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3. If a company tends to be more conservative with respect to its working capital policy, then it would
tend to have a(n)
C a. Increase in the normal operating cycle
b. Decrease in the normal operating cycle
c. Increase in the ratio of current assets to current
liabilities
d. Decrease in the ratio of current assets to current
liabilities
5. Two goods, A1 and B2, are substitutes. What will an increase in the price of B2 cause?
A a. The demand curve for A1 to shift right
b. The supply curve for A1 to shift right
c. The demand curve for A1 to shift left
d. The supply curve for A1 to shift left
10. For working capital management purposes, the difference between the cash balance per company
books and the cash balance per bank statement is called ______
A a. Float
b. Lockbox system
c. Bank reconciliation
d. Compensating balance
11. The following information regarding a capital project was given for consideration:
Estimated life 10 years
Cost of capital 20%
Initial investment P 6,500
Cash inflows per year P 1,000
Straight-line depreciation P 325
12. When would a retailer tend to decrease the safety stock of inventory?
D a. Sales variability increases
b. Transportation time increases
c. Sales volume permanently increases
d. Cost of carrying inventory increases
13. Which of the following is NOT a component used in calculating the cost of capital?
C a. The cost of common stock
b. The cost of long-term debt
c. The cost of short-term debt
d. The cost of retained earnings
14. In an income statement prepared as an internal report using the variable costing method, variable
selling expenses would
B a. Be considered in computing gross profit and operating income
b. Be considered in computing operating income and contribution
margin
c. Be considered in computing operating income but not considered
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in computing contribution margin
d. Be considered in computing contribution margin but not
considered in computing gross profit and operating income
What is the estimated annual net benefit from the new system?
A a. P 152,000
b. P 180,000
c. P 260,000
d. P 360,000
16. Lourdes Company’s present current ratio is 4 times. What transaction will most likely cause the
current ratio of the company to increase?
C a. Purchase of inventory on credit
b. Collection of trade receivables
c. Payment of current tax obligations
d. Borrowing of cash based a 12-month loan
18. Assume a tax rate of 25%, how many more units shall be sold in year 2 to earn an after-tax profit of
P 236,250?
C a. 25,000 units
b. 21,500 units
c. 7,000 units
d. 3,500 units
20. Monaco Company manufactures products N-Lex and S-Lex from a joint
process. Product N-Lex has been allocated P 5,000 of total joint
costs of P 40,000 for the 1,000 units produced. N-Lex can be sold at
the split-off point for P 6 per unit, or it can be processed further
with additional costs of P 2,000 and sold for P 10 per unit.
What minimum savings in collection costs would the procedure change have to generate to offset the
increased investment in accounts receivable?
B a. P 1,200
b. P 9,600
c. P 12,000
d. P 33,600
23. Spain Company plans to replace an old machine with a new one. For capital budgeting purposes,
which of the following shall be considered in the calculation of initial cost of net investment?
B a. Cost of the old machine and salvage value of the new machine
b. Cost of the new machine and salvage value of the old machine
c. Cost and salvage value of the old machine
d. Cost and salvage value of the new machine
26. Italy provides the following information for its standard material
cost for one unit of its finished product:
How many finished units were produced if materials quantity variance is computed as P 30,000
unfavorable?
A a. 50,000 units
b. 50,750 units
27. Why is equity capital generally more expensive than debt financing?
C a. Interest on bonds is a legal obligation
b. Dividends fluctuate more than interest rates
c. Investors expect to be paid more due to exposure to higher
risk
d. Investors have a greater demand for equity investments than
for debt investments
The carrying amounts and market values of above amounts do not differ
significantly.
30. Nice Company’s average cost is decreasing over a range of increased output. What is Nice
experiencing?
A a. Economies of scale
b. Diminishing returns
c. Technological efficiency
d. Decreasing fixed charges
31. Which of the following is LEAST likely a part of inventory costs under variable
costing?
C a. Supplies used in factory operations
b. Output-based salary of plant workers
c. Annual rental of manufacturing facilities
d. Cost of blueberries used in the producing berry juices
32. Paris Company produces and sells three (3) products with the following data:
Product F1 Product F2 Product F3
Sales P 30,000 P 60,000 P 10,000
Variable costs 24,000 40,000 5,000
Assuming that the total fixed costs are P 18,600 and the sales mix is proportional to peso sales, how
much should be the sale of product F1 to break-even?
B a. P 6,000
b. P 18,000
c. P 36,000
d. P 60,000
33. Which of the following is generally considered as a cash outflow and classified as a financing activity?
D a. Payment of interests on indebtedness
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b. Settlement of current tax liabilities
c. Issuance of company bonds at a discount
d. Acquisition of company’s own shares at treasury
34. UK Company wants to determine the optimum safety stock level for drug
Metro-2. The annual carrying cost of Metro-2 is 25% of the inventory
investment. The inventory investment averages P 10 per unit. The
stock out cost is estimated at P 2 per unit. UK orders Metro-2 20
times annually. UK defines the total costs of safety stock as
carrying costs plus expected stock out costs. With 100 units of
safety stock, there is a 15% probability of a 30-unit stock out per
order cycle.
What is the total annual cost of the 100 units of Metro-2 safety stock?
D a. P 250
b. P 259
c. P 277
d. P 430
35. A CPA firm’s primary purpose for performing Management Advisory Services (MAS) is to
B a. Prepare the CPA firm for the changing needs and requirements
of business community
b. Provide advice and technical assistance which will enable a
client to conduct its business more effectively
c. Establish the CPA firm as a consultant, which enable the CPA
firm to ensure future viability and growth
d. Enable staff members of the CPA firm to acquire the necessary
continuing education in all areas of business
36. The following operating data refer to London Company’s 6-day workweek:
Sum of the hours 174
Sum of the costs 225
Sum of the hours x costs 3,414
Sum of the squared value of costs 4,259
Which equation shall be used under the least-squares method?
D a. 3,414 = 225 a + 4,259 b
b. 3,414 = 174 a + 4,259 b
c. 225 = 174 a + 3,414 b
d. 225 = 6 a + 174 b
37. All of the following are factors considered in credit policy administration, EXCEPT:
D a. Terms of trade
b. Credit standards
c. Collection policy
d. Amount of receivable
40. Eiffel Company is preparing its cash budget for November. Eiffel expects 50% of credit sales to be
paid in the month of sale. 30% in the month following the sale, and the remainder paid two months
after the month of sale. Eiffel expects the cash and credit sales to be:
Cash Credit
November P 17,000 P 100,000
October ??? P 90,000
September P 15,000 P 80,000
August P 18,000 P 95,000
Assuming no bad debts and a projected total cash inflow of P 107,000 in October, what is Eiffel’s
expected October cash sales?
B a. P 20,000
b. P 19,000
c. P 16,000
d. P 14,000
41. A branch reported return on sales of 15% and return on investment of 24%. What was the
investment turnover of the branch?
C a. 0.39
b. 0.625
c. 1.6
d. 3.6
42. Which of the following non-value-added costs associated with manufactured work in process
inventory is most significant?
B a. The cost of labor that cannot be traced to any individual
product
b. The cost of moving, handling, and storing any individual
product
c. The cost of materials that cannot be traced to any individual
product
d. The cost of additional resources consumed to produce any
individual product
43. What is the average number of tennis balls does Big Ben maintain?
C a. 200 tennis balls
b. 400 tennis balls
c. 2,400 tennis balls
d. 4,800 tennis balls
44. How often shall Big Ben place the orders within a year?
A a. Every 4 days
b. Every 5 days
c. Every 6 days
d. Every week
46. Ayala Avenue invested in a four-year project. Ayala’s cost of capital is 8 percent. Additional
information on the project is as follows:
Year Post-tax cash inflow PV of P 1 at 8%
1 P 2,000 0.926
2 2,200 0.857
3 2,400 0.794
4 2,600 0.735
Assuming a net present value of P 2,500, what is the project’s payback period?
A a. Between 2 years and 2.5 years
b. Between 2.5 years and 3 years
c. Between 3 years and 3.5 years
d. Between 3.5 years and 4 years
48. England Company is concerned about the company’s account receivable turnover ratio. The
company currently offers customers terms of 3/10, net 30. Which of the following strategies would
most likely improve the company’s accounts receivable turnover ratio?
D a. Changing customer terms to 1/10, net 30
b. Changing customer terms to 3/20, net 30
c. Pledging the accounts receivable to a finance company
d. Entering into a factoring agreement with a finance company
49. For quality costs purposes, sales returns and allowances due to a
quality deficiency shall be classified as a (an):
C a. Appraisal costs
b. Prevention costs
c. External failure costs
d. Internal failure costs
50. The first order of 500 units incurred P 120,000 of labor costs; the next order of 500 units required an
additional P 72,000 of labor costs. What percentage of learning occurred?
A a. 80%
b. 85%
c. 90%
d. 95%
51. The internal rate of return (IRR) of a capital investment project is the discount rate at which the
D a. Present value of cash outflows shall be maximum
b. Present value of cash inflows shall be minimum
c. Cost of capital shall be zero
d. Profitability index is 1.0
52. UAE Company produces two automotive parts, carburetors and air filters. Both products are made in
the same manufacturing facilities but are produced under different processes. To accomplish an
accurate allocation of production costs, the company uses activity-based costing. The cost
accountant for the company provided information about the activities used to produce the company’s
products. The activities were organized into the following overhead cost categories. The most
appropriate cost driver for each category is also provided.
Category Estimated Cost Cost Driver Carburetors Air Filters
Unit-level P 60,000 Labor hours 900 700
Batch-level P 22,000 Set-ups 20 30
Product-level P 45,000 Storage space 2,000 sq.m. 4,000 sq.m.
Facility-level P 100,000 Machine hours 7,500 12,500
If carburetors and air filters require the same amount of direct labor, what will be effect if labor
hours are used as the allocation base for product-level costs?
B a. Air filters will be over costed
b. Carburetors will be over costed
54. The normal operating cycle is 150 days while payable turnover is 6 times. How many cash
conversion cycles are there within a 300-day year?
A a. 3 cycles
b. 4 cycles
c. 5 cycles
d. 6 cycles
If Domo Company buys that parts rather than producing them, it will
save 60% of fixed overhead cost per unit.
55. How much is the total relevant unit cost to make?
C a. P 37.40
b. P 40.10
c. P 42.26
d. P 45.50
56. What is the over-all effect on company profit if Domo decides to buy from the supplier?
C a. P 152,000 worse off
b. P 98,000 worse off
c. P 54,800 worse off
d. P 10,000 better off
57. Westminster makes two products, X and Y. Their contribution margins are P 50 and P 90,
respectively. Each product goes through three processes: cutting, finishing, and painting. The
number of hours required by each process for each product and capacities available are given below:
Hours Required in Each Process
Product Cutting Painting Finishing
X 2 4 3
Y 1 6 2
Capacities in hours 300 500 250
Would it be more profitable for Dubai Company to enforce the P 100 transfer price?
A a. Yes, net advantage of the company is P 5,000
b. Yes, net advantage of the company is P 30,000
c. No, net disadvantage of the company is P 25,000
d. No, net disadvantage of the company is P 30,000
59. Kaplan and Norton’s Balanced Scorecard model requires that management performance be
measured based on the perspective of
D a. Suppliers
b. Creditors
c. Government
d. Shareholders
Assume a market price per common share of P 35, what is the return on common equity?
B a. 8.10%
b. 8.29%
c. 11.43%
d. 11.71%
63. Which of the following financial statement analysis tool generally is MOST USEFUL in analyzing
companies of different sizes?
D a. Comparative statements
b. Index or trend analysis
c. Liquidity and turnover ratios
d. Common-size financial statements
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65. A project’s net present value, ignoring income tax considerations, is normally affected by the
A a. Proceeds from the sale of the asset to be replaced
b. Amount of annual depreciation on the asset to be replaced
c. Carrying amount of the assets to be replaced by the project
d. Amount of annual depreciation on fixed assets used directly on
the project
66. At the start of the year, Bicester Company initiated a quality improvement program. The program
was successful in reducing scrap and rework costs. To help assess the impact of the quality
improvement program, the following data were collected for the current year:
Sales P 100,000
Scrap 20,000
Rework 25,000
Quality training 10,000
Product warranty 30,000
Product inspection 40,000
Materials inspection 20,000
In a quality cost report prepared by Bicester Company, what total amount should be shown as non-
conformance costs?
C a. P 45,000
b. P 70,000
c. P 75,000
d. P 115,000
67. When a specified level of safety stock is carried for an item in inventory, the average inventory level
for that item
D a. Is 50% of the level of the safety stock
b. Decreases by the amount of the safety stock
c. Increases by 50% of the amount of safety stock
d. Increases by the number of units of the safety stock
68. Dividend yield is 12% while price-earnings ratio is set 5 times. Determine the retention or plowback
ratio.
B a. 2.4%
b. 40.0%
c. 41.7%
d. 60%
A capital project’s expected gross income and after-tax cash flows for
the next 25 years are as follows:
Year Gross Revenue Cash Inflows Investment
0 - - (P 1,000,000)
1 P 250,000 P 10,000 (P 200,000)
2 P 250,000 P 10,000 -
3 P 250,000 P 10,000 -
4 P 250,000 P 10,000 -
5 P 250,000 P 10,000 -
6 P 250,000 P 10,000 -
7 P 250,000 P 10,000 -
8 P 250,000 P 10,000 -
9 P 250,000 P 10,000 -
10 P 250,000 P 10,000 -
11 P 300,000 P 10,000 -
12 P 300,000 P 10,000 -
13 P 300,000 P 10,000 -
14 P 300,000 P 10,000 -
15 P 300,000 P 10,000 -
16 P 400,000 P 20,000 -
17 P 400,000 P 20,000 -
18 P 400,000 P 20,000 -
19 P 400,000 P 20,000 -
20 P 400,000 P 20,000 -
21 P 500,000 P 20,000 -
22 P 500,000 P 20,000 -
23 P 500,000 P 20,000 -
24 P 500,000 P 20,000 -
25 P 500,000 P 20,000 -
69. The cash flow margin in year 21 is higher (lower) than the cash flow margin in year 20 by
C a. 1%
b. 3%
c. (1%)
d. (3%)
70. Assuming a 2% cost of capital, what is the net present value of the project?
C a. P 265,570
b. (P 734,430)
c. (P 934,030)
d. (P 1,213,440)