MANAGEMENT ADVISORY SERVICES

INSTRUCTION: Select the correct answer for each of the following

questions. Mark only one answer for each item by shading the box
corresponding to the letter of your choice on the answer sheet
provided. STRICTLY NO ERASURES ALLOWED.
MULTIPLE CHOICE
1. When 40,000 units are produced, fixed costs are P16 per unit.
Therefore, when 80,000 units are produced, fixed costs will
_________.
A. decrease to P8 per unit.
B. increase to P32 per unit.
C. remain at Pl6 per unit.
D. total P640,000.

2. The internal-rate-of-return method assumes that project funds are

reinvested at the ____________.
A. cost of equity capital.
B. hurdle rate.
C. cost of debt capital.
D. rate of return earned on the project.

3. Based on the following information, what is the initial cash

outflow?

Purchase and installation of new equipment P 120,000

Sale price of replaced equipment P 40,000
Book value of replaced equipment P 30,000
When the new equipment is installed:
Inventory increase P 20,000
Accounts payable increase P 10,000
Tax rate 30%
A. P 147,000
B. P 167,000
C. P 95,000
D. P 93,000

4. Maxx is currently selling for P75 per share. If it is selling at a

P/E ratio of 50, what is Maxx’s recent earnings per share?
A. P0.67
B. P0.15
C. P0.50
D. P1.50

5. Jackson Company has a policy of maintaining an inventory of

finished goods equal to 30 percent of the following month’s sales.
For the forthcoming month of March, Jackson has budgeted the
 beginning inventory at 30,000 units and the ending inventory at 33,
000 units. This suggests that
A. February sales are budgeted at 3,000 units less than March
sales.
B. March sales are budgeted at 10,000 units less than April
sales.
C. March sales are budgeted at 3,000 unis less than April sales.
D. February sales are budgeted at 10,000 units less than March
sales.

6. The biggest advantage of capitalism is that ________.

A. It generates wealth with the help of government intervention
B. It forces involuntary exchanges
C. Prices hinder in moving assets from high-value to low-value
uses
D. It creates wealth by letting a person follow his or her own
self-interest

7. Which of the following is a disadvantage of a focus on return on

investment?
A. It can encourage managers to cut inventories, and reduce over
all investment.
B. It can produce a narrow focus on divisional profitability at
the expense of profitability for the overall firm.
C. It can encourage managers to focus, on the long run at the
expense of the short run.
D. It can encourage managers to focus on cost cutting efforts.

8. Yuson Corporation forecasts that if all of its existing financial

policies are followed, its proposed capital budget would be so
large that it would have to issue new common stock. Since new stock
has higher cost than retained earnings, Yuson would like to avoid
issuing new stock. Which of the following actions would REDUCE its
need to issue new common stock?
A. Increase the proposed capital budget.
B. Increase the dividend payout ratio for the upcoming year.
C. Increase the percentage of debt in the target capital
structure.
D. Reduce the amount of short-term bank debt in order to increase
the current ratio.

9. Kaizen costing helps to ____________.

A. Keep profit margin relatively stable as product price declines
over the product life cycle.
B. reduce the cost of engineering change orders during each stage
of the product life cycle.
 C. reduce product costs of products in the design and development
stage.
D. keep the target cost as the primary focus after a product
enters production.

10. The learning curve is also known as a(n) ________.

A. Growth curve.
B. Experience curve.
C. Production curve.
D. Exponential curve.

11. If Premium Company has a safety stock of 480 units and the
average daily demand is 60 units, how many days can be covered if
the shipment from the supplier is delayed by 4 days?
A. 4 days
B. 7 days
C. 12 days
D. 8 days

12. The managerial accountant at XYZ Group Consulting reported the

following information about the sales budget for the period ending
December 31, 2019.

XYZ Group Consulting

Sales Budget
Period, ending December 31, 2019

Annual
Quarter 1 2 3 4
Total
Number of units sold 1,000 1,200 975 1,600 4,775
Per-unit Price P32.00 P28.00 P33.00 P38.00
Total Sales P32,000 P33,600 P32,175 P60,800 P158,575

Observe the Sales Budget and determine which primary responsibility

the managerial accountant uses to determine which quarter generated
the most per-unit product sales data in order to adjust the marketing
strategy?
A. Analyzing
B. Controlling
C. Planning
D. Directing

13. Discounted cash flow techniques for analyzing capital budgeting

decisions are NOT normally applied to projects _________.
A. requiring no investment after the first year of life.
B. involving replacement of existing assets.
C. that are essential to the business.
 D. having useful lives shorter than one year.

14. Which of the following is TRUE of budgets when they are

administered thoughtfully?
A. They eliminate subjectivity in performance evaluation.
B. They promote coordination within the subunits of a company.
C. They can eliminate the uncertainty faced by a company.
D. They are a substitute the planning and coordination functions
of management.

15. A decrease in demand is represented by _________.

A. A shift inward of the entire demand curve.
B. A movement along the demand curve in a northwesterly
direction.
C. A shift outward of the entire demand curve.
D. A movement along the demand curve in a southeasterly
direction.

16. The approaches and activities of managers in short-run and long-

run planning and control decisions that increase value for
customers and lower costs of products and services are known as
_______.
A. customer value management
B. value chain management
C. cost management
D. enterprise resource planning

17. Last year Cruz Corp had P305,000 of assets, P403,000 of sales,
P28,250 of net income, and a debt-to-total-assets ratio of 39%. The
new CFO believes the firm has excessive fixed assets and inventory
that could be sold, enabling it to reduce its total assets to
P252,500. Sales, costs, and net income would not be affected, and
the firm would maintain the same debt ratio (but with less total
debt). By how much would the reduction in assets improve the ROE?
A. 3.00%
B. 2.85%
C. 3.31%
D. 3.16%

18. A firm with a cash conversion cycle of 175 days can stretch its
average payment period from 30 days to 45 days. This will result in
a/an _________.
A. decrease of 15 days in the cash conversion cycle.
B. decrease of 30 days in the cash conversion cycle.
C. increase of 30 days in the cash conversion cycle.
D. increase of 15 days in the cash conversion cycle.
19. When monthly production volume is constant and sales volume is
less than production, income determined with variable costing
procedures will ___________.
A. always be greater than income determined using absorption
costing.
B. always be less than income determined using absorption
costing.
C. be equal to income determined using absorption costing.
D. be equal to contribution margin per unit times units sold.

20. Reliable Repair Shop has a monthly target operating income of

P30, 000. Variable expenses are 40% of sales and, monthly fixed
expenses are P7,500. Assume the repair shop reaches its target. By
what percentage will the its operating income fall if sales volume
declines by 12%?
A. Decline by 10%
B. Decline by 15%
C. Decline by 11%
D. Decline by 16%

21. Which of the following statements is CORRECT?

A. Net working capital is defined as current assets minus the sum
of payables and accruals, and any decrease in the current
ratio automatically indicates that net working capital has
decreased.
B. Although short-term (ST) interest rates have historically
averaged less than long-term rates, the heavy use of ST debt
is considered to be an aggressive strategy because of the
inherent risks associated with using ST financing.
C. If a company follows a policy of "matching maturities," this
means that it matches its use of common stock with its use of
long-term debt as opposed to short-term debt.
D. Net working capital is defined as current assets minus the sum
of payables and accruals, and any increase in the current
ratio automatically indicates that net working capital has
increased.

22. Aqua Company produces two products-Alpha and Beta. Alpha has a
high market share and is produced in bulk. Production of Beta is
based on customer orders and is custom designed, Also, 55% of
Beta's cost is shared between design and setup costs, while Alpha’s
major portions of costs are direct costs. Alpha is using a single
cost pool to allocate indirect costs. Which of the following
statements is true of Aqua?
A. Aqua will undercost Alpha's indirect costs because alpha has
high direct costs.
B. Aqua will overcost Alpha's indirect costs as it is using a
single cost pool to allocate indirect costs.
 C. Aqua will overcost Beta's indirect costs because beta has high
indirect costs.
D. Aqua will overcost Beta's direct costs as it is using a single
cost pool to allocate indirect costs.

23. Suppose that in the coming year, you expect Mobilo stick to have
a volatility of 42% and a beta of 0.9, and Merck’s stock to have a
volatility of 24% and a beta of 1.1. The risk free interest rate is
4% and the market's expected return is 12%.

Which stock has the highest total risk?

A. Mobilo since it has a higher volatility
B. Merck since it has a higher Beta
C. Mobilo since it has a lower beta
D. Merck since it has a lower volatility

24. In which of the four perspectives of, a balanced scorecard is the

objective “reduce staff turnover” most like be?
A. Learning and growth
B. Customer
C. Financial
D. Internal processes

25. The Zork Co. has an inventory conversion period of 60 days, an

average collection period of 38 days, and a payables deferral
period of 30 days. Assume that cost of goods sold is 75% of sales.

If Zork's annual sales are P3,426,255 and all sales are on credit,
what is the firm's investment in accounts receivable?
A. P 281,610
B. P 356,706
C. P 234,675
D. P 206,514

26. The manager of Stock Division projects the following for next
year:

Sales P 185,000
Operating income P 60,000
Operating Assets P 375,000

The manager can invest in an additional project that would require

P40,000 investment in additional assets and would generate P6,000
of additional income. The company’s minimum rate of return is 14%.
Which of the following statements is true?
A. If the manager invests in the additional project, ROI of the
division will decrease.
 B. the manager invests in the additional project, residual income
of the division will increase.
C. Average investment for Stock Division will decrease if the
project is accepted for investment.
D. The residual income of the project is less than the residual
income of the division without the project; therefore the
project will be rejected.

27. Which of the following statements is FALSE?

A. The 95% confidence interval for the expected return is defined
as the Historical Average Return plus or minus three standard
errors.
B. The standard error is the standard deviation of the average
return.
C. We can use a security's historical average return to estimate
its actual expected return.
D. The standard error provides an indication of how far the
sample average might deviate from the expected return.

28. Star Corporation manufactures and sells two products: A and B.

the operating results of the company are as follows:

Product A Product B
Sales in units 2,000 3,000
Sales price per unit P100 P50
Variable costs per unit 70 30

In addition, the company incurred total fixed costs in the amount

of P90,000.

If the company would have sold a total of 6,000 units, how many of
those units would you expect to be Product B?
A. 3,000
B. 3,500
C. 4,000
D. 3,600

29. Non-compliance with Laws and Regulations (NOCLAR) Framework was

created to comply with which fundamental principles?
A. Professional competence and due care
B. Objectivity
C. Integrity
D. Confidentiality

30. Juan Company has a policy of maintaining an inventory of finished

goods equal to 30 percent of the following, month’s sales. For the
forthcoming month of March, Juan has budgeted the beginning
 inventory at 30,000 units and the ending inventory at 33,000 units.
This suggests that ____________.
A. March sales are budgeted at 10,000 units less than April
sales.
B. March sales are budgeted at 3,000 units less than April sales.
C. February sales are budgeted at 10,000 units less than March
sales.
D. February sales are budgeted at 3,000 units less than March
sales.

31. What is “strategy mapping” in the balance scorecard?

A. Setting the mission.
B. Identifying causal links between the four perspectives.
C. Agreeing the strategy with the director of the business.
D. Mapping the business’ processes.

32. Luther Corporation had net income of P160,000 and paid dividends
to common stockholders of P40,000 in 2018. The weighted average
number of shares outstanding in 2018 was 50,000 shares. Luther
Corporation’s common stock is selling P50 per share on Philippines
Stock Exchange.
Luther Corporation’s payout ratio for 2018 is ___________.
A. 25%
B. 20%
C. 12.5%
D. P5 per share

33. Orange Furniture’s purchasing manager obtained a special price on

an MDF material from a new supplier, resulting in a direct-material
price variance of P9,500F. The MDF produced more waste than normal,
as evidence by a direct-material quantity variance of P2,000U.
Since it was also difficult to use, it slowed worker efficiently,
generating a P2,500U labor efficiency variance. To help remedy the
situation, the production manager used senior line employees, which
gave rise to a P900U labor rate variance. If overall product
quality did not suffer, what variance amount is best used in
judging the appropriateness of the purchasing manager’s decision to
acquire substandard material?
A. P5,000F.
B. P7,500F.
C. P7,000F.
D. P4,100F.

34. A firm is analyzing a relaxation of credit standards that is

expected to increase sales 10%. The firm is currently selling 400
units at an average sale price per unit of P575, and the variable
cost per unit is P400 at the current sales volume. The average cost
 per unit is P425. What is the additional profit contribution from
sales if credit standards are relaxed?
A. P23,000
B. P7,000
C. P6,000
D. P16,000
35. The average fixed cost curve always has a negative slope because
________.
A. Marginal costs are below average fixed costs.
B. Average variable costs exceed marginal costs.
C. Total fixed costs do not change as output increases.
D. Total fixed costs always decrease.

36. Data on Wentz, Inc. for 2018 are shown below, along with the
payables deferral period (PDP)for the firms against which it
benchmarks. The firm’s new CFO believes that the company could
delay payments enough to increase its PDP to the benchmark’s
average. If this were done, by how much would payable increase? Use
a 365-day year.

Cost of goods sold= P 75,000

Payables = P 5,000
Payables deferral period (PDP) = 24.33
Benchmark payables deferral period = 30.00
A. P 943
B. P 1,164
C. P 849
D. P 764

37. Profit maximization as a goal is not ideal because it does NOT

directly consider _____.
A. Cash flow and stock price
B. EPS and stock price
C. Risk and cash flow
D. Risk and EPS

38. You are analysing the performance of different asset classes for
a foreign economy. You find that over the last 60 years the average
annual return for equities was 12%, the average annual return for
corporate bonds was 10% and the rate of inflation was about 3%. If
inflation were projected to be around 1% for the foreseeable
future, then what would you project the return on equities to be
during that same foreseeable period?
A. 9%
B. 11%
C. 10%
D. 12%
39. You have the following information about a company: total assets
= P350,000; ordinary share equity P175,000; and ROE = 14.5%. What
are the company’s earnings available for ordinary shareholders?
A. P21,875
B. P43,750
C. P47,632
D. P25,375

40. Logro Inc. manugactures stainless steel knives. Following are

factory costs incurred during the year.

Material Costs:
Stainless steel P 950,000
Plastic for handles 55,600
Equipment oil and grease 18,000
Wood blocks for knife storage 44,800

Labor Costs:
Equipment operators P 600,000
Equipment mechanics 92,000
Factory supervisors 372,000

What is the factory overhead cost for the year?

A. P 482,000
B. P 464,000
C. P 508,800
D. P 519,600

41. Tech corporation manufactures and sells various high-tech office

automation products. Two divisions of Tech Corporation are the
Computer Chip Division and the Computer Division. The Computer Chip
Division manufactures one product, a "super chip," that can be used
by both the Computer Division and other external customers. The
following information is available on this month’s operations in
the Computer Chip Division:

Selling price per chip P500

Variable costs per chip P200
Fixed production costs P600,000
Fixed SG&A costs P900,000
Monthly capacity 10,000 chips
External sales 6,000 chips
Internal sales 0 chips

Presently, the Computer Division purchases no chips from the

Computer Chips Division, but instead pays P450 to an external
supplier for the 4,000 chips it needs each month.
 The next month's costs and levels of operations in the Computer and
Computer Chip Divisions are similar to this month.

What is the minimum of the transfer price range for a possible

transfer of the super chip from one division to the other?
A. P350
B. P450
C. P200
D. P500

42. Which of the following statements is true for a company that uses
variable costing?
A. The unit product cast changes as a result of changes in the
number of units manufactured.
B. Income is greatest in periods when production is highest.
C. Net operating income moves in the same direction as sales.
D. Both variable selling costs and variable production costs are
included in the unit product cost.

43. In order to enhance the wealth of stockholders and to send

positive signals to the market, corporations generally raise funds
using the following order:
A. Retained earnings, debt, equity.
B. Equity, retained earnings, debt.
C. Debt, retained earnings, equity.
D. Retained earnings, equity, debt.

44. Dana sells a single product at P20 per unit. The firm's most
recent income statement revealed unit sales of 100,000, variable
costs of
P800,000, and fixed costs of P400,000. If a P4 drop in selling
price will boost unit sales volume by 20%, what will the company
will experience?
A. An P80,000 drop in profitability.
B. A P400,000 drop in profitability.
C. A P240,000 drop in profitability.
D. No change in profit because a 20%, drop in sales price is
balanced by a 20% increase in volume.

45. Ruby Co. currently manufactures a subassembly for its main

product. The costs per unit are as follows:

Direct Materials P 450

Direct Labor 350
Variable overhead 330
Fixed overhead 300
Total P 1,430
Gem Inc. has contacted Ruby with an offer to sell 5,000 of the
subassemblies for P1,350 each. Ruby will eliminate P850,000 of fixed
overhead if it accepts the proposal
What are the relevant costs for Ruby?
A. P 8,000,000
B. P 4,850,000
C. P 6,500,000
D. P 4,800,000

46. A company annually consumes 10,000 units of Part C. The carrying

cost of this part is P2 per year and the ordering costs are P100.
The company uses an order quantity of 500 units. If the company
operates 200 days per year, and the lead time for ordering Part C
is 5 days, what is the order point?
A. 250 units
B. 2,000 units
C. 1,000 units
D. 500 units

47. Using product cost information to determine sales prices is an

example of __________.
A. Controlling and planning.
B. Directing and controlling.
C. Controlling, directing, and planning.
D. Directing.

48. Which of the following items is/are true?

Item 1: The feasibility is basically a forecast.

Item 2: A feasibility study is prepared to ascertain the
viability of the new projects.
A. Both items 1 and 2
B. Only item 2
C. Only item 1
D. Neither of the items

49. A company that is operating at full capacity should emphasize

those products and services that have the __________.
A. Highest operating income.
B. Highest contribution margin per unit of scare resource.
C. Highest contribution margin per unit.
D. Lowest total per-unit costs.

50. Ortega Interiors provides design services to residential and

commercial clients. The residential services produce a contribution
 margin of P450,000 and have traceable fixed operating costs of
P480,000. Management is studying whether to drop the residential
operation. If closed, the fixed operating costs will fall by
P370,000 and Ortega’s net income will __________.
A. Increase by P30,000.
B. Decreased by P80,000.
C. Increased by P340,000.
D. Increased by P80,000.

51. Luther Corporation had net income of P160,000 and paid dividends
to common stockholders of P40,000 in 2018. The weighted average
number of shares outstanding in 2018 was 50,000 shares. Luther
Corporation’s common stock is selling for P50 per share on the
Philippine Stock Exchange.
Luther Corporation’s price-earnings ratio is _______.
A. 10 times
B. 5 times
C. 3.2 times
D. 15.6 times

52. Chung Inc. is considering the replacement of a piece of equipment

with a newer model. The following data has been collected:

Old equipment New equipment

Purchase Price P 75,000 P 125,000
Accumulated Depreciation 30,000 -0-
Annual Operating costs 100,000 80,000

If the old equipment is replaced now, it can be sold for P20,000.

Both the old equipment’s remaining useful life and the new
equipment’s useful life is 5 years.

What is the net costs of the new equipment?

A. P125,000
B. P50,000
C. P105,000
D. P25,000

53. Which of the following adjustments to net income is NOT correct

if you are trying to calculate cash flow from operating activities?
A. Add back depreciation
B. Add increases in accounts receivable
C. Deduct increases in inventory
D. Add increases in accounts payable
SITUATIONAL
Situation 1 – Daisy Corporation manufactured 55,000 units of product
during September. The following fixed overhead data relates to
September:
Actual Static Budget
Production 55,500 units 55,000 units
Machine- hours 985 hours 1,100 hours
Fixed overhead costs for September P50,500 P50,600

54. What is the flexible-budget amount?

A. P55,500
B. P51,060
C. P50,600
D. P50,500

55. What is the amount of fixed overhead allocated to production?

A. P50,600
B. P55,500
C. P51,060
D. P50,500

56. What is the fixed overhead spending variance?

A. P100 favorable
B. P560 unfavorable
C. P100 unfavorable
D. 560 favorable
Situation 2 – A project requires an initial investment in equipment
and machinery of P10 million. The equipment is expected to have a
five-year lifetime with no salvage value and will be depreciated on a
straight-line basis. The project is expected to generate revenues of
P5.1 million each year for the five years and have operating expenses
(not including depreciation) amounting to one-third of revenues. The
tax rate is 40%.
57. What is the net cash flow in year 1?
A. P2.04 million
B. P3.40 million
C. P2.84 million
D. P0.84 million

58. Assume the tax rate is 40% and the cost of capital is 10%. What
is the present value of cash inflows from year 1 to year 5? What
percentage of this present value is attributed to the tax benefits
accruing from depreciation?
A. P12.89 million; 24%
B. P3.18 million; 95%
C. P10.77 million; 28%
D. P7.73 million; 39%
59. Assume the tax rate is 40% and the cost of capital is 10%. What
is the net present value of the project?
A. -P6.82 million
B. P2.89 million
C. P0.77 million
D. -P2.27 million
Situation 3 – The project’s NPV represents the value to the existing
shareholders of the firm created by the project.
Nielson Motors (NM) has no debt. Its assets will be worth P600
million in one year if the economy is strong but only P300
million if the economy is weak. Both events are equally likely.
The market value today of Nielson’s assets is P400 million.
60. The expected return for Nielson Motors stock without leverage is
closest to ____________.
A. 12.5%
B. -12.5%
C. -25.0%
D. -17.5%

61. Suppose the risk-free interest rate is 4%. If Nielson borrows

P150 million today at this rate and uses the proceeds to pay an
immediate cash dividend, then according to MM, the market value of
its equity just after the dividend is paid would be closets to
________.
A. P250 million
B. P150 million
C. P400 million
D. P0 million

62. Suppose the risk-free interest rate is 4%. If Nielson borrows

P150 million today at this rate and uses the proceeds to pay an
immediate cash dividend, then according to MM, the expected return
of Nielson’s stock just after the dividend is paid would be closets
to:
A. -17.5%
B. 12.5%
C. -12.5%
D. 17.5%

*** E N D ***
P.S. may missing pages po sa copy ng CPALE.