability.
B. remain at P15 per unit. D. total P640,000 Horngren* C. A P400,000 drop in profitability.
D. No change in profit because a 20% drop in sales price is balanced by a 20% increase in
5. The average fixed cost curve always has a negative slope because
volume. Hilton
A. Total fixed costs always decrease.
B. Marginal costs are below average fixe costs.
C. Average variable costs exceed marginal costs.
D. Total fixed costs do not change as output increases. Boyes & Melvin
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Standard Costing & Variance Analysis D. The unit product cost changes as a result of changes in the number of units
10. Orange Furniture’s purchasing manager obtained a special price on an MDF material from a manufactured. G&N
new supplier, resulting in a direct-material price variance of P9,500 F. The MDF produced
more waste than normal, as evidenced by a direct-material quantity variance of P2,000 U. 15. When monthly production volume is constant and sales volume is less than production,
Since it was also difficult to use, it slowed worker efficiency, generating a P2,500 U labor income determined with variable costing procedures will
efficiency variance. To help remedy the situation, the production manager used senior line A. be equal to contribution margin per unit times units sold.
employees, which gave rise to a P9,00 U direct labor rate variance. If overall product quality B. be equal to income determined using absorption costing.
did not suffer, what variance amount is best used in judging the appropriateness of the C. always be less than income determined using absorption costing.
purchasing manager’s decision to acquire substandard material? D. always be greater than income determined using absorption costing. Hansen & Mowen
A. P4,100 F C. P7,000 F
B. P5,000 F D. P7,500 F Hilton Master Budget
16. Which of the following is TRUE of budgets when they are administered thoughtfully?
The next three questions are based on the following information. Horngren A. They eliminate subjectivity in performance evaluation.
Daisy Corporation manufactured 55,000 units of product during September. The following fixed B. They can eliminate the uncertainty faced by a company.
overhead data relates to C. They promote coordination within the subunits of a company. Horngren
Actual Static Budget D. They are a substitute to the planning and coordination functions of management
Production 55,500 units 55,000 units
Machine-hours 985 hours 1,100 hours 17. The following factors should be considered in planning personnel requirements EXCEPT
Fixed overhead costs for September P50,500 P50,600 A. Labor laws requirement.
B. Number of annual working days.
11. What is the flexible budget amount? C. Assessment of the supply and demand of manpower and especially of labor in the area.
A. P50,500 C. P51,060 D.
B. P50,600 D. P55,500
18. Jackson Company has a policy of maintaining an inventory of finished goods equal to 30
12. What is the amount of fixed overhead allocated to production? percent of the following month’s sales. For the forthcoming month of March, Jackson has
A. P50,500 C. P51,060 budgeted the beginning inventory at 30,000 units and the ending inventory at 33,000 units.
B. P50,600 D. P55,500 This suggests that
A. March sales are budgeted at 10,000 units less than April.
13. What is the fixed overhead spending variance? B. March sales are budgeted at 3,000 units less than April sales.
A. P100 favorable. C. P560 favorable. C. February sales are budgeted at 3,000 units less than March sales.
B. P100 unfavorable. D. P560 unfavorable. D. February sales are budgeted at 10,000 units less than March sales. Raiborn

Variable Costing & Absorption Costing 19. Juan Company has a policy of maintaining an inventory of finished goods equal to 30 percent
14. Which of the following statements is true for a company that uses variable costing? of the following month’s sales. For the forthcoming month of March, Juan has budgeted the
A. Income is greatest in periods when production is highest. beginning inventory at 30,000 units and the ending inventory at 33,000 units. This suggests
B. Net operating income moves in the same direction as sales. that
C. Both variable selling costs and variable production costs are included in the unit product A. March sales are budgeted at 10,000 units less than April.
cost. B. March sales are budgeted at 3,000 units less than April sales.
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C. February sales are budgeted at 3,000 units less than March sales. The manager can invest in an additional project that would require P40,000 investment in
D. February sales are budgeted at 10,000 units less than March sales. Raiborn additional assets and would generate P6,000 of additional income. The company’s minimum
rate of return is 14%.
Activity-Based Costing What of the following statements is TRUE?
20. Aqua Company produces two products – Alpha and Beta. Alpha has a high market share A. If the manager invests in the additional project, ROI of the division will decrease.
and is produced in bulk. Production of Beta is based on customer orders and is custom B. The manager invests in the additional project, residual income of the division will
designed. Also, 55% of Beta’s cost is shared between design and setup costs, while Alpha’s increase.
major portions of costs are direct costs. Alpha is using a single cost pool to allocate indirect C. Average investment for Stock Division will decrease if the project is accepted for
costs. Which of the following statements is true of Aqua? investment.
A. Aqua will overcost Beta’s indirect costs because beta has high indirect costs. D. The residual income of the project is less than the residual income of the division without
B. Aqua will undercost Alpha’s indirect costs because Alpha has high direct costs. the project therefore the project will be rejected. Hansen & Mowen
C. Aqua will overcost Beta;s direct costs as it is using a single cost pool to allocate indicate
costs. 24. Tech Corporation manufactures and sells various high-tech office automation products. Two
D. Aqua will overcost Alpha’s indirect costs as it is using a single cost pool to allocate divisions of Tech Corporation are the Computer Chip Division and the Computer Division.
indirect costs. Horngren 15e The Computer Chip Division manufactures one product, a “super chip,” that can be used by
both the Computer Division and other external customers. The following information is
Strategic Cost Management available on this month’s preparations in the Computer Chip Division:
21. Kaizen costing helps to Selling price per chip P500
A. reduce product costs of products in the design and development stage. Variable costs per chip P200
B. keep the target cost as the primary focus after a product enters production. Fixed production costs P600,000
C. keep profit margin relatively stable as product price declines over the product life cycle. Fixed SG&A costs P900,000
D. reduce the cost of engineering change orders during each stage of the product life cycle. Monthly capacity 10,000 chips
Raiborn External sales 6,000 chips
Internal sales 0 chilps
Responsibility Accounting & Transfer Pricing Presently, the Computer Division purchases no chips from the Computer Chips Division, but
22. Which of the following is a disadvantage of a focus on return on investment? instead pays P450 to an external supplier for the 4,000 chips it needs each month.
A. It can encourage managers to focus on cost cutting efforts. The next month’s costs and levels of operations in the Computer and Computer Chip
B. It can encourage managers to cut inventories and reduce over all investment. Divisions are similar to this month.
C. It can encourage managers to focus on the long run at the expense of the short run. What is the minimum of the transfer price range for a possible transfer of the super chip from
D. It can produce a narrow focus on divisional profitability at the expense of profitability for one division to the other?
the overall firm. Hansen & Mowen A. P200 C. P450
B. P350 D. P500 Raiborn
23. The manager of Stock Division projects the following for next year
Balanced Scorecard
Sales P185,000
25. What is “strategy mapping” in the balanced scorecard?
Operating income 60,000
A. Setting the mission.
Operating assets 375,000
B. Mapping the business processes.
C. Identifying causal links between the four perspectives.
D. Agreeing the strategy with the director of the business. Carey, Knowles & Towers-Clark
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26. In which of the four perspectives of a balanced scorecard is the objective “reduce staff Financial Management
turnover” most likely be? Nature, Objectives & Scope of Financial Management
A. customer C. internal processes 31. Profit maximization as a goal is not ideal because it does NOT directly consider
B. financial D. learning and growth A. cash flow and stock price. C. risk and cash flow.
Carey, Knowles & Towers-Clark B. EPS and stock price. D. risk and EPS. Gitman

Quantitative Methods Financial Statement Analysis

27. The learning curve is also known as a(n) 32. Data on Wentz Inc. for 2018 are shown below, along with the payable deferral period (PDP)
A. experience curve. C. growth curve. for the firms against which it benchmarks. The firm’s new CFO believes that the company
B. exponential curve. D. production curve. Heizer & Render could delay payments enough to increase its PDP to the benchmark’s average. If this were
done, by how much would payables increase? Use a 365-day year.
Relevant Costing Cost of goods sold P75,000
28. A company that is operating at full capacity should emphasize those products and services Payable P 5,000
that have the Payables deferral period 24.33
A. highest operating income. Benchmark payables deferral period 30.00
B. lowest total per-unit costs. A. P764 C. P943
C. highest contribution margin per unit. B. P849 D. P1,164 Brigham & Houston
D. highest contribution margin per unit of scarce resource. Hilton
33. A firm with a cash conversion cycle of 175 days can stretch its average payment period from
29. Ruby Co. currently manufactures a subassembly for its main product. The costs per unit are 30 to 45 days. This will result in a/an
as follows: A. increase of 15 days in the cash conversion cycle.
Direct materials P450 B. increase of 30 days in the cash conversion cycle.
Direct labor 350 C. decrease of 15 days in the cash conversion cycle.
Variable overhead 330 D. decrease of 30 days in the cash conversion cycle. Gitman
Fixed overhead 300
Total P1,430 34. Maxx is currently selling for P75 per share. If it is selling at a P/E ratio of 50, what is Maxx’s
Gem Inc. has contacted Ruby with an offer to sell 5,000 of the subassemblies for P1,350 recent earnings per share?
each. Ruby will eliminate P850,000 of fixed overhead if it accepts the proposal. A. P0.15 C. P0.67
What are the relevant costs for Ruby? B. P0.50 D. P1.50 Graham, Smart, Megginson
A. P4,800,000 C. P6,500,000
B. P4,850,000 D. P8,000,000 K&W 35. You have the following information about a company:
Total assets P350,000
30. Ortega Interiors provides design services to residential and commercial clients. The Ordinary share equity P175,000
residential services produce a contribution margin of P450,000 and have traceable fixed Return on equity 14.5%
operating costs of P480,000. Management is studying whether to drop the residential What are the company’s earnings available for ordinary shareholders?
operation. If closed, the fixed operating costs will fall by P370,000 and Ortega’s income will A. P21,875 C. P43,750
A. decrease by P80,000 C. increase by P80,000 B. P25,375 D. P47,632 Hansen & Mowen
B. increase by P30,000 D. increase by P340,000 Hilton
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36. Last year Cruz Corp. had P305,000 of assets, P403,000 of sales, P28,250 of net income, and 40. The Zork Co. has an inventory conversion period of 60 days, an average collection period of
a debt-to-total-assets ratio of 39%. The new CFO believes the firm has excessive fixed 38 days, and a payables deferral period of 30 days. Assume that cost of goods sold is 75%
assets and inventory that could be sold, enabling it to reduce its total assets to P252,500. of sales.
Sales, costs, and net income would not be affected, and the firm would maintain the same If Zork’s annual sales are P3,426,255 and all sales are on credit, what is the firm’s investment
debt ratio (but with less total debt). By how much would the reduction in assets improve the in accounts receivable?
ROE? A. P206,514 C. P281,610
A. 2.85%. C. 3.16% B. P234,675 D. P356,706 Brigham
B. 3.00% D. 3.31% Brigham
41. A company annually consumes 10,000 units of Part C. The carrying cost of this part is P2
The next two questions are based on the following information. Hansen & Mowen per year and the ordering costs are P100. The company uses an order quantity of 500 units.
Luther Corporation had net income of P160,000 and paid dividends to common stockholders of If the company operates 200 days per year, and the lead time for ordering Part C is 5 days,
P40,000 in 2018. The weighted-average number of shares outstanding in 2018 was 50,000 what is the order point?
shares. Luther Corporation’s common stock is selling for P50 per share on Philippine Stock A. 250 units. C. 1,000 units.
Exchange. B. 500 units. D. 2,000 units. Barfield

37. Luther Corporation’s payout ratio for 2018 is 42. If Premium Company has a safety stock of 480 units and the average daily demand is 60
A. 12.5% C. 25% units, how may days can be covered if the shipment from the supplier is delayed by 4 days?
B. 20% D. P5 per share. A. 4 days C. 8 days
B. 7 days D. 12 days Horngren
38. Luther Corporation’s price-earnings rate is
A. 3.2 times. C. 10 times. Capital Budgeting
B. 5 times. D. 15.6 times. 43. Based on the following information, what is the initial cash outflow?
Purchase and installation of new equipment P120,000
Working Capital Management Sale price of replaced equipment 40,000
39. Which of the following statements is CORRECT? Book value of replaced equipment 30,000
A. If a company follows a policy of “matching maturities,” this means that it matches its use When the new equipment is installed:
of common stock with its use of long-term debt as opposed to short-term debt. Inventory increase 20,000
B. Net working capital is defined as current assets minus the sum of payables and accruals, Accounts payable increase 10,000
and any decrease in the current ratio automatically indicates that net working capital has Tax rate 30%
decreased. A. P93,000 C. P147,000
C. Net working capital is defined as current assets minus the sum of payables and accruals, B. P95,000 D. P167,000 Graham, Smart, Megginson
and any increase in the current ratio automatically indicates that the net working capital
has increased. 44. Chung Inc. is considering the replacement of a piece of equipment with a newer model. The
D. Although short-term (ST) interest rates have historically averaged less than long-term following data has been collected:
rates, the heavy use of ST debt is considered to be an aggressive strategy because of Old Equipment New Equipment
the inherent risks associated with using ST financing. Brigham Purchase price P75,000 P125,000
Accumulated depreciation 30,000 -0-
Annual operating costs 100,000 80,000
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If the old equipment is replaced now, it can be sold for P20,000. Both the old equipment’s Risk & Return
remaining useful life and the new equipment’s useful life is 5 years. 50. You are analyzing the performance of different asset classes for a foreign economy. You find
What is the net cost of the new equipment? that over the last 60 years the average annual return for equities was 12%, the average
A. P25,000 C. P105,000 annual return for corporate bonds was 10% and the rate of inflation was about 3%. If inflation
B. P50,000 D. P125,000 K&W were projected to be around 1% for the foreseeable future, then what would you project the
return on equities to be during that same foreseeable period? [1]
45. Discounted cash flow techniques for analyzing capital budgeting decisions are NOT normally A. 9% C. 11%
applied to projects B. 10% D. 12% Smart & Graham
A. that are essential to the business.
B. involving replacement of existing assets. 51. Suppose that in the coming year, you expect Mobilo stick to have a volatility of 42% and a
C. having useful lives shorter than one year. beta of 0.9, and Merck’s stock to have a volatility of 24% and a beta of 1.1. The risk-free
D. requiring no investment after the first year of life. Lauderbach interest rate is 4% and the market’s expected return in 12%.
Which stock has the highest total risk?
46. The internal rate of return method assumes that project funds are reinvested at the A. Merck since it has a higher beta. C. Mobilo since it has a higher volatility.
A. cost of debt capital. C. hurdle rate. Hilton B. Merck since it has a lower volatility. D. Mobilo since it has a lower beta.
B. cost of equity capital. D. rate of return earned on the project. Berk & DeMarzo

The next three questions are based on the following information. Smart & Graham 52. Which of the following statements is FALSE?
A project requires an initial investment in equipment and machinery of P10 million. The equipment A. The standard error is the standard deviation of the average return.
is expected to have a five-year lifetime with no salvage value and will be depreciated on a straight- B. We can use a security’s historical average return to estimate is actual expected return.
line basis. The project is expected to generate revenues of P5.1 million each year for the five C. The standard error provides an indications of how far the sample average might deviate
years and have operating expenses (not including depreciation) amounting to one-third of from the expected return.
revenues. The tax rate is 40%. D. The 95% confidence interval for the expected return is defined as the historical average
return plus or minus three standard errors. Berk & DeMarzo
47. What is the net cash flow in year 1?
A. P0.84 million. C. P2.84 million Capital Structure & Long-Term Decision Making
B. P2.04 million D. P3.40 million 53. In order to enhance wealth of stockholders and to send positive signals to the market,
corporations generally raise funds using the following order:
48. Assume the tax rate is 40% and the cost of capital is 10%. What is present value of cash A. Debt, retained earnings, equity. C. Retained earnings, debt, equity.
inflows from year 1 to year 5? What percentage of this present value is attributed to the tax B. Equity, retained earnings, debt. D. Retained earnings, equity, debt. Gitman
benefits accruing from depreciation?
A. P3.18 million; 95% C. P10.77 million; 28% 54. Yuson Corporation forecasts that if all of its existing financial policies are followed, its
B. P7.73 million; 39% D. P12.89 million; 24% proposed capital budget would be so large that it would have to issue new common stock.
Since new stock has a higher cost than retained earnings, Yuson would like to avoid issuing
49. Assume the tax rate is 40% and the cost of capital is 10%. What is the net present value of new stock. Which of the following actions would reduce its need to issue new common
the project? stock?
A. --P6.82 million. C. P0.77 million. A. Increase the proposed capital budget.
B. --P2.27 million D. P2.89 million. B. Increase the dividend payout ratio for the upcoming year.
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PHIL. CPA LICENSURE EXAMINATION MANAGEMENT ADVISORY SERVICES

C. Increase the percentage of debt in the target capital structure. Brigham C. it creates wealth by letting a person follow his or her self-interest
D. Reduce the amount of short-term bank debt in order to increase the current ratio. D. prices hinder in moving assets from high-value to low-value uses. Froeb

The next three questions are based on the following information. Berk & DeMarzo Microeconomics
NPV represents the value to the existing shareholders of the firm created by the project. 60. A decrease in demand is represented by
Nielson Motors (NM) has no debt. Its assets will be worth P600 million in one year if the economy A. A shift inward of the entire demand curve.
is strong, but only P300 million is the economy is weak. Both events are equally likely. The market B. A shift outward of the entire demand curve.
value today of Nielson’s assets is P400 million. C. A movement along the demand curve in a northwesterly direction.
D. A movement along the demand curve in a southeasterly direction. Mankiw
55. The expected return for Nielson Motors stock without leverage is close to [2]
A. --25.0% C. --12.5% Other Topics
B. --17.5% D. 12.5% Cost Accounting
61. Logro Inc. manufactures stainless steel knives. Following are factory costs incurred during
56. Suppose the risk-free interest rate is 4%. If Nielson borrows P15 million today at this rate and the year:
uses the proceeds to pay an immediate cash dividend, then according to MM, the expected Material costs:
return of Nielson stock just after the dividend is paid would be closest to [3] Stainless steel P950,000
A. --17.5% C. 12.5% Plastic for handles 55,600
B. --12.5% D. 17.5% Equipment oil and grease 18,000
Wood blocks for knife storage 44,800
57. Suppose the risk-free interest rate is 4%. If Nielson borrows P150 million today at this rate Labor costs:
and uses the proceeds to pay an immediate cash dividend, then according to MM, the market Equipment operators P600,000
value of its equity after the dividend is paid would be closest to [4] Equipment mechanics 92,000
A. P0 million. C. P250 million. Factory supervisors 372,000
B. P150 million. D. P400 million. What is the factory overhead cost for the year?
A. P464,000 C. P508,800
Management Consultancy B. P482,000 D. P519,600 Raiborn
Project Feasibility Study
58. Which of the following items is/are true? Financial Accounting
Item 1 The feasibility is basically a forecast. 62. Which of the following adjustments to net income is NOT correct. If you are trying to calculate
Item 2 A feasibility study is prepared to ascertain the viability of the new projects. cash flow from operating activities?
A. Only item 1 C. Both items 1 and 2 A. Add back depreciation. C. Add increases in accounts payable
B. Only item 2 D. Neither of the items. B. Deduct increases in inventory D. Add increases in accounts receivable.
Berk & DeMarzo
Economics
Auditing
Macroeconomics
63. Non-compliance with Laws and Regulations (NOCLAR) Framework was created to comply
59. The biggest advantage of capitalism is that
with which fundamental principles?
A. it forces involuntary exchanges.
A. Confidentiality. C. Objectivity.
B. it generates wealth with the help of government intervention.
B. Integrity. D. Professional competence and due care.
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Sources Solutions
Principles of Economics by Stephen Buckles
Principles of Microeconomics by Grerory Mankiw 1. Answer is (B). 1% + (12% - 3%) = 10%
Microeconomics by Boyes & Melvin
Operations Management by Heizer & Render 2. Answer is (D).
Managerial Accounting by Garrison & Noreen (.5)$600 + (.5)$300 - $400 $50
Introduction to Corporate Finance (Abridged Edition) by Smart & Graham E[rNM] $400 = $400
Introduction to Financial Management by Graham, Smart & Megginson =
Financial Management by Brigham & Houston
Financial Management: Theory & Practice by Brigham 3. Answer is (D).
Accounting Principles by Kieso & Weygandt (.5)$600 + (.5)300 - $150(1.04) - $250 $44
Graham, Smart & Adam E[rNM] = = = 17.6%
$250 $250
Hansen & Mowen
Launderbach
4. Answer is (C)
Horngren
Value of equity = Total value – value of debt = $400 - $150 = $250.
Barfield
Raiborn
Hilton
Carey, Knowles & Towers-Clark
Braun & Tietz
Berk & de Demarzo
Gitman
Froeb

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