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MANAGEMENT ADVISORY AND SERVICES

S.Y. 2016-2017

INSTRUCTIONS: This examination is good for three (3) hours. Select the best answer for each

item. Mark only ONE answer for each item by shading the letter of your choice on the ANSWER

SHEET. STRICTLY NO ERASURES. Use Mongol Pencil No. 2 Only.

1. Which of the following would decrease the net present value of a project?

A. A decrease in the income tax rate

B. A decrease in the initial investment

C. An increase in the useful life of the project

D. An increase in the discount rate

2. The weakness of the internal rate of return method for screening investment projects is that it

A. does not consider the time value of money

B. implicitly assumes that the company is able to reinvest cash flows from the project at the

company’s discount rate

C. implicitly assumes that the company is able to reinvest cash flows from the project at the

company’s discount rate

D. implicitly assumes that the company is able to reinvest cash flows from the project at the

company’s discount rate

A. is used extensively when cash flows are known with certainty

B. measures the change in the discounted cash flows when using the discounted payback

method rather than the net present value method

C. is a “what-if” technique that asks how a given outcome will change if the original estimates

of the capital budgeting model are changed

D. is a technique used to rank capital expenditure requests

4. Flow Industries is analyzing a capital investment proposal for new machinery to produce a

new product over the next 10 years. At the end of the 10 years, the machinery must be

disposed of with a net zero book value but with a scrap salvage value of P20,000. It will

require some P30,0000 to remove the machinery. The applicable tax rate is 35%. The

appropriate “end of life” cash flow based on the foregoing information is

A. inflow of P30,000

B. outflow of P6,500

C. outflow of P10,000

D. outflow of P17,000

cheese cutter. Information on the existing machine and the replacement machine is as follow:

Cost of the new machine P40,000

Net annual savings in operating costs 9,000

Salvage value now of the old machine 6,000

Salvage value of the old machine in 8 years 0

Salvage value of the new machine in 8 years 5,000

Estimated life of the new machine 8 years

A. 4.44 years C. 8.50 years

B. 2.67 years D. 3.78 years

Mock Board Examination for Accountancy: Management Advisory and Services Page 1

6. Cause Company is planning to invest in a machine with a useful life of five years and no

salvage value. The machine is expected to produce cash flow from operations, net of income

taxes, of P20,000 in each of the five years. Cause’s expected rate of return is 10%. Information

on present value and future amount factors is as follows:

1 2 3 4 5

Present value of P1 at 10% .909 .826 .751 .683 .621

Present value of an annuity of P1 at 10% .909 1.736 2.487 3.170 3.791

Future amount of P1 at 10% 1.100 1.210 1.33 1.464 1.611

Future amount of an annuity of P1 at 10% 1.000 2.100 3.310 4.641 6.105

A. P 32,220 C. P 75,820

B. P 62,100 D. P 122,100

Use this information to answer items 7-9: A firm must choose between leasing a new asset of

purchasing it with funds from a term loan. Under the purchase option, the firm will pay five equal

principal payments of P1,000 each and 6% interest on the unpaid balance. Principal and interest

are due at the end of each year for five years. Alternatively, the firm can lease the asset for five

years at an annual rental cost of P1,400 with payments due at the beginning of each year. The

corporate tax rate is 35% and the appropriate after tax cost of capital is 12%.

7. Which of the following is closest to the PV of the after-tax interest payment?

A. P 360 C. P 640

B. P 453 D. P 726

8. Which of the following is closest to the present value of cost if leasing the asset?

A. P 3,694 C. P 3,849

B. P 3,779 D. P 3,992

9. Which of the following is closest to the PV of cost of purchasing the new asset with a term

loan?

A. P 3,777 C. P 4,058

B. P 3,952 D. P 4,153

10. In January 2013, computer bytes repairs a computer that uses parts of $80. It’s material

loading charge on this repair would be

A. $32 C. $80

B. $48 D. $112

Use this information to answer items 11-13: Logo Co. is planning to buy a coin-operated

machine costing P40,000. For book and tax purposes, this machine will be depreciated P8,000

each year for five years. Logo estimates that this machine will yield an annual cash inflow, net of

depreciation and income taxes, of P12,000. Logo’s desired rate of return on its investments is 12%.

At the following discount rates, the NPVs of the investment in this machine are:

Discount rate NPV

12% +P3,258

14% + 1,197

16% - 708

18% - 2,474

11. Logo’s accounting rate of return on its initial investment in this machine is expected to be

A. 30% C. 12%

B. 15% D. 10%

12. Logo’s expected payback period for its investment in this machine is

A. 2.0 years C. 3.3 years

B. 3.0 years D. 5.0 years

A. 3.3% C. 12.0%

B. 10.0% D. 15.3%

Mock Board Examination for Accountancy: Management Advisory and Services Page 2

14. Selected data from Sheridan Corporation’s year-end financial statements are presented below.

The difference between average and ending inventory is immaterial.

Current ratio 2.0

Quick ratio 1.5

Current liabilities P120,000

Inventory turnover (based on cost of sales) 8 times

Gross profit margin 40%

A. P 800,000 C. P 1,200,000

B. P 480,000 D. P 672,000

15. Jade Corporation has a practical production capacity of a million units. The current year’s

master budget was based on the production and sales of 700,000 units during the current

year. Actual production for the current year was 720,000 units, while actual sales amounted

to only 600,000 units. The units are sold for P20 each and the contribution margin ratio is

30%. The peso amount that best qualifies the Marketing Department’s failure to achieve

budgeted performance for the current year is

A. P 720,000 unfavorable C. P 2,400,000 unfavorable

B. P 600,000 unfavorable D. P 2,400,000 unfavorable

16. The gross profit of Rea Company for each of the years ended as indicated follow:

2011 2010

Sales P792,000 P800,000

Cost of goods sold 463,000 480,000

Gross profit P328,000 P320,000

Assuming that 2011 selling price was 10% lower, what would be the decrease in gross profit

due to change in the selling price?

A. P 8,000 C. P 79,200

B. P 72,000 D. P 88,000

17. Garfield Company, which sells a single product, provided the following data from its income

statements for the years 2011 and 2010:

2011 2010

Sales (150,000 units in 2011; 180,000 units in 2010) P750,000 P720,000

Cost of goods sold 525,000 575,000

Gross profit P225,000 P145,000

In an analysis of variation in gross profit between the two years, what would be the effects of

changes in sales price and sales volume, respectively?

A. P 150,000 F; P 120,000 U C. P 180,000 F; P 150,000 U

B. P 150,000 U; P 120,000 F D. P 180,000 U; P 150,000 F

18. Gear Inc., has a total annual cash requirement of P9,075,000 which are to be paid uniformly.

Gear has the opportunity to invest the money of 24% per annum. The company spends, on the

average, P40 for every cash conversion to marketable securities.

What is the optimal cash conversion size?

A. P 60,000 C. P 55,000

B. P 45,000 D. P 72,500

19. Lyman Company has the opportunity to increase annual sales P100,000 by selling to a new

riskier group of customers. The uncollectible expense is expected to be 15% and collection

costs will be 5%. The company’s manufacturing and selling expenses are 70% of sales, and its

effective tax rate is 40%. If Lyman should accept this opportunity, the company’s after tax

profits would increase by

A. P 6,000 C. P 10,200

B. P 10,000 D. P 14,400

Mock Board Examination for Accountancy: Management Advisory and Services Page 3

20. The following information regarding a change in credit policy was assembled by the Willis

Company. The company has a required rate of return of 10% and a variable cost ratio of

60%.

Old Credit Policy New Credit Policy

Sales P3,600,000 P3,960,000

Average Collection period 30 days 36 days

The pretax cost of carrying the additional investment in receivable, using 360-day year would

be

A. P 5,760 C. P 8,160

B. P 9,600 D. P 960

21. The sales director of Lloyd Company suggested that certain credit terms be modified. He

estimates the following effects:

Sales will increase by at least 20%

Accounts receivable turnover will be reduced to 8 times from the present turnover of

10 times

Bad debts, now at 1% of sales will increase to 1.5%

Sales before the proposed changes is at P900, 000. Variable cost ratio is 55% and the desired

rate of return is 20%. Fixed expenses amount to P150, 000.

A. Yes, because income will increase by P64,800

B. Yes, because losses will be reduced by P73,800

C. No, because income will be reduced by P13,000

D. No, because losses will be increased by P28,000

22. A spindle manufacturer uses about 200 cases of raw wood per month. It pays a broker P50.00

to locate a supplier and handle the ordering and delivery arrangements. Storage and handling

costs are P0.02 per case per month. If each case costs P0.78, the most economical order

quantity (rounded to the next whole number) is

A. 884 cases C. 1,133 cases

B. 625 cases D. 1,000 cases

23. Expected annual usage of a particular raw material is 2,000,000 units and the standard order

size is 10,000 units. The invoice cost of each unit is P500, and the cost to place one purchase

order is P80. The estimated annual order costs is

A. P16,000 C. P32,000

B. P100,000 D. P50,000

24. The Handy Company has the following information available concerning one of its inventory

items:

Cost of placing an order P 32.00

Unit of carrying cost per year P 4.00

Annual unit demand 5,625

Safety stock 100

Average daily demand 25

Normal lead time in days 10

The reorder point for the inventory item is

A. 250 C. 350

B. 600 D. 300

25. The G Corporation purchases 60,000 headbands per year. The average purchase lead time is

20 working days. Maximum lead time is 27 working days. The corporation works 240 days

per year. The appropriate safety stock level and the reorder point for the company are

A. B. C. D.

Safety Stock 1,750 1,750 1,167 1,167

Reorder Point 6,750 5,250 6,750 5,250

Mock Board Examination for Accountancy: Management Advisory and Services Page 4

26. Bye Company borrows from a bank a certain loan at a stated discount rate of 12 percent per

annum. The bank requires 10 percent of loan as compensating balance in its new checking

account. The loan is payable at the end of 6 months. The effective interest rate of this loan is

A. 28.21 percent C. 27.27 percent

B. 14.29 percent D. 15.38 percent

27. The Manunuba Company was recently quoted terms on a commercial bank loan of 7% interest

with 20% compensating balance. The term of the loan is one year. The effective cost of

borrowing (rounded to the nearest hundredth) for each interest arrangements are:

A. B. C. D.

Discounted interest 9.59% 8.75% 7.53% 7.53%

Payable upon maturity 8.75% 9.59% 8.75% 9.59%

28. For 2003, Bee Company increased earnings before interest and taxes by 17%. During the

same period, net income after tax increased by 42%. The degree of financial leverage that

existed during 2003 is

A. 1.70 C. 2.47

B. 4.20 D. 5.90

29. Mars Company plans to issue some P100 preferred stock with an 11 percent dividend. The

stock is selling on the market for P97, and Mars must pay flotation costs of 5 percent of the

market price. The company is under the 40 percent corporate tax rate. The cost of preferred

stock for Mars Company is

A. 7.16 percent C. 11.34 percent

B. 6.80 percent D. 11.94 percent

30. ABC Corp. stock’s beta is .50. If the market return is 16%, and the risk-free rate is 6%, what is

the required rate of return on ABC stock?

A. 11% C. 13%

B. 12% D. 14%

Required return on WXY common 15 percent

Beta coefficient 1.5

Risk-free rate 9.0 percent

A. 13.0 percent C. 18.0 percent

B. 25.0 percent D. 16.0 percent

32. The Taurus Company’s last dividend was P3.00; its growth rate is 6 percent and the stock now

sells for P36. New stock can be sold to net the firm P32.40 per share. What is the Taurus

Company’s cost of retained earnings?

A. 14.83 percent C. 15.81 percent

B. 15.26 percent D. 9.69 percent

33. Reina, Inc. has a target total labor cost of P3, 600 for the first four batches of a product. Labor

is paid P10 an hour. If Soft expects an 80% learning curve, how many hours should the first

batch take?

A. 360 C. 140.63

B. 57.6 D. 230.4

34. A company is designing a new regional distribution warehouse. To minimize delays in loading

and unloading trucks, an adequate number of loading docks must be built. The most relevant

technique to assist in determining the proper number docks is

A. Cost-volume-profit analysis C. PERT/CPM analysis

B. Linear programming D. Queuing theory

Mock Board Examination for Accountancy: Management Advisory and Services Page 5

35. \ Following is a table for two separate product lines, X and Y:

Probability X Profit Y Profit

20% P5,000 P 500

70% 3,000 4,000

10% 6,000 8,000

The product line to obtain maximum utility for a risk-averse decision maker is

A. X because it has the highest expected profit

B. Y because it has the highest dispersion

C. Y because it has the highest expected profit

D. X because it has the lowest dispersion

36. Dough Distributors has decided to increase its daily muffin purchases by 100 boxes. A box of

muffins costs P2 and sells for P3 through regular stores. Any boxes not sold through regular

stores are sold through Dough’s thrift store for P1. Dough assigns the following probabilities

to selling additional boxes:

Additional sales Probability

60 .6

What is the expected value of Dough’s decision to buy 100 additional boxes of muffins?

A. P 28 C. P 52

B. P 40 D. P 68

37. A beverage stand can sell either soft drinks or coffee on any given day. If the stand sells soft

drinks and the weather is hot, it will make P2,500; if the weather is cold, the profit will be

P1,000. If the stand sells coffee and the weather is hot, it will make P1,900; if the weather is

cold, the profit will be P2,000. The probability of cold weather on a given day at this time is

60%. The expected payoff for either selling coffee or soft drinks and the expected payoff if the

vendor has perfect information are

A. B. C. D.

Coffee P1,360 P1,960 P2,200 P3,900

Soft drinks P1,600 P1,600 P1,900 P1,900

Perfect Information. P3,000 P2,200 P1,360 P1,960

38. A construction contractor has been invited to submit a bid on a large and complicated

construction project. The preparation of the bid proposal will cost about P20,000.

Management feels that if the company bids low enough to result in a net profit of P50,000,

there would be a 60% chance of getting the job. If the company bids high enough to result in a

P100,000 net profit, the chance of getting the contract would be only 20%. What is the BEST

thing for the company to do?

A. Bid only high enough to allow for P50,000 profit because the expected value of the payoff

is P22,000

B. Bid high enough to allow for a P100,000 profit because the expected value of the payoff is

P4,000

C. Bid high enough to allow for a P100,000 profit because the expected value of the payoff is

P20,000

D. Make no bid

39. 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 is

A. the shortest path from the first event to the last event for a project

B. an activity within the path that requires the most number of time

C. the earliest time to complete the project

D. the maximum amount of time an activity may be delayed without delaying the total project

beyond its target time

Mock Board Examination for Accountancy: Management Advisory and Services Page 6

40. Clara Building Corporation uses the critical path method to monitor construction jobs. The

company is currently 2 weeks behind schedule on Job 181, which is subject to a P10,500-per-

week completion penalty. Path A-B-C-F-G-H-I has normal completion time of 20 weeks, and

critical path A-D-E-F-G-H-I has a normal completion time of 22 weeks. The following activities

can be crashed:

Activities Cost to Crash 1 Week Cost to Crash 2 Weeks

BC P 8,000 P15,000

DE 10,000 19,600

EF 8,800 19,500

Clara desires to reduce the normal completion time of Job 181 and, at the same time, report

the highest possible income for the year. Clara should crash

A. BC 1 week and EF 1 week C. EF 2 weeks

B. BC 2 weeks D. DE 1 week and EF 1week

41. A major advantage of obtaining a package of applications programs from a software vendor is

A. the likelihood of reducing the time span from planning to implementation

B. the ability to more easily satisfy the unique needs of users

C. greater operating efficiency from the computer

D. the assurance the programs will be written in a high-level language

42. An important concept in decision making is described as the contribution to income that is

forgone by not using a limited resources in its best alternative use. This concept is called

A. Marginal cost C. Potential cost

B. Opportunity costs D. Relevant cost

43. If revenues are P210,000 under alternative A and P216,000 under alternative B, and costs are

P190,000 for A and P204,000 for B, then using the basic approach in incremental analysis,

incremental revenues, costs, and net income, in comparing B to A are respectively

A. P 6,000, P (14,000), P (8,000) C. P 6,000, P 14,000, P 8,00

B. P (6,000), P 14,000, P 8,000 D. P (6,000), P (14,000), P (8,000)

44. For the year ended April 30, 2003, Leba Company incurred direct costs of P800,000 based on a

particular course of action. Had a different course of action been taken, direct costs would

have been P650,000. In addition, Leba’s fixed costs during the fiscal year were P110,000.

The incremental (decremental) costs was

A. P 40,000 C. P (40,000)

B. P 150,000 D. P (150,000)

45. Wallace Company produces 15,000 pounds of Product A and 30,000 pound of Product B each

week by incurring a common variable costs of P400,000. These two products can be sold

as is or processed further. Further processing of either product does not delay the

production of subsequent batches of the joint product. Data gathering there two products

are as follows:

Product A Product B

Selling price per pound without further Processing P 12.00 P 9.00

Selling price per pound with further Processing P 15.00 P 11.00

Total separate weekly variable costs of Further processing P50,000 P45,000

variable costs of further processing that should be incurred each week is

A. P 45,000 C. P 95,000

B. P 50,000 D. P 0

46. Blue & Company sells a product for P20 with variable cost of P8 per unit. Blue could accept a

special order for 1,000 units at P14. If Blue accepted the order, how many units could it lose at

the regular price before the decision becomes unwise?

A. 1,000 units C. P 500 units

B. P200 units D. 0 units

Mock Board Examination for Accountancy: Management Advisory and Services Page 7

47. Geary Manufacturing has assembled the following data pertaining to two popular products.

Blender Electric mixer

Direct materials P 6 P 11

Direct labor 4 9

Factory overhead @ P16 per hour 16 32

Cost if purchased from an outside supplier 20 38

Annual demand (units) 20,000 28,000

Past experience has shown that the fixed manufacturing overhead component included in the

cost per machine hour averages P10. Geary has a policy of filling all sales orders, even if it

means purchasing units from outside suppliers.

If 50,000 machine hours are available, and Geary Manufacturing desires to follow an optimal

strategy, it should

A. produce 25,000 electric mixers, and purchase all other units as needed

B. produce 20,000 blenders and 15,000 electric mixers, and purchase all other units as

needed

C. produce 20,000 blenders and purchase all other units as needed

D. purchase all units as needed

48. The Hingis Corporation manufactures two products: X and Y. Contribution margin per unit is

determined as follows:

Product X Product Y

Revenue P 130 P80

Variable costs 70 38

Contribution margin P 60 P42

Total demand for X is 16,000 units and for Y is 8,000 units. Machine hours is a scarce

resource. 42,000 machine hours are available during the year. Product X requires 6 machine

hours per unit while product Y requires 3 machine hours per unit.

A. B. C. D.

Product X 16,000 8,000 7,000 3,000

Product Y -0- 4,000 -0- 8,000

49. Wagner sells product A at a price of P21 per unit. Wagner’s cost per unit based on the full

capacity of 200,000 units is as follows:

Direct materials P 4

Direct labor 5

Overhead (2/3 of which is fixed) 6

P15

A special order offering to buy 20,000 units was received from a foreign distributor. The only

selling costs that would be incurred on this order would be P3 per unit for shipping. Wagner

has sufficient existing capacity to manufacture the additional units. To achieve an increase in

operating income of P40,000, Wagner should charge a selling price of

A. P 14 C. P 16

B. P 15 D. P 18

50. Yardley Co. has considerable excess manufacturing capacity. A special job order’s cost sheet

includes the following applied manufacturing overhead costs:

Variable costs P56,250

Fixed costs 45,000

The fixed costs include a normal P6,800 allocation for in-house design costs, although no in-

house design will be done. Instead, the special job will require the use of external designers

costing P13,750. What is the minimum acceptable price of the job?

A. P 63,050 C. P 101,250

B. P 70,000 D. P 108,200

Mock Board Examination for Accountancy: Management Advisory and Services Page 8

51. MC Industries manufactures a product with the following costs per unit at the expected

production of 30,000 units:

Direct materials P 4

Direct labor 12

Variable manufacturing overhead 6

Fixed manufacturing overhead 8

The company has the capacity to produce 40,000 units. The product regularly sells for P40. A

wholesaler has offered to pay P32 a unit for 2,000 units. If the firm is at capacity and the

special order is accepted, the effect on operating income would be a

A. P 20,000 increase C. P 4,000 increase

B. P 16,000 decrease D. P 0

52. Gata Co. plans to discontinue a department with a P48,000 contribution to overhead, and

allocated overhead of P96,000, of which P42,000 cannot be eliminated. What would be the

effect of this discontinuance on Gata’s pretax profit?

A. increase of P48,000 C. increase of P6,000

B. decrease of P48,000 D. increase of P6,000

53. Pili Company plans to discontinue a segment with a P32,000 segment margin. Common

expenses allocated to the segment amounted to P45,000, of which P20,000 cannot be

eliminated if the segment were closed. The effect of closing down the segment on Pili

Company’s before tax profit would be

A. P 12,000 decrease C. P 12,000 increase

B. P 7,000 decrease D. P 7,000 increase

54. Division B earns a contribution margin of P200,000 and has a divisional margin of P70,000. If

Division B is closed, all of the direct divisional expenses and P110,000 of common expenses

can be eliminated. These facts indicate that closing the division will cause the firm’s operating

income to

A. increase by P 90,000 C. increase by P 40,000

B. decrease by P 90,000 D. decrease by P 40,000

55. Condensed monthly operating income data for Cosmo Inc. for November 2000 is presented

below. Additional information regarding Cosmo’s operation follows the statement.

Total Hall Store Town Store

Sales P200,000 P80,000 P120,000

Less Variable costs 116,000 32,000 84,000

Contribution margin P 84,000 P48,000 P 36,000

Less direct fixed expense 60,000 20,000 40,000

Store segment margin P 24,000 P28,000 P ( 4,000)

Less common fixed expenses 10,000 4,000 6,000

Operating income P 14,000 P24,000 P (10,000)

One-fourth of each store’s direct fixed expenses would continue through December 31, 2001, if

either store were closed. Management estimates that closing the Town Store would result in a

ten percent decrease in Hall Store. Hall Store would not affect Town Store sales. The

operating results for November 2000 are representative of all months. A decision of Cosmo,

Inc. to close the Town Store would result in a monthly increase (decrease) in Cosmo’s

operating income during 2001 of

A. P 4,000 C. (P 800)

B. (P 10,800) D. (P 6,000)

56. Peluso Company, a manufacturer of snowmobiles, is operating at 70 percent of plant capacity.

Peluso’s plant manager is considering making the headlights now being purchased for P1, 100

each, a price that is not expected to change in the near future. The Peluso plant has the

equipment and labor force required to manufacture the headlights. The design engineer

estimates that each headlight requires P400 of direct materials and P300 of direct labor.

Peluso’s plant overhead rate is 200 percent of direct labor costs, and 40 percent of the

overhead is fixed cost. A decision by Peluso Company to manufacture the headlights will

result in a gain (loss) for each headlight of

A. P (200) C. P 40

B. P 160 D. P 280

Mock Board Examination for Accountancy: Management Advisory and Services Page 9

57. A management decision may be beneficial for a given profit center, but not for the entire

company. From the overall company viewpoint, this decision would lead to

A. goal congruence C. suboptimization

B. centralization D. maximization

58. Company L had its operating asset turnover increased by 50% and the operating income

margin increased by 50%. Company U had its operating asset turnover increased by 30% and

the operating income margin decreased by 30%. What changes are expected for ROI of

Company L and Company U, respectively?

A. B. C. D.

Company L 50% increase 125% increase 225% increase 125% increase

Company U 9% decrease 9% decrease no change no change

59. The manager of the Queen Division of Pusoy Company expects the following results in 2014

(pesos in millions):

Sales P49.60

Variable costs (60%) 29.76

Contribution margin P19.84

Fixed costs 12.00

Profit P 7.84

Investment:

Plant equipment P19.51

Working capital 14.88 P34.39

ROI P7.84/P34.39 22.80%

The division has a target ROI of 30 percent, and the manager has asked you to determine how

much sales volume the division would need to reach that. He states that the sales mix is

relatively constant so variable costs should be close to 60 percent of sales, fixed cost and plant

and equipment should remain constant, and working capital (cash, receivables, and

inventories) should vary closely with sales in the percentage reflected above. The peso sales

that the division needs in order to reach the 30 percent ROI target is

A. P 19,829,032 C. P 57,590,322

B. P 44,373,871 D. P 59,510,000

60. Ace Division of Card, Inc. expects the following result for 2014:

Unit sales P 70,000

Unit selling price 10

Unit variable cost 4

Total fixed costs 300,000

Total investment 500,000

The minimum required ROI is 15 percent, and divisions are evaluated on residual income. A

foreign customer has approached Houston’s manager with an offer to buy 10,000 units at P7

each. Houston Division has capacity of 75,000 units and the foreign customer will not accept

fewer than 10,000 units. Accepting the order would increase fixed costs by P10,000 and

investment by P40,000.

At the price of P7 offered by foreign customer, what is the maximum number of units in

regular sales that Houston could sacrifice and still maintain its expected residual income?

A. 2,333 C. 2,667

B. 3,333 D. 3,667

61. Family Company has two division, Ma and Pa. Information for each division is as follows:

Ma Pa

Net earnings for division P20,000 P65,000

Asset base for division P50,000 P300,000

Target rate of return 15% 18%

Operating income margin 10% 20%

Weighted average cost of capital 12% 12%

What is the Economic Value Added for Ma and Pa, respectively?

A. P 20,000, P 36,000 C. P 12,500, P 11,000

B. P 14,000, P 29,000 D. P 20,000, P 29,000

Mock Board Examination for Accountancy: Management Advisory and Services Page 10

62. An appropriate transfer price between two divisions of the Star Corporation can be

determined from the following data:

Fabrication Division

Market price of subassembly P50

Variable cost of subassembly P20

Excess capacity (in units) 1,000

Assembling Division

Number of units needed 900

What is the natural bargaining range for the two divisions?

A. Between P20 and P50 C. Any amount less than P50

B. Between P50 and P70 D. P50 is the only acceptable price

63. Managerial accounting differs from financial accounting in that financial accounting is

A. more oriented toward the future

B. primarily concerned with external financial reporting

C. concerned with non-quantative information

D. heavily involved with decision analysis and implementation of decisions

A. are governed by generally accepted accounting principles

B. deal with economic events

C. concentrate on historical data

D. classify reported information in the same manner

65. Which of the following statements correctly distinguishes financial and managerial

accounting?

A. Managerial accounting reports on the whole organization.

B. Financial accounting is oriented toward the future.

C. Financial accounting is primarily concerned with providing information for internal users.

D. Managerial accounting is oriented more toward the planning and control aspects of

management.

66. The term “relevant range” as used in cost accounting means the range over which

A. costs may fluctuate C. production may vary

B. cost relationships are valid D. relevant costs are incurred

67. If a predetermined overhead rate is not employed and the volume of production is increased

over the level planned, the cost per unit would be expected to

A. decrease for fixed costs and remain unchanged for variable costs

B. remain unchanged for fixed costs and increase for variable costs

C. decrease for fixed costs and increase for variable costs

D. increase for fixed costs and increase for variable costs

A. revenues earned and manufacturing costs C. high-volume and low-volume products

B. fixed and variable costs D. manufacturing costs and period costs

69. The equation(s) required for applying the least squares method in the computation of fixed

and variable production costs can be expressed as

A. xy = ax + b x2 C. y = na + b x

B. y = a + bx2 D. xy = ax + b x2

xy = na + b x y = na + bx

70. Weaknesses of the high-low method include all of the following EXCEPT

A. only two observations are used to develop the cost function

B. The high and low activity levels may not be representative

C. the method does not detect if the cost behavior is nonlinear

D. the mathematical calculations are relatively complex

END OF EXAMINATION

Mock Board Examination for Accountancy: Management Advisory and Services Page 11

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