Management Advisory Services

Management Services
First Preboard Examination

INSTRUCTIONS: Choose the best answer among the given choices. Policies on academic honesty are strictly
enforced.

1. The segregation of fixed and variable costs is key to proper cost analysis. Regression analysis is a
technique used for this purpose. Identify the appropriate statements below on regression analysis.
i. It assumes that a change in the value of a dependent variable is related to the change in
the value of an independent variable.
ii. A linear relationship between direct cost and production volume can cause a problem
when using accounting data for regression analysis.
iii. It attempts to find an equation for the linear relationship among variables.
iv. It establishes a cause and effect relationship.

a. All four statements are appropriate

b. Statements 1, 3 and 4 only
c. Statements 1 and 3 only
d. Statements 2 and 4 only

2. For a simple regression analysis model that is used to estimate the total factory overhead, an internal
auditor finds that the line of regression that intersects with the y-axis is P5,000. The slope of the trend
line is 0.20. The independent variable amounts to P900,000 for month.

What is the estimated amount of factory overhead or the month?

a. P92,500
b. P180,000
c. P185,000
d. P230,000

3. Which of the following statements is most correct?

a. Shorter-term cash budgets, in general, are used primarily for planning purposes, while longer-term
budgets are used for actual cash control.
b. The cash budget and the capital budget are planned separately and although they are both important
to the firm, they are independent of each other.
c. The target cash balance is set optimally such that it need not be adjusted for seasonal patterns and
unanticipated fluctuations in receipts, although it is changed to reflect long-term changes in the firm’s
operations.
d. The typical actual cash budget will reflect interest on loans and income from investment of
surplus cash. These numbers are expected values and actual results might turn out different.

4. Which of the following statements is most correct?

a. Poor synchronization of cash flows that results in high cash management costs can be partially offset
by increasing disbursement float and decreasing collections float.
b. The size of a firm’s net float is primarily a function of its natural cash flow synchronization and how it
clears its checks.
c. Lockbox systems are used mainly for security purposes as well as to decrease the firm’s net float.
d. If a firm can speed up its collections and slow down its disbursements, it will be able to reduce its net
float.

1|Page
Management Advisory Services

5. The controller of Peyshield has requested a quick estimate of the manufacturing supplies needed for the
month of July when production is expected to be 470,000 units. Below are actual data from the prior
three months of operations.

Production Manufacturing
in units supplies
March 450,000 P723,060
April 540,000 853,560
May 480,000 766,560

Using these data and the high-low method, what is the best estimate of the cost of manufacturing
supplies that would be needed for July? (Assume that this activity is within the relevant range.)
a. P805,284
b. P1,188,756
c. P755,196
d. P752,060

6. A firm must select from among several methods of financing arrangements when meeting its capital
requirements. To acquire additional growth capital while attempting to maximize earnings per share, a
firm should normally:
a. Attempt to increase both debt and equity in equal proportions which preserves a stable capital
structure and maintains investor confidence
b. Select debt over equity initially even though increased debt is accompanied by interest costs
and a degree of risk.
c. Select equity over debt initially which minimizes risk and avoids interest cost
d. Discontinue dividends and use current cash flow, which avoids the cost and risk of increased debt
and the dilution of EPS through increased equity

7. Ramces Company produces a part used in the manufacture of one of its products. The unit product cost of
the part is P33, computed as follows:

Direct materials P12

Direct labor 8
Variable manufacturing overhead 3
Fixed manufacturing overhead 10
Unit product cost P33

An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only P27
each. The company estimates that 30% of the fixed manufacturing overhead costs above will continue if
the parts are purchased from the outside supplier.

Assume that direct labor is an avoidable cost in this decision. Based on these data, the per unit dollar
advantage or disadvantage of purchasing the parts from the outside supplier would be:
a. P3 advantage.
b. P1 advantage.
c. P1 disadvantage.
d. P4 disadvantage.

8. To maximize total contribution margin, a firm faced with a production constraint should:
a. promote those products having the highest unit contribution margins.
b. promote those products having the highest contribution margin ratios.
c. promote those products having the highest contribution margin per unit of constrained
resource.
d. promote those products have the highest contribution margins and contribution margin ratios.

9. You are considering investing in TuyuTA Motor Company. Which of the following is an example of
diversifiable risk?
a. Risk resulting from the possibility of a stock market crash
b. Risk resulting from uncertainty regarding a possible strike against Ford
c. Risk resulting from an expected recession
d. Risk resulting from interest rates decreasing

2|Page
Management Advisory Services

10. A joint product is:

a. any product which consists of several parts.
b. any product produced by a firm with more than one product line.
c. any product involved in a make or buy decision.
d. one of several products produced from a common input.

11. You are considering buying some stock in Continental Grain. Which of the following is an example of non-
diversifiable risk?
a. Risk resulting from a general decline in the stock market
b. Risk resulting from a news release that several of Continental’s grain silos were tainted
c. Risk resulting from an explosion in a grain elevator owned by Continental
d. Risk resulting from an impending lawsuit against Continental

12. A plant operating at capacity would suggest that:

a. every machine and person in the plant is working at the maximum possible rate.
b. only some specific machines or processes are operating at the maximum rate possible.
c. fixed costs will need to change to accommodate increased demand.
d. managers should produce those products with the highest contribution margin in order to deal
with the constrained resource.

13. Which of the following could be determined by using the EOQ formula?
a. Optimum size of a production run
b. Safety stocks
c. Stock-out cost
d. Order point

14. The order size determine by the economic order quantity formula minimizes the annual inventory cost
which is comprised of ordering costs and
a. Safety stock cost
b. Set-up cost
c. Stock-out cost
d. Carrying cost

15. Changes in the general economy, such as changes in interest rates or tax laws, represent what type of
risk?
a. Firm-specific risk
b. Market risk
c. Unsystematic risk
d. Diversifiable risk

16. Assume that a firm has Days Sales Outstanding (DSO) of 38 days. It has Days of Sales in Inventory (DSI) of
10 days. The Days of Payables Outstanding (DPO) is 34. What is the firm's Cash Conversion Cycle (CCC)?
a. 83 days.
b. 62 days.
c. 14 days.
d. 12 days.

17. A measure that describes the risk of an investment project relative to other investments in general is the:
a. Coefficient of variation
b. Beta coefficient.
c. Standard deviation
d. Expected return

18. Which of the following statements is most correct?

a. If a firm’s volume of credit sales declines then its DSO will also decline.
b. If a firm changes its credit terms from 1/20, net 40 days, to 2/10, net 60 days, the impact on sales can’t
be determined because the increase in the discount is offset by the longer net terms, which tends to
reduce sales.
c. The DSO of a firm with seasonal sales can vary. While the sales per day figure is usually based on the
total annual sales, the accounts receivable balance will be high or low depending on the season.
d. An aging schedule is used to determine what portion of customers pay cash and what portion buy on
credit.

3|Page
Management Advisory Services

19. Cost-volume-profit analysis cannot be used if which of the following occurs?

a. The per unit variable costs change.
b. The total fixed costs change.
c. Per unit sales prices change.
d. Costs cannot be properly classified into fixed and variable costs.

20. A company with P9.6 million in credit sales per year plans to relax its credit standards, projecting that this
will increase credit sales by P1,440,000. The company’s average collection period for new customers is
expected to be 75 days, and the payment behavior of the existing customers is not expected to change.
Variable costs are 80% of sales. The firm’s opportunity cost is 20% before taxes. Assuming a 360 day year,
what is the company’s profit (loss) on the planned change in credit terms?
a. P0
b. P57,600
c. P240,000
d. P288,000

21. The Peysmask Company has just obtained a request for a special order of 6,000 facemask to be shipped at
the end of the month at a selling price of P7 each. The company has a production capacity of 90,000
facemask per month with total fixed production costs of P144,000. At present, the company is selling
80,000 facemask per month through regular channels at a selling price of P11 each. For these regular
sales, the cost for one facemask is:

Variable production cost P4.60

Fixed production cost 1.80
Variable selling expense 1.00

If the special order is accepted, Peysmask will not incur any selling expense; however, it will incur shipping
costs of P0.30 per unit. Suppose that regular sales of facemask total 85,000 units per month. All other
conditions remain the same. If Immanuel accepts the special order, the change in monthly operating
income will be:
a. P14,400 increase.
b. P7,200 increase.
c. P3,600 decrease.
d. P5,400 decrease.
22. On a balanced scorecard, which of the following would be most appropriate to measure production process
integrity?
a. Rapid time-to-market of new products
b. Corporate financial profits
c. Low employee turnover
d. Decrease in reworked products

23. A decrease in the price of a complementary good will

a. Shift the demand curve of the joint commodity to the left.
b. Increase the price paid for a substitute good.
c. Shift the supply curve of the joint commodity to the left.
d. Shift the demand curve of the joint commodity to the right.

24. Strategic cost management has emerged from a blending of:

a. cost driver analysis
b. value chain analysis
c. strategic position analysis
d. all of the above

25. If a product is part of the consumers' basket of goods, and the Consumer Price Index increased 7% for the
year while the price of this normal good increased 3%, then
a. The supply curve will shift to the left.
b. Neither the demand curve nor the supply curve will be affected.
c. The demand curve will shift to the right.
d. The demand curve will shift to the left.

4|Page
Management Advisory Services

26. Corporate Solutions Corporation is a manufacturer of a versatile statistical calculator. The following
information is a summary of defective and returned units for the previous year.

Total defective units 1,000

Number of units reworked 750
Number of customer units returned 150
Profit for a good unit P40
Profit for a defective unit P25
Cost to rework a defective unit P10
Cost of a returned unit P15
Total prevention cost P10,000
Total appraisal cost P5,000

The profit lost by selling defective units not reworked is

a. P25,000.
b. P15,000.
c. P18,750.
d. P3,750.

27. A tight monetary policy is frequently cited as an important policy instrument for fighting inflation.
Keynesian economists believe that one of the possible undesirable side effects of such a policy is
a. Reduced business investment due to higher interest rates.
b. Reduced business investment due to lower interest rates.
c. Increased business investment due to decreased government spending.
d. Increased business investment because of reduced confidence in business.

28. The Milanis Company produces a cosmetic product in 60 gallon batches. The basic ingredients used are
material A, costing P70 per gallon, and material B, costing P170 per gallon. No more than 18 gallons of A
can be used, and at least 15 gallons of B must be used.

How would the objective function (minimization of product cost) be expressed?

a. 70X + 170Y
b. 170X + 70Y
c. 18X + 15Y
d. 18X + 42Y

29. Traditional managerial accounting systems are often criticized for:

a. not focusing on the activities that actually drive the costs.
b. only looking at historical data.
c. being too GAAP oriented.
d. not emphasizing cost control.

30. Providing an adequate supply of money to accommodate the needs of business is the task of the
a. Bureau of Treasury.
b. Controller of the Currency.
c. Bureau of Printing and Engraving.
d. Bangko Sentral ng Pilipinas.

5|Page
Management Advisory Services

31. Critical Path Method (CPM) is a technique for analyzing, planning, and scheduling large, complex projects
by determining the critical path from a single time estimate for each event in a project. The critical path:
a. Is the shortest path from the first event to the last event for a project.
b. Is an activity within the path that requires the most number of time.
c. Has completion that reflects the earliest time to complete the project.
d. Is the maximum amount of time an activity may be delayed without delaying the total project
beyond its target completion time.

32. Under which ethical standard of conduct does the managerial accountant have the responsibility to prepare
complete and clear reports and recommendations after appropriate analyses of relevant and reliable
information?
a. competence
b. integrity
c. confidentiality
d. objectivity

33. Treasurer is usually concerned with the following, except

a. Short-term financing
b. Credit and collection
c. Economic appraisal
d. Banking and custody

34. The Ning’er Corporation has a standard costing system. The following data are available for June:

Actual quantity of direct materials purchased 35,000 pounds

Standard price of direct materials P4 per pound
Material price variance P7,000 unfavorable
Material quantity variance P4,200 favorable

The actual price per pound of direct materials purchased in June is:
a. P3.92. c. P4.08.
b. P4.20. d. P4.32.

35. A standard cost system may be used in

a. job order costing, but not process costing.
b. process costing, but not job order costing.
c. neither job order costing nor process costing.
d. either job order costing or process costing.

36. Standard costs are least useful for

a. Determining minimum inventory levels
b. Measuring production efficiency
c. Job order production systems
d. Simplifying costing procedures

37. The variance resulting from obtaining an output different from the one expected on the basis of input is
the:
a. efficiency variance
b. usage variance
c. mix variance
d. yield variance

38. The net income computed using direct standard costing system will be higher or lower than the net
income computed throughput costing due to
a. Materials and labor
b. Labor and overhead
c. Variable conversion cost
d. Variable prime costs

6|Page
Management Advisory Services

Yuzin, Inc. extracted the following sales and cost information in the last two years:

Year 1 Year 2
Beginning inventory 2,500 ?
Production 18,500 22,300
Sales 20,000 21,500

Actual variable costs charged in profit or loss 79,000 90,700

Actual fixed costs 52,500 52,500
Unfavorable(favorable) controllable variance -7,500 3,125

Additional information follows:

• The selling price and standard unit costs for both years remained at P8.00 and P5.00, respectively
• The total fixed costs for both periods is the same as planned
• All commercial costs amounting to P21,500 and P17,700 for year 1 and year 2, respectively, are variable in
nature

39. Income under variable costing

A B C D
Year 1 28,500 25,875 28,500 25,875
Year 2 30,200 28,800 28,800 30,200

40. A budget that is expressed in units of materials, number of employees, or number of man-hours or service
units rather than in pesos is known as
a. Physical budget
b. Progressive budget
c. Planning budget
d. Traditional budget

41. Which of the following planning approaches will promote better management acceptance?
a. Top-down approach
b. Bottom-up approach
c. Zero-based approach
d. Strategic approach

Nieli Company prepares monthly operating and financial budgets. Estimates of sales in units are made for each
month. Production is scheduled at a level high enough to take care of current needs and to carry into each month
one-half of the next month’s unit sales. Direct materials, direct labor, and variable manufacturing overhead are
estimated at P12, P6, and P4 per unit, respectively. Total fixed manufacturing overhead is budgeted at P480,000 per
month. Sales for April, May, June, and July 2019 are estimated at 100,000, 120,000, 160,000, and 120,000 units. The
inventory at 2019 April 1, consists of 50,000 units with a cost of P28.80 per unit. The selling price of the product is
P30. There are no selling and administrative expenses incurred during the said period.

42. Assuming the company uses direct costing, how much is the profit during the second quarter?
a. 1,760,000
b. 2,560,000
c. 1,600,000
d. 1,680,000
43. All of the following represent a symptom of an outdated cost systems, except
a. The outcome of the project bids is difficult to explain
b. Competitor’s prices appear unrealistically high
c. The company has a highly profitable niche all to itself
d. Customers do not complain about price increases

7|Page
Management Advisory Services

44. Which of the following statements about activity-based costing is not true?
a. Activity-based costing is useful for allocating marketing and distribution costs.
b. Activity-based costing is more likely to result in major differences from traditional costing
systems if the firm manufactures only one product rather than multiple products
c. When using ABC for decision making, total costs may be reduced by eliminating non-value added
costs.
d. ABC violates GAAP

45. U-CARE is a COVID assistance facility created under a PPP Project with the local government intended to
provide services in the form of residential space, meals, healthcare, and other welfare services to its
beneficiaries. U-CARE currently uses a traditional cost accounting system that defines the service provided
as assisted living, with service output measured in terms of occupant days. Each beneficiary is subsidized
by the government by an amount equal to U-CARE’s annual cost of providing residential space, meals,
healthcare, and other welfare services divided by total occupant days. However, an activity-based costing
(ABC) analysis has revealed that beneficiaries’ consumption of other welfare services varies substantially.
This analysis determined that beneficiaries could be grouped into three categories (low, moderate, and high
consumption of other welfare services) and that the activity driver of other welfare services is the number
of service hours. The driver of the other activities is occupant days. The following quantitative information
was also provided:

Category of Beneficiary Annual Occupant Days Annual Service Hours

Low Consumption 36,000 90,000
Medium Consumption 18,000 90,000
High Consumption 6,000 120,000
60,000 300,000

The total annual cost of other welfare services was P15.0 million, and the total annual cost of providing
residential space, meals, and healthcare was P14.4 million. Accordingly, the ABC analysis indicates that the
daily costing rate should be
a. P365.00 for beneficiaries in the low-consumption category.
b. P290.00 for beneficiaries in the medium-consumption category.
c. P490.00 for beneficiaries in the high-consumption category.
d. P1,240.00 for all beneficiaries.

46. All of the following are elements of responsibility accounting except

a. Control reports.
b. Chart of accounts classification.
c. Responsibility center definition.
d. Planning systems and systemic approaches.

47. The minimum potential transfer price is determined by

a. the lowest market price for the product.
b. incremental costs in the selling segment
c. the extent of idle capacity in the buying segment.
d. negotiations between the buying and selling segments.

8|Page
Management Advisory Services

The following information is available for Draconic Enterprises for 2020:

Pre-tax operating profit 20,000,000

Depreciation expense 2,000,000
Increase in net working capital 4,000,000
Capital expenditures 9,000,000
Current liabilities 8,000,000
Long-term debt - at par, 10% 40,000,000
Debt-to-equity ratio 1.2:1
WACC 9%
Income tax rate 30%

48. Using the information given, what is the cost of equity?

a. 9%
b. 7%
c. 11%
d. 5.5%

49. Using the same information, what is the economic value-added?

a. P6,800,000
b. P6,080,000
c. P12,080,000
d. P12,800,000

50. The following represent the objectives of financial management, except

a. To ensure regular and adequate supply of funds
b. To ensure adequate returns to the shareholders which will depend upon the earning capacity,
market price of the share, expectations of the shareholders.
c. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in
maximum possible way at least cost.
d. To ensure compliance with financial reporting standards in preparing financial reports

51. In choosing from among mutually exclusive investments, the manager should normally select the one with
the highest
a. NPV
b. IRR
c. Profitability index
d. Accounting rate of return

52. In deciding whether to replace a machine, which of the following is not a sunk cost?
a. The expected resale price of the existing machine.
b. The book value of the existing machine.
c. The original cost of the existing machine.
d. The depreciated cost of the existing machine.

53. Which of the following combinations is possible?

Profitability Index NPV IRR
a. greater than 1 positive equals cost of capital
b. greater than 1 negative less than cost of capital
c. less than 1 negative less than cost of capital
d. less than 1 positive less than cost of capital

54. Short-term solvency is another term for

a. Liquidity
b. Stability
c. Bankruptcy shield
d. Sustainability

9|Page
Management Advisory Services

55. In determining a firm’s operating cycle, which one of the following pairs is necessary?
a. Collection period and average inventory
b. Receivable turnover and inventory turnover
c. Cash turnover and credit sales
d. Asset turnover and return on sales

56. This concept refers to use of borrowed funds

a. Leverage
b. Additional Funding Needed
c. Loan Arbitrage
d. Financing

57. Which of the following sets of financial ratios is most useful in evaluating solvency?
a. Debt ratio, current ratio and interest-coverage ratio
b. Debt ratio, times-interest earned ratio, and return on assets
c. Debt ratio, acid-test ratio and times-interest earned ratio
d. Debt ratio, times-interest earned ratio and cash flow to debt ratio

58. Lupiao Corporation uses net present value techniques in evaluating its capital investment projects. The
company is considering a new equipment acquisition that will cost P100,000 fully installed and have a zero
salvage value at the end of its five-year productive life. Lupiao will depreciate the equipment on a
straightline bases for both financial and tax purposes. Lupiao estimates P70,000 in annual recurring
operating cash income and P20,000 in annual recurring operating cash expenses. Lupiao’s cost of capital is
12% and its effective income tax rate is 40%. What is the net present value of this investment on an after
tax basis?
a. P8,150
b. P28,840
c. P36,990
d. P80,250

The following information were extracted from the financial statements of Yuying Incorporated for its first
year of operation:

Return on sales 8%
Gross profit margin 40%
Receivables turnover 4x
Inventory turnover 3x
Current ratio 2.50:1
Acid-test ratio 2:1
Sales 1,000,000

59. Compute for current liabilities

a. 400,000
b. 266,667
c. 500,000
d. Cannot be determined

60. As the number of periods increases for a project having uniform cash flows, the present value of each future
discounted cash flow becomes
a. Smaller
b. Does not change
c. Irrelevant
d. Larger

61. Which of the following statements regarding NPV analysis is true?

a. Uncertainties increase as the peso value of an investment increases
b. The discount rate can be calculated with certainty if it is based on the weighted average cost
of capital
c. Managers should generally accept projects with an NPV greater than zero
d. The timing of incremental revenues and costs is irrelevant in NPV analysis

10 | P a g e
Management Advisory Services

62. Which of the following statements is false?

a. Preferred stock is similar to bonds in that the dividend of a preferred stock is fixed much like
the interest payment on a bond is fixed.
b. Preferred stock, like common stock, usually has no maturity; i.e., the corporation does not
pay back the investment.
c. Preferred stockholders are entitled to dividends before common stockholders can receive
dividends.
d. Preferred dividend payments are a tax-deductible expenditure.

63. A firm maintains a debt/equity ratio of 1.0. The debt consists of bonds with a before tax cost of 9%. The
equity consists of common stock with a cost of 18%. The marginal corporate tax rate is 40%. What is the
weighted average cost of capital?
a. 8.1%
b. 10.8%
c. 9.9%
d. 11.7%

During its first year of operation, Gubei Corporation has operated at 80% capacity and reported the
following condensed income statement:

Sales ₱10,000,000
Cost of sales 4,000,000
Gross margin 6,000,000
Operating expenses 2,500,000
Income before tax 3,500,000
Income tax (30%) 1,050,000
Net income ₱2,450,000

Additional information is provided to you as follow:

• Return on assets is 25% and the Company’s cost of capital is 8%

• Gubei’s property and equipment acquired at the beginning of 2020 has a carrying amount of
₱6,300,000, net of accumulated depreciation. Fixed assets are depreciated on a straight-line basis for
10 years. There were no fixed assets sold or disposed of during the year.
• Other fixed costs amounted to ₱1,300,000, which are paid in cash.
• Unit selling price is ₱5.00 and expected to be constant in the next year.
• The Company’s total shareholder’s equity as at December 31, 2020 amounted to ₱6,450,000. The
Company has no long-term debt outstanding as at the year end.
• The Company plans to increase its sales to 3,000,000 units next year and expects to distribute 80% of
the increase in earnings as dividends.
• The Company operates 360 days/year

64. How much is the total assets as of December 31, 2020?

a. P8,900,000
b. P14,000,000
c. P9,800,000
d. P25,800,000
65. How much is the net working capital as of December 31, 2020?
a. ₱150,000
b. ₱2,950,000
c. ₱850,000
d. ₱2,590,000

66. What is the contribution margin ratio for the year ended December 31, 2020?
a. 48%
b. 52%
c. 45%
d. 55%

11 | P a g e
Management Advisory Services

67. Assuming 60% of the Gubei’s liabilities pertains to trade payable and the inventory period is 36 days, what
is the payable turnover in 2020?
a. 2.19
b. 164.38
c. 10.00
d. Cannot be determined based only on the facts given

68. Refer to the original information and assuming the Company intends to push its plan for the next year, what
is the external funding needed?
a. (P660,000)
b. P2,175,000
c. P2,490,000
d. 0
69. Market risks include the following, except
a. Interest rate risks
b. Commodity risks
c. Currency risks
d. Operating risks

70. Diversification cannot eliminate this risk

a. Systematic risk
b. Unsystematic risk
c. Market risk
d. All of the above

12 | P a g e