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NOTRE DAME EDUCATIONAL ASSOCIATION

Purok San Jose, Brgy. New Isabela, Tacurong City

MOCK BOARD EXAMINATION


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

3. Sensitivity analysis, if used with capital projects


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

5. Brand is considering, an investment in a new cheese-cutting machine to replace its existing


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

What is the expected payback period for the new machine?


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

How much will the machine cost?


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

13. Logo’s expected IRR on its investment in this machine is


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%

Sheridan’s net sales for the year was


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.

Should the company allow revision of its credit terms?


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%

31. The following data are related to WXY stock:


Required return on WXY common 15 percent
Beta coefficient 1.5
Risk-free rate 9.0 percent

The required market return is


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

To maximize Wallace Company’s manufacturing contribution margin, the total separate


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.

How many units of X and Y should Hingis Corporation produce?


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
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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

64. Management accounting is similar to financial accounting in that both


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

68. Operating leverage is the relative mix of


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 = ax + b x2
xy = na + b x y = na + bx
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 

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