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MOCK REVIEWER IN MANAGEMENT ACCOUNTING

FOURTH EVALUATIONS
SAMPLE QUESTIONNAIRES

FINANCIAL ANALYSIS QUESTIONS


1. The market price of Golden Company's common stock increased from ₱15 to ₱18. Earnings per share of
common stock remained unchanged. The company's price-earnings ratio would
A. Increase. B. Decrease. C. Remain unchanged. D. Undeterminable.

2. The following information relates to Glendale Corporation for last year:


Price earnings ratio 15
Dividend payout ratio 30%
Earnings per share ₱5
What is the company's dividend yield ratio for last year?

A. 1.5% B. 2% C. 4.5% D. 10%

3. Huntington Garden Company has 100,000 shares of ₱10 par value common stock issued and outstanding. Total
stockholders' equity is P2,800,000 and net income for the year is ₱800,000. During the year the company paid
₱3 per share in dividends on its common stock. The market value of common stock is ₱24. What is the price-
earnings ratio?
A. 3 B. 3.5 C. 4.8 D. 8

4. If a company is profitable and is effectively using leverage, which one of the following ratios is likely to be the
largest?
A. Return on total assets C. Return on total liabilities
B. Return on common stockholders' equity D. Cannot be determined.

5. Clark Company issued bonds with an interest rate of 10%. The company's return on assets is 12%. The
company's return on common stockholders' equity would most likely
A. Increase. B. Decrease. C. Remain unchanged. D. Cannot be determined.

6. Harry Company has 20,000 shares of common stock outstanding. These shares were originally issued at a price
of ₱15 per share. The current book value is ₱25 per share and the current market value is ₱30 per share. The
dividends on common stock for the year totaled ₱45,000. The dividend yield ratio is
A. 9%. B. 7.5%. C. 15%. D. 10%.
7. Brigham Company's net income last year was ₱65,000 and its interest expense was ₱15,000. Total assets at
the beginning of the year were ₱620,000 and total assets at the end of the year were ₱650,000. The company's
income tax rate was 40%. The company's return on total assets for the year was closest to
A. 11.7%. B. 10.2%. C, 12.6%. D. 11.2%.

8. If year one equals ₱800, year two equals ₱840, and year three equals ₱896, the percentage to be assigned for
year three in a trend analysis, assuming that year 1 is the base year, is
A. 100%. B. 89%. C. 105%. D. 112%.

9. A company with ₱60,000 in current assets and ₱40,000 in current liabilities pays a ₱1,000 current liability. As
a result of this transaction, the current ratio and working capital will
A. Both decrease.
B. Both increase.
C. Increase and remain the same, respectively.
D. Remain the same and decrease, respectively.

10. The receivable turnover and inventory turnover ratios are used to analyze

Synthesis ACCO 4133 BSA4 H2 LSP1718


A. Long-term solvency. B. Profitability. C. Liquidity. D. Leverage

ACTIVITY-BASED COSTING

1. Activity-based costing (ABC) can eliminate cost distortions because ABC:


a. develops cost drivers that have a cause-and-effect relationship with the activities performed
b. establishes multiple cost pools
c. eliminates product variations
d. recognizes interactions between different departments in assigning support costs
Use the following information for the next two questions:
A company has two departments: Machining and Assembly. The following estimates are for the coming year:
Machining Assembly
Direct labor hours 10,000 50,000
Machine hours 40,000 20,000
Support costs P200,000 P400,000

2. A single predetermined cost driver rate based on total plant direct labor hours is:
a. P 8 per direct labor hour c. P10 per direct labor hour
b. P20 per direct labor hour d. P15 per direct labor hour

3. A predetermined cost driver rate for the Machining Department based on the number of machine hours in that
department is:
a. P 5 per machine hour c. P10 per machine hour
b. P20 per machine hour d. P15 per machine hour

4. Cost distortion is common in conventional costing systems because:


a. of the recent change in cost structure
b. the number of products being manufactured is increasing
c. capacity-related costs are allocated using a volume measure
d. capacity-related costs create higher risks for a company

ABSORPTION AND VARIABLE COSTING

1. An ending inventory valuation on an absorption costing balance sheet would


a. sometimes be less than the ending inventory valuation under variable costing.
b. always be less than the ending inventory valuation under variable costing.
c. always be the same as the ending inventory valuation under variable costing.
d. always be greater than or equal to the ending inventory valuation under variable costing.

Use the following information for the next three (3) questions.
The following information was extracted from the first year absorption-based accounting records of Cookie
Manufacturing Corp.
Total fixed costs incurred P100,000
Total variable costs incurred 50,000
Total period costs incurred 70,000
Total variable period costs incurred 30,000
Units produced 20,000
Units sold 12,000
Unit sales price P12

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2. What is Cost of Goods Sold for the first year?
a. P80,000 b. P90,000 c. P48,000 d. P45,000

3. If the firm had used variable costing in its first year of operations, how much income (loss) before income taxes
would it have reported?
a. (P6,000) b. P54,000 c. P26,000 d. P2,000

4. Based on variable costing, if the company had sold 12,001 units instead of 12,000, its income before income taxes
would have been
a. P9.50 higher. b. P11.00 higher. c. P8.50 higher. d. P8.33 higher.

5. Profit under absorption costing may differ from profit determined under variable costing. How is this difference
calculated?
a. Change in the quantity of all units in inventory times the relevant fixed costs per unit.
b. Change in the quantity of all units produced times the relevant fixed costs per unit.
c. Change in the quantity of all units in inventory times the relevant variable cost per unit.
d. Change in the quantity of all units produced times the relevant variable cost per unit.

6. Alexander Company produces a single product that sells for P 7.00 per unit. Standard capacity is 100,000 units per
year; 100,000 units were produced and 80,000 units were sold during the year. Manufacturing costs and selling and
administrative expenses are presented below. There were no variances from the standard variable costs. Any under or
overapplied overhead is written off directly at year-end as an adjustment to cost of goods sold.
Fixed costs Variable costs
Direct material P 0 P 1.50 per unit produced
Direct labor 0 1.00 per unit produced
Manufacturing overhead 150,000 0.50 per unit produced
Selling and administrative 80,000 0.50 per unit sold

The company had no inventory at the beginning of the year. What is the net income under variable costing?
A. ₱50,000. B. ₱80,000. C. ₱90,000. D. ₱120,000.

CVP ANALYSIS

1. Management is considering replacing an existing sales commission compensation plan with a fixed salary plan.
If the change is adopted, the company’s
a. break-even point must increase. c. margin of safety must decrease.
b. operating leverage must increase. d. profit must increase.

2. Below are income statements that apply to three companies: ABS, GMA, and TV5:
ABS Company GMA Company TV5 Company
Sales P 100 P 100 P 100
Variable costs (10) (20) (30)
Contribution margin P 90 P 80 P 70
Fixed costs (30) (20) (10)
Profit before taxes P 60 P 60 P 60

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Within the relevant range, if sales go up by P 1 for each firm, which firm will experience the greatest increase in
profit?
A. GMA Company B. ABS Company C. TV5 Company D, undeterminable

3. The following information is for Jerwin Company:


Product X Product Y
Revenue per unit P 10 P 15
Flexible cost per unit 2.50 5
Total capacity-related costs: P 50,000
If the sales mix consists of two units of Product X and one unit of Product Y, what is the revenue per unit of the
average product?
A. ₱10. 00 B. ₱11.66. C. ₱13.33. D. ₱15.00.

4. A firm has fixed costs of P200,000 and variable costs per unit of P6. It plans on selling 40,000 units in the coming
year. If the firm pays income taxes on its income at a rate of 40 percent, what sales price must the firm use to obtain
an after-tax profit of P24,000 on the 40,000 units?
a. P11.60 b. P11.36 c. P12.00 d. P12.50

5. The following information pertains to Joyjoy Company cost-volume-profit relationships:


Break-even point in units sold 1,000
Variable costs per unit P 500
Total fixed costs 150,000

How much will be contributed to profit before taxes by the 1,001st unit sold?

A. ₱0. B. ₱150. C. ₱500. D. ₱650. E. ₱120.

STANDARD COSTING

1. How is labor rate variance computed?


a. The difference between standard and actual rate multiplied by actual hours.
b. The difference between standard and actual rate multiplied by standard hours.
c. The difference between standard and actual hours multiplied by actual rate.
d. The difference between standard and actual hours multiplied by the difference between standard and actual
rate.

2. When performing input-output variance analysis in standard costing, “standard hours allowed” is a means of
measuring
a. standard output of standard hours. c. standard output at actual hours.
b. actual output at standard hours. d. actual output at actual hours.

2. An unfavorable labor efficiency variance connotes that


a. the actual labor rate was higher than the standard labor rate.
b. the total labor variance must also be unfavorable.
c. actual labor hours worked exceeded standard labor hours for the production level
achieved.
d. overtime labor was used during the period.

3. The labor mix and labor yield variances together equal the
a. Total labor variance. c. Labor efficiency variance.

Synthesis ACCO 4133 BSA4 H2 LSP1718


b. Labor rate variance. d. Sum of the labor efficiency and overhead efficiency variances

CAPITAL BUDGETING/ LONG TERM INVESTMENT DECISIONS

1. When using one of the discounted cash flow methods to evaluate the desirability of a capital budgeting project,
which of the following factors is generally not important?
a. method of financing the project under consideration c. timing of cash flows relating to the project
b. impact of the project on income taxes to be paid d. amounts of cash flows relating to the
project

2. As to a capital investment, net cash inflow is equal to the


a. cost savings resulting from the investment. c. sum of all future revenues from the
investment.
b. net increase in cash receipts over cash payments. d. net increase in cash payments over cash
receipts.

3. The pre-tax cost of capital is higher than the after-tax cost of capital because
a. interest expense is deductible for tax purposes.
b. principal payments on debt are deductible for tax purposes.
c. the cost of capital is a deductible expense for tax purposes.
d. dividend payments to stockholders are deductible for tax purposes.

4. Weighted average cost of capital that is used to evaluate a specific project should be based on the
a. mix of capital components that was used to finance a project from last year.
b. overall capital structure of the corporation.
c. cost of capital for other corporations with similar investments.
d. mix of capital components for all capital acquired in the most recent fiscal year.

5. The net present value method of evaluating proposed investments


a. measures a project’s internal rate of return.
b. ignores cash flows beyond the payback period.
c. applies only to mutually exclusive investment proposals.
d. discounts cash flows at a minimum desired rate of return.

The following information applies to the next two (2) questions:


Consider the following two mutually exclusive projects, each of which requires an initial investment of P30,000 and
both provide cash inflows of P60,000 as shown below. This organization has a 15% cost of capital.
Year Project A Project B
0 (P30,000) (P30,000)
1 P30,000 P10,000
2 20,000 20,000
3 10,000 30,000

4. Using the payback criterion, which is the most desirable project?


a. Project A b. Project B c. Both projects A and B d. Neither project

5. Using the net present value criterion, which is the most desirable project?
a. Project A b. Project B c. Both projects A and B d. Neither project

Synthesis ACCO 4133 BSA4 H2 LSP1718


6. As the marginal tax rate goes up, the benefit from the depreciation tax shield
a. decreases. b. increases. c. stays the same.
d. can move up or down depending on whether the firm’s cost of capital is high or low.

7. Which of the following indicates an unacceptable capital project?


a. The internal rate of return exceeds the cost of capital.
b. The net present value of a project is 10.
c. The profitability index of a project is 0.97.
d. The accounting rate of return exceeds the target rate of return.

8. The interest rate used to find the present value of a future cash flow is the
a. prime rate. b. discount rate. c. cutoff rate. d. internal rate of return.

9. A firm’s discount rate is typically based on


a. the interest rates related to the firm’s bonds. c. a project’s internal rate of return.
b. its cost of capital. d. the corporate Aa bond yield.

10. For a project such as plant investment, the return that should leave the market price of the firm’s stock
unchanged is known as the
a. cost of capital. b. net present value. c. payback rate. d. internal rate of
return.

Synthesis ACCO 4133 BSA4 H2 LSP1718