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Republic of the Philippines University of Eastern Philippines COLLEGE OF BUSINESS ADMINISTRATION University Town, Catarman Northern Samar ACCOUNTANCY DEPARTMENT MANAGEMENT ACCOUNTING REVIEW March 8, 2013 Final Examination Friday, 1:00-4:00 PM INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each item by shading the box corresponding the letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Abayon Company prepared the following figures for its sole product as a basis for its 2010 budget: Expected Sales 80,000 Estimated unit sales price P 1.50 Required material per unit 1 kilo Material inventory at beginning 10,000 kilos Material inventory end 12,000 kilos Purchase price per kilo of materials P 20 Finished Goods inventory: Beginning 5,000 units End 6,000 units Direct labor hours per 1,000 units 50 Direct labor cost per hour P 8 Variable factory overhead per hour P 6 Fixed factory overhead P25,000 The budgeted peso amounts of material purchases is: 72,900 b. 97,900 c. 81,700 d. 97,000 Items 2 and 3 are based on the following information: The budget committee of Love Co. is preparing its manufacturing budget for the year 2009. Initial estimates indicate an annual sales forecast of 40,000 units, The company shall also need 10,000 units for stock. Economic lot purchases of 1,750 kilos of Material A at P8 per kilo and 1,000 liters of material B at P15 per liter are required to produce the 50,000 units. Budgeted factory overhead expenses for this production are: Fixed Factory Overhead: Supervision P4,000 Depreciation P2,300 Insurance P 500 Variable factory overhead: Indirect labor P0.50 per direct labor hour Indirect supplies P0.008 per unit General factory P.10 per direct labor hour Labor hours and rates for the two operations are Operation 1 4,000 hours at P5.00 per hour Operation 2 2,000 hours at P4.50 per hour Based on the information, the budgeted total manufacturing cost for love Company for the year 2009 would be: P51,040 b. P60,800 c. P68,800 d. P76,560 The factory overhead rate based on direct labor hours would be: P.67 per direct labor hour c. P2.16 per direct labor hour P1.80 per direct labor hour d. P2.70 per direct labor hour Based on normal capacity operations, Sta Ana Company employs 25 workers in its Refining Department, working 8 hours a day, 20 days per month at a wage rate of P6 per hour. At normal capacity, production in the department is 5,000 units per month. Indirect materials average P.25 per direct labor, indirect labor cost is 12.5% of direct labor cost, and other overhead are P.15 per direct labor hour. The flexible budget at normal capacity activity level follows: Direct materials, P4,000; Direct Labor, P24,000; Fixed Factory Overhead, P1,200; Indirect Materials, P1,000; Indirect labor, P3,000, other overhead, P660. The cost per unit at 60% capacity is P6.92 b. P6.50 c. P6.82 d. P6.00 Information of Western Company’s direct labor costs is as follows: Standard direct labor rate P 3.75 Actual direct labor rate 3.50 Standard direct labor hours 10,000 Direct labor usage (efficiency) variance-UF 4,200 What were the actual hours worked, rounded to the nearest hour? 10,714 b. 11,120 c. 11,200 d. 11,914 Information on Eastern Company’s direct material cost is as follows: Standard unit price P 3.60 Actual quantity purchased 1,600 Standard quantity allowed for production 1,450 Materials purchase price variance- favorable P 240 What was the actual purchase price per unit, rounded to the nearest centavo? P3.06 b. P3.11 c. P3.45 d. P3.75 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 P 3,600,000 P 3,960,000 Average Collection period 30 days 36 days The pretax cost of carrying the additional investment in receivable, using 360-day year would be P5,760 b. P9,600 c. P8,160 d. P 960 Advances in technology happen in incredibly tremendous speed. This puts CPAs constantly face to face with change. One essential quality of a good design is accounting system that is highlighted by this development is Simplicity Economy Flexibility Traceability The Mark X Corp. contemplates the temporary shutdown of its plant facilities in a provincial area which is economically depressed due to natural disasters. Below are certain manufacturing and selling expenses Depreciation 5. Sales commissions Property Tax 6. Delivery expenses Interest Expense 7. Security of premises Insurance of facilities Which of the above expenses will continue during the shutdown period? All expenses in the list All except items 5 and 6 Items 1,2 and 3 only Items 1, 2,3,4,6 and 7 only Sta Cruz Company has asked you to develop a forecast of November 2009 cash receipts from credit sales. Credit sales for the month are estimated to be P640,000. The accounts receivable balances at October 31, 2009 is P600,000; one quarter of the balance represents September credit sales and the remainder from October sales. All accounts receivable from months prior to September 2009 have been collected or written off, Sta Cruz history of accounts receivable collection is as follows: In the month of sales 30% In the first month after month of sale 40% In the second month after month of sale 25% Written off as uncollectible at the end of the second month after month of sale 5% Sta Cruz total credit sales for October 2009 amounted to P450,000 b. P570,000 c. P642,857.14 d. P792,857.14 Sta. Cruz, forecast of November 2009 cash receipts from credit sales total to: P450,000 b. P574,142.85 c. P591,642.85 d. P642,857.14 A system with with several computers that are connected for communication and data transmission purposes, but where each computer can also process its own data, is known as Hybrid System c. Distributed data processing network Multitask network d. Decentralized network The most critical aspect regarding separation of duties within information systems is between Programmers and system analysts Project leaders and programmers Data control and file librarian Programmers and computer operators Preventive controls are an integral part of virtually all accounting processing systems, and much of the information generated by the accounting system is used for preventive control purposes. Which one of the following is not an essential element of a sound precentive control system? Documentation of policies and procedures Sound personnel practices Separation of responsibilities for the recording, custodial, and authorization functions Implementation of state-of-the art software and hardware 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 P 15,000 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 BC 1 week and EF 1 week c. EF 2 weeks BC 2 weeks d. DE 1 week and EF 1 week 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? 11% b. 12% c. 13% d. 14% You used predetermined overhead rates and the resulting variances when compared with the results using actual rates were substantial. Production data indicated that volumes were lower than plan by a large difference. This situation can be due to Overhead being substantially composed of fixed cost Overhead being substantially composed of variable cost Overhead costs being recorded as planned Products being simultaneously manufactured in single runs The Fudge Company is planning to purchase a new machine which it will depreciate on a straight line basis over a ten year period with no salvage value and a full year’s depreciation taken in the year of acquisition. The new machine is expected to produce cash flows from operations, net of income taxes of P66,000 a year in each of the next ten years. The accounting (book value) rate of return on the initial investment is expected to be 125, How much will the new machine cost? P300,000 b. P550,000 c. P660,000 d. P792,000 Following is a table of probabilities for two separate product lines, X and Y: Probability X Profit Y Profit 20% P 5,000 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 X because it has the highest expected profit Y because it has the highest dispersion Y because it has the highest expected profit X because it has the lowest dispersion The weighted average cost of capital approach to decision making is not directly affected by the Value of the common stock Current budget for expansion Cost of debt outstanding Proposed mix of debt, equity, and existing funds used to implement the project For the doughnuts of MC Donut Co., the purchasing manager decided to buy 65,000 bags of flour with a quality rating two grades below that which the company normally purchased. This purchase covered about 90% of the flour requirement for the period. As to the material variances, what will be the likely effect? Unfavorable price variance, favorable usage variance Favorable price variance, unfavorable usage variance No effect on price variance, unfavorable usage variance Favorable price variance, favorable usage variance. In zero-based budgeting, which of the following statements are True? All activities in the company are organized into break up units called decision packages All costs have to be justifies every budgeting period The process is not time consuming since justification of costs can be done as a routine matter All three statements Statements 1 and 2 only Statements 1 only Statements 2 and 3 only Which of these ratios are measures of a company’s profitability Earnings per share (5) return on assets Current ratio (6) Inventory turn over Return on sales (7) receivables turnover Debt-equity ratio (8) price-earnings ratio All eight (8) ratios 1,3,5, and 8 only 1,3,5,6,7, and 8 only 1,3 and 5 only Information about Rose Company is as follows: 2009 2010 Output (units) 80,000 84,000 Selling price per unit P 25 P 25 Input quantities: Materials (pounds) 4,000 4,000 Labor (hours) 3,200 3,250 Input prices Materials (pounds) P 5.00 P 5.50 Labor (per hour) P 7.00 P 7.50 What are the materials productivity and labor productivity ratio for 2009? 20 and 25 c. 25 and 24 100 and 95.45 d. 20 and 24 A Certified Public Accountants scope of management services is broad and covers all of the following except Change management engagements c. audit engagements Computerization engagements d. re-engineering engagements On on-line access control that checks whether the user’s code number is authorized to initiate a specific type of transaction or inquiry is called Compatibility test c. Password Limit check d. Field check Systems analysts are fundamentally responsible for the development of an organization’s information system. Which of the following is/are the least likely function to be performed by the system analyst? Examining user information requirements Developing, coding, and testing computer programs Design of computer applications Developing systems flowcharts Questions 28 and 29 are based on the following information: Product 101 Product 102 Variable cost per unit P27.00 P11.00 Labor hours per unit 3 hours 2 hours Hourly labor rate P 4.00 P 2.50 Estimated production- units 25,000 10,000 Annual fixed overhead P 190,000 The fixed overhead costs are allocated on the basis of labor hours If the sales manager of the company wants to set a price based on full cost plus mark-up of 20% selling price of each product shall be Prod 101 Prod 102 P 39 P 16 P 45 P 20 P 54 P 24 P 84 P 36 Assuming that labor and materials are the only variable costs, how much should the mark up added to the variable costs in order to give selling prices equal to those in question no. 28 Prod 101 Prod 102 P 15 P 8 P 9 P 4 P 6 P 4 P 5 P 2 The following common-size statements are available for S Corp. for the two years ended December 31, 2010 and 2009 2010 2009 Sales 100% 100% Cost of Sales 55% 70% Gross Profit on Sales 45% 30% Operating expenses (including tax)20% 18% Net income 25% 12% The trend percentages are as follows: 2010 130% 2009 100% What should be the trend percentages for gross profit on sales for 2010? 58.5% c. 150% 130% d. 195% How are the following activities classified using ABC System? Security Product Inspection Insurance on the plant Materials handling Modifications made by engineering to the product design of several products Machine related overhead Set-ups Providing space and utilities Moving of inventory Unit level Batch level Product level Facility level 4,6,8 2,4,7 1,3 9 2,6 4,5 1,7 3,9 6 2,4,7,9 5 1,3,8 2 1,6,7 9 3,4,5,8 A type of managerial accounting which refers to the determination of the operating cost regardless of cost behavior is Differential accounting c. Responsibility accounting Full cost accounting d. profitability accounting Diet Company is a manufacturer of its only one product line. It had sales of P500,000 for 2006 with a contribution margin ratio of 20%. Its margin of safety ratio was 25%. How much is the company’s fixed cost? P75,000 c. P100,000 P80,000 d. P125,000 Family Company has two divisions, MA and PA. Information for each division is as follows: MA PA Net Earnings for Division P20,000 P 65,000 Asset base for division P50,000 P 300,000 Target rate of return 15% 18% Operating income margin 10% 20% Weighted aver. Cost of capital 12% 12% What is the Economic Value Added for MA and PA, respectively? P20,000, P36,000 c. P12,500, P11,000 P14,000, P29,000 d. P20,000, P29,000 The ratio of sales to working capital is a measure of Collectability c. Liquidity Profitability d. Operational Leverage 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? Between P20 and P50 c. Any amount less than P50 Between P50 and P70 d. P50 is the only acceptable price The Taurus Company’s last dividend was P3.00, its growth rate is 6% and the stock now sells for P36. New stock can be sold to net the firm P32.40 per share. What is Taurus Company’s cost of retained earnings? 14.83% b. 15.26% c. 15.81% d. 9.69% 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 Reina expects an 80% learning curve, how many hours should the first batch take? 360 hours b. 57.6 hours c. 140.63 hours d. 230.4 hours Questions 39 through 43 are based on the Income Statement of Davao, Inc. which represents the operating results for the current fiscal year ending December 31. Davao had sales of 1,800 tons of product during the current year. The manufacturing capacity of Davao’s facilities is 3,000 tons of product. Consider each situation separately. Sales P 900,000 Variable Cost Manufacturing P315,000 Selling 180,000 495,000 Contribution Margin P 405,000 Fixed Cost Manufacturing P 90,000 Selling 112,500 Administration 45,000 247,500 Net Income before taxes P 157,500 Taxes (40%) 63,000 Net income after taxes P 94,500 The breakeven volume in tons of product for the year is 420 b. 495 c. 1,100 d. 550 If the sales volume is estimated to be 2,100 tons in the next year, and if the prices and costs stay at the same levels and amounts next year, the after tax net income that Davao can expect for next year is P135,000 b. P283,500 c. P110,250 d. P184,500 Davao has a potential foreign customer that has offered to buy 1,500 tons at P450 per ton. Assume that all of Davao’s costs would be at the same levels and rates as last year. What net income after taxes would Davao make if it took this order and rejected some business from regular customers so as not to exceed capacity? P297,500 b. P211,500 c. P252,000 d.P 256,500 Without prejudice to your answers to previous question, and assume that Davao plans to market its product in a new territory. Davao estimates that an advertising and promotion program costing P61,500 annually would need to be undertaken for the next two or three years. In addition, a P25 per ton sales commission over and above the current commission to the sales force in the new territory would be required. How many tons would have to be sold in the new territory to maintain Davao’s current after-tax income of P94,500? 307.50 b. 273.33 c. 1,095 d. 1,545 Without prejudice to preceding questions, assume that Davao estimates that the per ton selling price will decline 10% next year. Variable costs will increase P40 per ton and the fixed costs will not change. What sales volume is pesos will be required to earn an after-tax net income of P94,500 next year? P1,140,000 b. P1,500,000 c. P825,000 d. P1,350,000 From the records of Green Ann Co the following were taken: Quantity Sales Cost of Sales Product Budget Actual Budget Actual Budget Actual Green 45,000 45,800 450,000 458,000 270,000 274,800 Ann 30,000 26,700 180,000 186,900 108,000 96,120 Co 5,000 9,300 25,000 55,800 15,000 27,900 80,000 81,800 655,000 700,700 393,000 398,820 Determine the sales price (SP), sales volume (SV), cost price (CP) and cost volume (CV) variances: SP is P9,700 favorable; SV is P36,000 favorable; CP is P5,820 favorable and CV is P0. SP is P5,820 favorable; SV is P0; CP is P36,700 favorable and CV is P9,000 favorable. SP is P36,000 favorable; SV is P9,700 favorable; CP is P0 and CV is P5,820 unfavorable. SP is P36,700 favorable; SV is P5,820 unfavorable; CP is P0 and CV is P9,000 favorable. Linear programming is used most commonly to determine The fastest timing The best use of scarce resources The most advantageous prices The mix of variables that will result in the largest quantity Glow Co. wants to sell a product at a gross margin of 20%. The cost of the product is P2.00. The gross profit of the product is P.50 b. P2.10 c. P2.40 d. P2.50 Naval Corporation produces custom-designed safety gear for police vehicles. During September 2010, the company incurred the following costs of quality: Product testing costs P 11,200 Product warranty claims 13,000 Scrap and rework costs 10,500 Product engineering design costs 18,900 Employee training cost 10,100 Product simulation costs 16,400 Total quality costs of conformance for September were P80,100 b. P56,600 c. P42,400 d. P40,200 A firm must choose between leasing a new asset or 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%. Which of the following is closest to the PV of the after tax interest payment? P360 b. P453 c. P640 d. P726 Which of the following is closest to the PV of cost of leasing the asset? P3,694 b. P3,779 c. P3,849 d. P3,992 Which of the following is closest to the PV of cost of purchasing the new asset with a term loan? P3,777 b. P3,952 c. P 4,058 d. P4,153 The Southern Tuna Inc. processes tuna for various distributors. Two departments are involved, processing and packaging. Data relating to tons of tuna sent to the processing department during May 2010 are Percent Completed Tons of Tuna Materials Conversion Work-in process inventory, May 1 1,500 80% 70% Work-in process inventory, May 31 2,300 50 30 Started processing during May 6,500 Assuming the company uses the weighted-average method, what are the equivalent units for conversion? 6,390 b. 5,700 c. 8,000 d. 6,250 Which of the following is a useful measure for comparing risk of two alternative products, or for assessing the riskiness in any given product? Contribution margin ratio Operating leverage Margin of safety ratio Break-even point A primary consideration is assigning a cost to a responsibility center is Whether the cost is fixed or variable Whether the cost is direct or indirect Who can best explain the change in that cost Where in the organizational structure the cost was incurred If overhead is applied on the basis of units of output, the variable overhead efficiency variance will be Zero Favorable, if output exceeds budgeted level. Unfavorable, if output is less than the budgeted level A function of the direct labor efficiency The Kenny Company makes 27,000 units of a certain component each year for use on its production line. The cost per unit for the component at this level of activity is as follows: Direct Materials, P4.20; Direct Labor, P12; Variable Factory overhead, P5.80; Fixed factory overhead, P6.50.Kenny has received an offer from an outside supplier who is willing to provide 27,000 units of this component each year at a price of P25 per component. Assume that if the component is purchased from the outside supplier, P35,100 of annual fixed factory overhead could be avoided and the facilities now being used to make the component could be rented to another company for P64,800 per year. If Kenny chooses to buy the component from the outside supplier under these circumstances, then the change in annual net income due to accepting the offer is P18,900 decrease c. P21,400 decrease P18,900 increase d. P21,400 increase Suppose the conditions are the same as in question 55 and the number of units of this component used each year can change. What would be the quantity of units of this component used per year that would make Kenny indifferent between making or buying the component? 21,600 units b. 27,000 units c. 28,500 units d. 33,300 units A high concentration ratio is An indicator of monopolistic power. An indicator of a highly competitive industry. Consistent with the law of demand. Consistent with monopolistic competition. If personal consumption expenditures increase from P720 to P780 billion when the disposable income increases from P900 billion to P980 billion, the marginal propensity to consume equals 0.75 b. 1.33 c. 0.80 d. 1.26 A Keynesian analysis of monetary and fiscal policy Assumes the economy is stable and self-regulating. Places primary emphasis on monetary policy. Assumes that velocity is stable. Focuses on aggregate expenditures. What is the rate of inflation from one year to the next if the consumer price index was 110 in one year and 118 in the next year? 7.3% b. 7.0% c. 18.0% d. 8.0% END OF FINAL EXAMINATION …. goodluck…. Prepared by: JADE BALLADO-TAN, CPA Faculty, Accountancy Department 11 | Page