CPAR:MS 9001_INTRODUCTION TO MAS & COST CONCEPTS BATCH 90 (OCTOBER 2021)

MS9001 – INTRODUCTION TO MAS & COST CONCEPTS

PART 1: MANAGEMENT CONSULTANCY

TOPIC OUTLINE
Definition and Nature of
Management Consultancy

Role of Management
Basic Concepts
Consultants

MANAGEMENT Reasons for Hiring

CONSULTANCY Management Consultants

Stages in Management
Consultancy

LECTURE NOTES
BASIC CONCEPTS
Definition and Nature
Management Consultancy can be described as an independent and objective advisory services
provided by qualified persons to clients in order to help them identify and analyze management
problems and opportunities.
Activities of management consultants can involve two types:
(a) Consultations – consists of providing advice during a short time frame. The advice is provided
orally and will be definitive when the consultant is fully aware of the situation to require more
intensive study or investigation.
(b) Engagements – consists of that form of management advisory or consultancy in which analytical
approach and process is applied in the study or investigation.
Role of Management Consultants
MANAGEMENT CONSULTANT is 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.
The client in MAS practice is the management. Managers are entrusted with the entity’s resources to
safe keep and use it to increase entity’s wealth. The role of consultants is to provide technical advice
and assistance to its clients on areas which needed development, solution or improvements.
It involves the ability to find facts and define basic problems (not the symptoms), identify alternative
solutions and recommend solutions under the circumstances.
NOTE: Consultants are INDEPENDENT PERSON, AN OUTSOURCED PROVIDER and NOT AN INTERNAL
EMPLOYEE of the organization. Thus, the advice provided by the consultant are mere guide only in
decision making, the FINAL DECISION still rests with the MANAGEMENT.
Reasons for hiring Management Consultants
(1) Independent point of view
A consultant is considered to be independent and objective to the dilemma faced by the organization.
Since the consultant is not part in the establishment of internal policies of the organization, his or her
suggestion is considered to be unbiased.
(2) Professional advisor and counselor
An experienced management consultant possesses special knowledge, skills and a variety of personal
attributes that make him the most desirable candidate to undertake the engagement involving his
area of expertise.
NOTE: Although law DOES NOT RESTRICTS the practice of management consultancy to CPAs, business
firms generally prefer CPAs as their consultants.

(3) Temporary professional service

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The use of consultants is less expensive to the company than hiring new managers and employees to
provide professional advisory services
(4) Agent of change
A management consultant is a catalyst of change specifically in providing solutions to clients’
problems. These solutions tend to help management in the administration and improvement of the
organization.
STAGES OF MANAGEMENT CONSULTANCY
STAGE 1: NEGOTIATING THE ENGAGEMENT
This stage involves preliminary discussion with the client, client background investigation, preparation
of proposal letter and engagement contract and establishing fees and billing arrangement.
PROPOSAL LETTER: is a written communication between the CPA and the client setting forth the
terms and conditions of a proposed consultancy work.
ENGAGEMENT CONTRACT: is the legal contract binding both parties to the engagement.
CONSULTANCY FEES:
The cost of consultancy shall consist the following and shall be presented in the agreement in the like
manner:
(1) Salaries or billing rates
(2) Reimbursable costs or out-of-pocket costs
(3) Contingency costs
METHODS OF BILLING CLIENTS:
(1) Actual time basis / per diem basis – billing is done on the basis of actual time spent multiplied by the
hourly rates agreed upon.
(2) Flat or fixed basis – client is billed flat but all inclusive pre-arranged amount for the entire
engagement.
(3) Maximum fee basis – client is charged on a per diem basis with the arrangement that the total
charges will not exceed a certain agreed amount.
(4) Retainer basis – consultant is paid a fixed predetermined fee for all services rendered during a
designated period of time, say on a monthly or semi-annual basis.
STAGE 2: PREPARING FOR AND STARTING THE ENGAGEMENT
This stage is all about engagement planning.
Engagement Planning involves preparing a work plan (A.K.A. Engagement Program), selection of personnel,
scheduling of tasks, determining project cost and professional fees.
STAGE 3: CONDUTING THE ENGAGEMENT
Under this stage, four (4) necessary activities are done:
(1) Problem Identification – It is the first phase of the problem-solving process and its position in the
process is well established.
NOTE: A problem is said to exist when the observed behavior of a system or process violates the
bounds of reasonable expectations.
(2) Data Gathering – It deals with fact sources and identifies places where the consultant can look to find
facts associated with the operation of the client. Sources of the consultant could be internal or
external.
DATA GATHERING TECHNIQUES: (a) Interviews; (b) Questionnaire; (c) Observation; (d) Document
Gathering; (e) Charting
(3) Data Analysis and Diagnosis
(a) Decision-level Analysis – has the purpose of depicting the varied interrelationships among the
decisions made throughout the segments and levels of organization.
(b) Input / Output Analysis – analysis of the problem in terms of input or output.
(c) Structured Analysis – the key assumption underlying this approach is that any organization is
comprised of a number of well-defined functions, which in turn are made up of group of
activities.
(4) Solution Development – It involves generation and evaluation of solution alternatives, making a choice
of solution alternative and detailed development of selected solution.
STAGE 4: PREPARING AND PRESENTING THE REPORT AND RECOMMENDATION
Presentation of the report and recommendation could be in the following form: (a) oral; (b) written; (c)
visual NOTE: The recommended solution should be presented in a persuasive manner of the
consultant expects to obtain client’s acceptance of the recommendation.
STAGE 5: IMPLEMENTING THE RECOMMENDATION
This stage is considered to be the important lengthy phase that follows solution development phase.
NOTE: It must be understood that the CPA or the CONSULTANT SHOULD NOT TAKE RESPONSIBILITY for
making management and policy decisions.
STAGE 6: EVALUATING THE ENGAGEMENT

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Evaluation is necessary for CONSTANT IMPROVEMENT AND REFINEMENT in the QUALITY of future
advisory services of the consultant.
STAGE 7: POST-ENGAGEMENT FOLLOW-UP

PART 2: MANAGEMENT ACCOUNTING

TOPIC OUTLINE
Management & Its
Basic Functions
Concepts Management
Accounting

Financial Accouting vs.

Management Accounting

Management Line vs. Staff

Functions
Accounting
Controller vs.
Treasurer Competence

Standards for
Ethical Integrity
Conduct for
Management Confidentialit
Accountants y

Objectivity

LECTURE NOTES
BASIC CONCEPTS
Management Definition
Management is the process of planning, organizing and controlling tasks to achieve or meet the goals
of organization.
Functions of Management
(a) Planning – involves setting of goals and objectives of the firm, whether short-term or long-term,
evaluation and choosing of best alternatives in meeting the goals.
(b) Organizing / Directing – these are known as tackling activities. It is a function through which
management instructs, guides, and inspires the employees by communicating with them.
(c) Controlling – involves evaluation of actual performance whether it conforms to the planned results.
(d) Decision Making – involves determination of predictive information for making important business
decisions. NOTE: Decision making is inherent in all management functions.
Management Accounting Definition
A.K.A Managerial Accounting and Internal Accounting
It is the process of identification, measurement, accumulation, analysis, preparation, interpretation and
communication of information that assists in fulfilling organizational objectives.
FINANCIAL ACCOUNTING VS. MANAGEMENT ACCOUNTING
Areas of Comparison Financial Accounting Management Accounting
(1) Users of Information Internal & External (Primarily) Internal (Exclusively)
(2) Restrictive Guidelines PFRS / PAS / GAAP None
(3) Type of Information Monetary Monetary & Non-monetary
(4) Emphasis of Report Reliability (Precision) Relevance (Timeliness)
(5) Information Source Internal Data Internal & External Data
(6) Focus of Analysis Business as a Whole Various Segments
(7) Frequency of Reporting Periodic Whenever needed
(8) Time Orientation Historical Projected (Primarily) & Historical
LINE VS. STAFF FUNCTIONS
Line Authority
Managers with line authority are those people in the organization who are directly responsible for achieving
organizational goals. Line authority is represented by the standard chain of command starting with the
board of directors and extending down activities of the organization that are carried out. Managers with line
authority exercises downward authority or the authority to give command.
Staff Authority

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Staff authority belongs to those individuals or groups in an organization who provide services and advice to
line mangers. The concept of staff includes all elements of the organization that are not classified as line.
Advisory staffs have been used by decision makers from emperors and kings to dictators and parliaments
over the course of recorded history. Persons with staff authority exercise an upward or lateral authority.
CONTROLLER VS. TREASURER
Controllership is the practice of the established science of control which is the process by which
management assures itself that the resources are procured and utilized according to plans in order to
achieve the company’s objectives.
Treasurership is concerned with the acquisition, financing and management of assets of a business concern
to maximize the wealth of the firm for its owners.
NOTE: Generally, the above functions should NOT be combined on the same person.

Controller’s Functions Treasurer’s Function

Reporting and Interpreting Data Provision of Capital
Tax Administration Investor Relations
Government Reporting Short-term Financing
Management Audit Banking and Custody of Funds
Internal Audit Credit and Collections
Government Reporting Investments and Insurance
Economic Appraisal
Protection of Assets
STANDARDS FOR ETHICAL CONDUCT FOR MANAGEMENT ACCOUNTANTS
Practitioners of management accounting have an obligation to the organization they serve, their profession,
the public and themselves to maintain the highest standard of ethical conduct. In recognition of this
obligation, the Institute of Management Accountants has promulgated the following standards:
I. COMPETENCE
1. Maintain an appropriate level of professional leadership and expertise by enhancing knowledge
and skills.
2. Perform professional duties in accordance with relevant laws, regulations, and technical
standards.
3. Provide decision support information and recommendations that are accurate, clear, concise,
and timely. Recognize and help manage risk.
II. CONFIDENTIALITY
1. Keep information confidential except when disclosure is authorized or legally required.
2. Inform all relevant parties regarding appropriate use of confidential information. Monitor to
ensure compliance.
3. Refrain from using confidential information for unethical or illegal advantage.
III. INTEGRITY
1. Mitigate actual conflicts of interest. Regularly communicate with business associates to avoid
apparent conflicts of interest. Advise all parties of any potential conflicts of interest.
2. Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
3. Abstain from engaging in or supporting any activity that might discredit the profession.
4. Contribute to a positive ethical culture and place integrity of the profession above personal
interests.
IV. CREDIBILITY
1. Communicate information fairly and objectively.
2. Provide all relevant information that could reasonably be expected to influence an intended
user’s understanding of the reports, analyses, or recommendations.
3. Report any delays or deficiencies in information, timeliness, processing, or internal controls in
conformance with organization policy and/or applicable law.
4. Communicate professional limitations or other constraints that would preclude responsible
judgment or successful performance of an activity.

PART 3: COST CONCEPTS AND COST BEHAVIOR

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TOPIC OUTLINE
Definitions
Basic Concepts
Cost Classification

Cost Behavior Patterns Account Analysis

COST BEHAVIOR AND COST Conference Method

CLASSIFICATION

Engineering Method
Methods in Segregating
Mixed Costs
High-Low Method

Correlation Analysis Scattergraph Method

Least-square Method

LECTURE NOTES
BASIC CONCEPTS
Definitions
Cost Behavior
It is the study of how the firm’s costs respond to changes in activity levels with the company. Cost
behavior is important in cost analysis in providing management with information to make rational and
intelligent decisions regarding planning, coordinating and controlling operations.
Cost Driver
It is an item or event that has a cause and effect relationship with incurrence of a cost. Simply stated,
it is the unit of an activity that causes the change in activity's cost. EXAMPLES: Machine hours, labor
hours, no. of inspections, no. of deliveries, mileage.
Cost Object
It is anything for which cost is computed. Remember that anything that generates costs or has
expenses associated with it can be considered a cost object. EXAMPLES: Products, departments,
customers.
Cost Pool
Is a grouping of individual cost items. Cost allocations are then made from a cost pool. For example,
the cost of the maintenance department is accumulated in a cost pool and then allocated to those
departments using its services.
Relevant Range
It is a width or span of activities where the relationship of costs and the cost formula are valid,
predictable and linear.
What is the cost formula?
Y=a+bx
In Accounting In Mathematics
Y= Total Cost / Mixed Cost Dependent Variable
a= Total Fixed Cost Y Intercept / Intercept Parameter
b= Variable Cost per Unit Slope
x= Cost Driver / Activity Level Independent Variable
NOTE: Based on the accounting equation, bx is the “TOTAL VARIABLE COST”.
Cost Classifications
According to Inventoriability
(1) Product Costs – are manufacturing or inventoriable costs. These are costs involved in acquiring or
making a product.
(2) Period Costs – are all costs that are identified with accounting periods and not included in products
costs.

PRODUCT COSTS vs. PERIOD COSTS

PRODUCT COSTS PERIOD COSTS
(1) Inventoriable? YES NO
(2) Cost Flow Incurrence – Inventories – P/L Incurrence – P/L
(3) Accounting Treatment Capitalized first (Inventories) Expensed Outright

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Direct Materials

Indirect
Product Costs Direct Labor Materials

Factory
Indirect Labor
Overhead

Other Indirect
Costs
Direct Materials (DM) – are materials that serve as integral part of a finished product and can be
conveniently traced into it.
Direct Labor (DL) – includes those labor costs that can be easily traced to particular products.
Factory Overhead (FOH) – are all manufacturing costs except direct labor and direct materials. NOTE: All
factory overhead costs are INDIRECT COSTS.
RELEVANT FORMULAS:
(a) PRIME COST = DM + DL (b) CONVERSION COST = DL + FOH
According to Traceability
(1) Direct Costs – Costs that can be economically traced to a single cost object.
(2) Indirect Costs – Costs that are not directly traceable to the cost object.
According to Time Frame Perspective
(1) Committed Cost – Cost that is inevitable consequence of a previous commitment.
EXAMPLES: Rent, taxes and licenses, depreciation
(2) Discretionary Cost – A.K.A. Programmed or Managed Cost. These are costs for which the size or the
time of incurrence is a matter of choice.
EXAMPLES: Charitable contributions, research and development, marketing expenses.
NOTE: Committed cost CANNOT be eliminated in a short-run basis but CAN be eliminated on a long-
run basis.
According to Controllability
(1) Controllable Costs – These are costs which the incurrence or non-incurrence depends on the decision
or control of a specific manager.
(2) Non-controllable Costs – These are costs which the incurrence or non-incurrence DO NOT depends on
the decision or control of a specific manager.
NOTE: Controllability of a cost is dependent on the powers or authority delegated to the manager.
According to Relevance
(1) Relevant Costs – These are future costs which differ from one alternative to another.
(2) Sunk Costs – These are past costs that are incurred and are irrelevant to a future decision.
(3) Opportunity Costs – The value of the best alternative forgone as the result of selecting another
alternative.
According to Behavior
(1) Variable Costs – Costs that change directly in proportion to changes in activity (volume).
(2) Fixed Costs – Costs that remain unchanged for a given time period regardless of changes in activity.
(3) Semi-variable or Mixed Costs – Costs that contain both fixed and variable component.
NOTE: Direct materials and direct labor are generally variable costs. On the other hand, factory overhead
are generally mixed costs except for indirect material and indirect labor (variable costs) and depreciation
(fixed).
COST BEHAVIOR PATTERNS
Activity Levels / Cost Driver
Cost Classification
↑ ↓
Variable Costs:
Per TOTAL ↑ ↓
Per UNIT CONSTANT CONSTANT
Fixed Costs:
Per TOTAL CONSTANT CONSTANT
Per UNIT ↓ ↑
Mixed Costs:
Per TOTAL ↑ ↓
Per UNIT ↓ ↑
METHODS OF SEGREGATING MIXED COSTS
(1) ACCOUNT ANALYSIS METHOD

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The account analysis approach requires that each individual cost is examined, and based on judgment
is categorized as a fixed or variable cost. This requires the use of trend analysis, the past experience
in judging whether a cost is fixed or variable.
(2) CONFERENCE METHOD
It is an approach to cost estimation that pools together data, analyses, and knowledge from expert
sources in order to make decisions about costs. In other words, this method looks at several different
parts of an organization to get different perspectives about how to estimate costs.
(3) ENGINEERING METHOD (INDUSTRIAL ENGINEERING METHOD)
Industrial engineering method is a systematical way of examining the relationship between cost
drivers and costs by analyzing the inputs coming into the company, the outputs that are created, and
the work that goes into the process. In other words, it is a detailed look at the entire production
process and how that process affects the costs of an organization.
NOTE: Engineering method is the most costly method in analyzing and segregating costs.
(4) SCATTERGRAPH METHOD (VISUAL FIT METHOD)
It is a graphical technique of separating fixed and variable components of mixed cost by plotting
activity level along x-axis and corresponding total cost (i.e. mixed cost) along y-axis. A regression line
is then drawn on the graph by visual inspection. The line thus drawn is used to estimate the total fixed
cost and variable cost per unit.
CAUTION IN USING THIS METHOD: Since the visual inspection DOES NOT involve any mathematical
testing therefore this method should be applied with great care.
NOTE: This method is considered the best in detecting outliers. (an outlier is a data point that
differs significantly from other observations)
The main question is how variable costs, fixed costs and mixed costs do look like in a graphical
format?

Variable Cost per Total

Fixed Cost per Total /Variable Cost per Unit

Mixed Cost per Total

Fixed Cost per Unit

NOTE: (1) – (4) are methods that use or employ judgment in segregating mixed costs.
(5) HIGH-LOW METHOD
Is a crude technique or method of segregating mixed costs. This method utilizes only two points in
doing a cost analysis making it a least accurate method. (This method provides only a reasonable cost
estimate).
Advantages:
(a) Simple to use and uses less complex computations.
(b) Lack of formality in cost estimation.

Disadvantages / Limitations:

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(a) High Low Method assumes a linear relationship between cost and activity which is an over
simplified analysis of cost behavior.
(b) High Low Method is not representative of entire data as it is based on just 2 activity levels. Thus,
outlier may be included in the computation.
(c) High-low method does not account for the effect of inflation on a portion of financial data which
could result in overestimation of the variable cost element of a mixed cost.
STEPS IN APPLYING HIGH LOW METHOD:
STEP 1: Identify the highest and lowest activity level or cost driver.
NOTE:
(1) What is being identified in high-low method as the highest and lowest point is just the cost
driver. The highest and lowest cost is not identified separately.
(2) What if there are 2 or more highest and lowest points? If you are on the high side, choose the
point with the highest cost. If you are on the low side, choose the point with the lowest cost.
STEP 2: Calculate variable cost per unit
Variable cost per unit = (High TC – Low TC) / (High CD – Low CD)
TC = Total Cost CD = Cost Driver
STEP 3: Calculate total fixed cost
Total Fixed Cost = High TC – (Variable cost per unit x High CD) or
Total Fixed Cost = Low TC – (Variable cost per unit x Low CD)
STEP 4: Formulate the cost equation that will be used in different level of activities WITHIN RELEVANT
RANGE.
(6) LEAST-SQUARE METHOD / LINEAR REGRESSION
It is a statistical technique that may be used to estimate a linear total cost function for a mixed cost.
This method is considered to be the most accurate since it derives the fixed and variable cost by means
of statistical analysis.
Advantages:
(a) Incorporation of all data in the computation and not just 2 points.
(b) Provides precise cost estimation.
Disadvantages:
(a) Outlier may be included in the computation.
(b) More complex mathematical calculations.
In using least-square method, the following equations are to be used:
∑y = n a + b ∑ x
∑xy = a ∑ x + b ∑ x2
CORRELATION ANALYSIS
Correlation analysis is a method of statistical evaluation used to study the strength of a relationship
between two, numerically measured, continuous variables
Coefficient of correlation (r) – is a measure of the extent of linear relationship. The results extend from -
1 to +1. If r is positive, there is a direct relationship between x and y. When r is negative, there is an
inverse relationship between x and y. And when r is 0, there is no relationship at all between x and y.
Coefficient of determination (r2) – represents the percentage of the total variation in the dependent
variable. The results extend from 0 to +1. High r2 means that cost driver is highly related to the
dependent variable.
Standard Error of Estimate - is the measure of variation of an observation made around the computed
regression line.

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DISCUSSION EXERCISES
STRAIGHT PROBLEMS:
COST CLASSIFICATION
1. HUSKAR MANUFACTURING CORP. incurs the following manufacturing costs and expenses during the
month of May.
1. Assembly line wages 10. Advertising
2. Raw materials used directly in product 11. Indirect materials used in production
3. Depreciation on office equipment 12. Factory manager's salary
4. Property taxes on factory building
5. Rent on factory building
6. Sales commissions
7. Depreciation on factory equipment
8. Factory utilities
9. Wages for factory maintenance workers

REQUIREMENT:
Complete the following matrix by placing an X mark under the appropriate headings.
Direct Direct Manufacturing Period
Cost Item Materials Labor Overhead Costs
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

2. The following costs were presented by FURION INC. in relation to its production process:
Direct Material Cost P450,000
Gas and Lubricants for Production Equipment 120,000
Gas and Lubricants for Delivery Truck 150,000
Salary of Assembly Line Workers 500,000
Salary of Maintenance Team of Factory Equipment 150,000
Fringe Benefits of Assembly Line Workers 45,000
Outgoing Inspection Cost 60,000
Utilities Expense (2/3 incurred by factory) 120,000
Property Taxes (1/4 for factory building) 100,000
Depreciation (2/5 for production process) 300,000
Other Factory Overhead 150,000
Freight Out 220,000
Abnormal Factory Losses 110,000
Wastage and Rework Cost (normal) 210,000
The company produced 300,000 units in relation to above costs and sold 90,000 units.
REQUIREMENTS: Determine the total amount expensed in the income statement for the current year.
DETERMINATION OF COST BEHAVIOR
3. The MAGINA INC. reported the following
Month 1 Month 2
Units sold 6,000 8,000
Cost A P35,000 P36,000
Cost B 16,000 16,000
Cost C 1,500 2,000
Cost D 12,000 16,000
Cost E 6,000 8,000
Cost F 2,000 2,000
Cost G 4,200 5,500
Cost H 37,300 44,600
Cost I 13,000 13,500
Cost J 10,000 12,200
REQUIREMENT: Indicate whether each of the costs above is probably a variable, mixed or fixed cost.

4. TERRORBLADE INC. has the details for its costs on different activity levels:

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Per Total: 2,000 units 2,500 units 3,000 units

Variable Cost P10,000 ? ?
Fixed Cost ? ? ?
Total ? ? ?

Per Unit
Variable Cost ? ? ?
Fixed Cost P2.5 ? ?
Total ? ? ?
REQUIREMENT: Complete all the missing data on the table for TERRORBLADE INC.
METHODS IN SEGREGATING MIXED COSTS
5. A controller is interested in analyzing the fixed and variable costs of indirect labor as related to direct
labor hours. The following data have been accumulated:
Month Indirect Labor Cost Direct Labor Hours
March P2,880 425
April 3,256 545
May 2,820 440
June 3,225 560
July 3,200 540
August 3,200 495
REQUIREMENT: Determine the amount of the fixed portion of indirect labor expense and the variable
rate for indirect labor expense, using the high and low points method.
6. RIKIMARU CORP. has an average unit cost of P18.50 at a volume of 100,000 units. At 200,000 units
the average unit cost is P14.25.
REQUIREMENTS: (a) Compute the variable cost per unit; (b) Compute the total fixed cost.
7. The owner of Bed and Bath Boutique regularly uses part-time help in addition to full time employees.
Some part-time help is needed every day for miscellaneous chores, and the owner arranges for
additional hours based on her estimates of sales for the following week. The following is a record of
the wages paid to part-time employees at recent monthly sales volumes.
Sales Wages Paid to Part-Time Help
P 8,210 P 629
1,950 558
6,340 710
17,650 1,360
18,100 1,350
13,800 1,130
15,040 1,466
5,050 675
11,000 1,014
The owner considers these months to be relatively normal; however, in the month with sales of
P1,950, the Boutique was closed for over two weeks for repainting and installing new carpeting.
REQUIREMENT: Determine the variable cost rate and fixed costs using the high-low method.
8. A company owns two automobiles that are used by employees on company business, usually for short
trips. Mileage and expenses, excluding depreciation, by quarters were as follows during a typical year
(quarters instead of months are used to simplify the arithmetic):
Quarter Mileage Expenses
First 3,000 P 550
Second 3,500 560
Third 2,000 450
Fourth 3,500 600
12,000 P2,160
REQUIREMENT: Determine the variable cost per mile (nearest tenth of a cent) and the fixed costs per
quarter, using the method of lease squares.
CORRELATION ANALYSIS
9. The statistician of RAIGOR CORP. has developed the following cost-prediction equation, using
observations from 12,000 to 30,000 machine hours.
Y = P236,837 + P3.7625X, r-squared = .81, standard error = P24,363
Y = total maintenance cost, X = machine hours
REQUIREMENTS: (a) Find the predicted maintenance cost at 25,000 machine hours. (b) Will
maintenance cost at zero machine hours be P236,837?

10. For the month of May, the total production cost of P120,000 the number of units produced is 60,000
units and the company used 15,000 direct labor hours. For the month of June, the company incurred a

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total production cost of P150,000 for the production of 90,000 units. The company used a total of
30,000 direct labor hours for the month of June.
Using correlation analysis, it was determined that the coefficient of correlation of the dependent
variable in relation to the units of production and direct labor hours is 0.85 and -0.91, respectively.
REQUIREMENT: How much is the quarterly fixed production cost of the Company?
MULTIPLE CHOICE (THEORIES):
1. Which of the following characterizes MAS?
I. Broad and diversity in scope. III. Management is the main beneficiary of the service
II. Limited to CPAs.
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III
2. In Advisory Services, the practitioner's function is to
A. provide counsel in a short time frame, based mostly, if not entirely, on existing personal
knowledge about the client, the circumstances, the technical matters involved, client
representations, and mutual intent of the parties.
B. develop findings, conclusions, and recommendations for the practitioner's consideration and
decision making.
C. put an action plan into effect.
D. provide services related to specific client transaction generally with a third party.
3. Which of the following statements is false?
A. CPAs have historically been business consultants to their clients.
B. Management consultants are licensed and regulated by laws.
C. The primary purpose of management consultancy is to improve the firm's use of its capabilities
and resources to achieve its objectives.
D. Management consultancy services are provided not only to big business enterprises but also to
medium-size and small companies.
4. Which of the following is not an analytical approach in MAS engagement?
A. Ascertaining the pertinent facts and circumstances
B. Defining the problem or opportunity for improvement
C. Presenting findings and recommendations
D. Counseling management in planning, operating and controlling functions.
5. Reasons for hiring management consultant:
I. A consultant is considered as an additional employee of the company in solving problems faced
by it.
II. A management consultant is considered to be a catalyst change.
A. I only C. Both I and II
B. II only D. Neither I nor II
6. Following are possible end-products of an MAS engagement, except
A. an organization plan with statements of duties and responsibilities.
B. blue print of a construction project.
C. an electronic data processing system.
D. sales reporting system.
7. MAS areas which are not normally related to the accounting and finance functions may include
A. preparation of accounting systems and procedure manuals.
B. development of management oriented accounting and reporting systems.
C. cost reduction studies.
D. operations research.
8. A CPA should reject an MAS engagement if
A. It would require him to make management decisions for an audit client.
B. His recommendations are to be subject to review by the client.
C. He audits the financial statements of a subsidiary of the prospective client.
D. The proposed engagement is not accounting-related.
9. The engagement proposal letter generally includes the following except
A. objectives and benefits.
B. personnel who will be assigned as Engagement Team members
C. scope of the work and role of the consultant.
D. fees and billing arrangement.

10. A management advisory services engagement generally involves the following activities in what
order?
I. Post engagement follow-up
II. Implementing the recommendation
III. Conducting the engagement

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IV. Negotiating the engagement

V. Preparing for and the starting the engagement
VI. Evaluating the engagement
VII. Preparing and presenting the report and recommendation
A. VII, VI, V, IV, III, II and I C. IV, III, V, VI, II, VII and I
B. III, IV, V, VI, VII, I and II D. IV, V, III, VII, II, VI and I
11. That kind of accounting concerned with providing information to management in making decisions
about the operations of the business
A. Responsibility accounting C. Management accounting
B. Cost accounting D. Correct answer no given
12. Managerial accounting applies to each of the following types of businesses except
A. service firms.
B. merchandising firms.
C. manufacturing firms.
D. Managerial accounting applies to all types of firms.
13. Which of the following management function is related in performance evaluation?
A. Planning C. Controlling
B. Organizing D. All of the above
14. In the planning and control process, what is the proper sequence of events?
A. Set goals, set objectives, develop plans, implement plans, evaluate performance
B. Establish a master budget, set standard costs, develop variance analysis
C. Develop engineered costs, develop pricing targets, calculate contribution margins
D. Identify variable costs, identify fixed costs, project the sales mix, determine breakeven
15. Managerial accounting: (E)
A. focuses only on historical data.
B. is governed by GAAP.
C. focuses primarily on the needs of personnel within the organization.
D. provides information for parties external to the organization.
E. focuses on financial statements and other financial reports.
16. Which of the following statements is (are) true regarding financial and managerial accounting?
I. Both are mandatory.
II. Both rely on the same underlying financial data.
III. Both emphasize the segments of an organization, rather than just looking at the organization as
a whole.
IV. Both are geared to the future, rather than to the past.
A. I, II, III, and IV C. Only II and III
B. Only II, III and IV D. Only II
17. Financial statements for external users can be described as
A. user-specific. C. special-purpose.
B. general-purpose. D. managerial reports.
18. To distinguish between management accounting and financial accounting, the following statements
are correct, except
A. Management accounting, in view of its various integrated recipients should have a separate data
recording and retrieval system from financial accounting.
B. Financial accounting is bound by GAAP, and management accounting need not be in conformity
with GAAP.
C. Financial accounting can be regarded as the process while management accounting can be
regarded as the product of the process.
D. Management accounting output must be released on time so as not to erode its usefulness;
Financial accounting output can still be useful even when delayed.
19. How does managerial decision making compare with external performance evaluation?
Managerial Decision External Performance
Making Evaluation
A. Detailed Detailed
B. Detailed More aggregated
C. More aggregated Detailed
D. More aggregated More aggregated
20. Which of the following information below is related primarily to Management Accounting as compared
to Financial Accounting?
I. Internal users of information III. Focus of information is business as a whole
II. Monetary Information IV. Emphasizes relevance rather than precision
A. I only D. IV only
B. II and III only E. I, II and IV only
C. I and IV only

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21. Financial and managerial accounting are similar in that both

A. have the same primary users.
B. produce general-purpose reports.
C. have reports that are prepared quarterly and annually.
D. deal with the economic events of an enterprise.
K,W&W
22. Which of the following is most associated with managerial accounting?
A. Must follow generally accepted accounting principles.
B. May rely on estimates and forecasts.
C. Is prepared for users outside the organization.
D. Always reports on the entire entity.
23. The following characteristics refer to Financial Accounting except
A. Provides information to external users
B. Emphasizes on objective data
C. Has no externally imposed standards
D. Generates general purpose financial statements
24. Internal reports must be communicated
A. daily. C. annually.
B. monthly. D. as needed.
25. Management accountants generally exercise which type of authority?
A. Company. C. Line.
B. Functional. D. Staff.
26. ______________ is an example of a line position.
A. Controller for a merchandising company
B. Chief financial officer of a merchandising company
C. Store manager for Best Buy
D. Human resources manager for a community college
27. A staff position:
A. relates directly to the carrying out of the basic objectives of the organization.
B. is supportive in nature, providing service and assistance to other parts of the organization.
C. is superior in authority to a line position.
D. none of these.
28. The controller of a company or other organization is
A. a staff manager. C. an accountant, not a manager.
B. an operating manager. D. a natural manager.
29. I. Line managers are directly responsible for achieving organizational goals.
II. Line personnel give assistance to staff employees.
Which of the above statement is incorrect?
A. I only C. Both I and II
B. II only D. Neither I nor II
30. The treasurer function is usually not concerned with
A. investor relations. C. short-term financing.
B. financial reports. D. credit extension and collection of bad debts.
31. Controllership has attained special recognition in corporate management as business expands in
complexity and reach, and as the controller exerts influence for management to take organization’s
goals. Controllership and treasurership constitute corporate finance. These are among the
controller’s traditional functions:
1. Tax management. 5. Reporting to government regulatory agencies.
2. Financial reporting and interpretation. 6. Risk management.
3. Credit management. 7. Economic appraisal.
4. Sourcing and investing of funds. 8. Planning for control.
A. All eight items. C. Items 1, 2, 3, 4, 5, 7, and 8 only.
B. Items 1, 2, 5, 7, and 8 only. D. 2, 3, 5, and 7, and 8 only.
32. Which of the following is not usually a controller’s function?
A. Planning for control. C. Tax administration.
B. Protection of assets. D. Credit and collection
33. All of the following are treasurer’s function, except?
A. Short-term financing C. Both A and B
B. Insurance decisions D. None from A and B
34. A managerial accountant who communicates information objectively is exercising which of the
following standards?
A. objectivity C. competence
B. integrity D. confidentiality
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35. Which of the following statements is correct?

A. A certified public accountant can readily render management advisory services to the public.
B. A CPA with MBA and DBM degrees is automatically qualified to render management advisory
services.
C. Competence as a standard in the rendition of management advisory services by a CPA may be
equated to having excellent scholarly preparation to include the usual baccalaureate degree, an
MBA and other post graduate studies.
D. Adequate training and experience in both the analytical approach and process in a particular
undertaking are requisites for the CPA to be involved in a management advisory service
engagement.
36. Under which ethical standard of conduct does the managerial accountant have the responsibility to
refuse any gift, favor, or hospitality that would influence or appear to influence his or her decision?
A. competence C. integrity
B. confidentiality D. objectivity
37. Which ethical standard has been violated if an accountant fails to disclose relevant information
pertaining to a financial statement?
A. Competence C. Integrity
B. Confidentiality D. Credibility

38. The distinction between indirect and direct costs depends on:
A. whether a cost differs between alternatives.
B. whether a cost is variable or fixed.
C. whether a cost is a product or a period cost.
D. whether a cost can be easily traced to the cost object under consideration.
39. Which of the following is a period cost?
A. Direct material.
B. Advertising expense.
C. Depreciation on cars driven by a firm's president and treasurer.
D. Miscellaneous supplies used in production activities.
E. Both "B" and "C."
40. Which of the following is not an example of a committed fixed cost?
A. Property taxes. D. Outlays for advertising programs.
B. Depreciation on buildings. E. Equipment rental costs.
C. Salaries of management personnel.
41. In the standard cost formula Y = a + bX, what does the “b” represent?
A. total cost C. total variable cost
B. total fixed cost D. variable cost per unit
42. Within the relevant range, as the number of units produced increases:
A. the variable cost per unit remains the same.
B. fixed costs in total remain the same.
C. variable costs increase in total.
D. all of the above.
43. Which of the following statements is false?
A. At zero production level, fixed costs is also zero.
B. At zero production level, fixed costs are positive.
C. At zero production level, variable costs are usually zero.
D. At zero production level, total costs equal total fixed costs.
44. Determine the true statement below:
I. A variable cost is constant if expressed on a per unit basis but the total dollar amount changes
as the number of units increases or decreases.
II. Within the relevant range, a change in activity results in a change in total variable cost and the
per unit fixed cost.
III. The cost formula used in estimating the cost of a company is applicable to all level of activities
once determined.
A. All statements are false C. None except III.
B. Only statement II and III. D. Only I and II.
45. Which of the following correlations shows the strongest relationship?
A. 0.85 C. -0.90
B. 1.01 D. -2.1
46. Statement 1: High-low method, as a means of segregating mixed cost, is known to give a precise
estimate of cost.
Statement 2: In applying high-low method, the two points needed to be known is the high and low of
both the cost to be segregated and its cost driver, separately.
A. Only the first statement is true. C. Both statements are true

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B. Only the second statement is true. D. Both statements are false.

47. The high-low method may give unsatisfactory results if
A. the data points all fall on a line. C. the points are not representative.
B. volume of activity is heavy. D. volume of activity is light.
- END OF HANDOUTS -

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