CPAR

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

MANAGEMENT ADVISORY SERVICES JULY 14, 2023

First Pre-board Examination – Batch 94 8:00 am to 11:00 am

Instructions: Choose the BEST answer for each of the following items. Mark only one answer for each
item on the Special Answer Sheet provided. Strictly no erasure allowed. Use Pencil No. 1 only.

1. Inventoriable costs include which of the following?

I. Direct materials
II. Indirect materials
a. I only c. Both I and II
b. II only d. Neither I nor II

2. Specialty Cakes Inc. produces two types of cakes, a round cake and a heart-shaped cake.
Total fixed costs for the firm are ₱92,000. Variable costs and sales data for these cakes
are presented below.
Round Cake Heart-shaped Cake
Selling price ₱12 ₱20
Variable cost per unit ₱8 ₱15
Budgeted sales (units) 10,000 15,000

How many cakes will be required to reach the breakeven point?

a. 9,000 round cakes and 11,000 heart-shaped cakes.
b. 10,000 round cakes and 10,000 heart-shaped cakes.
c. 23,000 round cakes and 18,400 heart-shaped cakes.
d. 8,000 round cakes and 12,000 heart-shaped cakes.

3. A company uses a job-order cost system and applies manufacturing overhead to jobs
using predetermined overhead rate based on direct labor pesos. This rate was calculated
last November and will be used throughout the current year. During June, direct labor
added to jobs was as follows:
Job #1 ₱1,000
Job #2 4,500
Job #3 2,000

Actual manufacturing overhead for the month of June was ₱17,500. For June,
manufacturing overhead was:
a. overapplied by ₱2,500 c. correctly applied
b. underapplied by ₱2,500 d. underapplied by ₱1,000

4. Budget slack is a condition in which

a. demand is low at various times of the year.
b. excess machine capacity exists in some areas of the plant.
c. there is an intentional overestimate of expenses or an underestimate of revenues.
d. managers grant favored employees extra time off.

ITEMS 5 to 7 ARE BASED ON THE FOLLOWING:

In year 1, its first year of operations, a company had the following manufacturing costs
when it produced 100,000 and sold 80,000 units of its only product:
Fixed costs ₱195,000
Variable costs 160,000

5. Under absorption costing, how much fixed manufacturing cost will be expensed in Year 1?
a. ₱195,000 c. ₱156,000
b. ₱ 71,000 d. ₱ 32,000
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6. How much is the cost of ending inventory under variable costing?

a. ₱32,000 c. ₱0
b. ₱71,000 d. ₱39,000

7. What is the difference in income under the two methods?

a. ₱32,000 c. ₱0
b. ₱71,000 d. ₱39,000

ITEMS 8 AND 9 ARE BASED ON THE FOLLOWING:

In Year 1, a company sells its product for ₱7.50 each. Variable costs of manufacturing are
₱2.25 per unit. The company needs to sell 20,000 units to break-even.

8. How much are fixed costs?

a. ₱ 45,000 c. ₱150,000
b. ₱105,000 d. Need more information to solve

9. In Year 2, the company expects the product to sell for ₱9. Variable manufacturing costs
are expected to increase by one-third, and fixed costs are expected to increase by 20%.
How many more units, compared to Year 1, does the company need to sell to break-even
in Year 2?
a. 20,750 c. 21,000
b. 20,000 d. 1,000

10. A company recently purchased materials from a new supplier at a very attractive price.
The materials were found to be of poor quality, and the company's laborers struggled
significantly as they shaped the materials into finished product. In a desperate move to
make up for some of the time lost, the manufacturing supervisor brought in more-senior
employees from another part of the plant. Which of the following variances would have a
high probability of arising from this situation?
a. Favorable material price variance
b. Unfavorable material quantity variance
c. Unfavorable labor rate variance
d. All of these

11. Price ceilings

a. Are illustrated by government price support programs in agriculture.
b. Create prices greater than equilibrium prices.
c. Create prices below equilibrium prices.
d. Result in persistent surpluses.

12. Variable costs:

I. per unit remain unchanged in the relevant range
II. increase in total as unit volume increases

a. I only c. Both I and II

b. II only d. Neither I nor II

13. The measurement of the benefit lost by using resources for a given purpose is
a. Economic efficiency.
b. Opportunity cost.
c. Comparative advantage.
d. Absolute advantage.

14. Which of the following managerial functions involves a detailed financial and operational
description of anticipated operations?
a. Decision making c. Directing
b. Planning d. Controlling
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15. A company budgeted sales of 44,000 units for January and 60,000 for February. The
budgeted beginning inventory for January 1 was 14,000 units. The company desires an
ending inventory equal to one-half of the following month's sales needs. Budgeted
production for January is
a. 74,000 units. c. 52,000 units.
b. 60,000 units. d. 28,000 units.

16. A company uses variable costing. A the end of its first year of operations, 3,000 units of
inventory are on hand. Fixed manufacturing costs are ₱50 per unit. Which of the following
statements is/are correct?
I. The use of absorption costing, rather than variable costing, would result in a
lower net income.
II. The use of absorption costing, rather than variable costing, would result in a
lower ending inventory costs.

a. I only c. Both I and II

b. II only d. Neither I nor II

17. Marginal revenue is

a. Equal to price in monopolistic competition.
b. The change in total revenue associated with increasing prices.
c. Greater than price in pure competition.
d. The change in total revenue associated with producing and selling one more unit.

18. Budgeted sales for the first six months for a company are listed below:

JANUARY FEBRUARY MARCH APRIL MAY JUNE

UNITS: 6,000 7,000 8,000 7,000 5,000 4,000

The company has a policy of maintaining an inventory of finished goods equal to 40

percent of the next month's budgeted sales. If the company plans to produce 6,000 units
in June, what are budgeted sales for July?
a. 3,600 units c. 9,000 units
b. 1,000 units d. 8,000 units

19. A corporation had a favorable direct-labor efficiency variance of ₱6,000 for the period just
ended. The actual wage rate was ₱0.50 more than the standard rate of ₱12.00. If the
company's standard hours allowed for actual production totaled 9,500, how many hours
did the firm actually work?
a. 9,000 c. 9,980
b. 9,020 d. 10,000

20. All of the following are expensed immediately when incurred under variable costing except:
a. variable manufacturing overhead
b. fixed manufacturing overhead
c. variable selling and administrative costs
d. fixed selling and administrative costs

21. Which of the following statements pertain to both variable costing and absorption costing?
a. The income statement discloses the amount of gross margin generated during the
reporting period.
b. Fixed selling and administrative expenses are treated in the same manner as
fixed manufacturing overhead.
c. Both variable and absorption costing can be used for external financial reporting.
d. Variable selling costs are written-off as expenses of the accounting period.

22. The primary purpose of management advisory services is

a. to achieve the objectives of the MAS firm.
b. to help the client maximize its resources.
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c. to improve the client's use of its capabilities and resources to achieve the objectives
of such client's organization.
d. to help the client identify its problems.

23. A company reported the following costs for the year just ended:
Materials cost ₱180,000
Direct labor 200,000
Variable factory overhead 100,000
Fixed factory overhead 300,000
Selling and administrative costs 125,000

If the company uses throughput costing and had sales revenues for the period of
₱950,000, which of the following choices correctly depicts the company's cost of goods
sold and net income?
Cost of Net
Goods Sold Income
a. ₱180,000 ₱ 45,000
b. ₱180,000 ₱645,000
c. ₱305,000 ₱ 45,000
d. ₱305,000 ₱645,000

24. Which of the following would take place if a company were able to reduce its variable cost
per unit?
Contribution Break-even
Margin Point
a. Increase Increase
b. Increase Decrease
c. Decrease Increase
d. Decrease Decrease

25. Managerial accounting:

a. focuses only on historical data.
b. is governed by GAAP.
c. focuses primarily on the needs of personnel within the organization.
d. provides information for parties external to the organization.

26. In financial accounting, certain rules and regulations must be followed on how financial
statements must be presented to readers. In managerial accounting, no such restrictions
generally apply because it is
a. an entirely different field that need not observe the broad guidelines in financial
accounting.
b. designed to provide management with non-financial information for decision-making.
c. designed to provide accounting and other financial data to assist management in
making business decisions.
d. a discipline that does not require preparation of financial statements.

27. Which of the following statements is correct?

a. MAS is confined only to such areas as financial accounting, auditing, and tax
services.
b. Because the MAS practitioner must be independent, he must not allow the client to
participate in any phase of his engagement.
c. Although MAS extends beyond the traditional accounting services, CPAs in the MS
practice are still bound by the rules of professional ethics in the practice of
accounting in general.
d. CPAs provide management services to go around the ethical constraints as
mandated by the Accountancy Act.
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28. In cost behavior analysis, the linearity assumption states that

a. in all cases, there is a strict linear relationship between the cost and cost driver.
b. within the relevant range, there is a strict relationship between the cost and the cost
driver.
c. within the relevant range, there is a strict linear relationship between the cost and
cost driver.
d. within the relevant range, all costs are fixed and may be drawn graphically as
straight lines.

29. The owner of a company is concerned about increased fixed manufacturing costs. Last
year, the fixed manufacturing costs were ₱600,000. This year, the fixed manufacturing
costs increased by ₱150,000. The fixed selling and administrative costs of ₱540,000 were
the same for both years. The company operated in both years with an average
contribution margin ratio of 25 percent. It earned profit before income taxes of ₱900,000
last year.

How much would sales revenue have to increase this year for the company to earn the
same profit as it did last year?
a. ₱8,160,000 c. ₱ 600,000
b. ₱8,760,000 d. ₱5,160,000

30. Historical experience, engineering studies, and input from operating personnel are three
potential sources for quantitative standards. Although historical experience may provide
an initial guideline for setting standards, it should be used with caution because
a. most companies have very poor records.
b. ideal standards are better than historical standards.
c. they may not be achievable by operating personnel.
d. they may perpetuate operating inefficiencies.

31. Using regression analysis, Nasty Company graphed the following relationship of its
cheapest product line’s sales with its customer’s income levels:

Sales
Pesos

Income levels increasing

If there is a strong statistical relationship between the sales and customers’ income levels,
which of the following numbers best represents the correlation coefficient for this
relationship?
a. +0.96 c. - 0.96
b. - 9.00 d. +9.00

32. A company manufactures toy airplanes. Information on the company's labor costs follow:

Sales commission ₱5 per plane

Administration ₱10,000 per month
Indirect factory labor ₱3 per plane
Direct factory labor ₱5 per plane

The following information applies to the upcoming month of July for the

company: Budgeted production 1,200 units

Budgeted sales 1,000 units
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What amount of budgeted labor cost would appear in the July selling, general, and
administrative expense budget?
a. ₱10,000 c. ₱15,000
b. ₱16,000 d. ₱23,000
33. The standard direct materials cost to produce a unit of a product is four meters of
materials at ₱2.50 per meter. During June 2023, 4,200 meters of materials costing
₱10,080 were purchased and used to produce 1,000 units of the product. What was the
materials spending variance for June 2023?
a. ₱480 unfavorable c. ₱400 favorable
b. ₱ 80 unfavorable d. ₱420 favorable

34. A company uses a standard costing system in connection with the manufacture of a “one
size fits all” product made of rubber. Each unit of finished product contains ten inches of
direct material. However, a 20% direct material spoilage calculated on input quantities
occurs during the manufacturing process. The cost of the direct material is ₱5 per inch.
The standard direct materials cost per unit of finished product is:
a. ₱62.50 c. ₱60.00
b. ₱50.00 d. ₱40.00

35. The term "management by exception" is best defined as:

a. choosing exceptional managers.
b. controlling actions of subordinates through acceptance of management techniques.
c. controlling costs so that non-zero variances are treated as "exceptional."
d. devoting management time to investigate significant variances.

36. Which of the following choices correctly notes the use of the standard price per unit of
direct material when calculating the materials spending variance and the material
efficiency variance?
Spending Variance Efficiency Variance
a. Used Always used
b. Used Occasionally used
c. Used Not used
d. Not used Always used

37. A company purchased and consumed 50,000 liters of direct material that was used in the
production of 11,000 finished units of product. According to engineering specifications,
each finished unit had a manufacturing standard of five liters. If a review of the
company’s accounting records at the end of the period disclosed a material price variance
of ₱5,000U and a material quantity variance of ₱3,000F, determine the actual price paid
for a liter of direct material.
a. ₱0.50 c. ₱0.70
b. ₱0.60 d. ₱0.10

38. A company makes and sells only one product. The selling price is ₱10 and the variable
cost per unit is ₱4. The break-even point in unit sales is 24,000. The company's fixed
costs are: a. ₱4,000 c. ₱40,000
b. ₱14,400 d. ₱144,000

39. The individual generally responsible for the direct-material price variance is the:
a. sales manager. c. purchasing manager
b. production manager d. finance manager

40. All other things being equal, a company that sells multiple products should attempt to
structure its sales mix, so the greatest portion of the mix is composed of those products
with the highest:
a. selling price. c. gross margin
b. contribution margin. d. gross profit
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41. A company manufactures a single product using standard costing. Variable production
costs are ₱26 and fixed production costs are ₱250,000. The company uses a normal
activity of 12,500 units to set its standard costs. It began the year with 1,000 units in
inventory, produced 11,000 units, and sold 11,500 units. Ending inventory under
absorption costing would be
a. ₱10,000. c. ₱23,000.
b. ₱13,000. d. ₱69,000

42. X and Y are substitute products. If the price of product Y increases, the immediate impact
on product X is
a. Price will increase.
b. Quantity demanded will increase.
c. Quantity supplied will increase.
d. Price, quantity demanded, and supply will increase.

43. A company recently completed 10,600 units of its single product, consuming 32,000 labor
hours that cost the firm ₱480,000. According to manufacturing specifications, each unit
should have required 3 hours of labor time at ₱15.40 per hour. On the basis of this
information, determine the company’s labor rate variance and labor efficiency variance.

Rate Variance Efficiency Variance

a. ₱12,720F ₱3,000F
b. ₱12,720F ₱3,000U
c. ₱12,800F ₱3,080F
d. ₱12,800F ₱3,080U

44. The following information relates to a company:

Sales revenue ₱10,000,000

Contribution margin 4,000,000
Profit 1,000,000

If a manager at the company desired to determine the percentage impact on net income
of a given percentage change in sales, the manager would multiply the percentage
increase/decrease in sales revenue by:
a. 0.25 c. 2.50
b. 0.40 d. 4.00

45. A company manufactures a single product using standard costing. Variable production
costs are ₱26 and fixed production costs are ₱250,000. The company uses a normal
activity of 12,500 units to set its standard costs. It began the year with 1,000 units in
inventory, produced 11,000 units, and sold 11,500 units. The volume variance under
variable costing would be
a. ₱10,000. c. ₱30,000.
b. ₱20,000. d. some other number.

ITEMS 46 TO 50 ARE BASED ON THE FOLLOWING:

A company evaluates manufacturing overhead in its factory by using variance analysis. The
following information applies to the month of June:
ACTUAL BUDGETED
Number of units produced 19,000 20,000
Variable overhead costs ₱4,100 ₱2 per direct labor hour
Fixed overhead costs ₱22,000 ₱20,000
Direct labor hours 2,100 0.1 hour per unit

46. The controllable variance amounts to

a. ₱2,500 unfavorable c. ₱2,300 unfavorable
b. ₱1,000 unfavorable d. ₱2,000 unfavorable
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47. Using the three-way variance analysis, the spending variance amounts to
a. ₱100 favorable c. ₱2,000 unfavorable
b. ₱1,900 unfavorable d. ₱2,100 unfavorable

48. The efficiency variance amounts to

a. ₱400 unfavorable c. ₱400 favorable
b. ₱1,900 unfavorable d. ₱1,000 unfavorable

49. The non-controllable variance is

a. ₱2,300 unfavorable c. ₱2,000 unfavorable
b. ₱400 unfavorable d. ₱1,000 unfavorable

50. The fixed overhead efficiency variance is:

a. ₱400 unfavorable c. ₱400 favorable
b. ₱₱2,000 unfavorable d. 0

51. Which of the following quantitative methods will separate a semi-variable cost into its
fixed and variable components with the highest degree of precision?
a. High-low method c. Least squares method
b. Simplex method d. Scattergraph diagram method

52. JIT manufacturers are more likely than conventional manufacturers to

a. use static budget allowances for manufacturing costs.
b. prepare production budgets without a sales forecast.
c. budget unit production equal to budgeted unit sales.
d. experience budget variances.

53. If a company desires to increase its safety margin, it should:

a. increase fixed costs.
b. decrease the contribution margin.
c. decrease selling prices, assuming the price change will have no effect on demand.
d. stimulate sales volume.

54. A company desires an ending inventory of ₱120,000. It expects sales of ₱240,000 and has
a beginning inventory of ₱80,000. Cost of sales is 60% of sales. Budgeted purchases are
a. ₱120,000. c. ₱184,000.
b. ₱144,000. d. ₱264,000.

55. All of the following are complementary goods except

a. Margarine and butter.
b. Printer and ink cartridges
c. Hot dogs and hot dog buns
d. Razors and razor blades.

56. For budgeting and control purposes, the controller of a company is in the process of
estimating the variable cost per hour and the fixed cost per year of operating an
automated equipment. Data for the past 12 months of operations have been gathered as
follows:

Number of observations 12
Sum of the hours 840
Sum of the costs ₱9,000
Sum of the hours multiplied by the costs ₱655,000
Sum of the hours squared 63,800

Using the Least Squares Method of cost segregation, the total cost (TC) of operating the
equipment may be computed using the formula:
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a. TC = 400 + 5x c. TC = 4,800 + 5x
b. TC = 400 + 60x d. TC = 4,800 + 60x

57. A company has prepared the following flexible budget for production costs: total
production costs = ₱260,000 + ₱5x, where x is the number of machine hours. The
company produced 20,000 units, using 34,000 machine hours at a total cost of ₱425,000.
The flexible budget allowance for production costs is
a. ₱260,000. c. ₱430,000.
b. ₱425,000. d. ₱525,000.
58. Which of the following costs would be treated differently under absorption costing and
variable costing?
Variable Fixed
Direct Manufacturing Administrative
Labor Overhead Expenses
a. Yes No Yes
b. Yes Yes Yes
c. No Yes No
d. No No No

59. Cost-volume-profit analysis is based on certain general assumptions. Which of the

following is not one of these assumptions?
a. Product prices will remain constant as volume varies within the relevant range.
b. Costs can be categorized as fixed, variable, or semivariable.
c. The efficiency and productivity of the production process and workers will change to
reflect manufacturing advances.
d. Total fixed costs remain constant as activity changes.

60. The budgeted payment for labor cost each period would be found in the
a. labor budget.
b. pro forma income statement.
c. selling, general, and administrative expenses budget.
d. cash budget

61. Cost and management accounting

a. require an entirely separate group of accounts than financial statement uses.
b. focus solely on determining how much it costs to manufacture a product or provide
a service.
c. provide product/service cost information as well as information for internal decision
making.
d. are required for business record keeping as are financial and tax accounting.
62. A company that desires to lower its break-even point should strive to:
a. decrease selling price c. increase fixed costs.
b. reduce variable costs. d. sell more units.

63. The Institute of Management Accountants' Code of Ethics

a. is a legally enforceable contract with all management accountants.
b. should be viewed as a goal for professional behavior.
c. is a legally enforceable contract with all CPAs.
d. provides ways to measure departures from ethical behavior.

64. Gamma Corporation has total budgeted fixed costs of ₱150,000. Actual production was
8,000 units; normal capacity is 7,500 units. What was the volume variance?
a. ₱10,000 favorable c. ₱15,000 unfavorable
b. ₱15,000 favorable d. ₱10,000 unfavorable

65. A company earned a profit in Year 1 of ₱95,000 before tax. The tax rate for Year 1 was
30%. In Year 2, the company desires an after-tax profit of ₱100,000 and the tax rate for
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Year 2 is 35%. How much pre-tax profit does the company need to earn to reach its
desired after-tax profit goal?
a. ₱122,564 c. ₱150,000
b. ₱153,846 d. ₱164,346

66. Which of the following is a not a characteristic of management accounting?

a. Internal focus
b. Broad-based and multidisciplinary
c. Subjective information may be used
d. Historical orientation

67. If a company has a policy of maintaining an inventory of finished goods at a specified

percentage of the next month's budgeted sales, budgeted production for January will
exceed budgeted sales for January when budgeted
a. February sales exceed budgeted January sales.
b. January sales exceed budgeted December sales.
c. February sales exceed budgeted February sales.
d. December sales exceed budgeted January sales.

68. The contribution income statement differs from the traditional income statement in which
of the following ways?
a. The traditional income statement separates costs into fixed and variable components.
b. The traditional income statement subtracts all variable costs from sales to obtain the
contribution margin.
c. Cost-volume-profit relationships can be analyzed more easily from the contribution
income statement.
d. The effect of sales volume changes on profit is readily apparent on the traditional
income statement.

69. A flexible budget of factory overhead for the year in summary form is given below for
Division X of a company.

Machine hours 130,000 140,000 150,000 160,000

Total overhead ₱1,200,000 ₱1,260,000 ₱1,320,000 ₱1,380,000

The total overhead cost is assigned to the products at the rate of ₱9 per machine hour.
This
rate was computed at normal operating capacity.
The actual overhead for the year was ₱1,238,000 for 130,000 machine hours of operation.
The actual fixed overhead was in agreement with the budgeted fixed overhead.

The company’s normal operating capacity in machine hours is

a. 130,000 c. 150,000
b. 140,000 d. 160,000

70. Which of the following formulas can be used to compute break-even point per unit?
a. total fixed costs divided by contribution margin per unit
b. peso break-even point divided by the selling price
c. contribution margin per unit divided by variable cost per unit.
d. none of the above

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