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Management Accounting Part I

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Submissions
Here are your latest answers:

Question 1
Dantes Products applies fixed overhead at a rate of P3 per direct labor hour. Each unit
produced is expected to take two (2) direct labor hours. Dantes Products expected
production for the current year to be 10,000 units; however, only 9,000 units were
actually produced. Actual direct labor hours were 19,000 and actual fixed overhead
costs were P62,000.
How much is the fixed overhead volume variance of Dantes Products?
Response: P6,000
Feedback:
CORRECT! This can be computed as follows:

Budget Overhead P60,000

Applied Fixed
Overhead 54,000
(9,000 x 2 x P3)
Fixed Overhead
Volume Variance - P6,000
Unfavorable
Score: 1 out of 1 Yes

Question 2
Coffeebucks Company produces a single product. Last year, the company had 16,000
units in its beginning inventory. During the year, the company’s variable production
costs were P6 per unit and its fixed manufacturing overhead costs were P4 per unit.
The company’s net operating income for the year was P24,000 higher under absorption
costing than it was under variable costing. Given these facts, what is the number of
units in the ending inventory?
Response: 22,000 units
Feedback:
CORRECT! This can be computed as follows:

Beginning Inventory 16,000

Add: Change in the Inventory (P24,000/P4) 6,000
Ending Inventory in Units 22,000
Score: 1 out of 1 Yes

Question 3
Santino is a well-known political analyst. He is the darling of the press.
RBS Publisher is negotiating to publish Santino’s Manifesto, a new book that has the
potential of being an instant bestseller. The fixed cost of producing and marketing the
book will be P800,000. The variable costs of producing and marketing will be P5.00 per
copy sold. These costs are before any payment to Santino.
Santino negotiates an upfront payment of P3.2 million, plus a 10% royalty rate on the
net sales price of each book. The net sales price is the listed book price of P35, less the
margin to be paid to in selling the book. The normal margin to be applied is 30% of the
listed bookstore price.
How many copies of Manifesto RBS Publisher must sell to earn a target operating
income of P3 million?
Response: 194,872
Feedback: INCORRECT. The variable cost must include the 10% royalty fee.
Score: 0 out of 1 No

Question 4
Viking Company produces a single product. During May, the company had net
operating income under absorption costing that was P3,500 lower than under variable
costing. The company sold 7,000 units in May, and its variable cost was P7 per unit, of
which P3 was variable selling expense. If fixed manufacturing overhead was P2 per unit
under absorption costing, then how many units did the company produce during May?
Response: 5,250 units
Feedback:
CORRECT! It can be computed as follows:

Number of units sold 7,000

 Less: Change in Inventory (P3,500/2) 1,750
Units of Production 5,250

Score: 1 out of 1 Yes

Question 5
The Hawaii Co. has made the following information available for its production facility for
June 20X1. Fixed overhead was estimated at 19,000 machine hours for the production
cycle. Actual machine hours for the period were 18,900, which generated 3,900 units.

The following data are available:

• Material purchased (80,000 pieces), P314,000
• Material quantity variance, P6,400 – Unfavorable
• Machine hours used (18,900 hours)
• Variable overhead (VOH) spending variance, P50 – Unfavorable
• Actual fixed overhead, P60,000
• Actual labor cost, P40,120
• Actual labor hours, 5,900

Hawaii’s standard costs are as follows:

• Direct material, 20 pieces @ P4.00 per piece
• Direct labor, 1.5 hours @ P6.00 per hour
• Variable overhead (applied on a machine hour basis), P4.8 hours @ P2.50 per
hour
• Fixed overhead (applied on a machine hour basis), 4.8 hours @ P3.00 per hour

How much is the conversion cost efficiency variance (CCEV)?

Response: P750 Unfavorable
Feedback:
CORRECT! This can be computed as follows:

Labor Efficiency Variance

P300 U
[5,900 – (3,900 x 1.5)] x P6
 VOH Efficiency Variance
450 U
[18,900 – (3,900 x 4.8)] xP2.50
Conversion Cost Efficiency Variance P750 U

Score: 1 out of 1 Yes

Question 6
It pertains to a product, service, customer, etc. to which costs are accumulated for
management purposes.
Response: Cost object
Feedback: CORRECT! Cost objects can also be in the form of an activity or
organizational unit.
Score: 1 out of 1 Yes

Question 7
Jax Detergent is sold at a price of P100 per bottle with a variable cost of P20 per bottle.
The fixed expense of the business is P30,000 per year. Compute for the break-even
point in units.
Response: 375
Feedback: CORRECT! The formula to compute the break-even point in units is fixed
cost divided by the contribution margin per unit. Substituting the computed values:
P30,000/P80 = 375
Score: 1 out of 1 Yes

Question 8
Which management function involves decisions relating to manufacturing methods and
marketing techniques?
Response: Strategic Management
Feedback: CORRECT! Strategic management also involves distribution channels,
customer profitability, and other long-term issues.
Score: 1 out of 1 Yes

Question 9
XYZ Corp.’s actual data for 201A is given as follows:

Units produced 80,000

Units sold 76,000
 Selling price per unit P600
Direct material costs 80
Direct labor 60
Variable manufacturing overhead 200
Variable selling costs 80
Fixed manufacturing costs P1,840,000
Fixed administrative costs 1,120,000
Compute for the net income under variable costing.
Response: P10,720,000
Feedback: CORRECT! The formula to compute for the net income under absorption
costing is contribution margin less fixed costs. Substituting the computed values:
P13,680,000 - P2,960,000 = P10,720,000
Score: 1 out of 1 Yes

Question 10
The flower shop owner desires to achieve a profit of P50,000 by selling 1,000 bouquets
of red roses. The fixed cost involved in acquiring the red roses is P30,000, while the
variable cost per bouquet is P50. Determine the price per bouquet of red roses.
Response: P130
Feedback: CORRECT! The formula to compute for the price per bouquet is total number
of units produced and sold multiplied by price per unit = (variable cost per unit x total
number of units produced and sold) + fixed costs + desired profit. Substituting the given
values: 1,000p = (1,000) (P50) + P30,000 + P50,000; 1,000p=P130,000; p = P130.
Score: 1 out of 1

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Management Accounting Part II

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Submissions
Here are your latest answers:
Question 1
ABC Company manufactures one (1) product. Its sales price is expected to be P40 per
unit. Actual sales for November 201A are 1,550 units and 1,700 units for December
201A. ABC budgets its sales for the next six (6) months for 201B: January – 675;
February – 650; March – 688; April – 625.
All sales are on account. ABC collects its accounts as follows: 70% in the month of sale,
20% in the month following the sale, and 10% in the second month following the sale.
Uncollectible accounts are negligible and can be disregarded. The beginning inventory
on January 1, 201B is 68 units. ABC desires an ending inventory of 10% of the next
month’s budgeted sales. Determine the sales budget for the first quarter of 201B.
Response: P80,520
Feedback: CORRECT! The formula to compute for the total budget is the sum of
January to March 201B sales multiplied by the selling price. Substituting the given
values: (675x40) + (650x40) + (688x40); 27,000 + 26,000 + 27,520 = P80,520
Score: 1 out of 1 Yes

Question 2
Truz Division of Teasen Corporation produces electric motors, 20% of which are sold to
Teddy Division of Teasen Corporation and the remainder to outside customers. Teasen
Corporation treats its divisions as profit centers and allows division managers to choose
their sources of sale and supply. Corporate policy requires all interdivisional sales and
purchases to be recorded at variable cost as a transfer price. Truz Division’s estimated
sales and standard cost data for the year ending December 31, 20X1, based on the full
capacity of 100,000 units, are as follows:

Teddy Outsiders
Sales P900,000 P8,000,000
Variable Costs (900,000) (3,600,000)
Fixed Costs (300,000) (1,200,000)
Gross Margin (P300,000) P3,200,000
Unit Sales 20,000 80,000

Truz has an opportunity to sell the above 20,000 units to an outside customer at P75
per unit during 20X0 continuingly. Teddy can purchase its requirements from an outside
supplier at P85 per unit.
Assuming that Truz desires to maximize its gross margin, should it take on the new
customer and drop its sales to Teddy for 20X1, and why?
Response: Yes, because Truz Division’s gross margin would increase by P600,000.
Feedback: CORRECT! If Truz sells to the new customer, its revenues will increase to
P1,500,000 (P75 × 20,000), but its costs will remain the same at P1,200,000 (P900,000
+ P300,000). This results in a positive gross margin of P300,000 (P1,500,000 –
P1,200,000). The new gross margin is P600,000 [P300,000 – (– P300,000)] greater
than the original gross margin.
Score: 1 out of 1 Yes

Question 3
The balanced scorecard generally uses performance measures with four (4) different
perspectives. Which of the following performance measures would be part of those
used for the internal business processes perspective?
Response: Cycle time
Feedback: CORRECT! The cycle time is the time it takes to manufacture a product, and
thus, is an important part of the business processes perspective.
Score: 1 out of 1 Yes

Question 4
The following 20X1 information of Asahi Enterprise is available:

Pre-tax operating profit P60,000,000

Depreciation expense 15,000,000

Change in net working capital 10,000,000
Capital expenditures 12,000,000
Invested capital (Total assets – Current liabilities) 100,000,000
Current liabilities 20,000,000
Weighted – average cost of capital 10%
Income tax rate 40%

What is the free cash flow (FCF) for 20X1?

Response: P29,000,000
Feedback:
CORRECT! This can be computed as follows:

After-tax operating profit (P60,000,000 x 60%) P36,000,000

Add: Depreciation 15,000,000
Less:
Change in net working capital 10,000,000
Capital expenditures 12,000,000
Free Cash Flow (FCF) P29,000,000
Score: 1 out of 1 Yes

Question 5
The following 20X1 information of Asahi Enterprise is available:

Pre-tax operating profit P60,000,000

Depreciation expense 15,000,000

Change in net working capital 10,000,000

Capital expenditures 12,000,000

Invested capital (Total assets – Current liabilities) 100,000,000
Current liabilities 20,000,000

Weighted – average cost of capital 10%

Income tax rate 40%

What is the amount of economic value added (EVA)?

Response: P15,000,000
Feedback: INCORRECT! The economic value added (EVA) measures a
company's financial performance based on the residual wealth calculated by deducting
its cost of capital from its after-tax operating profit.
Score: 0 out of 1 No

Question 6
The management of Park John Corporation (PJC) has decided to implement a transfer
pricing system. PJC’s Management Information System (MIS) department is currently
negotiating a transfer price for its services with the four (4) producing divisions of the
company and the marketing department. Charges will be assessed based on the
number of reports (assume that all reports require the same amount of time and
resources to produce).
The cost to operate the MIS department at its full capacity of 1,000 reports per year is
budgeted at P45,000. The user subunits expect to request 250 reports each this year.
The cost of temporary labor and additional facilities used to produce reports beyond
capacity is budgeted at P48.00 per report. PJC could purchase the same services from
an external Information Services firm for P70,000.
What amounts should be used as the ceiling and floor to determine the negotiated
transfer price?
Response: Floor: P45.60; Ceiling: P56.00
Feedback: CORRECT! Negotiated transfer prices should fall within a range limited by a
ceiling and a floor. The ceiling is the lowest market price that could be obtained from an
external supplier, and the floor equals the outlay costs plus the opportunity cost of the
transferring division. Since PJC’s MIS department does not have the option to sell
services to external customers, its opportunity cost is P0. Since the revenue-producing
departments must cover all costs of service departments, the MIS department’s outlay
cost equals its total costs. The department’s full capacity level is 1,000 reports per year.
However, the user departments will be requesting 1,250 reports (5 user subunits × 250
reports each). Thus, the MIS department will incur costs of P12,000 [P48 × (1,250 –
1,000)] for the 250 reports above capacity, in addition to the P45,000 budgeted costs for
full capacity. The total cost of P57,000 (P45,000 + P12,000) is used to calculate the
floor. The ceiling is based on the P70,000 that would be incurred to purchase MIS
services externally. Since the MIS department will be producing 1,250 reports, the floor
is P45.60 (P57,000 ÷ 1,250), and the ceiling is P56.00 (P70,000 ÷ 1,250).
Score: 1 out of 1 Yes

Question 7
Which perspective of the balanced scorecard includes measures of profitability and
market value?
Response: Financial perspective
Feedback: CORRECT! Financial measures show the impact of the firm’s policies and
procedures on the firm’s current financial position and, therefore, its current return to the
shareholders.
Score: 1 out of 1 Yes

Question 8
Lorreyn Company uses flexible budgeting for cost control. Lorreyn produced 10,800
units of product during October, incurring indirect materials costs of P13,000. Its master
budget for the year reflected indirect materials costs of P180,000 at production volume
of 144,000. What is the indirect materials cost that shall be reflected in the October’s
production flexible budget?
Response: P13,500
Feedback: CORRECT! The cost of indirect materials for 144,000 units was expected to
be P180,000. Consequently, the budgeted unit cost of indirect materials is P1.25
(P180,000/144,000). Multiplying the P1.25 to the 10,800 units is equal to P13,500
indirect materials cost.
Score: 1 out of 1 Yes

Question 9
A company has budgeted sales for 20X1:

1st Quarter 12,000

2nd Quarter 14,000
3rd Quarter 18,000
4th Quarter 16,000

The ending finished goods inventory for each month equals 25% of the next quarter’s
budgeted unit sales. Additionally, four (4) pounds of raw materials are required for each
finished unit produced. The ending raw materials inventory for each month equals 10%
of the next month’s production requirements. What is the budgeted or scheduled
production for the 3rd Quarter?
Response: 17,500
Feedback:
CORRECT! This can be computed as follows:
 Sales 18,000
Add: Ending Finished Goods Inventory 4,000
Less: Beginning Finished Goods Inventory (4,500)
Number of Units Produced 17,500
Score: 1 out of 1 Yes

Question 10
Clay Co. has considerable excess manufacturing capacity. A special job order’s cost
sheet includes the following applied manufacturing overhead costs:

Fixed costs P21,000

Variable costs 33,000

The fixed costs include a normal P3,700 allocation for in-house design costs, although
no in-house design will be done. Instead, the job will require the use of external
designers costing P7,750. What is the total amount to be included in the calculation to
determine the minimum acceptable price for the job?
Response: P40,750
Feedback: CORRECT! When determining a price for special order with idle capacity,
only the differential manufacturing costs are considered. The underlying assumption is
that acceptance of the order will not affect regular sales. In the short run, fixed costs are
sunk costs and are irrelevant. Since regular sales will not be affected by the special
order, fixed and variable costs incurred during normal operations are not considered.
Clay Company should consider only the variable costs associated with the order and
the differential cost of using the external designers. The costs to be considered total
P40,750 (P33,000 + P7,750). The order is accepted if revenue from the order exceeds
the differential costs.
Score: 1 out of 1

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Financial Management Part I

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 • Submissions

Submissions
Here are your latest answers:

Question 1
The real risk-free interest rate is 2.5%, and it is expected to remain constant over time.
Inflation is expected to be 2% per year for the next four (4) years and 3% per year for
the next five (5) years. The maturity risk premium is equal to 0.2 x (t
- 1)%, where t equals the bond’s maturity. The default risk premium for a Baa-rated
bond is 1.1%.
What is the quoted interest rate on a five-year Baa-rated corporate bond with a liquidity
premium of 0.4%?
Response: 7%
Feedback:
Correct! First, determine the applicable inflation rate.

Then, solve for the quoted interest rate:

Score: 1 out of 1 Yes

Question 2
In The Philippine Stock Exchange (PSE) Journal, you read that 30-day T-bills are
currently yielding 5.8%. Your sister, a broker at S&P Global, has given you the following
estimates of current interest rate premiums:
• 25% Inflation premium (IP)
• 6% Liquidity premium (LP)
• 85% Maturity risk premium (MRP)
• 15% Default risk premium (DRP)
Based on these data, what is the real risk-free rate (r*) of return?
Response: 1.7%
Feedback:
Correct! In a risk-free bond such as Treasury Bills, there are only three (3) factors to
consider: risk-free rate, inflation premium, and maturity risk premium.
Thus,

Then, to derive the real-risk free rate

Score: 1 out of 1 Yes

Question 3
Stay Corporation has earnings before interest and taxes (EBIT) of P20,000,000,
depreciation of P4,000,000, and a 30% tax rate. It needs to spend P12,000,000 on new
fixed assets and another P12,000,000 to increase its current assets. It expects its
accounts payable to increase by P3,000,000, accruals to increase by P3,500,000, and
notes payable to increase by P5,000,000. The firm’s current liabilities consist of
accounts payable, accruals, and notes payable. What is the company’s free cash flow
(FCF)?
Response: P500,000
Feedback:
Correct! Determine the change in the net operating working capital (NOWC):

Solve for the free cash flow (FCF).

Score: 1 out of 1 Yes

Question 4
A firm has daily cash receipts of P100,000. A bank has offered to reduce the collection
time of the firm’s deposits by two (2) days for a monthly fee of P500. If money market
rates are expected to average 6% during the year, what is the net annual benefit (loss)
from having the bank’s service?
Response: P6,000
Feedback: CORRECT! The net benefit from the reduction of the cash receipts float is
P12,000 [(P100,000 × 2) × 6%] minus the annual service fee, P6,000 (P500 × 12
months), which is equal to P6,000.
Score: 1 out of 1 Yes

Question 5
Stock Y has the following historical returns for the past three (3) years:

Year Stock Y’s Returns

2x17 P36.81
2x18 P39.13
2x19 P28.01

What is Stock Y’s standard deviation on its historical returns?

Response: 5.87%
Feedback:
Correct! First, determine the expected return, which is the average return for the past
three (3) years.
Then, get the standard deviation.

Score: 1 out of 1 Yes

Question 6
Yesa Universal Music has P16 million in assets, and its tax rate is 40%. Its basic
earning power (BEP) ratio is 10%, and its return on assets (ROA) is 5%. What is its
times-interest-earned (TIE) ratio? Round off the final answer to whole number.
Response: 6.0
Feedback:
Correct! First, determine the Earnings Before Interest and Taxes (EBIT) using the
formula of BEP ratio.

Next, determine the Net Income using the Return on Assets (ROA) formula.

Then, get the Net Income Before Taxes (NIBT).

Then, get the difference of the EBIT and NIBT to determine the Interest Charges:

Lastly, get the Time-Interest Earned (TIE) Ratio:

Score: 1 out of 1 Yes

Question 7
Harlo Company sells 20,000 radios evenly throughout the year. The cost of carrying
one (1) unit in inventory for one (1) year is P8, and the purchase order cost per order is
P32. What is the economic order quantity (EOQ)?
Response: 400
Feedback:
CORRECT! The EOQ formula is:

In the above equation, cost of placing one order, annual demand in units, and cost of
carrying one (1) unit in inventory for one (1) year. Substituting the given information, the
equation becomes
Score: 1 out of 1 Yes

Question 8
Teasen Company has P2,392,500 in current assets and P1,076,625 in current liabilities.
Its initial inventory level is P526,350, and it will raise funds as additional short-term
notes payable and use them to increase inventory. How much can its short-term debt
(notes payable) increase without pushing its current ratio below 2.0?
In computing for the percentage, do not round off. Round off the final answer to whole
number.
Response: P239,250
Feedback:
Correct! First, determine the current ratio before the increase:

Then compute for the required increase.

Score: 1 out of 1 Yes

Question 9
Yomi Corporation has the following capital structure, which it considers to be optimal:

Debt 35%
Preferred Stock 5%
Common Equity 60%
100%

Yomi’s expected net income this year is P34,285.72, its established dividend payout
ratio is 30%, its tax rate is 30%, and investors expect future earnings and dividends to
grow at a constant rate of 5%. Yomi paid a dividend of P2.40 per share last year, and its
stock currently sells for P48.00 per share. Yomi can obtain new capital in the following
ways:

• New preferred stock with a dividend of P12.00 can be sold to the public at
P80.00 per share.
• Debt can be sold at an interest rate of 10%.

What is the weighted average cost of capital (WACC) of Yomi Corporation?

Response: 10.51%
Feedback:
Correct! First, determine the cost of each capital component:

Cost of retained earnings:

Cost of preferred stocks:

Cost of debt:

Then, calculate the WACC:

Score: 1 out of 1 Yes

Question 10
Teasen Merchandise has P2.5 million in inventory and P2 million in accounts
receivable. Its average daily sales are P100,000. The firm’s payables deferral period is
30 days, and the average daily cost of sales is P50,000. What is the length of the firm’s
cash conversion period?
Response: 40 days
Feedback: CORRECT! The cash conversion period is calculated as the inventory
conversion period + receivables collection period – payables deferral period. Applying
the aforementioned formula, the inventory conversion period is P2,500,000/P50,000 =
50 days, and the receivable conversion period is P2,000,000/P100,000 = 20 days.
Therefore, the cash conversion cycle equals 50 days + 20 days – 30 days = 40 days.
Score: 1 out of 1

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Financial Management Part II

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Submissions
Here are your latest answers:

Question 1
Young Corp. desires to purchase equipment for its production process. The equipment
costs P300,000 and would result in the following cash inflow: Year 1 – P90,000; Year 2
– P75,000; Year 3 – P55,000; Year 4 – P50,000. Decide whether Young Corp. should
purchase the equipment using the concept of net present value (NPV) under a discount
rate of 12%.
Response: Reject
Feedback: CORRECT! After computing the NPV, the answer would be -P88,929.51,
less than zero. Based on the criterion of NPV, the decision would be to reject the
purchase of the equipment.
Score: 1 out of 1 Yes

Question 2
Jun Company wants to invest in a machine costing P80,000 with a useful life of six (6)
years and no salvage value. The machine will be depreciated using the straight-line
method and is expected to produce an annual cash inflow from operations of P22,000,
net of income taxes. The present value of an ordinary annuity of P1 for six (6) years at
10% is 4.355. The present value of P1 for six (6) periods at 10% is 0.564. What is the
net present value (NPV) of the investment?
Response: P15,810
Feedback:
CORRECT! This can be computed as follows:

Present value of annual cash inflows for six (6)

periods at 10% (P22,000 x 4.355) P95,810
Less: Present value of the net investment 80,000
Net present value P15,810
Score: 1 out of 1 Yes

Question 3
Which theory is useful in explaining the general movement of interest rates for a
particular country?
Response: Loanable Funds
Feedback: CORRECT! This theory assumes that the higher the interest rates, sectors in
the market will be more willing to supply loanable funds; the lower the level of the
interest, the less they are willing to provide.
Score: 1 out of 1 Yes

Question 4
A 1-year treasury bill has a coupon rate of 2%, and a 2-year treasury note has a
coupon rate of 3%. Based on the pure expectations theory, what is the 1-year interest
rate anticipated at t +1 (2nd year)?
Response: 4.00980%
Feedback: CORRECT! The formula to compute for the interest rate is (1+ti2 )2 = (1+tii)
(1+ t+1r1); Substituting the given values: (1.03)2= (1.02) (1+x). Then, finding the value of
x: 1.0609 = 1.02 + 1.02x = 4.00980%
Score: 1 out of 1 Yes

Question 5
ABC Corp. plans to borrow P1,000,000 funds from XYZ Inc. The risk-free rate imposed
on the loan is 5%. XYZ’s debt margin is 3%. How much interest rate should XYZ Inc.
impose on ABC Corp.?
Response: 8%
Feedback: CORRECT! The formula to compute for the interest rate is i=Rf+ Dm;
Substituting the given values: I = 5%+ 3% = 8%
Score: 1 out of 1 Yes

Question 6
Line Corporation (LC) currently manufactures part B137, producing 80,000 units
annually. The part is used to produce several products made by the company. The cost
per unit for B137 is as follows: Direct material – P18.00; Direct labor – P6.00; Variable
manufacturing overhead – P5.00; Fixed manufacturing overhead – P8.00.
Of the total fixed overhead assigned to B137, P176,000 is avoidable (the lease of
production machinery and salary of a production line supervisor–neither of which will be
needed if the line is dropped). The remaining fixed overhead is a common fixed
overhead. An outside supplier has offered to sell the part to LC for P32. There is no
alternative use for the facilities currently used to produce the part.
Should LC make or buy part B137?

Response: It is better to make the parts because the cost to produce is lower than
buying the parts from a supplier. It results in a P64,000 net advantage to make.
Feedback: CORRECT! Adding the relevant costs in the “make” decision gives cost
savings for the firm.
Score: 1 out of 1 Yes

Question 7
After several years of producing and selling at 100,000 units, GRG Company faced a
year with projected sales and production of 76,000 units. A potential customer offered to
purchase 14,000 units at a price of P36 each. The normal sales price is P60 each.
The following data are available: Direct material – P18.00; Direct labor – P13.00;
Variable manufacturing overhead – P4.00; Fixed manufacturing overhead – P7.50.
Should GRG accept or reject the offer?

Response: Given the excess capacity, GRG Company should accept the offer because
it increases the income by P14,000.
Feedback: CORRECT! The formula for the incremental income is contribution margin
(selling price – relevant costs) x units sold. Substituting the given values: (P36- P35) x
14,000 = P14,000
Score: 1 out of 1 Yes

Question 8
Jin Company (JC) plans to spend P60,000 on a machine that will be depreciated on a
straight-line basis over 10 years. The machine will generate additional cash revenues of
P12,000 a year. JC will not incur additional costs except for depreciation. The income
tax rate is 35%. What is the payback period of the said investment?
Response: 6.06 years
Feedback:
CORRECT! This can be computed as follows:

Score: 1 out of 1 Yes

Question 9
Which yield curve can be observed when bond investors expect the economy to grow
at a normal pace, without significant changes in the rate of inflation or major
interruptions in available credit?
Response: Upward
Feedback: CORRECT! This is the usual flow of the slope, which means that the long-
term interest rates are above the short-term interest rates.
Score: 1 out of 1 Yes

Question 10
Yessa Corporation is considering replacing its old machine with a book value of
P150,000 and a remaining useful life of three (3) years. The old machine will be
replaced with a new one that will cost P375,000, with a three-year useful life and no
salvage value.
The annual operating costs of the old machine amount to P180,000, which can be
reduced by 55% if a new machine is acquired. The old machine will have no disposal
value after three (3) years but can be disposed of now at P60,000. How much is the
differential cost between the alternatives?
Response: P18,000
Feedback:
CORRECT! This can be computed as follows:

Cost of the new machine P375,000

Add: Operating costs (P180,000 x 45% x3) 243,000
Less: Disposal value of old machine (60,000)
Total relevant cost to replace P558,000
Total relevant cost to retain (P180,000 x 3) 540,000
Differential cost P18,000
Score: 1 out of 1

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Question 1
Which of these is NOT included in disequilibrium profit theories?
Response: Oligopoly profit
Feedback: CORRECT! Oligopoly is a market structure characterized by a small number
of large firms. However, there is no such theory about oligopoly profit.
Score: 1 out of 1 Yes

Question 2
Which type of pricing objective ignores market share and focuses on the price where
profit is enlarged?
Response: Profit maximization
Feedback: CORRECT! Profit maximization is a business practice wherein firms
determine the output price levels that lead to the highest profit, regardless of customers’
price preference.
Score: 1 out of 1 Yes

Question 3
Jung Merchandising is the major supplier of automotive parts in a local town. As the
company became well-known, it started increasing the price of its best-selling
automotive accessory from P2,000 to P2,500. As a result, the quantity of their product
sold fell from 700 to 500. Determine the demand elasticity of the given product.
Response: Elastic
Feedback: CORRECT! The given product is considered elastic because the quotient,
derived from the price elasticity, is 1.5 and is, therefore, greater than one (1).
Score: 1 out of 1 Yes

Question 4
Which market structure is characterized by a large number of firms producing identical
products?
Response: Perfect competition
Feedback: CORRECT! It has the highest degree of competition due to the large number
of firms producing identical products in perfect competition.
Score: 1 out of 1 Yes

Question 5
Jeff Batambakal receives an income of P3,000 per month and spends P2,500. Jeff’s
income increased by P500 per month, and he now spends P2,800 per month. What is
Jeff’s marginal propensity to save?
Response: 0.40
Feedback:
CORRECT! To solve for the marginal propensity to save, compute first for the change in
savings which is P200 [(P3,500 – P2,800) – (P3,000 – P2,500)]. Afterward, divide the
change in savings (P200) with the change in income of P500.

Score: 1 out of 1 Yes

Question 6
Kaye Jose has the following data:

Level of
Disposable
Consumption
Income
P42,000 P36,000
P50,000 P42,000

What is Kaye Jose’s marginal propensity to consume?

Response: 0.75
Feedback: CORRECT! To solve the marginal propensity to consume, compute for the
change in consumption, P6,000 (P42,000 – P36,000). Afterward, divide it with the
change in the disposable income of P8,000 (P50,000 – P42,000).
Score: 1 out of 1 Yes

Question 7
This happens when a firm produces the maximum output possible for a given
combination of inputs and existing technology.
Response: Technical efficiency
Feedback: CORRECT! When a firm is technically efficient, every input is being utilized
to the fullest extent possible. There is no other way to get more output without using
more of at least one (1) input.
Score: 1 out of 1 Yes

Question 8
Kim Sy Merchandising is the major automotive parts supplier in a local town. As the
company became well-known, it started increasing the price of its best-selling
automotive accessory from P2,000 to P2,500. As a result, the quantity of their product
sold fell from 700 to 500. Using the concept of price elasticity, compute for the percent
(%) change in quantity.
Response: 33.33%
Feedback:
CORRECT! The formula to compute for the given problem is

Where:
= Current quantity
= Previous quantity

This means that the percent change in the quantity of Kim Junkyu Merchandising’s
best-selling automotive accessory fell to 33.33%.
Score: 1 out of 1 Yes

Question 9
Risa Bakery is known for its tasty pastries. During the first month of production, it sold
750 cinnamons at the price of P60. Increasing demand encouraged them to supply
1,500 in the following month at the price of P80. Calculate the price elasticity of supply.
Response: 3.03
Feedback:
CORRECT! The formula to compute for the given problem is

Score: 1 out of 1 Yes

Question 10
Which type of pricing objective aims to maximize sales while making a normal profit or
break-even profit?
Response: Sales maximization
Feedback: CORRECT! Sales maximization involves selling at a price equal to the
average cost.
Score: 1 out of 1