UNIVERSITY OF NUEVA CACERES

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Comprehensive Accounting (BATCH 2019)

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1. The function of management that compares planned results against actual results is known as
a. Planning c. Decision making
b. Controlling d. Directing

2. ABC Company is evaluating three independent projects for the expansion of different product lines. The Finance
Department has performed an extensive analysis of each project and the chief financial officer has indicated that
there is no capital rationing in effect. Which of the following statements are correct?
I. Reject any project with a payback period that is shorter than the company standard.
II. The project with the highest internal rate of return (IRR) exceeding the hurdle rate should be selected
and the others rejected.
III. All projects with positive net present values should be selected.
IV. ABC should reject any projects with negative IRRs

a. I, II, and IV only c. I, II, III, and IV

b. II and III only d. III and IV only

3. The table below shows the estimated probabilities of the percentage of defective units resulting from a production
run
Percent Defective Probability
1% 15%
2% 20%
3% 30%
4% 25%
5% 10%

The expected percent defective is:

a. 1.90%s c. 3.65%
b. 2.95% d. 2.00%

4. Consider the following information for CPA Ako Industries:

Sales Units – October 10,500
Sales Units – November 12,740
Sales Units – December 18,200
Selling per unit P230

60% of a month’s sales are collected by the month’s end and 40% of a month’s sales are collected in the following
month.
What is the total amount of revenue collected from customers in the month of November?
a. P2,724,120 c. P1,758,100
b. P2,930,200 d. P3,896,200

5. All of the following are complementary goods except

a. Margarine and butter c. Coffee and milk
b. Cameras and rolls of film d. Razors and razor blades

6. Larger Company had originally expected to earn operating income of P130,000 in the coming year. Its degree of
operating leverage is 2.4. Recently, Larger revised its plan and now expects to increase sales by 20% next year.

What is Larger’s revised expected operating income for the coming year?
a. P192,400 c. P156,000
b. P312,000 d. P130,000

7. Pasado Company has been accumulating operating data in order to prepare an annual profit plan. Details regarding
Pasado’s sales for the first six months of the coming year are:
Estimated Monthly Sales Type of Monthly Sales Collection Pattern for Credit Sales
January P600,000 Cash sales 20% Month of sales 30%
February 650,000 Credit sales 80% One month following sales 40%
March 700,000 Second month following sales 25%
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April 625,000
May 720,000
June 800,000

Pasado’s cost of goods sold averages 40% of the sales value. Pasado’s objective is to maintain a target inventory
equal to 30% of the next month’s sales. Purchases of merchandise for resale are paid for in the month following the
sale.

The variable operating expenses (other than cost of goods sold) for Pasado are 100% of sales and are paid for in the
month following the sale. The annual fixed operating expenses are presented below. All of these are incurred
uniformly throughout the year and paid monthly except for insurance and property taxes. Insurance is paid quarterly
in January, April, July, and October. Property taxes are paid twice a year in April and October.
Annual Fixed Operating Costs
Advertising P720,000
Depreciation 420,000
Insurance 180,000
Property taxes 240,000
Salaries 1,080,000

The amount of cash collected in March for Pasado Company from the sales made during March will be:
a. P350,000 c. P140,000
b. P210,000 d. P308,000

8. Of the following pairs of variances found in a flexible budget report, which pair is most likely to be related?
a. Material price variance and variable overhead efficiency variance
b. Material usage variance and labor efficiency variance
c. Labor rate variance and variable overhead efficiency variance
d. Labor efficiency variance and fixed overhead volume variance

9. GG Inc. is analyzing an investment for a new product expected to have annual sales of 100,000 units for the next 5
years and then be discontinued. New equipment will be purchased for P1,200,000 and cost P300,000 to install. The
equipment will be depreciated on a straight-line basis over 5 years for financial reporting purposes and 3 years for
tax purposes. At the end of the fifth year, it will cost P100,000 to remove the equipment, which can be sold for
P300,000. Additional working capital of P400,000 will be required immediately and needed for the life of the
product. The product will sell for P80, with direct labor and material costs of P65 per unit. Annual indirect costs
will increase by P500,000. GG's effective tax rate is 40%.

In a capital budgeting analysis, what is the expected cash flow at time = 5 (fifth year of operations) that GG should
use to compute the net present value?
a. P1,120,000 c. P800,000
b. P1,240,000 d. P720,000

10. If a company has an acid-test ratio of 1.2, what respective effects will the borrowing of cash by short-term debt and
the collection of accounts receivable have on the ratio?
a. Short-term borrowing increases the ratio and collection of receivable has no effect.
b. Short-term borrowing and collection of receivable increases the ratio.
c. Short-term borrowing decreases the ratio and collection of receivable has no effect.
d. Short-term borrowing and collection of receivable decreases the ratio.

11. One of the techniques or processes in budgeting is zero-based budgeting, which is

a. Developing budgeted costs from clear-cut measured relationships between inputs and outputs.
b. Budgeting from the ground up as though the budget process were being initiated for the first time.
c. Using the prior year’s budget as a base year and adjusting it based on the experiences of the prior year and
the expectations for the coming year.
d. Budgeting for cash inflows and outflows to time investments and borrowings in a way to maintain a bank
account with a minimum balance.

12. The following performance report was prepared for KayangKaya Manufacturing for the month of December.
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Actual Results Static Budget Variance

Sales Units 100,000 80,000 20,000 F
Sales Peso P190,000 P160,000 P30,000 F
Variable Costs 125,000 96,000 29,000 U
Fixed Costs 45,000 40,000 5,000 U
Operating Income 20,000 24,000 4,000 U

Using a flexible budget, KayangKaya’s total sales-volume variance is:

a. P16,000 favorable c. P6,000 favorable
b. P4,000 unfavorable d. P20,000 unfavorable

13. Diane George, Vice President of Finance for EDF Industries, is reviewing material prepared by her staff prior to
the board of directors meeting at which she must recommend one of four mutually exclusive options for a new
product line. The summary information below indicates the initial investment required, the present value of cash
inflows (excluding the initial investment) at EDF's hurdle rate of 16%, and the internal rate of return (IRR) for each
of the four options.
Present Value of Cash
Option Investment Inflows at 16% IRR
X P3,950,000 P3,800,000 15.5%
Y 3,000,000 3,750,000 19.0%
Z 2,000,000 2,825,000 17.5%
W 800,000 1,100,000 18.0%

If there are no capital rationing constraints, which option should George recommend?
a. Option X c. Option Z
b. Option Y d. Option W

14. A company isolates its raw materials price variance in order to provide the earliest possible information to the
manager responsible for the variance. The budgeted amount of material usage for the year was computed as follows:
150,000 units finished goods x 3 pound/unit x P2.00/pound = P900,000
Actual results for the year were the following:
Finished goods produced 160,000 units
Raw materials purchased 500,000 pounds
Raw materials used 490,000 pounds
Cost per pound P2.02

The raw material price variance for the year was:

a. P20,000 favorable c. P10,000 unfavorable
b. P10,000 favorable d. P9,800 unfavorable

15. The purpose of identifying manufacturing variances and assigning their responsibility to a person/department should
be to
a. Pinpoint fault for operating problems in the organization.
b. Trace the variances to finished goods so that the inventory can be properly valued at year-end.
c. Determine the proper cost of the products produced so that selling prices can be adjusted accordingly.
d. Use the knowledge about the variances to promote learning and continuous improvement in the
manufacturing operations.

16. Smile Company has the following information for the third quarter of 2018:
Actual total overhead (fixed plus variable) P374,850
Budget formula P231,000 plus P1.20 per hour
Spending variance (3-way analysis) P16,800 unfavorable
Volume variance (2-way analysis) P10,500 favorable
Over-all factory overhead variance P12,600 unfavorable

Determine the efficiency variance.

a. P6,300 F c. P18,900 F
b. P6,300 UF d. P 18,900 UF
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17. Which of the following will allow a better use of standard cost and variance analysis to help improve managerial
decision-making?
a. Company A uses the prior year’s average actual cost as the current year’s standard.
b. Company B constantly revises standards to reflect learning curves.
c. Company C does not differentiate between variable and fixed overhead in calculating its overhead variance.
d. Company D investigates only negative variance.

18. Anime Corporation uses a standard cost accounting system. Data for the last fiscal year are as follows.
Units
Beginning inventory of finished goods 100
Production during the year 700
Sales 750
Ending inventory of finished goods 50
Per Unit
Product selling price P200
Standard variable manufacturing cost 90
Standard fixed manufacturing cost 20*

Budgeted selling and administrative costs (all fixed) P45,000

*Denominator level of activity is 750 units for the year.

There were no price, efficiency, or spending variances for the year, and actual selling and administrative expenses
equaled the budget amount. The standard costs for the last fiscal year were the same as the standard costs for the
previous fiscal year. Any volume variance is written off to cost of goods sold in the year incurred. There are no
work-in-process inventories.

Assuming that Anime used absorption costing, the amount of operating income earned in the last fiscal year was
a. P28,000 c. P21,500
b. P30,000 d. P27,000

19. ABC Company can issue 3-month commercial paper with a face value of P500,000 for P490,000. Transaction costs
will be P600. The effective annualized percentage cost of the financing, based on a 360-day year, will be
a. 2.00% c. 8.00%
b. 8.16% d. 8.66%

20. Which one of the following would not be included in the calculation of GDP?
a. A doctor’s fee c. Purchase of a new home
b. Purchase of common stock d. An automotive worker’s wage

21. If the Philippine Peso declines in value relative to the currencies of many of its trading partners, the likely result is
that
a. Philippine imports will tend to increase.
b. Philippine exports will tend to increase.
c. The Philippines balance of payments deficit will become worse.
d. Foreign currencies will depreciate against the Philippine Peso.

22. Glasses Company has a target selling price of P78 per unit from a markup of 30% of the total cost to manufacture.
The cost to manufacture a single unit includes direct materials at P27 per unit; direct labor of P10.50 per unit; and
overhead of P22.50 per unit. Overhead is based on 37,500 units of production each year. Manufacturing overhead
is 30% variable and 70% fixed.

A foreign distributor has offered to purchase 7,500 units at a special price of P57 per unit. The company has idle
capacity. Variable selling costs associated with the special order would be P3 per unit.

Determine the minimum selling price the Company can accept if it is operating at full capacity.
a. P82.50 b. P87.25
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c. P81.00 d. P87.75

23. Lake Corporation manufactures specialty components for the electronics industry in a highly labor intensive
environment. Arc Electronics has asked Lake to bid on a component that Lake made for Arc last month. The
previous order was for 80 units and required 120 hours of direct labor to manufacture. Arc would now like 240
additional components. Lake experiences an 80 percent learning curve on all of its jobs. The number of direct labor
hours needed for Lake to complete the 240 additional components is:
a. 307.20 c. 288.00
b. 256.00 d. 187.20

24. David Burke is manager of claims processing for Continental Health Care System. His performance is evaluated
using various measures agreed upon in advance with Diane Lewis, general manager. Lewis asked Burke to
recommend several measures to evaluate the performance of his unit next year. Which one of the following
performance measures would likely have the least positive effect on Burke's motivation and performance?
a. Percentage of claims processed accurately the first time
b. Total dollar amount of claims processed per month
c. Processing cost per claim
d. Average processing time per claim

25. Claremont Company has been asked to evaluate the profitability of a product that it manufactured and sold from
2016 through 2019. The product had a one-year warranty from date of sale. The following information appears in
the financial records.
Research, development Manufacturing and
and design cost distribution costs Warranty costs Warranty cost
(2014-2015) (2016-2019) (2016-2019) (2020)
P5,000,000 P7,000,000 P200,000 P100,000

The life-cycle cost for this product is:

a. P12,200,000 c. P12,300,000
b. P10,000,000 d. P12,000,000

26. All of the following are assumptions of cost-volume-profit analysis except

a. Sales mix for multi-product situations do not vary with volume changes.
b. Revenues change proportionately with volume.
c. Total fixed costs do not change with a change in volume.
d. Variable costs per unit change proportionately with volume.

27. The primary objective of just-in-time processing is to

a. Eliminate or reduce inventories
b. Identify relevant activity cost drivers
c. Identify non-value-added activities
d. Accumulate overhead in activity cost pools

28. An organization plans to implement a bonus plan based on segment performance. In addition, the company plans
to convert to a responsibility accounting system for segment reporting. The following costs, which have been
included in the segment performance reports that have been prepared under the current system, are being reviewed
to determine if they should be included in the responsibility accounting segment reports:
I. Corporate CEO salary allocated on the basis of net segment sales
II. Corporate training costs assigned on the basis of the number of employees in each segment
III. Fixed computer facility costs divided equally among each segment
IV. Variable computer operational costs charged to each segment based on actual hours used
times a predetermined standard rate; any variable cost efficiency or inefficiency remains in
the computer department.

Of the four cost items, the item that would most logically be included in the segment performance reports prepared
on a responsibility accounting basis would be the:
a. Fixed computer facility costs. c. Training costs.
b. Variable computer operational costs. d. Corporate administrative costs.
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29. The following data pertains to XYZ Company for the current year of operations.
Total Per unit
Sales (40,000 units) P1,000,000 P25
Raw materials 160,000 4
Direct labor 280,000 7
Factory overhead:
Variable 80,000 2
Fixed 360,000
Selling and
general expenses:
Variable 120,000 3
Fixed 225,000

How many units does XYZ Company need to produce and sell to make a before-tax profit of 10% of sales?
a. 90,000 units. c. 65,000 units.
b. 36,562 units. d. 25,000 units.

30. One department of an organization, Final Assembly, is purchasing subcomponents from another department,
Materials Fabrication. The price that will be charged to Final Assembly by Materials Fabrication is to be determined.
Outside market prices for the subcomponents are available. Which of the following is the most correct statement
regarding a market-based transfer price?
a. Market transfer prices provide an incentive to use otherwise idle capacity.
b. Marginal production cost transfer prices provide incentives to use otherwise idle capacity.
c. Overall long term competitiveness is enhanced with a market-based transfer price.
d. Corporate politics is more of a factor in a market-based transfer price than with other methods.

31. INQ Corporation manufactures two versions of a product. Production and cost information show the following:
Version 1 Version 2
DLH per unit 2.00 hours 4.50 hours
Units produced 400 units 1,600 units
Material handling costs total P500,000. Number of material movement amounted to 120 times for Version 1 and
380 times for Version 2.

Under ABC, the material handling costs allocated to each unit of Version 2 would be:
a. P62.50 c. P237.50
b. P120.00 d. P300.00

32. The Davao Division of CEL Company is treated as an investment center for performance measurement purposes.
Selected financial information of such division for last year is given below:
Net sales P460,000
Cost of goods sold 305,000
Selling and administrative expenses 105,000
Average working capital 70,000
Average non-current assets 130,000

The desired rate of return from investments of this division was set at 12%

What was the division’s return of investment last year?

a. 15% c. 25%
b. 20% d. 29%

33. Kimber Company has the following unit cost for the current year.
Raw material P20.00
Direct labor 25.00
Variable manufacturing overhead 10.00
Fixed manufacturing overhead 15.00
Total unit cost 70.00
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Fixed manufacturing cost is based on an annual activity level of 8,000 units. Based on this data, the total
manufacturing cost expected to be incurred to manufacture 9,000 units in the current year is
a. P615,000 c. P560,000
b. P575,000 d. P630.000

34. ABC Company is beginning operations and is considering three alternative ways in which to allocate manufacturing
overhead to individual units produced. ABC can use a plant-wide rate, departmental rates, or activity-based costing.
ABC will produce many types of products in its single plant, and not all products will be processed through all
departments. In which one of the following independent situations would reported net income for the first year be
the same regardless of which overhead allocation method had been selected?
a. All ending inventory balances are zero.
b. All manufacturing overhead is a fixed cost.
c. The sales mix does not vary from the mix that was budgeted.
d. All production cost approach those costs that were budgeted.

35. If a company receives trade credit terms of 1/10 net 45, the effective annual rate (assuming that there are 365 days
in a year) for foregoing the trade credit discount is closest to:
a. 10.39% c. 10.53%
b. 8.11% d. 10.43%

36. Go Haven Industries is trying to decide which of three projects to choose, Project Flower, Project Heart, or Project
Club. The capital costs and estimated after-tax cash flows of each mutually exclusive project are listed below. Go
Haven's desired after-tax opportunity cost is 14%, and the company has a capital budget for the year of P705,000.
Go Haven cannot reinvest idle funds for greater than 14%. Consider the following cash flows:
Flower Heart Club
Initial Cash Flow P313,000 P367,775 P328,650

Annual Cash Flows

Year 1 P145,545 P140,850 P62,600
Year 2 145,545 133,025 78,250
Year 3 145,545 117,375 93,900
Year 4 - 86,075 101,725
Year 5 - 78,250 117,375

Which of the following projects should be chosen if only one project can be accepted?
a. Project Flower c. Project Club
b. Project Heart d. Any can be chosen

37. The level of safety stock in inventory management depends on all of the following except the
a. Cost of reorder stock
b. Cost of running out of inventory
c. Level of uncertainty of the sales forecast
d. Level of customer dissatisfaction for back order

38. Consider a world consisting of only two countries, Philippines and Italy. Inflation in Philippines in 1 year was 5%,
and in Italy 10%. Which one of the following statements about the Philippines exchange rate (rounded) during that
year will be true?
a. The Philippine peso will depreciate by 15%.
b. The Philippine peso will appreciate by 5%.
c. The Philippine peso will depreciate by 5%.
d. Inflation has no affect on the exchange rates.

39. Which one of the following statements is most correct if a seller extends credit to a purchaser for a period of time
longer than the purchaser's operating cycle? The seller:
a. is, in effect, financing more than just the purchaser's inventory needs.
b. has no need for a stated discount rate or credit period.

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c. will have a lower level of accounts receivable than those companies whose credit period is shorter than the
purchaser's operating cycle.
d. can be certain that the purchaser will be able to convert the inventory into cash before payment is due.

40. Relax Company is considering four independent investment proposals. Relax has P3,000,000 for investment during
the present period. The investment outlay for each project and its projected net present value (NPV) is presented
below.
Project Investment cost NPV
I P500,000 P40,000
II 900,000 120,000
III 1,200,000 180,000
IV 1,600,000 150,000

Which of the following project options should be recommended to ABC management?

a. Projects I, II, and III only c. Projects I, II, and IV only
b. Projects II, III, and IV only d. Projects III and IV only

41. Regal Industries is replacing a grinder purchased 5 years ago for P15,000 with a new one costing P25,000 cash. The
original grinder is being depreciated on a straight-line basis over 15 years to a zero salvage value; Regal will sell
this old equipment to a third party for P6,000 cash. The new equipment will be depreciated on a straight-line basis
over 10 years to a zero salvage value. Assuming a 40% marginal tax rate, Regal's net cash investment at the time of
purchase if the old grinder is sold and the new one purchased is
a. P25,000 c. P19,500
b. P17,400 d. P15,000

42. Eagle Brand Inc. produces two products. Data regarding these products are presented below.
Product X Product Y
Selling price per unit P100 P130
Variable costs per unit P80 P100
Raw materials used per unit 4 lbs. 10 lbs.

Eagle Brand has 1,000 lbs. of raw materials which can be used to produce Products X and Y.

Which one of the alternatives below should Eagle Brand accept in order to maximize contribution margin?
a. 200 units of product X and 50 units of product Y.
b. 200 units of product X and 20 units of product Y.
c. 100 units of product Y.
d. 250 units of product X.

43. Moore Company's budgeted sales and budgeted cost of sales for the coming year are P54,000,000 and P36,000,000,
respectively. Moore has made changes in its inventory system that will increase turnover from its current level of
nine times per year to 12 times per year. If short-term interest rates average 8%, Moore's cost savings in the coming
year will be
a. P120,000 c. P40,000
b. P80,000 d. P20,000

44. JJ Corporation evaluates capital projects using a variety of performance screens; including a hurdle rate of 16% and
a payback period of 3 years or less. Management is completing review of a project on the basis of the following
projections.
Capital investment P200,000
Annual cash flows P74,000
Straight-line depreciation 5 years
Terminal value P20,000

The projected internal rate of return (IRR) is 20%. Which one of the following alternatives reflects the appropriate
conclusions for the indicated evaluative measures?
a. IRR − Reject; Payback − Reject c. IRR − Accept; Payback − Reject
b. IRR − Accept; Payback − Accept d. IRR − Reject; Payback − Accept
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45. The term "beta" can best be described as the

a. Weighted-average return of an investment portfolio.
b. Investment return's sensitivity to changes in interest rates.
c. Variability or standard deviation of the investment returns.
d. Investment return's sensitivity to changes in the market's returns.

46. If a government were to use only fiscal policy to stimulate the economy from a recession, it would
a. Lower business taxes and government spending.
b. Raise consumer taxes and increase government spending.
c. Increase the money supply and increase government spending.
d. Lower consumer taxes and increase government spending.

47. ZZ Corporation is considering the acquisition of a new technologically efficient packaging machine at a cost of
P300,000. The equipment requires an immediate, fully recoverable, investment in working capital of P40,000. ZZ
plans to use the machine for five years, is subject to a 40% income tax rate, and uses a 12% hurdle rate when
analyzing capital investments. The company employs the net present value method (NPV) to analyze projects. The
overall impact of the working capital investment on ZZ’s NPV analysis is
a. P(17,320) c. P(13,040)
b. P(40,000) d. P(10,392)

48. YY and Co. manufactures large gaskets for the turbine industry. YY's per unit sales price and variable costs for the
current year are as follows.
Sales price per unit P300
Variable costs per unit 210

YY's total fixed costs aggregate P360,000. As YY's labor agreement is expiring at the end of the year, management
is concerned about the effect a new agreement will have on its unit breakeven point. The controller performed a
sensitivity analysis to ascertain the estimated effect of a P10 per unit direct labor increase and a P10,000 reduction
in fixed costs. Based on these data, it was determined that the breakeven point would
a. Increase by 500 units c. Increase by 375 units
b. Decrease by 125 units d. Decrease by 1,000 units

49. Calculating income under variable costing does not require knowing
a. Unit sales c. Unit production
b. Selling price d. Unit variable manufacturing cost

50. A company has 7,000 obsolete toys carried in inventory at a manufacturing cost of P6 per unit. If the toys are
reworked for P2 per unit, they could be sold for P3 per unit. If the toys are scrapped, they could be sold for P1.85
per unit. Which alternative is more desirable (rework or scrap) and what is the total peso amount of the advantage
of that alternative?
a. Scrap, P47,950 c. Rework, P8,050
b. Scrap, P5,950 d. Rework, P36,050

51. Larger Company had originally expected to earn operating income of P130,000 in the coming year. Its degree of
operating leverage is 2.4. Recently, Larger revised its plan and now expects to increase sales by 20% next year.

What is the percentage change in operating income expected by Larger in the coming year?
a. 08.33% c. 20.00%
b. 48.00% d. 54.17%

52. Bucks Company desires an ending inventory of P62,000 and a beginning inventory of P55,000. Gross profit is
estimated to be 25% of sales. The expected sales amounted to P320,000. Budgeted purchases would amount to
a. P230,000 c. P247,000
b. P240,000 d. P370,000

53. Green Corporation builds custom-designed machinery. A review of selected data and the company's pricing policies
revealed the following.
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 A 10% commission is paid on all sales orders.

 Variable and fixed factory overheads total 40% and 20%, respectively, of direct labor.
 Corporate administrative costs amount to 10% of direct labor.
 When bidding on jobs, Green adds a 25% markup to the total of all factory and administrative costs to cover
income taxes and produce a profit.
 The firm's income tax rate is 40%.

The company expects to operate at a maximum of 80% of practical capacity.

Green recently received an invitation to bid on the manufacture of some custom machinery for Kennendale, Inc.
For this project, Green's production accountants estimate the material and labor costs will be P66,000 and P120,000,
respectively. Accordingly, Green submitted a bid to Kennendale in the amount of P375,000. Feeling Green's bid
was too high, Kennendale countered with a price of P280,000. Which one of the following options should be
recommended to Green's management?

a. Accept the counteroffer because the order will increase operating income.
b. Accept the counteroffer even though the order will decrease operating income.
c. Reject the counteroffer even though the order will increase operating income.
d. Reject the counteroffer because the order will decrease operating income.

54. Lowell Corporation has decided to include certain financial ratios in its year-end annual report to shareholders.
Selected information relating to its most recent fiscal year is provided below.
Cash P10,000
Accounts receivable (end of year) 20,000
Accounts receivable (beginning of year) 24,000
Inventory (end of year) 30,000
Inventory (beginning of year) 26,000
Notes payable (due in 90 days) 25,000
Bonds payable (due in 10 years) 35,000
Net credit sales for year 220,000
Cost of goods sold 140,000

Using a 365-day year, compute Lowell's accounts receivable turnover in days.

a. 36.5 days. c. 39.8 days.
b. 33.2 days. d. 26.1 days.

55. The Davao Division of CEL Company is treated as an investment center for performance measurement purposes.
Selected financial information of such division for last year is given below:
Net sales P460,000
Cost of goods sold 305,000
Selling and administrative expenses 105,000
Average working capital 70,000
Average non-current assets 130,000

The desired rate of return from investments of this division was set at 12%

What was the division’s residual income last year?

a. P5,000 c. P26,000
b. P24,000 d. P35,000

56. At the end of its fiscal year on December 31, 20X0, Merit Watches had total shareholders' equity of P24,209,306.
Of this total, P3,554,405 was preferred equity. During the 20X1 fiscal year, Merit's net income after tax was
P2,861,003. During 20X1, Merit paid preferred share dividends of P223,551 and common share dividends of
P412,917. At December 31, 20X1, Merit had 12,195,799 common shares outstanding and the company did not sell
any common shares during the year. What was Merit Watch's book value per share on December 31, 20X1?
a. P2.20. c. P2.17.
b. P1.88. d. P1.91.

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57. Garstka Auto Parts must increase its acid test ratio above the current 0.9 level in order to comply with the terms of
a loan agreement. Which one of the following actions is most likely to produce the desired results?
a. Expediting collection of accounts receivable
b. Selling auto parts on account
c. Purchasing marketable securities for cash
d. Making a payment to trade accounts payable

58. Which of the following is not considered a weakness of ratio analysis?

a. A firm in multiple industries has difficulty comparing its ratios to any one industry.
b. Firms may use different valuation methods on inventory (FIFO, LIFO, Weighted average, etc.).
c. Firms may use different depreciation methods (straight-line, double-declining balance, etc.).
d. Markets change from year to year, and comparing ratios over time is problematic.

59. In general, it is more expensive for a company to finance with equity capital than with debt capital because
a. Equity capital is in greater demand than debt capital.
b. Investors are exposed to greater risk with equity capital.
c. The interest on debt is a legal obligation.
d. Long-term bonds have a maturity date and must therefore be repaid in the future.

60. GG Company's sales and profits are growing rapidly, and so is its dividend. Its dividend is growing at an annual
rate of 25%. This growth in the dividend is expected to continue for two years. After that, the rate of growth is
expected to slow down to 10% per year. The investors' required rate of return on the stock is 16%. The next annual
dividend is expected to be P1.00. The beta of GG Company's stock is 1.5. The Treasury bill rate is 4%. What is the
expected market rate of return?
a. 16.0% c. 14.67%
b. 10.67% d. 12.0%

61. The DuPont formula involves which combination of financial elements in its computation?
a. Total asset turnover and sales turnover profitability.
b. Profit margin, sales turnover, and asset-use efficiency.
c. Total asset turnover, sales turnover, and equity multiplier.
d. Net profit margin, total asset turnover, and equity multiplier.

62. You are considering two companies in the same industry, Company A and Company Z, for a potential investment.
The following are selected items from your analysis:
Company A Company Z
Sales P60,000,000 P100,000,000
Net Income 7,200,000 6,000,000
Total Assets 60,000,000 50,000,000

From the information given, what can you conclude about the two companies’ return on assets?
a. Company Z's sales are higher and, since its assets are lower than Company A’s, its return on assets is higher.
b. If Company A could improve its asset turnover to the level of Company Z's, it could earn a return on assets
that would be twice as high as Company Z's ROA.
c. If Company Z could improve its profit margin on sales to the level of Company A's, it could earn a
return on assets that would be twice as high as Company A's ROA and if Company A could improve
its asset turnover to the level of Company Z's, it could earn a return on assets that would be twice as
high as Company Z's ROA.
d. If Company Z could improve its profit margin on sales to the level of Company A's, it could earn a return
on assets that would be twice as high as Company A's ROA.

63. Which factors increases the threat of entry into an industry?

a. Exit barriers are low
b. Economies of scale are significant
c. Capital requirements are high
d. An industry leader may retaliate against a new entrant

64. If the value of Peso in foreign currency markets changes from P1 = 1.15 Swiss francs to P1 = 0.95 Swiss francs,
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a. Swiss imported products in the Philippines will become more expensive

b. Philippine tourists in Switzerland will find their peso will buy more Swiss products.
c. The Swiss franc has depreciated against the dollar.
d. Philippine exports to Switzerland should decrease.

65. Starlight Theater stages a number of summer musicals at its theater in northern Ohio. Preliminary planning has just
begun for the upcoming season, and Starlight has developed the following estimated data.
Production Number of Average Ticket Variable Fixed
Performances Attendance per Price Costs* Costs**
Performance
Mr. Wonderful 12 3,500 P18 P3 P165,000
That’s Life 20 3,000 15 1 249,000
All That Jazz 12 4,000 20 0 316,000
*Represent payments to production companies and are based on tickets sold.
**Costs directly associated with the entire run of each production for costumes, sets, and artist fees.

Starlight will also incur P565,000 of common fixed operating charges (administrative overhead, facility costs, and
advertising) for the entire season, and is subject to a 30% income tax rate.

If Starlight's schedule of musicals is held as planned, how many patrons would have to attend for Starlight to break
even during the summer season?
a. 79,302 c. 77,918
b. 81,390 d. 79,938

66. Cox Company has sold 1,000 shares of P100 par, 8% preferred stock at an issue price of P92 per share. Stock issue
costs were P5 per share. Cox pays taxes at the rate of 40%. What is Cox's cost of preferred stock capital?
a. 9.20% c. 8.25%
b. 8.70% d. 8.00%

67. Consultants could trace most of their current engagements to the following sources except
a. Speeches in professional and business organizations
b. Referrals from clients
c. Advertisement in TV, radio and news paper
d. Books written

68. Glasses Company has a target selling price of P78 per unit from a markup of 30% of the total cost to manufacture.
The cost to manufacture a single unit includes direct materials at P27 per unit; direct labor of P10.50 per unit; and
overhead of P22.50 per unit. Overhead is based on 37,500 units of production each year. Manufacturing overhead
is 30% variable and 70% fixed.

A foreign distributor has offered to purchase 7,500 units at a special price of P57 per unit. The company has idle
capacity. Variable selling costs associated with the special order would be P3 per unit.

Determine the increase(decrease) in overall net income if the special order is accepted.
a. Increase of P73,125 c. Decrease of P22,500
b. Increase of P95,625 d. Decrease of P45,000

69. Which of the following statements is true regarding ethics in decision making?
a. Since most business decisions are simply a matter of economics, ethical considerations should be ignored
b. Decision making can have an ethical as well as an economic impact
c. Managerial accountants do not face ethical issues
d. Business managers will always agree on ethical choices

70. Which of the following are potential threats to an information system?

I. Trojan horses
II. Manipulation of input data
III. Computer viruses
IV. Data theft
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a. I, II, III, and IV. c. I, II, and III only.

b. III and IV only. d. I and II only.

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