Mas Preweek Handouts Roque

CPAR
CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
MANAGEMENT ADVISORY SERVICES MAY 5, 2022

PREWEEK MATERIAL
1. Dynamite Co. is reviewing the following data relating to an energy saving

investment proposal:
Cost P50,000
Residual value at the end of 5 years 10,000
Present value of an annuity of 1 at 12% for 5 years 3.60
Present value of 1 due in 5 years at 12% 0.57
What would be the annual savings needed to make the investment realize a
12% yield?
a. P 8,189 c. P12,306
b. P11,111 d. P13,889
ITEMS 2 TO 4 ARE BASED ON THE FOLLOWING INFORMATION:
BTS, a computer disk storage and back up company, uses accrual accounting. The
company’s Statement of Financial Position as of November 30 is as follows:
BTS
Statement of Financial Position
November 30
Assets Liabilities & Stockholders’ Equity

Cash P 52,000 Accounts payable P 175,000
Accounts receivable, net 150,000 Common stock 900,000
Inventory 315,000 Retained earnings 442,000
Property, plant & eqpmnt. 1,000,000 Total liabilities
Total assets P1,517,000 and SE P1,517,000
Additional information regarding BTS’ operations includes the following:
• Sales are budgeted at P520,000 for December and P500,000 for

January of the next year.
• Collections are expected to be 60% in the month of sale and 40% in
the month following the sale.
• Eighty percent of the disk drive components are purchased in the
month prior to the month of sale, and 20% are purchased in the month
of sale. Purchased components are 40% of the cost of goods sold.
• Payment for the components is made in the month following the
purchase.
• Cost of goods sold is 80% of sales.
MANAGEMENT ADVISORY SERVICES BATCH 91
PREWEEK MATERIAL Page 2 of 25
2. BTS’ budgeted collections for the month of December are

a. P462,000 c. P520,000
b. P402,000 d. P208,000
3. BTS’ projected balance in accounts payable on December 31 is

a. P201,600 c. P166,400
b. P416,000 d. P161,280
4. BTS’ projected gross profit for the month ending December 31 is

a. P0 c. P104,000
b. P536,000 d. P416,000
5. An individual receives an income of P3,000 per month, and spends P2,500.

An increase in income of P500 per month occurs, and the individual spends
P2,800. The individual’s marginal propensity to save is
a. 0.20 c. 0.60
b. 0.40 d. 0.80
An organization has four investment proposals with the following costs and
expected cash inflows:
Expected Cash Inflows
Project Cost End of End of End of
year 1 year 2 year 3
A Unknown P10,000 P10,000 P10,000
B P20,000 5,000 10,000 15,000
C 25,000 15,000 10,000 5,000
D 30,000 20,000 Unknown 20,000
NOTE: round present value factors to four (4) decimal places.
6. If Project A has an internal rate of return (IRR) of 15%, then it has a cost of
a. P 8,696 c. P24,869
b. P22,832 d. P27,232
7. If the discount rate is 10%, the net present value (NPV) of Project B is
a. P 4,079 c. P 9,869
b. P 6,789 d. P39,204
8. The payback period of Project C is

a. 0 years. c. 2 years.
b. 1 year. d. 3 years.
9. If the discount rate is 5% and the discounted payback period of Project D is

exactly two years, then the year two cash inflow for Project D is
a. P 5,890 c. P12,075
b. P10,000 d. P14,301
10. Roger Corporation accumulated the following cost information for its two
products, A and B:
A B Total
Production volume 2,000 1,000
Total direct man. labor hrs. 5,000 20,000 25,000
Setup cost per batch P 1,000 P 2,000
Batch size 100 50
Total setup costs incurred P20,000 P40,000 P60,000
DMLH per unit 2 1
A traditional costing system would allocate setup costs on the basis of DMLH.
An ABC system would trace costs by spreading the costs per batch over the
units in a batch. What is the setup cost per unit of product A under each
costing system?
Traditional ABC
a. P4.80 P10.00
b. P2.40 P10.00
c. P40.00 P200.00
d. P4.80 P20.00
11. Ming Co. is budgeting sales of 53,000 units of product A for October 2023.
The manufacture of one unit of A requires four kilos of chemical Loire. During
October 2023, Ming plans to reduce the inventory of Loire by 50,000 kilos
and increase the finished goods inventory of A by 6,000 units. There is no A
work in process inventory. How many kilos of Loire is Ming budgeting to
purchase in October 2023?
a. 138,000 c. 186,000
b. 162,000 d. 238,000
12. A company produces and sells two products. The first product accounts for
75% of sales and the second product accounts for the remaining 25% of
sales. The first product has a selling price of P10 per unit, variable costs of
P6 per unit, and allocated fixed costs of P100,000. The second product has
a selling price of P25 per unit, variable costs of P13 per unit, and allocated
fixed costs of P212,000. At the breakeven point, what number of units of the
first product will have been sold?
a. 52,000 c. 25,000
b. 39,000 d. 14,625
13. The following information is available on Craig Co.'s two product lines:
Chairs Tables
Sales P180,000 P 48,000
Variable costs (96,000) (30,000)
Contribution margin 84,000 18,000
Fixed costs:
Avoidable (36,000) (12,000)
Unavoidable (18,000) (10,800)
Operating income (loss) P 30,000 (P4,800)
Assuming the tables line is discontinued, and the factory space previously
used to make tables is rented for P24,000 per year, operating income will
increase by what amount?
a. 13,200 c. P24,000
b. P18,000 d. P28,800
14. Red Co.’s breakeven point was P780,000. Variable expenses averaged 60%
of sales, and the margin of safety was P130,000. What was Red’s
contribution margin?
a. P 364,000 c. P 910,000
b. P 546,000 d. P1,300,000
Jiam Company produces a single product. The cost of producing and selling
a single unit of this product at the company's normal activity level of 40,000
units per month is as follows:
Direct materials P38.80

Direct labor 9.70
Variable manufacturing overhead 2.30
Fixed manufacturing overhead 18.10
Variable selling & administrative expense 1.70
Fixed selling & administrative expense 8.80
The normal selling price of the product is P81.10 per unit.
An order has been received from an overseas customer for 3,000 units to be
delivered this month at a special discounted price. This order would have no
effect on the company's normal sales and would not change the total amount
of the company's fixed costs. The variable selling and administrative expense
would be P0.20 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
15. Suppose the company has ample idle capacity to produce the units required
by the overseas customer and the special discounted price on the special
order is P75.30 per unit. By how much would this special order increase
(decrease) the company's net operating income for the month?
a. P69,000 c. (P17,400)
b. P68,400 d. P86,400
16. Suppose the company is already operating at capacity when the special order
is received from the overseas customer. What would be the opportunity cost
of each unit delivered to the overseas customer?
a. P81.10 c. P28.60
b. P75.30 d. P28.80
17. Suppose the company does not have enough idle capacity to produce all of
the units for the overseas customer and accepting the special order would
require cutting back on production of 1,000 units for regular customers.
What would be the minimum acceptable price per unit for the special order?
a. P75.30 c. P52.30
b. P52.50 d. P61.83
18. A manufacturing company employs variable costing for internal reporting

and analysis purposes. However, it converts its records to absorption costing
for external reporting. The accounting department always reconciles the
two operating income figures to assure that no errors have occurred in the
conversion. Financial data for the year are presented below. The fixed
manufacturing overhead cost per unit was based on the planned level of
production of 480,000 units.
Budgeted and Actual Levels for Sales and Production
Budget Actual
Sales (in units) 495,000 510,000
Production (in units) 480,000 500,000
Standard Unit Manufacturing Costs
Variable Absorption
Costing Costing
Variable costs P10.00 P10.00
Fixed manufacturing overhead 0 6.00
Total unit manufacturing costs P10.00 P16.00
The difference between variable costing and absorption costing operating

profit is
a. P120,000 c. P60,000
b. P 90,000 d. P57,600
19. Sim Compay’s master budget shows straight-line depreciation on factory

equipment of P258,000. The master budget was prepared at an annual
production volume of 103,200 units of product. This production volume is
expected to occur uniformly throughout the year. During September, Sim

produced 8,170 units of product, and the accounts reflected actual
depreciation on factory machinery of P20,500. Sim controls manufacturing
costs with a flexible budget. The flexible budget amount for depreciation on
factory machinery for September should be:
a. P20,500 c. P19,875
b. P21,500 d. P20,425
20. Marge, Inc., ends the month with a volume variance of P6,360 unfavorable.
If budgeted fixed factory overhead was P480,000, overhead was applied on
the basis of 32,000 budgeted machine hours, and budgeted variable factory
overhead was P170,000, what were the standard machine hours allowed
(SH) for the month’s actual output?
a. 31,687 c. 32,424
b. 31,576 d. 32,000
21. The following selected data pertain to the Weh Division of Beatle Co. for the
year just ended:
Sales P400,000
Operating income 40,000
Capital turnover 4
Imputed interest rate 10%
What was Weh’s residual income for the year?

a. P30,000 c. P4,000
b. P10,000 d. P0
Cinna Corporation manufactures one product. Its total fixed costs calculated
according to traditional cost-volume-profit (CVP) analysis and activity-based-
costing (ABC) equal P300,000 and P100,000 respectively. Unit selling price
is P40, and unit-based variable cost per unit is P20. In addition, total cost
also varies with one batch-level and one product-level driver. Relevant
information about non-unit based drivers includes the following:
Batch-Level Driver Product-Level Driver

Cost per driver P2,000 P60
Quantity of driver 40 2,000
22. According to traditional CVP analysis, how many units must be sold to
generate operating income of P30,000?
a. 21,500 c. 6,500
b. 16,500 d. 5,000
23. According to ABC analysis, how many units must be sold to generate
operating income of P30,000?
a. 16,500 c. 12,500
b. 15,000 d. 10,500
24. Assume that Cinna’s product is redesigned. The result is that unit-based
variable cost per unit is reduced to P16. If fixed costs are assumed to remain
at P300,000 and operating income of P30,000 is desired, how many units
must be sold according to traditional CVP analysis?
a. 16,500 c. 12,500
b. 13,750 d. 11,250
25. Assume that an ABC analysis of the effects of the redesign of the product
mentioned in the fact pattern unexpectedly revealed an increase in the
batch-level cost per driver to P2,400 and in the quantity of the product-level
driver to 2,600. According to ABC analysis, how many units must be sold to
generate operating income of P30,000 if fixed costs are unchanged?
a. 16,500 c. 13,750
b. 15,917 d. 13,167
26. The market price per share of PE Co. on January 1, 2022 was P60, and on
December 31, 2022 was P72. Net income for 2022 was P48,000. Dividends
to the preference shareholders for the year totaled P12,000, and dividends
of P2.50 per share were paid on the 6,000 ordinary shares outstanding
during the year. The price-earnings ratio for PE Co. at year end was
a. 10 to 1 c. 11 to 1
b. 6 to 1 d. 12 to 1
27. RPI Co.’s net accounts receivable was P430,000 on December 31, 2021 and
P480,000 on December 31, 2022. Cash sales during 2022 were P175,000.
The accounts receivable turnover for 2022 was 5. The company’s total sales
for 2022 were
a. P3,150,000 c. P2,275,000
b. P2,450,000 d. P2,575,000
ITEMS 28 and 29 ARE BASED ON THE FOLLOWING INFORMATION:
Mickey is a distributor of picture frames. For 2022, she plans to purchase

frames for P30 each and sell them for P45 each. Mickey’s fixed costs are
P240,000. Her only other costs are variable costs of P60 per shipment for
preparing the invoice and delivery documents, organizing the delivery, and
following up for collecting accounts receivable. The P60 cost is incurred each
time Mickey ships an order of picture frames, regardless of the number of
frames in the order.
28. Suppose Mickey sells 40,000 picture frames in 1,000 shipments in 2022,
what is Mickey’s operating income for 2022?
a. P300,000 c. P240,000
b. P420,000 d. P450,000
29. Suppose Mickey anticipates making 500 shipments in 2022. How many
picture frames must Mickey sell to break even in 2022?
a. 18,000 c. 14,000
b. 12,000 d. 16,000
30. The Beng Company manufactures and sells a specialty perfume. The
company budgets a margin of safety of 20% for 2023. Fixed costs are
budgeted at P270,000 annually. Variable costs are P6.60 per ml. If the sales
price per ml is P12, the budgeted level of sales revenue for 2023 is
a. P589,330 c. P480,000
b. P720,000 d. P750,000
31. Anja Company can acquire a P700,000 machine now that will benefit the
firm over the next 5 years. A newly hired staff assistant correctly computed
the net present value to be P134,020 by using a 10% hurdle rate. On the
basis of this information, the machine was expected to produce annual cash
operating savings of approximately:
a. P166,804. c. P268,605.
b. P220,000. d. P834,020.
32. The following information is available for the Wholesale Products Division of
Seth Corporation:
Operating profit before interest and taxes P30,000,000
Depreciation expense 10,000,000
Change in working capital 5,000,000
Capital expenditures 4,000,000
Invested capital (total assets – current liabilities) 50,000,000
Weighted average cost of capital 10%
Tax rate 40%
What is the amount of economic value added (EVA) for the division?
a. P30,000,000 c. P25,000,000
b. P13,000,000 d. P 5,000,000
33. Kyle Enterprises, which has three departments, recently reported the
following results:
A B C
Sales revenue P12,000 P 48,000 P 40,000
Less operating costs 11,400 59,800 50,500
Operating income (loss) P 600 P(11,800) P(10,500)
The company incurred variable operating costs as well as P25,000 of

fixed operating costs. The P25,000 amount was allocated to A, B, and
C on the basis of sales revenue and is included in the cost figures
noted above. Which department(s), if any, should be closed if none
of the fixed operating costs can be avoided?
a. Department A.
b. Department B.
c. Department C.
d. Departments B and C.
34. The projected sales price for a new product (which is still in the development
stage of the product life cycle) is P100. The company has estimated the life-
cycle cost to be P60 and the first-year cost to be P120. On this type of
product, the company requires a P24 per unit profit. What is the target cost
of the new product?
a. P60 c. P842
b. P76 d. P120
35. The following information applies to Labs Inc., which supplies microscopes
to laboratories throughout the country. Labs Inc. purchases the microscopes
from a manufacturer which has a reputation for very high quality in its
manufacturing operation.
Annual demand (weekly demand=1/52 of annual demand) 20,800 units

Orders per year 20
Lead time in days 15 days
Cost of placing an order P100
What is the reorder point?

a. 1,040 units c. 1,560 units
b. 857 units d. 2,080 units
36. Arthur, Inc., has P125,000 of inventory that suffered minor smoke
damage from a fire in the warehouse. The company can sell the
goods "as is" for P45,000; alternatively, the goods can be cleaned
and shipped to the firm's outlet center at a cost of P23,000. There
the goods could be sold for P80,000. What alternative is more
desirable and what is the relevant cost for that alternative?
a. Sell "as is," P125,000.
b. Clean and ship to outlet center, P23,000.
c. Clean and ship to outlet center, P57,000.
d. Neither alternative is desirable, as both produce a loss for the
firm.
37. Naval Corporation has P200,000 of joint processing costs and is studying
whether to process J and K beyond the split-off point. Information about J
and K follows.
Product J Product K
Tons produced 25,000 15,000
Separable variable processing costs beyond split-off P64,000 P100,000
Selling price per ton at split-off 15 52
Selling price per ton after additional processing 21 58
If Naval desires to maximize total company income, what should the firm do
with regard to Products J and K?
Product J Product K
a. Sell at split-off Sell at split-off
b. Sell at split-off Process beyond split-off
c. Process beyond split-off Sell at split-off
d. Process beyond split-off Process beyond split-off
Items 38 and 39 are based on the following information:
The following information is available for Kacandida, Inc.:
Balance Sheet
Current assets P 500,000
Property, plant, & equipment 4,000,000
Total assets P4,500,000
Current liabilities P 30,000

Long-term debt 2,500,000
Common stock 200,000
Retained earnings 1,770,000
Total liabilities and stockholders’ equity P4,500,000
Cost of debt before tax 7%

Cost of equity 12%
Tax rate 25%
38. What is Kacandida’s weighted-average cost of capital?

a. 9.50% c. 8.22%
b. 8.75% d. 6.10%
39. What is Kacandida’s debt-to-equity ratio?

a. 1.28 c. 1.20
b. 0.56 d. 2.10
40. Al Pines is studying whether to outsource its Human Resources (H/R)

activities. Salaried professionals who earn P390,000 would be terminated; in
contrast, administrative assistants who earn P120,000 would be transferred
elsewhere in the organization. Miscellaneous departmental overhead (e.g.,
supplies, copy charges, overnight delivery) is expected to decrease by
P30,000, and P25,000 of corporate overhead, previously allocated to Human
Resources, would be picked up by other departments. If Al Pines can secure
needed H/R services locally for P410,000, how much would the company
benefit by outsourcing?
a. P10,000. c. P130,000.
b. P35,000. d. P155,000.
41. A company has two divisions, A and B; each are operated as a profit center.
A charges B P35 per unit for each unit transferred to B. Other data follow:
A’s variable cost per unit P30

A's fixed costs P10,000
A's annual sales to B 5,000 units
A's annual sales to outsiders 50,000 units
A is planning to raise its transfer price to P50 per unit. Division B can
purchase units at P40 each from outsiders, but doing so would idle A's
facilities now committed to producing units for B. Division A cannot increase
its sales to outsiders. From the perspective of the company as a whole, from
whom should Division B acquire the units, assuming B's market is
unaffected?
a. outside vendors
b. Division A, but only at the variable cost per unit
c. Division A, but only until fixed costs are covered, then should purchase
from outside vendors
d. Division A, in spite of the increased transfer price
42. Pancho Potters manufactures two sizes of ceramic paperweights, regular and
jumbo. The following information applies to their expectations for the
planning period:
Cost Pool Overhead Costs Activity-cost driver
Materials handling P 45,000 90,000 orders
Machine maintenance P300,000 15,000 maintenance
hours
Setups P270,000 45,000 setups
Inspections P105,000 21,000 inspections
Total support costs P720,000
Production Estimates
Production units:
Regular = 8,000,000 units
Jumbo = 16,000,000 units
Machine-hours = 200,000 mh
Labor-hours = 400,000 dlh
Pancho Potters uses an ABC system and assigns overhead costs based on
the overhead activity information provided above.
During October, Pancho produced 700,000 regular ceramic paperweights

and Pancho’s production manager counted 2,000 orders; 1,000
maintenance-hours; 2,000 setups; and 2,000 inspections for the regular
product line. For October, Pancho’s controller assigned _________ indirect
costs to the regular product line.
a. P43,000 c. P34,000
b. P25,000 d. None of these answers are
correct.
43. A company that produces a single product had a net operating income of
P85,500 using variable costing and a net operating income of P90,000 using
absorption costing. Total fixed manufacturing overhead was P150,000, and
production was 100,000 units. Between the beginning and the end of the
year, the inventory level:
a. increased by 4,500 units c. increased by 3,000 units
b. decreased by 4,500 units d. decreased by 3,000 units
Use the following to answer questions 44-46:
Annabelle Corporation manufactures a propeller. Shown below is Annabelle’s

cost structure:
Variable cost Total fixed cost

per propeller for the year
Manufacturing cost P114 P810,000

Selling and administrative P20 P243,000
In its first year of operations, Annabelle produced 60,000 propellers but only
sold 54,000.
44. What is the total cost that would be assigned to Annabelle's finished goods
inventory at the end of the first year of operations under the variable costing
method?
a. P765,000 c. P804,000
b. P684,000 d. P912,000
45. At what amount will Annabelle report its cost of goods sold for this first year
for external reporting purposes?
a. P6,156,000 c. P6,966,000
b. P6,885,000 d. P8,208,000
46. Which costing method (variable or absorption) will generate a higher net
operating income in Annabelle's first year of operations and by how much?
a. variable by P81,000 c. absorption by P81,000
b. variable by P108,000 d. absorption by P108,000
Use the following to answer questions 47 and 48:
The following data pertain to operations at Ambilis Incorporated:
Throughput time 4 hours

Delivery cycle time 8 hours
Process time 1 hour
Queue time 2 hours
47. The combined inspection and move time for this operation would be:
a. 4 hours c. 2 hours
b. 1 hour d. cannot be determined from
information provided
48. The manufacturing cycle efficiency (MCE) for this operation would be:
a. 50% c. 25%
b. 75% d. 12%
49. A learning curve of 70% assumes that direct labor costs are reduced by 30%
for each doubling of output. What is the cost of the 8th unit produced as an
approximate percentage of the first unit produced?
a. 34.30% c. 30%
b. 70% d. 0.343%
50. The Muebles company produces a specialty wood furniture product, and has
the following information available concerning its inventory items:
Relevant ordering costs per purchase order P300

Relevant carrying costs per year:
Required annual return on investment 10%
Required other costs per year P2.80
Annual demand is 20,000 packages per year. The purchase price per
package is P32.
What are the relevant total costs at the economic order quantity?
a. P1,414.21 c. P8,485.28
b. P4,242.65 d. P9,000
THEORIES
1. During the recessionary phase of a business cycle

a. The purchasing power of money is likely to decline rapidly.
b. The natural rate of unemployment will increase dramatically.
c. Potential national income will exceed actual national income.
d. Actual national income will exceed potential national income.
2. For a given level of tax collections, prices, and interest rates, a decrease in
governmental purchases will result in a(n)
a. Increase in aggregate demand.
b. Increase in aggregate supply.
c. Decrease in aggregate demand.
d. Decrease in aggregate supply.
3. In national income terms, aggregate demand is the

a. Demand for money by the community in a period of full employment.
b. Total expenditure on capital goods by entrepreneurs during a period of
full employment.
c. Demand that is needed if a country’s economy is to operate at optimum
level and the level of investment is to be raised.
d. Total expenditures on consumer goods and investment, including
government and foreign expenditures, during a given period.
4. Which one of the following would not be included in the calculation of the
gross domestic product (GDP)?
a. Purchase of a new home.
b. An automotive worker’s wages.
c. A doctor’s fee.
d. Purchase of common stock.
5. An upturn in economic activity is indicated by all of the following, except

a. Increased housing starts.
b. Reduction in the quantity of unemployment claims.
c. Increase in personal travel.
d. Reduction in the amount of luxury purchases.
6. The return paid for the use of borrowed capital is referred to as

a. Cash dividends. c. Interest.
b. Stock dividends. d. Principal payment.
7. Short-term interest rates are

a. Usually lower than long-term rates.
b. Usually higher than long-term rates.
c. Lower than long-term rates during periods of high inflation only.
d. Not significantly related to long-term rates.
8. When a firm finances each asset with a financial instrument of the same
approximate maturity as the life of the asset, it is applying
a. Working capital management.
b. Return maximization.
c. Financial leverage.
d. A hedging approach.
9. All of the following capital budgeting analysis techniques use cash flows as
the primary basis for the calculation except for the
a. Net present value.
b. Payback period.
c. Discounted payback period.
d. Accounting rate of return.
10. The segmented income statement for a retail company with three product
lines is presented below:
Total Product Product Product
Company Line 1 Line 2 Line 3
Volume (in units) 20,000 28,000 50,000
Sales revenue P2,000,000 P800,000 P700,000 P500,000
Costs and expenses:
Administrative P 180,000 P 60,000 P 60,000 P 60,000
Advertising 240,000 96,000 84,000 60,000
Commissions 40,000 16,000 14,000 10,000
Cost of sales 980,000 360,000 420,000 200,000
Rent 280,000 84,000 140,000 56,000
Salaries 110,000 54,000 32,000 24,000
Total costs and expenses P1,830,000 P670,000 P750,000 P410,000
Operating profit (loss) P170,000 P130,000 P(50,000) P90,000
The company buys the goods in the three product lines directly from
manufacturers’ representatives. Each product line is directed by a manager
whose salary is included in the administrative expenses. Administrative
expenses are allocated to the three product lines equally because the
administration is spread evenly among the three product lines. Salaries
represent payments to the workers in each product line and therefore are
traceable costs of each product line. Advertising promotes the entire
company rather than the individual product lines. As a result, the advertising
expense is allocated to the three product lines in proportion to the sales
revenue. Commissions are paid to the sales persons in each product line
based on 2% of gross sales. Rent represents the cost of the retail store and
warehouse under a lease agreement with 5 years remaining. The product
lines share the retail and warehouse space, and the rent is allocated to the
three product lines based on the square footage occupied by each of the
product lines. The segmented income statement for this retail company does
not facilitate performance evaluation because it does not distinguish
between controllable and uncontrollable costs.
The only costs and expenses controllable at the product-line level for this
retail company are:
a. Administration, advertising, and rent
b. Commissions, cost of sales, and rent
c. Commissions, cost of sales, and salaries
d. Advertising, cost of sales, and salaries
11. Which of the following expresses the relationship between risk and return?
a. Inverse relationship. c. Negative relationship.
b. Direct relationship. d. No relationship.
12. If an investment project has a profitability index of 1.15, then the

a. Project’s internal rate of return is 15%.
b. Project’s cost of capital is greater than its internal rate of return.
c. Project’s internal rate of return exceeds its net present value.
d. Net present value of the project is positive.
13. Which tool would most likely be used to determine the best course of action
under conditions of uncertainty?
a. Cost-volume-profit analysis.
b. Expected value (EV).
c. Program evaluation and review technique (PERT).
d. Scattergraph method.
14. Which type of economic market structure is characterized by a few large

sellers of a product or service, engaging primarily in nonprice competition?
a. Monopoly. c. Perfect competition.
b. Oligopoly. d. Monopolistic competition.
15. The balanced scorecard generally uses performance measures with four
different perspectives. Which of the following performance measures would
be part of those used for the internal business processes perspective?
a. Cycle time.
b. Employee satisfaction.
c. Hours of training per employee.
d. Customer retention.
16. Alta Manufacturing Co. has had a problem with its product quality. The
company has had a large amount of costs related to product recalls. In
considering cost of quality methodology, if the company wants to reduce
these costs, the most likely place to incur costs would be for
a. Prevention. c. Internal failure.
b. Appraisal. d. External failure.
17. Jayson Co. is considering a project that will use 2,000 square feet of storage
space at one of its facilities to store used equipment. What will determine
Jayson’s opportunity cost?
a. The net present value of the project.
b. The internal rate of return of the project.
c. The value of the next best use of the space.
d. The depreciation expense on the space.
18. The ABC Company is trying to decide between keeping an existing machine
and replacing it with a new machine. The old machine was purchased just
two years ago for P50,000 and had an expected life of 10 years. It now costs
P1,000 a month for maintenance and repairs due to a mechanical problem.
A new machine is being considered to replace it at a cost of P60,000. The
new machine is more efficient and it will only cost P200 a month for
maintenance and repairs. The new machine has an expected life of 10 years.
In deciding to replace the old machine, which of the following factors,
ignoring income taxes, should ABC not consider?
a. Any estimated salvage value on the old machine.
b. The original cost of the old machine.
c. The estimated useful life of the new machine.
d. The lower maintenance cost on the new machine.
19. Which of the following statements is correct regarding financial decision

making?
a. Opportunity cost is recorded as a normal business expense.
b. The accounting rate of return considers the time value of money.
c. A strength of the payback method is that it is based on profitability.
d. Capital budgeting is based on predictions of an uncertain future.
20. Which of the following topics is the focus of managerial accounting?

a. Financial statements and other financial reports.
b. Historical cost principles.
c. The needs of creditors.
d. The needs of the organization's internal parties.
21. The primary reason for adopting total quality management is to achieve
a. greater customer satisfaction
b. reduced delivery charges
c. greater employee participation
d. reduced delivery time
22. A company will produce 20,000 units of product A at a unit variable cost of
P7 and a unit selling price of P13. Fixed costs are P40,000. However, the
company will still have 40% idle capacity. The company can use this idle
capacity to produce 6,000 units of a different product B, which it can sell for
P7 per unit. The incremental variable cost of producing a unit of B is P6.
Present fixed costs that will be allocated to B amount to P10,000. To decide
whether to produce B, the company should use
a. Markov chain analysis c. Information economics
b. Differential cost analysis d. Regression analysis
23. When the number of units manufactured increases, the most significant
change in average unit cost will be reflected as
a. an increase in the semivariable element
b. an increase in the no variable element
c. a decrease in the variable element
d. a decrease in the no variable element
24. The IMA Statement of Ethical Professional Practice includes an integrity

standard, which requires an IMA member to
a. refuse gifts from anyone.
b. disclose confidential information when authorized by his/her firm or
required under the law.
c. report any relevant information that could influence users of financial
statements.
d. identify and make known anything that may hinder his/her judgment
or prevent satisfactory completion of any duties.
25. Jay Manufacturing Co. prepares income statements using both standard
absorption and variable costing methods. For Year 2, unit standard costs
were unchanged from Year 1. In Year 2, the only beginning and ending
inventories were finished goods of 5,000 units. How would Jay’s ratios using
absorption costing compare with those using variable costing?
Current Ratio Return on Equity

a. Greater Smaller
b. Greater Same
c. Same Smaller
d. Same Same
26. A company’s net income recently increased by 30% while its inventory
increased to equal a full year’s sales requirements. Which of the following
accounting methods would be most likely to produce the favorable income
results?
a. Standard direct costing c. Direct costing
b. Variable costing d. Absorption costing
27. When standard costs are used in a process costing system, how, if at all, are
equivalent units of production (EUP) involved or used in the cost report at
standard?
a. The standard equivalent units are multiplied by the actual cost per unit.
b. The actual equivalent units are multiplied by the standard cost per unit.
c. Equivalent units are computed using a special approach.
d. Equivalent units are not used.
28. Which of one of the following variances is of least significance from a

behavioral control perspective?
a. Fixed factory overhead volume variance resulting from management’s
decision midway through the fiscal year to reduce its budgeted
output by 20%.
b. Favorable materials price variance obtained by purchasing raw
materials from a new vendor.
c. Unfavorable labor efficiency variance amounting to 10% more than
the budgeted hours for the output attained.
d. Unfavorable materials quantity variance amounting to 20% of the
quantity allowed for the output attained.
29. Using the balanced scorecard approach, an organization evaluates

managerial performance based on
a. multiple financial measures only
b. multiple nonfinancial measures only
c. multiple financial and nonfinancial measures
d. a single ultimate measure of operating results, such as residual
income
30. A company has two divisions, A and B, each operated as a profit center. A
charges B P35 per unit for each unit transferred to B. Other data follow:
A’s variable cost per unit P30

A’s fixed costs 10,000
A’s annual sales to B - units 5,000
A’s sales to outsiders – units 50,000
A is planning to raise its transfer price to P50 per unit. Division B can
purchase units at P40 each from outsiders, but doing so would idle A’s
facilities now committed to producing units for B. Division A cannot increase
its sales to outsiders. From the perspective of the company as a whole, from
whom should Division B acquirethe units, assuming B’s market is
unaffected?
a. Division A, despite the increased transfer price.
b. Division A, but only until after fixed costs covered, then from outside
vendors.
c. Outside vendors
d. Division A, but only at the variable cost per unit.
31. The following information is available for Ports Company for its past two
fiscal years:
Year 1 Year 2
Statistical process control P 70,000 P 100,000
Quality audits 35,000 50,000
Training 40,000 80,000
Inspection and testing 100,000 150,000
Rework 90,000 50,000
Spoilage 80,000 55,000
Warranties 180,000 80,000
Estimated customer losses 800,000 450,000
Net sales 3,000,000 3,200,000
In its cost of quality report for Year 2, Ports will disclose that the ratio of
a. conformance costs to net sales equaled 8.17% in Year 2.
b. nonconformance costs to net sales equaled 19.84% in Year 1
c. nonconformance costs to total quality costs increased from 62.56%
in Year 1 to 82.44% in Year 2.
d. Conformance costs to total quality costs increased from 17.56% in
Year 1 to 37.44% in Year 2.
32. All of the following are ways that companies in developed countries generally
may compete with companies in developing countries except
a. Technology. c. Quality.
b. Customer service. d. Low-cost resources.
33. Bell Co. changed from a traditional manufacturing philosophy to a just-in-

time philosophy. What are the expected effects of this change on Bell’s
inventory turnover and inventory as a percentage of total assets reported on
Bell’s balance sheet?
Inventory turnover Inventory percentage

a. Decrease Decrease
b. Decrease Increase
c. Increase Decrease
d. Increase Increase
34. Which of the following events would decrease the internal rate of return of
a proposed asset purchase?
a. Decrease tax credits on the asset.
b. Decrease related working capital requirements.
c. Shorten the payback period.
d. Use accelerated, instead of straight-line depreciation.
35. Management accounting:

a. focuses on estimating future revenues, costs, and other measures to
forecast activities and their results
b. provides information about the company as a whole
c. reports information that has occurred in the past that is verifiable and
reliable
d. provides information that is generally available only on a quarterly or
annual basis
36. The terms direct costs and indirect costs are commonly used in accounting.
A particular cost might be considered a direct cost of a manufacturing
department but an indirect cost of the product produced in the
manufacturing department. Classifying the cost as either direct or indirect
depends upon
a. Whether an expenditure is unavoidable because it cannot be changed
regardless of any action taken.
b. The cost object to which the cost is being related.
c. Whether the cost is expensed in the period in which it is incurred.
d. The behavior of the cost in response to volume changes.
37. Costs are allocated to cost objects in many ways and for many reasons.
Which one of the following is purpose of cost allocation?
a. Aiding in variable costing for internal reporting.
b. Budgeting cash and controlling expenditures.
c. Measuring income and assets for external reporting.
d. Evaluating revenue center performance.
38. Which of the following is correct regarding a relevant range?

a. The relevant range cannot be changed after being established.
b. Actual fixed costs usually fall outside the relevant range.
c. Total fixed cost will not change.
d. Total variable costs will not change.
39. An imputed cost is

a. a cost that continues to be incurred even though there is no activity.
b. a cost that does not entail any peso outlay but is relevant to the
decision-making process.
c. a cost that cannot be avoided because it has already been incurred.
d. the difference in total costs that results from selecting one alternative
instead of another.
40. An accounting system that collects financial and operating data on the basis
of the underlying nature and extent of the cost drivers is
a. Variable costing c. Activity-based costing
b. Cycle-time costing d. Direct costing
41. A difference between standard costs used for cost control and budgeted
costs
a. cannot exist because they should be the same amounts.
b. can exist because budgeted costs are historical costs, whereas
standard costs are based on engineering studies.
c. can exist because standard costs represent what costs should have
been, whereas budgeted costs represent expected actual costs.
d. can exist because standard costs must be determined after the
budget is completed.
42. A standard costing system is most often used by a firm in conjunction with
a. flexible budgets
b. participative management programs
c. target (hurdle) rates of return
d. management by objectives
43. The use of activity-based costing (ABC) normally results in

a. equalizing set-up costs for all product lines.
b. decreased set-up costs being charged to low volume products.
c. substantially lower unit costs for low-volume products than is
reported by traditional product costing.
d. substantially greater unit costs for low-volume products than is
reported by traditional product costing.
44. As a business owner you have determined that the demand for your product
is inelastic. Based upon this assessment, you understand that
a. Increasing the price of your product will increase total revenue.
b. Decreasing the price of your product will increase total revenue.
c. Increasing the price of your product will have no effect on total
revenue.
d. Increasing the price of your product will increase competition.
45. In macroeconomic terms, aggregate demand is the

a. Demand for money by the community in a period of full employment.
b. Total expenditure on capital goods by entrepreneurs during a period
of full employment.
c. Demand that is needed if a country’s economy is to operate at

optimum level and the level of investment is to be raised.
d. Total expenditures on consumer goods and investment, including
government and foreign expenditures, during a given period.
46. In a decentralized company in which divisions may buy goods from one
another, the transfer pricing system should be designed primarily to
a. increase the consolidated value of inventory.
b. allow division managers to buy from outsiders.
c. minimize the degree of autonomy of division managers.
d. aid in the appraisal and motivation of managerial performance.
47. A management decision may be beneficial for a given profit center, but not
for the entire company. From the overall company viewpoint, this decision
would lead to
a. goal congruence c. suboptimization
b. centralization d. maximization
48. Which of the following is an advantage of equity financing in comparison to

debt financing?
a. Issuance costs are greater than for debt.
b. Ownership is given up with respect to the issuance of common stock.
c. Dividends are not tax deductible by the corporation whereas interest
is tax deductible.
d. The company has no firm obligation to pay dividends to common
shareholders.
49. The term cost driver refers to

a. any activity that can be used to predict cost changes.
b. the attempt to control expenditures at a reasonable level.
c. the person who gathers and transfers cost data to the management
accountant.
d. any activity that causes costs to be incurred.
50. Of the following, which is the best reason for using activity-based costing?
a. to keep better track of overhead costs
b. to more accurately assign overhead costs to cost pools so that these
costs are better controlled
c. to better assign overhead costs to products
d. to assign indirect service overhead costs to direct overhead cost
pools
51. The budgeting technique that focuses on different phases of a product such
as planning and concept design, testing, manufacturing, and distribution and
customer service is known as:
a. integrative budgeting. c. comprehensive budgeting.
b. base budgeting. d. life-cycle budgeting.
52. Which of the following statements represents a similarity between financial

and managerial accounting?
a. Both are useful in providing information for external users.
b. Both are governed by GAAP.
c. Both rely heavily on published financial statements.
d. Both draw upon data from an organization’s accounting system.
53. Leo Corporation will evaluate a potential investment in an advanced

manufacturing system by use of the net-present-value (NPV) method. Which
of the following system benefits is least likely to be omitted from the NPV
analysis?
a. Savings in operating costs.
b. Greater flexibility in the production process.
c. Improved product quality.
d. Shorter manufacturing cycle time.
54. A company produces and sells bottled fruit juices. The processes involved
in producing the product are done in the following departments:
Department Capacity per week

Juice extraction 8,000 bottles
Mixing 5,000 bottles
Bottling 10,000 bottles
Demand for the company’s product is about 6,000 bottles per week.
If the company wants to improve its contribution margin and applies the
Theory of Constraints, improvement efforts should be focused on
a. juice extraction department. c. bottling department.
b. mixing department. d. sales department.
55. It describes how an organization matches its own capabilities with the
opportunities in the marketplace to accomplish its overall objectives.
a. Planning c. Learning and growth perspective
b. Strategy d. Customer perspective
56. Which of the following statement(s) is(are) true?

1. MAS relates to the future.
2. MAS covers a wider area than the usual audit and tax work.
3. Because of the broad scope covered by MAS, a wider variety of
assignments are usually encountered.
4. MAS engagements require highly qualified staff.
a. All the statements are true.

b. Only three statements are true.
c. Only two statements are true.
d. Only one statement is true.
57. A company’s rate of return on investment (ROI) is equal to the

a. Percentage of profit on sales divided by the capital employed
turnover rate.
b. Percentage of profit on sales multiplied by the capital employed
turnover rate.
c. Investment capital divided by the capital employed turnover rate.
d. Investment capital multiplied by the capital employed turnover rate.
58. Management accounting and cost accounting

a. are required for recordkeeping as are financial accounting and tax
accounting.
b. provide cost information about products and services, as well as
information for internal decision making.
c. require an entirely separate group of accounts than financial
accounting.
d. focus solely on the determination of costs to produce a product or
provide a service.
59. Which of the following is a sign that an ABC system may be useful?
a. There are small amounts of indirect costs.
b. Products make diverse demands on resources because of differences
in volume, process steps, batch size, or complexity.
c. Products a company is less suited to produce and sell show small
profits.
d. Operations staff agrees with accountants about the costs of
manufacturing and marketing products and services.
60. Systematic evaluation of the trade-offs between product functionality and

product cost while still satisfying customer needs is the definition of
a. Activity-based management.
b. Theory of constraints.
c. Total quality management.
d. Value engineering.
PROBLEMS:
1. C 11. C 21. A 31. B 41. D
2. A 12. B 22. B 32. B 42. A

3. D 13. B 23. A 33. C 43. C
4. C 14. A 24. B 34. B 44. B
5. B 15. A 25. B 35. B 45. B
6. B 16. C 26. D 36. B 46. C
7. A 17. D 27. B 37. C 47. B
8. C 18. C 28. A 38. C 48. C

9. C 19. B 29. A 39. A 49. A
10. A 20. B 30. D 40. A 50. C
THEORIES:
1. C 16. A 31. D 46. D
2. C 17. C 32. D 47. C
3. D 18. B 33. C 48. D
4. D 19. D 34. A 49. D

5. D 20. D 35. A 50. C
6. C 21. A 36. B 51. D
7. A 22. B 37. C 52. D

8. D 23. D 38. C 53. A
9. D 24. D 39. B 54. B
10. C 25. A 40. C 55. B
11. B 26. D 41. C 56. A

12. D 27. B 42. A 57. B
13. B 28. A 43. D 58. B
14. B 29. C 44. A 59. B
15. A 30. A 45. D 60. D

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CPAR

CPA REVIEW SCHOOL OF THE PHILIPPINES

MANAGEMENT ADVISORY SERVICES MAY 5, 2022

1. Dynamite Co. is reviewing the following data relating to an energy saving

ITEMS 2 TO 4 ARE BASED ON THE FOLLOWING INFORMATION:

Assets Liabilities & Stockholders’ Equity

Additional information regarding BTS’ operations includes the following:

• Sales are budgeted at P520,000 for December and P500,000 for

2. BTS’ budgeted collections for the month of December are

3. BTS’ projected balance in accounts payable on December 31 is

4. BTS’ projected gross profit for the month ending December 31 is

5. An individual receives an income of P3,000 per month, and spends P2,500.

ITEMS 6 TO 9 ARE BASED ON THE FOLLOWING INFORMATION:

NOTE: round present value factors to four (4) decimal places.

8. The payback period of Project C is

9. If the discount rate is 5% and the discounted payback period of Project D is

ITEMS 15 TO 17 ARE BASED ON THE FOLLOWING INFORMATION:

Direct materials P38.80

The normal selling price of the product is P81.10 per unit.

Direct labor is a variable cost in this company.

18. A manufacturing company employs variable costing for internal reporting

Budgeted and Actual Levels for Sales and Production

Standard Unit Manufacturing Costs

The difference between variable costing and absorption costing operating

19. Sim Compay’s master budget shows straight-line depreciation on factory

expected to occur uniformly throughout the year. During September, Sim

What was Weh’s residual income for the year?

ITEMS 22 TO 25 ARE BASED ON THE FOLLOWING INFORMATION:

Batch-Level Driver Product-Level Driver

ITEMS 28 and 29 ARE BASED ON THE FOLLOWING INFORMATION:

Mickey is a distributor of picture frames. For 2022, she plans to purchase

The company incurred variable operating costs as well as P25,000 of

Annual demand (weekly demand=1/52 of annual demand) 20,800 units

What is the reorder point?

Items 38 and 39 are based on the following information:

The following information is available for Kacandida, Inc.:

Current liabilities P 30,000

Cost of debt before tax 7%

38. What is Kacandida’s weighted-average cost of capital?

39. What is Kacandida’s debt-to-equity ratio?

40. Al Pines is studying whether to outsource its Human Resources (H/R)

A’s variable cost per unit P30

During October, Pancho produced 700,000 regular ceramic paperweights

Use the following to answer questions 44-46:

Annabelle Corporation manufactures a propeller. Shown below is Annabelle’s

Variable cost Total fixed cost

Manufacturing cost P114 P810,000

Use the following to answer questions 47 and 48:

The following data pertain to operations at Ambilis Incorporated:

Throughput time 4 hours

Relevant ordering costs per purchase order P300

1. During the recessionary phase of a business cycle

3. In national income terms, aggregate demand is the

5. An upturn in economic activity is indicated by all of the following, except

6. The return paid for the use of borrowed capital is referred to as

7. Short-term interest rates are

12. If an investment project has a profitability index of 1.15, then the

14. Which type of economic market structure is characterized by a few large

19. Which of the following statements is correct regarding financial decision