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Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

MANAGEMENT SERVICES TRINIDAD

PREWEEK LECTURE MAY 2023

1. The following are inherent to either management accounting or financial accounting:

I. External report
II. Historical information
III. Contribution approach income statement
IV. Generally accepted accounting principles
V. Prospective financial statements

Which of the foregoing are related to management accounting and financial accounting, respectively?
Management Accounting Financial Accounting
a. I, II, V III, IV
b. III, V I, II, IV
c. II, III I, IV, V
d. III I, II, IV, V

2. Which of the following statements contradicts the philosophy underlying the just-in-time operating environment?
a. The work force must become multiskilled in order to operate many different machines and perform other tasks in
the work cell.
b. A customer order triggers the purchase of materials and the activation of the production process.
c. Large inventories are maintained in order to fulfill customer orders on a timely basis.
d. Flexible work cells are created to increase productivity.

3. Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the
following costs would be represented by a line that starts at the origin and reaches a maximum value beyond which
the line is parallel to the horizontal axis?
a. total direct material costs
b. a consultant paid P100 per hour with a maximum fee of P2,000
c. employees who are paid P15 per hour and guaranteed a minimum weekly wage of P300
d. rent on exhibit space at a convention.

Use the following information for the next two questions.

Tory Company derived the following cost relationship from a regression analysis of its monthly manufacturing
overhead cost.

y = P80,000 + P12X
where: y = monthly manufacturing overhead cost
X = machine-hours

The standard error of estimate of the regression is P6,000. The standard time required to manufacture one six-unit
case of Tory’s single product is four machine-hours. Tory applies manufacturing overhead to production on the basis
of machine-hours, and its normal annual production is 50,000 cases.

4. Tory’s estimated variable manufacturing overhead cost for a month in which scheduled production is 10,000 cases
would be
a. P80,000. c. P160,000.
b. P480,000. d. P320,000.

5. Tory’s predetermined fixed manufacturing overhead rate would be

a. P4.80/MH. c. P3.20/MH.
b. P4.00/MH. d. P1.60/MH.

6. If a company’s variable costs are 70% of sales, which formula represents the computation of peso sales that will
yield a profit equal to 10% of the contribution margin when P equals sales in pesos for the period and FC equals total
fixed costs for the period?
a. P = .2/FC
b. P = FC/.2
c. P = .27/FC
d. P = FC/.27

7. Which of the following statements is true?

a. A shift in sales mix toward less profitable products will cause the overall break-even point to fall.
b. One way to compute break-even point is to divide total sales by the cost margin ratio.
c. Once the break-even point has been reached, income before tax will increase by the unit contribution margin for
each additional unit sold.
d. As sales exceed the break-even point, a high contribution margin ratio will result in lower profits than will a lower
contribution margin ratio.

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8. A retail company determines its selling price by marking up variable costs 60%. In addition, the company uses
frequent selling price markdowns to stimulate sales. If the markdowns average 10%, what is the company’s
contribution margin ratio?
A. 27.5% C. 30.6%
B. 37.5% D. 41.7%

Use the following information for the next three questions.

Ipil-ipil Corp. would like to market a new product at a selling price of P15 per unit. Fixed costs fo r this product are
P1,000,000 for less than 500,000 units of output and P1,500,000 for 500,000 or more units of output. The
contribution margin percentage is 20%.

9. What is the minimum number of units of this product to be sold to breakeven?

a. 333,333 c. 500,000
b. 333,334 d. 416,667

10. How many units of this product must be sold to earn a target operating income of P200,000?
a. 400,000 c. 483,334
b. 566,667 d. Cannot be determined

11. How many units of this product must be sold to earn a target operating income of P1 million?
a. 666,667 c. 833,334
b. 750,000 d. Cannot be determined

12. Which one of the following would not explain an adverse direct labor efficiency variance?
a. Poor scheduling of direct labor hours
b. Setting standard efficiency at a level that is too low
c. Unusually lengthy machine breakdowns
d. A reduction in direct labor training
e. None of the above

13. The sum of the material price variance (calculated at point of purchase) and material quantity variance equals
a. the total cost variance.
b. the material mix variance.
c. the material yield variance.
d. no meaningful number.

14. The following direct manufacturing labor information pertains to the manufacture of Product B.
Time required to make one unit 2 direct labor hours
Number of direct workers 50
Number of productive hours per week, per worker 40
Weekly wages, per worker P500
Workers’ benefits treated as direct manufacturing labor costs 20% of wages
What is the standard direct manufacturing labor cost per unit of Product B?
a. P30 c. P24
b. P15 d. P12

15. Lucky Company sets the following standards for the year.
Direct labor cost [2 DLH @ P4.50] P9.00
Manufacturing overhead [2 DLH @ P7.50] P15.00

Lucky Company plans to produce its only product equally each month. The following is the annual budget for
overhead costs:
Fixed overhead P150,000
Variable overhead 300,000
Normal activity in direct labor hours 60,000

In March, Lucky Company produced 2,450 units with actual direct labor hours used of 5,050. Actual overhead costs
for the month amounted to P37,245 (Fixed overhead is as budgeted.)

The amount of overhead volume variance for Lucky Company is

a. P250 U c. P750 U
b. P500 U d. P375 U

16. Given for the variable factory overhead of GHI Products, Inc.: P39,500 actual input at budgeted rate, P41,500
flexible budget based on standard input allowed for actual output, P2,500 favorable flexible budget variance.
Compute the spending variance.
a. P500 unfavorable. c. P500 favorable.
b. P2,000 favorable. d. P2,000 unfavorable

17. Lion Company’s direct labor costs for the month of January were as follows:
Actual direct labor hours 20,000
Standard direct labor hours 21,000

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Direct labor rate variance – unfavorable P3,000

Total payroll P126,000
What was Lion’s direct labor efficiency variance?
a. P6,000 F c. P6,300 F
b. P6,150 F d. P6,450 F

18. Which of the following is true of a company that uses absorption costing?
a. Net operating income fluctuates directly with changes in sales volume.
b. Fixed production and fixed selling costs are considered to be product costs.
c. Unit product costs can change as a result of changes in the number of units manufactured.
d. Variable selling expenses are included in product costs.

19. If the unit level of inventory increases during an accounting period, then:
a. less operating income will be reported under absorption costing than variable costing
b. more operating income will be reported under absorption costing than variable costing
c. operating income will be the same under absorption costing and variable costing
d. the exact effect on operating income cannot be determined

20. Canyon Company reported P106,000 of net income for the year by using variable costing. The company had no
beginning inventory, planned and actual production of 50,000 units, and sales of 47,000 units. Standard variable
manufacturing costs were P15 per unit, and total budgeted fixed manufacturing overhead was P150,000. If there
were no variances, how much should be the net income under absorption costing?
a. P151,000 c. P 97,000
b. P115,000 d. P160,000

21. Sales for Kallas Company, a retail store, were P300,000. Net operating income totaled P50,000 and cost of goods
sold was P132,000. If Kallas Company's contribution margin equals P120,000, total variable selling and
administrative expenses must equal:
A. P70,000. C. P118,000.
B. P180,000. D. P48,000.

22. Slack in operating budgets

a. results from unintentional managerial acts.
b. makes an organization more efficient and effective.
c. requires managers to work harder to achieve the budget.
d. is greater when managers are allowed to participate in the budgeting process.

23. When is the flexible budget prepared?

a. before the budget period begins.
b. after the budget period begins, but before it ends.
c. about halfway through the budget period begins.
d. after the budget period ends.

Use the following information for the next three questions.

The Grainger Company's budgeted income statement reflects the following amounts:
Sales Purchases Expenses
Jan P120,000 P78,000 P24,000
Feb 110,000 66,000 24,200
Mar 125,000 81,250 27,000
Apr 130,000 84,500 28,600
Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month
following sale. One percent of sales is uncollectible and expensed at the end of th e year. Grainger pays for all
purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of
January 1:
Cash P88,000
Accounts receivable* 58,000
Accounts payable 72,000
*Of this balance, P35,000 will be collected in January and the remaining amount will be collected in February.
The monthly expense figures include P5,000 of depreciation. The expenses are paid in the month incurred.
24. Grainger's expected cash balance at the end of January is:
a. P87,000. c. P92,000.
b. P89,160. d. P94,160.

25. Grainger's budgeted cash receipts in February are:

a. P91,000. c. P113,640.
b. P113,090. d. P114,000.

26. Grainger's budgeted cash payments in February are:

a. P75,660. c. P97,200.
b. P94,860. d. P99,860.

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27. The typical balanced scorecard is best described as containing:

a. financial performance measures.
b. nonfinancial performance measures.
c. both financial and nonfinancial performance measures
d. both financial and nonfinancial performance measures, the latter often covering a broad range of
perspectives that focus on customers, internal operations, and learning and growth.

28. Which combination of changes in asset turnover and income as a percentage of sales will maximize the return on
investment?
Income as a percentage of sales Asset turnover
a. Increase Decrease
b. Increase Increase
c. Decrease Increase
d. Decrease Decrease

29. The following information pertains to Bala Co. for the year ended December 31:
Sales P600,000
Net income 100,000
Capital investment 400,000

Which of the following equations should be used to compute Bala's return on investment?
a. (4/6) x (6/1) =ROI
b. (6/4) x (1/6) =ROI
c. (4/6) x (1/6) =ROI
d. (6/4) x (6/1) = ROI

30. The following selected data pertain to the Darwin Division of Beagle Co.:
Sales P400,000
Net income 40,000
Capital turnover 4
Imputed interest rate 10%
What was Darwin's residual income?
a. P0 c. P10,000
b. P 4,000 d. P30,000

Use the following information for the next two questions.

Laredo Company is a manufacturer of electronic components. The following manufacturing information is available
for the month of May:
Good units manufactured 40,000
Value-added hours of manufacturing time 20,000
Total units manufactured 50,000
Total hours of manufacturing time 30,000

31. What is the throughput per hour?

a. 1.3 units c. 2.0 units
b. 1.8 units d. 8 units

32. What is the process quality yield?

a. 50% c. 75%
b. 80% d. 125%

33. Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below:
Selling price to outside customers P40
Variable cost per unit P30
Total fixed costs P10,000
Capacity in units 20,000
Division B of the same company would like to use the part manufactured by Division A in one of its products.
Division B currently purchases a similar part made by an outside company for P38 per unit and would substitute
the part made by Division A. Division B requires 5,000 units of the part each period. D ivision A has ample
capacity to produce the units for Division B without any increase in fixed costs and without cutting into sales to
outside customers. If Division A sells to Division B rather than to outside customers, the variable cost be unit
would be P1 lower. What should be the lowest acceptable transfer price from the perspective of Division A?
a. P40 c. P30
b. P38 d. P29

34. An opportunity cost commonly associated with a special order is

a. the contribution margin on lost sales.
b. the variable costs of the order.
c. additional fixed costs related to the increased output.
d. any of the above.

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35. Which of the following is true for a make-or-buy decision?

a. The reliability of the outside supplier of the component is important to the decision.
b. Depreciation on equipment used in making the component and having no other use is the critical factor in the
decision.
c. Opportunity costs are irrelevant.
d. The company should make the component if the purchase price is less than the per -unit variable cost to
make the component.

36. A manufacturing company's primary goals include product quality and customer satisfaction. The company sells a
product, for which the market demand is strong, for P50 per unit. Due to the capacity constraints in the Production
Department, only 300,000 units can be produced per year. The current defective rate is 12% (i.e., of the 300,000
units produced, only 264,000 units are sold and 36,000 units are scrapped). There is no revenue recovery when
defective units are scrapped. The full manufacturing cost of a unit is P29.50, including
Direct materials P17.50
Direct labor 4.00
Fixed manufacturing overhead 8.00
The company's designers have estimated that the defective rate can be reduced to 2% by using a different direct
material. However, this will increase the direct materials cost by P2.50 per unit to P20 per unit. The net benefit of
using the new material to manufacture the product will be
A. P(120,000) C. P750,000
B. P120,000 D. P1,425,000

37. One hundred pounds of raw material W is processed into 60 pounds of X and 40 pounds of Y. Joint costs are P135. X
is sold for P2.50 per pound and Y can be sold for P3.00 per pound or processed further into 30 pounds of Z (10
pounds are lost in the second process) at an additional cost of P60. Each pound of Z can then be sold for P6. What is
the effect on profits of processing product Y further into product Z?
a. P60 increase c. No change
b. P30 increase d. P60 decrease

Use the following information for the next two questions.

Hermo Company has just completed a hydro-electric plant at a cost of P21,000,000. The plant will provide the company’s
power needs for the next 20 years. Hermo will use only 60% of the power output annually. At this level of capacity,
Hermo’s annual operating costs will amount to P1,800,000, of which 80 percent is fixed.

Quigley Company currently purchases its power from MP Electric at an annual cost of P1,200,000. Hermo could supply this
power thus increasing output of the plant to 90 percent of capacity. This would reduce the estimated life of the plant to
14 years.
38. If Hermo decides to supply power to Quigley, it wants to be compensated for the decrease in the life of the plant and
the appropriate variable costs. Hermo has decided that the charge for the decreased life should be based on the
original cost of the plant calculated on a straight-line basis. The minimum annual amount that Hermo would charge
Quigley would be
a. P450,000 c. P990,000
b. P630,000 d. P1,050,000

39. The maximum amount Quigley would be willing to pay Hermo annually for the power is
a. P600,000 c. P1,200,000
b. P1,050,000 d. P450,000

40. Which of the following ratios would be least helpful in appraising the liquidity of current assets?
a. Accounts Receivable turnover
b. Current Ratio
c. Days’ sales in inventory
d. Days’ sales in accounts receivable

41. Raul Corporation had a current ratio of 2.0 at the end of the current year. Current assets and current liabilities
increased by equal amounts during the following year. The effects on net working capital and on the current ratio,
respectively, were
a. no effect; increase c. increase; increase
b. no effect; decrease d. decrease; decrease

42. Taylor Toys Inc. has P6 billion in assets, and its tax rate is 35 percent. The company’s basic earning power (BEP) is
10 percent, and its return on assets (ROA) is 2.5 percent. What is Taylor’s times-interest-earned (TIE) ratio?
a. 1.625 c. 2.433
b. 2.000 d. 2.750

43. A firm has total assets of P126,740 and net fixed assets of P82,408. The average daily operating costs are P1,211.
What is the firm’s interval measure?
a. 1.47 days c. 36.61 days
b. 2.73 days d. 68.05 days

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44. Edwards Enterprises follows a moderate current asset investment policy, but it is now considering a change, perhaps
to a restricted or maybe to a relaxed policy. The firm’s annual sales are P400,000; its fixed assets are P100,000; its
target capital structure calls for 50% debt and 50% equity; its EBIT is P35,000; the interest rate on its debt is 10%;
and its tax rate is 40%. With a restricted policy, current assets will be 15% of sales, while under a relaxed policy
they will be 25% of sales. What is the difference in the projected ROEs between the restricted and relaxed policies?
a. 4.25% c. 5.25%
b. 4.73% d. 5.78%

45. Which of the following credit and collections decisions would typically not increase the accounts receivable balance?
a. extending credit to less creditworthy customers
b. increasing the discount offered for prompt payment
c. extending the time allowed for payment of a customer's bill
d. delaying dunning letters from the credit department

46. A firm’s current ratio is presently 1.75 to 1. According to a working capital restriction in the firm’s bond indenture,
the firm will have technically defaulted if the current ratio falls below 1.5 to 1. If the current liabilities are presently
P250 million, the maximum new commercial paper than can be issued to finance inventory expansion an equivalent
amount without technically defaulting is
a. P 41.67 million c. P125 million
b. P375 million d. P62.5 million

47. Childers, Inc. operates primarily in the Southeast Asia but has a number of customers in China who remit about
8,000 checks a year. The average check amount is P2,400. It currently takes the Chinese checks an average of
seven days after mailing to clear into Childers’ account. A commercial bank has offered Childers a lock box system
for P2,400 a year plus P.22 per check. This will reduce the clearing time for the checks to four days. How much will
the lock box system save Childers if it borrows at 11%?
a. P157,808 c. P17,359
b. P13,199 d. P4,160

48. For 2023, Nelson Industries increased earnings before interest and taxes by 17%. During the same period, net
income after tax increased by 42%. The degree of financial leverage that existed during 2023 is
a. 1.70 c. 2.47
b. 4.20 d. 5.90

49. Bankston Corporation forecasts that if all of its existing financ ial policies are followed, its proposed capital
budget would be so large that it would have to issue new common stock. Since new stock has a higher cost
than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would
reduce its need to issue new common stock?
a. Increase the dividend payout ratio for the upcoming year.
b. Increase the percentage of debt in the target capital structure.
c. Increase the proposed capital budget.
d. Reduce the amount of short-term bank debt in order to increase the current ratio.

50. Williams Sisters Inc. has always paid out all of its earnings as dividends, hence the firm has no retained
earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its
cost of equity, its target capital structure consists of common stock, preferred stock, and debt. Which of the
following events would reduce its WACC?
a. The market risk premium declines.
b. The flotation costs associated with issuing new common stock increase.
c. The company’s beta increases.
d. Expected inflation increases.

51. Hatter Enterprise paid a dividend last year of P3.25, which is expected to grow at a constant rate of 7%. Hatter has a
beta of 1.5 and their stock is currently selling for P62. If the market risk premium is 6% and the risk-free rate is 3%,
should you purchase Hatter's stock?
a. No, because it is overvalued P7.55
b. Yes, because it is undervalued P7.55
c. No, because it is overvalued P18.95
d. Yes, because it is undervalued P18.95

52. To approximate annual cash inflow, depreciation is

a. Added back to net income because it is an inflow of cash.
b. Subtracted from net income because it is an outflow of cash.
c. Subtracted from net income because it is an expense.
d. Added back to net income because it is not an outflow of cash.

53. The bailout payback period is

a. The payback period used by firms with government insured loans.
b. The length of time for payback using cash flows plus the salvage value to recover the origina l investment
c. (a) and (b)
d. None of the above.

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54. It is the start of the year and St. Tropez Co. plans to replace its old sing-along equipment. These information are
available:
Old New
Equipment cost P70,000 P120,000
Current salvage value 10,000 -
Salvage value, end of useful 2,000 16,000
life
Annual operating costs 56,000 38,000
Accumulated depreciation 55,300 -
Estimated useful life 10 years 10 years
The company’s income tax rate is 35% and its cost of capital is 12%. What is the present value of all the relevant
cash flows at time zero?
a. (P54,000) c. (P120,000)
b. (P110,000) d. (P124,700)

55. Salvage Co. is considering the purchase of a new ocean-going vessel that could potentially reduce labor costs of its
operation by a considerable margin. The new ship would cost P500,000 and would be fully depreciated by the
straight-line method over 10 years. At the end of 10 years, the ship will have no value and will be sunk in some
already polluted harbor. The Salvage Co.'s cost of capital is 12 percent, and its marginal tax rate is 40 percent. If the
ship produces equal annual labor cost savings over its 10-year life, how much do the annual savings in labor costs
need to be to generate a net present value of P0 on the project? (Round to the nearest peso.)
a. P68,492 c. P88,492
b. P114,154 d. P147,487

56. Tough Distributors has decided to increase its daily muffin purchases by 100 boxes. A box of muffins costs P2 and
sells for P3 through regular stores. Any boxes not sold through regular stores are sold through Tough’s thrift store
for P1. TDough assigns the following probabilities to selling additional boxes:
Additional sales Probability
60 0.6
100 0.4
What is the expected value of Tough’s decision to buy 100 additional boxes of muffins?
a. P28 c. P52
b. P40 d. P68

57. Hennepin Co. used 30 hours to produce the first batch of units. The second batch took an additional 18 hours. How
many total hours will the first four batches require?
a. 76.8 hours. c. 120.0 hours.
b. 96.2 hours. d. 61.44 hours.

58. Tyson Enterprises has decided to take its company public by offering a total of 80,000 shares of common stock to the
public in an initial public offering (IPO). Tyson has hired an underwriter who arranges a full commitment underwriting
and suggests an initial selling price of P32 a share with a 9 percent spread. As it turns out, the underwriters only sell
68,500 shares. How much cash will Tyson receive from the IPO?
a. P1,840,400
b. P1,994,720
c. P2,192,000
d. P2,329,600

59. Allied Corporation offers 40,000 shares of common stock to the public in an initial public offering (IPO). The
underwriters agree to provide their services in a best efforts underwriting. The offering price is set at P28. The gross
spread is P3. After completing their sales efforts the underwriters determine that they were able to sell a total of
36,750 shares. How much cash did Allied Corporation receive from their IPO?
a. P880,000
b. P918,750
c. P1,029,000
d. P1,120,000

60. Effective September 1, a company initiates seasonal dating as a component of its credit policy, allowing wholesale
customers to make purchases early but not requiring payment until the retail selling season begins. Sales occur as
follows:
Date of sale Quantity sold
September 1 300 units
October 1 100 units
November 1 100 units
December 1 150 units
January 1 50 units
Each unit has a selling price of P10 regardless of the date of sale.
The terms of sale are 2/10 net 30, January 1 dating.
All sales are on credit.
All customers take the discount and abide by the terms of the discount policy.
All customers take advantage of the new seasonal dating policy.
The peak selling season for all customers is mid-November to late December.

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EXCEL PROFESSIONAL SERVICES, INC.

For sales after the initiation of the seasonal dating policy on September 1, total collections on or before January 11
will be
a. P0 c. P6,860
b. P6,370 d. P7,000

“Successful people are not gifted. They just work hard, then succeed on purpose.”
― Unknown

– end -

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