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1. If the investment turnover increased by 20% and ROS decreased by 30%, the ROI would
(M)
a. Increase by 20%. c. Increase by 4%.
b. Decrease by 16%. d. None of the above.
3. Bigole Corp. produces various products used in the construction industry. The
Plumbing Division produces and sells 100,000 copper fittings each month. Relevant
information for last month follows:
Total sales (all external) $250,000
Expenses (all on a unit base):
Variable manufacturing $0.50
Fixed manufacturing .25
Variable selling .30
Fixed selling .40
Variable G&A .15
Fixed G&A .50
Total $2.10
Top-level managers are trying to determine how a transfer price can be set on a
transfer of 10,000 of the copper fittings from the Plumbing Division to the
Bathroom Products Division.
A transfer price based on variable cost will be set at ___________ per unit.
a. $0.50 c. $0.95
b. $0.80 d. $0.75
4. The net sales of Grand Manufacturing Co. in 2017 is total, P580,600. The cost of
goods manufactured is P480,000. The beginning inventories of goods in process and
finished goods are P82,000 and P65,000, respectively. The ending inventories are,
goods in process, P75,000, finished goods, P55,000. The selling expenses is 5%,
general and administrative expenses 2.5% of cost of sales, respectively. The net
profit in the year 2017 is
a. P90,000 b. P45,725 c. P53,850 d. P83,000
5. North Bank is analyzing Belle Corp.’s financial statements for a possible extension
of credit. Belle’s quick ratio is significantly better than the industry average.
Which of the following factors should North consider as possible limitation of
using this ratio when evaluating Belle’s creditworthiness?
a. Fluctuating market prices of short-term investments may adversely affect the
ratio.
b. Increasing market prices for Belle’s inventory may adversely affect the
ratio.
c. Belle may need to sell its available-for-sale investments to meet its current
obligations.
d. Belle may need to liquidate its inventory to meet its long-term obligations.
For numbers 6 to 9 refer to this question:
You are requested to reconstruct the accounts of Angela Trading for analysis. The
following data were made available to you:
Gross margin for 2017 P472,500
Ending balance of merchandise inventory P300,000
Total stockholders’ equity as of December 31, 19x8 P750,000
Gross margin ratio 35%
Debt to equity ratio 0.8:1
Times interest earned 10
Quick ratio 1.3:1
Ratio of operating expenses to sales 18%
Long-term liabilities consisted of bonds payable with interest rate of 20%
Based on the above information,
10. The High Division of Para Company produces a high quality kite. Unit
production costs (based on capacity production of 100,000 units per year) follow:
Direct materials P 60
Direct labor 25
Overhead (20% variable) 15
Other information
Sales price 120
Selling expenses (15% variable) 20
The High Division is producing and selling at capacity.
What is the minimum selling price that the division would consider as a “transfer
price” to the Recreation Division on which no variable period costs would be
incurred? (M)
a. P120 c. P 91
b. P 88 d. P117
13. Jim Vannon is considering opening a Kwik Oil Change Center. He estimates that
the following costs will be incurred during his first year of operations: Rent
$6,000, Depreciation on equipment $7,000, Wages $13,700, Motor oil $1.20 per quart.
He estimates that each oil change will require 5 quarts of oil. Oil filters will
cost $3.00 each. He must also pay The Kwik Corporation a franchise fee of $1.25 per
oil change since he will operate the business as a franchise. In addition, utility
costs are expected to behave in relation to the number of oil changes as follows:
Mr. Vannon anticipates that he can provide the oil change service with a filter at
$20.00 each.
Using the high-low method, determine variable costs per unit and total fixed costs.
a. P 12/unit ; P 29 800
b. P 11/unit ; P 29 900
c. P 11/unit ; P 29 700
d. P 10/unit ; P 30 000
14. Refer to the preceding problem, Determine the break-even point in number of
oil changes.
a. 3 300 oil changes
b. 3 400 oil changes
c. 3 350 oil changes
d. 3 003 oil changes
15. Refer to the preceding problem, Determine the break-even point in sales
dollars.
a. P 66 000
b. P 64 000
c. P 60 600
d. P 67 000
16. Refer to the preceding problem, Without regard to your answers in #14 and 15,
determine the oil changes required to earn net income of $20,000, assuming fixed
costs are $28,000 and the contribution margin per unit is $10.
a. 4 900 oil changes
b. 4 800 oil changes
c. 5 000 oil changes
d. 5 100 oil changes
17. Selected data from the year-end financial statements of World Cup Corp. are
presented below. The difference between average and ending inventories is
immaterial.
Current ratio 2.0
Quick ratio 1.5
Current liabilities P600,000
Inventory turnover (based on cost of sales) 8 times
Gross profit margin 40%
World’s net sales for the year were
a. P2.4 million b. P4.0 million c. P1.2 million d. P6.0 million
18. What would be the effect on book value per share and earnings per share if
the corporation purchased its own shares in the open market at a price greater than
book value per share?
A. B. C. D.
Book value per share No effect Increase Decrease Decrease
Earnings per share Increase Increase Decrease Increase
19. The following situations are descriptive of SBD Corporation. Which would be
considered as the most favorable for the common stockholders.
a. Book value per share of common stock is substantially higher than market
value per share; return on common stockholders’ equity is less than the rate of
interest paid to creditors.
b. Equity ratio is high; return on assets exceeds the cost of borrowing.
c. SBD stops paying dividends on its cumulative preferred stock; the price-
earnings ratio of common stock is low.
d. Equity ratio is low; return on assets exceeds the cost of borrowing.
22. Landry Retailers has annual sales of $365 million. The company’s days sales
outstanding (calculated on a 365-day basis) is 50, which is well above the industry
average of 35. The company has $200 million in current assets, $150 million in
current liabilities, and $75 million in inventories. The company’s goal is to
reduce its DSO to the industry average without reducing sales. Cash freed up would
be used to repurchase common stock. What will be the current ratio if the company
accomplishes its goal?
a. 1.23 b. 1.33 c. 1.43 d. 0.73
23. The management of Seymour Corporation asks you to prepare an analysis of the
gross profit variance based on their comparative income statements for 2015 and
2016:
2016 2015 Variance
Sales P990,000 P800,000 P190,000 F
Cost of goods sold 760,000 640,000 120,000 U
Gross profit P230,000 P160,000 P 70,000 F
The only known information given to you is that volume increased from 2015 to 2016
by 10%.
25. The market value of a firm's outstanding common shares will be higher,
everything else equal, if
A. Investors have a lower required return on equity.
B. Investors expect lower dividend growth.
C. Investors have longer expected holding periods.
D. Investors have shorter expected holding periods.
26. Minix Co. has a high sales-to-working-capital ratio. This could indicate
a. The firm is undercapitalized.
b. The firm is likely to have liquidity problems.
c. Working capital is not profitably utilized.
d. The firm is not profitable.
27. Using the high-low method of analyzing costs, What is the estimated variable
portion of power costs per factory machine hour?
a. $ 1.60/ hr
b. $ 1.50/ hr
c. $ 1.52/ hr
d. $ 1.56/ hr
28. Using the high-low method of analyzing costs, What is the estimated fixed
power cost each month?
a. $ 4 900
b. $ 4 850
c. $ 4 950
d. $ 4 350
29. Using the high-low method of analyzing costs, If it is estimated that 10,000
factory machine hours will be run in July, what is the expected total power costs
for July?
a. $ 19 900
b. $ 19 200
c. $ 19 950
d. $ 19 850
30. Determine the number of rentals and the sales revenue Kelly needs to break
even using the contribution margin technique.
a. 3 100 rentals
b. 3 300 rentals
c. 3 150 rentals
d. 3 150 rentals
31. If the current level of rentals is 4,000, by what percentage can rentals
decrease before Kelly has to worry about having a net loss?
a. 22.3%
b. 22.5%
c. 22.6%
d. 23%
32. Kelly is considering upgrading the breakfast service to attract more business
and increase prices. This will cost an additional $5.00 for food costs per person
per night. Kelly feels she can increase the room rate to $65 per person per night.
Determine the number of rentals Kelly needs to break even if the changes are made.
a. 2 480 rentals
b. 2 500 rentals
c. 2 350 rentals
d. 2 600 rentals
33. Kelly is considering upgrading the breakfast service to attract more business
and increase prices. This will cost an additional $5.00 for food costs per person
per night. Kelly feels she can increase the room rate to $65 per person per night.
Determine the sales revenue Kelly needs to break even if the changes are made.
a. $ 160 200
b. $ 161 300
c. $ 161 200
d. $ 150 000
35. Overtime conditions and pay were recently set by the personnel department.
The production department has just received a request for a rush order from the
sales department. The production department protests that additional overtime
costs would be incurred as a result of the order. The sales department argues the
order is from an important customer. The production department processes the
order. In order to control costs, which department should be charged with the
overtime costs generated as a result of the rush order?
A. Personnel department
B. Production department
C. Sales department
D. Shared by production department and sales department
How many valves must the Valve Division sell each year to generate the desired rate
of return on its assets?
A. 280,000 C. 355,385
B. 350,000 D. 265,000
39. Magastos Division of Expenditures Company expects the following results for
2006:
Unit sales 70,000
Unit selling price P 10
Unit variable cost P 4
Total fixed cost
Total fixed costs P 300,000
Total investment P 500,000
The minimum required ROI is 15 percent, and divisions are evaluated on residual income. A
foreign customer has approached Magastos’ manager with an offer to buy 10,000 units at P7
each. Magastos 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 Magastos Division could sacrifice and still maintain its expected
residual income?
A. 2,333 C. 3,333
B. 2,667 D. 3,667
40. Recently the M&M Company has been having problems. As a result, its financial
situation has deteriorated. M&M approached the First National Bank for a badly
needed loan, but the loan officer insisted that the current ratio (now 0.5) be
improved to at least 0.8 before the bank would even consider granting the credit.
Which of the following actions would do the most to improve the ratio in the short
run?
A. Using some cash to pay off some current liabilities.
B. Collecting some of the current accounts receivable.
C. Paying off some long-term debt.
D. Purchasing additional inventory on credit (accounts payable).