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3. The following characterize management advisory services except 8. A company observed a decrease in the cost per unit. All other things being equal, which of
A. Involve decision for the future the following is probably true?
B. Broader in scope and varied in nature A. The company is studying a fixed cost, and total volume has increased.
C. Utilize more junior staff than senior members of the firm B. The company is studying a fixed cost, and total volume has decreased.
D. Relate to specific problems where expert help is required C. The company is studying a variable cost, and total volume has decreased.
D. The company is studying a variable cost, and total volume h as-m creased.
Product Cost Systems
4. Many traditional costing systems: 9. Alma Corporation has developed the following flexible budget formula for annual indirect
A. combine widely varying elements of overhead into a single cost pool. labor costs:
B. write off manufacturing overhead as an expense of the current period. Total Cost = P180,000 + P4.50 per machine hour
C. trace manufacturing overhead to individual activities and require the development of Operating budgets for the current month are based upon 20,000 machine hours of planned
numerous activity-costing rates. machine time. Indirect labor costs included in this monthly planning budget are:
D. use a host of different cost drivers (e.g., number of production setups, inspection hours, A. P 90,000 C. P180,000
orders processed) to improve the accuracy of product costing. B. P105,000 D. P270,000
5. Companies that engage in mass customization: 10. Baxter Company, which pays a 10% commission to its salespeople, reported sales revenues
A. tend to have a relatively low production volume. of P210,000 for the period just ended. If fixed and variable sales expenses totaled P56,000,
B. tend to have a high production volume that involves highly standardized end-products. what would these expenses total at sales of P168,000?
C. tend to have a high production volume, many standardized components, and customer- A. P16,800. C. P44,800.
specified combinations of components. B. P35,000. D. P51,800.
D. tend to have a high production volume, many unique components, and customer-
specified combinations of components. 11. Song, Inc., uses the high-low method to analyze cost behavior. The company observed that
at 22,000 machine hours of activity, total maintenance costs averaged P33.40 per hour.
When activity jumped to 25,000 machine hours, which was still within the relevant range, the
21. Under an activity-based costing system what is the per-unit cost of Standard? 25. Which of the following is not a key feature of a JIT system?
A. P164 C. P272 A. Total quality control.
B. P228 D. P282 B. A smooth, uniform production rate.
C. Multi-skilled workers and flexible production facilities.
Questions 22 & 23 are based on the following information. D. Purchases of materials in relatively large amounts (i.e., lot sizes).
St. James, Inc., currently uses traditional costing procedures, applying P800,000 of overhead to
products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to 26. A firm that uses a JIT purchasing philosophy probably:
activity-based costing and the creation of individual cost pools that will use direct labor hours A. has relatively few suppliers.
(DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the B. has extensive inspection of purchased items at the receiving point.
cost pools and respective driver volumes follow. C. has deliveries of purchased items made in small lot sizes immediately before the goods
Pool No. 1 Pool No. 2 Pool No. 3 are needed in production.
Product (Driver: DLH) (Driver: SU) (Driver: PC) D. has relatively few suppliers and has deliveries of purchased items made in small lot sizes
Beta 1,200 45 2,250 immediately before the goods are needed in production.
Zeta 2,800 55 750
Pool Cost P160,000 P280,000 P360,000 27. A tool that compares how tasks are performed internally with the best practices of industry
leaders is
22. The overhead cost allocated to Beta and Zeta by using traditional costing procedures would A. benchmarking C. process value analysis
be: B. caveat analysis D. re-engineering
A. B. C. D.
Beta P240,000 P356,000 P444,000 P560,000 28. Under the contemporary view of product quality, companies should strive to:
Zeta P560,000 P444,000 P356,000 P240,000 A. increase total quality costs.
B. achieve zero defects in manufacturing.
C. balance failure costs with the sum of prevention and appraisal costs.
D. inspect after-the-fact rather than install a series of preventative manufacturing controls.
MAY 2015, First & Final Preboard Examination Page 3 of 17
PROFESSIONAL REVIEW & TRAINING CENTER MANAGEMENT ADVISORY SERVICES
29. The quality costs that are incurred to determine whether particular units produced meet Manufacturing overhead 300,000 40%
quality standards are Selling and administrative 200,000 25%
A. appraisal costs. C. internal failure costs. What unit selling price will yield a 10 percent profit from sales of 40,000 units?
B. external failure costs. D. prevention costs. A. P30.00 per unit C. P35.00 per unit
B. P33.50 per unit D. P40.00 per unit
Cost-Volume-Profit Analysis
30. Sanderson sells a single product for P50 that has a variable cost of P30. Fixed costs amount 34. Gleason sells a single product at P14 per unit. The firm's most recent income statement
to P5 per unit when anticipated sales targets arc met. If the company sells one unit in excess revealed unit sales of 80,000, variable costs of P800,000, and fixed costs of P560,000.
of its break-even volume, the bottom-line profit will be: Management believes that a P3 drop in selling price will boost unit sales volume by 20%.
A. P15. Which of the following correctly depicts how these two changes will affect the company's
B. P20. break-even point?
C. P50. A. B. C. D.
D. an amount other than those in choices "A," "B," and "C" but one that can be derived Drop in sales price Increase Increase Increase Decrease
based on the information presented. Increase in sale volume Increase No effect Decrease Increase
31. Gina's Apparel, Inc. sells handwoven sweaters at P1,000 apiece. Gina's buys sweaters from 35. Grimes is studying the profitability of a change in operation and has gathered the following
Karen Company at P300 apiece, but the agreement also requires an extra fee of 10 percent information:
of sales of sweaters. Gina's monthly fixed costs are P60,000. Current Anticipated
How many pieces of sweaters must Gina's sell in order to earn a profit of P60,000? Operation Operation
A. 100 C. 300 Fixed costs P38,000 P48,000
B. 200 D. 450 Selling price P16 P22
Variable cost P10 P12
32. The manager of Lucky Eleven Store reviewed the following data: Unit sales 9,000 6,000
Fruits Meat Canned Products Should Grimes make the change?
Contribution margin ratio 40% 50% 40% A. No, because sales will drop by 3,000 units.
Sales mix in pesos 20% 30% 50% B. Yes, the company will be better off by P6,000.
Fixed costs, P1,290,000 per month. C. No, because the company will be worse off by P4,000.
The breakeven sales for each month is D. No, because the company will be worse off by P22,000.
A. P1,677,000 C. P4,500,000
B. P3,000,000 D. P6,000,000 Questions 36 & 37 are based on the following information.
Montemayor Co. had the following economic information for the year 2014:
33. The management Edna Company has performed cost studies and projected the following Sales(50,000 units @ P20) P1,000,000
annual costs based on 40,000 units of sales: Variable costs 400,000
Total Annual Variable Portion of Fixed costs 250,000
Cost Total Annual Cost Income tax rate 40 percent
Direct material 400,000 100% Montemayor budgets its 2015 sales at 60,000 units or P1,200,000. The company anticipates an
Direct labor 360,000 75% increased competition; hence, an additional P75,000 advertising costs is budgeted in order to
maintain its sales target for 2015.
MAY 2015, First & Final Preboard Examination Page 4 of 17
PROFESSIONAL REVIEW & TRAINING CENTER MANAGEMENT ADVISORY SERVICES
36. How many units are required as sales in 2015 in order to equal the 2014 after-tax profit? 42. McAfee, which began business at the start of the current year, had the following data:
A. 6,250 C. 56,250 Planned and actual production: 40,000 units
B. 10,417 D. 66,250 Sales: 37,000 units at P15 per unit
Production costs:
37. Assuming the company can sell 60,000 units, what is the required selling price in 2015 in Variable: P4 per unit
order to equal the 2014 net income? Fixed: P260,000
A. P18.75 C. P20.00 Selling and administrative costs:
B. P19.25 D. P21.50 Variable: P1 per unit
Fixed: P32,000
38. Obama Company is a manufacturer of its only one product line. It had sales of P500,000 for The contribution margin that the company would disclose on an absorption-costing income
2013 with a contribution margin ratio of 20 percent. Its margin of safety ratio was 25 percent. statement is:
What are the company's fixed costs? A. P0. C. P166,500.
A. P75,000 C. P100,000 B. P147,000. D. P370,000,
B. P80,000 D. P125,000
43. The following information has been extracted from the financial records of Clinton
Absorption Costing, Variable Costing & Throughput Costing Corporation for its first year of operations:
39. Which of the following methods defines product cost as the unit-level cost incurred each time Units produced 10,000
a unit is manufactured? Units sold 7,000
A. Absorption costing. C. Process costing. Variable costs per unit:
B. Back-flush costing. D. Throughput costing. Direct material P8
Direct labor 9
40. Absorption costing differs from variable costing in all of the following except Manufacturing overhead 3
A. acceptability for external reporting. Selling expenses 4
B. treatment of variable production costs. Fixed costs:
C. arrangement of the income statement. Manufacturing overhead P70,000
D. treatment of fixed manufacturing overhead. Selling & general expenses 30,000
Based on absorption costing, what amount of period costs will Clinton Corporation deduct?
41. Lone Star has computed the following unit costs for the year just ended: A. P30,000 C. P70,000
Direct material used PI2 B. P58,000 D. P79,000
Direct labor 18
Fixed manufacturing overhead 29 44. Cantovoys Company began business at the start of the current year. The company planned
Variable manufacturing overhead 25 to produce 25,000 units, and actual production conformed to expectations. Sales totaled
Fixed selling & administrative cost 17 22,000 units at P30 each. Costs incurred were:
Variable selling & administrative cost 10 Fixed manufacturing overhead P150,000
Under variable costing, each unit of the company's inventory would be carried at: Fixed selling & administrative cost 100,000
A. P55. C. P65. Variable manufacturing cost per unit 8
B. P59. D. P84. Variable selling & administrative cost 2
79. The balance in accounts payable on the budgeted balance sheet for December 31 should be:
A. P161,280. C. P326,400.
B. P165,120. D. P403,200.
104. Two months ago, Victory purchased 4,500 pounds of Hydrol, paying P15,300. The demand 108. Crispin manufactures parts that are used in the production of washers and dryers. The
for this product has been very strong since the acquisition, with the market price jumping to following costs are associated with part no. 65:
P4.05 per pound. (Victory can buy or sell Hydrol at this price.) The company recently Direct materials P50
received a special-order inquiry, one that would require the use of 4,200 pounds of Hydrol. Direct labor 19
Which of the following is (are) relevant in deciding whether to accept the special order? Variable OH 22
A. 4,500 pounds of Hydrol. Fixed OH 15
B. The P4.05 market price. Variable selling costs 11
C. The P3.40 purchase price. The company has received a special-order inquiry from an appliance manufacturer in Korea
D. The 300-pound remaining inventory of Hydrol. for 15,000 units of part no. 65. Twenty percent of Crispin's fixed manufacturing overhead can
be avoided on the order, and the variable selling costs per unit will amount to only P5. The
105. If a firm is at full capacity, the minimum special order price must cover minimum price that Crispin should charge the Korean manufacturer is:
A. variable costs associated with the special order. A. P96. C. P105.
B. variable and incremental fixed costs associated with the special order. B. P99. D. P108.
C. variable and fixed manufacturing costs associated with the special order.
D. variable costs and incremental fixed costs associated with the special order plus Make-or-buy decisions
foregone contribution margin on regular units not produced 109. For the past 12 years, the Blue Company has produced the small electric motors that fit into
its main product line of dental drilling equipment. As material costs have steadily increased,
106. Mueller has been approached about providing a new service to its clients. The company will the controller of the Blue Company is reviewing the decision to continue to make the small
bill clients P140 per hour; the related hourly variable and fixed operating costs: will be P75 motors and has identified the following facts:
and P18, respectively. If all employees are currently working at full capacity on other client 1. The equipment used to manufacture the electric motors has a book value of P150,000.
matters, the per-hour opportunity cost of being unable to provide this new service is: 2. The space now occupied by the electric motor manufacturing department could be used
A. P47 C. P93 to eliminate the need for storage space now being rented.
B. P65 D. P140 3. Comparable units can be purchased from an outside supplier for P59.75.
4. Four of the persons who work in the electric motor manufacturing department would be
107. Sound, Inc., reported the following results from the sale of 24,000 units of IT-54: terminated and given eight weeks' severance pay.
Sales P528,000 5. A P10,000 unsecured note is still outstanding on the equipment used in the
Variable manufacturing costs 288,000 manufacturing process.
Fixed manufacturing costs 120,000 Which of the items above are relevant to the decision that the controller has to make?
Variable selling costs 52,800 A. 1, 3, and 4 C. 1, 2, 4, and 5
Fixed administrative costs 35,200 B. 2, 3, and 4 D. 2, 3, 4, and 5
Pricing Decision 121. The current assets of Bayanan Enterprise consists of cash, accounts receivable, and
116. Swift Company introduced a new product last year for which it is trying to find an optimal inventory. The following information is available:
selling price. Marketing studies suggest that the company can increase sales by 5,000 units Credit sales 75% of total sales
for each P2 reduction in the selling price. The company's present selling price is P70 per Inventory turnover 5 times
unit, and variable expenses are P40 per unit. Fixed expenses are P540,000 per year. The Working capital P1,120,000
present annual sales volume (at the P70 selling price) is 15,000 units. Current ratio 2 to 1
Assuming that the marketing studies are correct, what is the maximum profit that the Quick ratio 1.25 to 1
company can earn yearly? Average Collection period 42 days
A. P 20,000 C. P260,000 Working days 360
B. P110,000 D. P270,000 The estimated cost of goods sold amounts to:
A. P720,000 C. P4,200,000
Capital Budgeting B. P840,000 D. P6,000,000
117. Discounted-cash-flow analysis focuses primarily on the
A. probability of cash flows. C. stability of cash flows. Working Capital Management
B. sensitivity of cash flows. D. timing of cash flows. 122. Jackson Distributors sells to retail stores on credit terms of 2/10, net 30. Daily sales average
150 units at a price of P300 each. Assuming that all sales are on credit and 60 percent of
118. The internal-rate-of-return method assumes that project funds are reinvested at the: customers take the discount and pay on Day 10 while the rest of the customers pay on Day
A. hurdle rate. 30, the amount of Jackson's accounts receivable is:
B. cost of debt capital. A. P450,000 C. P900,000
C. rate of earnings growth (REG). B. P810,000 D. P990,000
D. rate of return earned on the project.
123. Jones Company uses an average of 60 units a day. The lead time is 3 days, and the safety