CPAR

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

MANAGEMENT ADVISORY SERVICES SEPTEMBER 22 , 2023

Preweek – Batch 94

1. Cost drivers:
I. are activities that cause costs to increase as the activity increases.
II. can be financial as well as nonfinancial.

a. I only c. Both I and II

b. II only d. Neither I nor II

2. A company is attempting to calculate total overhead applied. For the current year, budgeted
direct labor hours were 20,000 hours. In addition, budgeted factory overhead was ₱75,000.
Actual costs and hours for the year were as follows:

Direct labor hours 18,000

Direct labor costs ₱103,000
Machine hours 30,000

For a particular job, 1,200 direct labor hours were used. Using direct labor hours as the cost
driver, what amount of overhead should be applied to this job?
a. ₱5,190 c. ₱5,730
b. ₱4,500 d. ₱6,500

ITEMS 3 AND 4 ARE BASED ON THE FOLLOWING:

A company has two major categories of factory overhead: indirect labor and replacement
parts for factory machinery. The costs expected for these categories for the coming year
are as follows:

Indirect labor ₱90,000

Replacement parts for factory machinery 70,000

The company currently applies overhead based on direct labor hours. The estimated direct
labor hours are 40,000 per year. The plant manager is asked to submit a bid for a potential
job and assembles the following data:

Direct materials ₱ 4,000

Direct labor hours (2,000 hours) 16,000

3. Which amount reflects the prime costs for the job?

a. ₱ 4,000 c. ₱20,000
b. ₱16,000 d. ₱28,000

4. What is the total estimated product cost on the proposed job?

a. ₱28,000 c. ₱24,000
b. ₱32,000 d. ₱20,000

5. Direct costing can be used for financial reporting that is:

I. internal.
II. external.
a. I only c. Both I and II
b. II only d. Neither I nor II
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6. Under absorption costing, costs are broken down between which of the following?
I. Fixed and variable
II. Product and period
a. I only c. Both I and II
b. II only d. Neither I nor II

7. Under variable costing:

I. all fixed factory overhead is treated as a period cost and is expensed in the period
incurred.
II. cost of goods sold includes only variable manufacturing costs.

a. I only c. Both I and II

b. II only d. Neither I nor II

8. A company had an opportunity to use its capacity to produce an extra 4,000 units with a
contribution margin of ₱5 per unit or to rent out the space for ₱15,000. What is the
opportunity cost of using the capacity?
a. ₱20,000 c. ₱15,000
b. ₱ 5,000 d. ₱35,000

9. Which of the following is/are correct regarding the relationship between direct costing and
full absorption costing as it relates to production and sales?
I. When production exceeds sales, net income under absorption costing is higher
than net income under direct costing.
II. When sales exceed production, absorption costing net income is less than
variable costing net income.
a. I only c. Both I and II
b. II only d. Neither I nor II

ITEMS 10 AND 11 ARE BASED ON THE FOLLOWING:

A manufacturer’s product has the following financial structure per unit in Year 1:
Selling price ₱160
Direct materials 20
Direct labor 15
Variable manufacturing overhead 12
Fixed manufacturing overhead 30
Shipping and handling – freight out 3
Fixed selling and administrative costs 10
Total costs ₱90

10. How much is the product’s contribution margin per unit?

a. ₱110 c. ₱120
b. ₱113 d. ₱150

11. If total sales are 18,000 units and sales returns are ₱80,000, what is the total contribution
margin for Year 1?
a. ₱2,000,000 c. ₱1,900,000
b. ₱1,980,000 d. ₱ 900,000

12. A company developed its business plan based on the assumption that units would sell at a
price of ₱400 each. The variable costs for each unit were projected at ₱200, and the annual
fixed costs were budgeted at ₱80,000. The company’s after-tax profit objective was
₱160,000; the company’s effective tax rate is 30%. If no changes are made to the selling
price or cost structure, how many units must the company sell to break even?
a. 400 c. 350
b. 367 d. 250
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13. X company manufactures helmets with direct material costs of ₱10 per unit and direct labor
cost of ₱7 per unit. A regional freight company charges X Company ₱5 per unit to make
deliveries. Sales commissions are paid 10% of the selling price. Helmets are sold for ₱100
each. Indirect factory costs and administrative costs are ₱5,000 and ₱20,200 per month.

How many helmets must X company produce to breakeven?

a. 371 c. 547
b. 421 d. 631

14. The regression analysis results for a company can be shown as y = 80x + 25.

If the budget calls for producing 150 units, and the coefficient of variation is 85%, which
of the following would be correct?
I. Total cost is equal to ₱12,000.
II. The coefficient of determination measures the proportion of the total variation in “y”
or total cost that is explained by the total variation in the independent variable, “x”,
or variable costs.
a. I only c. Both I and II
b. II only d. Neither I nor II

15. Which of the following types of budgets would not be contained in the master budget?
I. Operating budgets
II. Financial budgets
a. I only c. Both I and II
b. II only d. Neither I nor II

16. A company’s controller is adjusting next year’s budget to reflect the impact of an expected
4% inflation rate. Listed are selected items from next year’s budget before the adjustment:

Salaries expense ₱210,000

Insurance expense 120,000
Supplies expense 60,000
Depreciation expense 25,000
Interest expense on 10-year
Fixed rate bonds 27,000

After adjusting for the 4% inflation rate, what is the company’s total budget for the selected
items before taxes for next year?
a. ₱459,680 c. ₱458,350
b. ₱458,680 d. ₱457,600

17. A company plans to produce 100,000 units of its product during October. Planned
production for November is 150,000 units. Sales are forecasted at 90,000 units for October
and 110,000 for November. Each unit of the product uses 8 pieces of material. The
company’s policy as regards materials is to maintain 5% of next month’s production needs
in inventory at the end of a month. How many pieces of material should the company
purchase during October?
a. 860,000 c. 810,000
b. 820,000 d. 780,000

18. A company is in the process of preparing its annual budget. The following beginning and
ending inventory levels (in units) are planned for the year ending December 31, Year 5.

Beginning Ending
Inventory Inventory
Raw material 30,000 40,000
Work in process 20,000 20,000
Finished goods 60,000 40,000
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Two units of raw material are needed to produce each unit of finished product. If the
company plans to sell 380,000 units during Year 5, how many units would it have to
manufacture during the year?
a. 400,000 units c. 350,000 units
b. 360,000 units d. 325,000 units

19. A company has developed the following production plan:

January 11,000
February 13,000
March 8,000
April 10,000
Each unit contains 3 pieces of raw material. The desired raw material ending inventory each
month is 120% of the next month’s production, plus 500 pieces. (The beginning inventory
meets this requirement.)

The company has developed the following direct labor standards for production of these
units:
Department 1 Department 2
Hours per unit 3.0 0.5
Hourly rate ₱6.75 ₱10

The company’s total budgeted direct labor cost for March should be:
a. ₱162,000 c. ₱202,000
b. ₱122,000 d. ₱192,000

20. A company budgeted sales on account of ₱200,000 for October, ₱211,000 for November,
and ₱275,000 for December. Collection experience indicates that 70% of the budgeted sales
will be collected the month after the sale, 26% the second month, and 4% will be
uncollectible. The cash receipts from accounts receivable that should be budgeted for
December would be:
a. ₱198,250 c. ₱147,700
b. ₱199,700 d. ₱191,712

ITEMS 21 AND 22 ARE BASED ON THE FOLLOWING:

A company manufactures and sells products. The master budget and the actual results for
July are as follows:
Actual July Sales Master Budget
Unit sales 12,000 10,000
Sales ₱132,000 ₱100,000
Variable costs 70,800 60,000
Contribution margin 61,200 40,000
Fixed costs 30,000 25,000
Operating income 31,200 15,000

21. If flexible budgeting is used, how much is contribution margin per unit based on actual sales
of 12,000 units?
a. ₱4.00 c. ₱4.55
b. ₱5.10 d. ₱3.33

22. How much is the operating income for the company using a flexible budget for July?
a. ₱31,200 c. ₱23,000
b. ₱21,000 d. ₱15,000

23. A company budgeted the need for 10,000 materials at a price of ₱30 per unit. The actual
units needed turned out to be 11,400 at a price of ₱28.50. What is the company’s materials
spending variance?
a. ₱15,000 unfavorable c. ₱17,100 favorable
b. ₱17,100 unfavorable d. ₱15,000 favorable
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ITEMS 24 AND 25 ARE BASED ON THE FOLLOWING:

A company manufactures backup generators and uses a standard cost system. The
following information is available for the month of September:

Budgeted direct labor hours 80,000 hours

Actual direct labor hours worked 84,000 hours
Actual direct labor cost incurred ₱840,000
Standard direct labor rate per hour ₱9
Standard direct labor per unit 4 hours

24. The direct labor price variance for September was:

a. ₱84,000 favorable c. ₱79,000 unfavorable
b. ₱84,000 unfavorable d. ₱79,000 favorable

25. The company planned on producing 25,000 generators, but only 20,000 units were actually
produced. What was the direct labor efficiency variance for September?
a. ₱36,000 unfavorable c. ₱40,000 unfavorable
b. ₱36,000 favorable d. ₱40,000 favorable

26. A company budgeted sales of 5,250 at ₱13 per unit but sold 4,000 at ₱16 per unit. The
company would compute a selling price variance of:
a. ₱ 3,750 unfavorable c. ₱15,750 favorable
b. ₱12,000 favorable d. ₱4 ,250 favorable

27. A company has gathered the following information from a recent production run:
Standard variable overhead rate ₱20
Actual variable overhead rate ₱16
Standard process hours 44
Actual process hours 50

What is the company’s variable overhead spending variance?

a. ₱200 favorable c. ₱176 favorable
b. ₱200 unfavorable d. ₱176 unfavorable

28. Which of the following could be used as an example of responsibility accounting?

I. Cost Center
II. Profit Center
III. Investment Center

a. I and III c. I and II

b. II and III d. I, II, and III

29. How does responsibility accounting define and describe an investment center?
I. An investment center is responsible for revenues, expenses, and invested capital.
II. An investment center is similar to an independent business.

a. I only c. Both I and II

b. II only d. Neither I nor II

30. The financial perspective of a balanced scorecard is concerned with which of the following?
I. Computation of standard cost variances
II. Employee satisfaction and retention measures

a. I only c. Both I and II

b. II only d. Neither I nor II

31. The “internal business perspective” of the balanced scorecard measures:

I. results of business operations through improved efficiencies.
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II. nonfinancial performance such as employee satisfaction and retention.

a. I only c. Both I and II

b. II only d. Neither I nor II

ITEMS 32 TO 35 ARE BASED ON THE FOLLOWING:

A corporation is considering the acquisition of a new machine. The machine can be

purchased for ₱100,000; it will cost ₱4,000 to install and ₱7,000 to transport to the
corporation’s plant. It is estimated that the machine will last 10 years, and it is expected to
be worth ₱4,000 after it is fully depreciated. Over its 10-year life, the machine is expected
to produce 3,000 units per year with a selling price of ₱300 and combined material and
labor costs of ₱250 per unit. Tax regulations permit machines of this type to be depreciated
using straight-line method over seven years with no consideration for salvage value. The
company has a marginal tax rate of 30%.

32. What is the net cash outflow at the beginning of the first year that the corporation should
use in a capital budgeting analysis?
a. ₱100,000 c. ₱111,000
b. ₱107,000 d. ₱ 97,500

33. How much depreciation should the company include in the calculation of after-tax cash flow
in its capital budgeting analysis for year 2?
a. ₱15,857 c. ₱11,500
b. ₱13,059 d. ₱11,100

34. What is the net cash flow for the second year that the company should use in a capital
budgeting analysis?
a. ₱150,000 c. ₱134,143
b. ₱109,757 d. ₱ 40,243

35. What is the net cash flow for Year 10 of the project that the company should use in a capital
budgeting analysis?
a. ₱105,000 c. ₱109,800
b. ₱107,800 d. ₱109,000

36. A company purchased an asset for ₱90,000 that has no salvage value and a 10-year life.
The company’s effective income tax rate is 30%, and it uses the straight-line depreciation
method for income tax-reporting purposes. For book purposes, the company will also
depreciate this asset using the straight- line method, and there is an expected salvage value
of ₱10,000. The company’s annual depreciation tax shield from the asset would be:
a. ₱9,000 c. ₱6,300
b. ₱2,700 d. ₱2,400

37. A company makes an investment of ₱250,000 with a useful life of ten years (no salvage
value) and expects to use this investment to generate ₱370,000 in sales with ₱290,000 in
incremental operating costs. If the company operates in an environment with a 40% tax
rate, what are the expected after-tax cash flows that the company will use to evaluate the
capital investment decision?
a. ₱10,000 c. ₱48,000
b. ₱23,000 d. ₱58,000

38. A company is deciding whether to replace an asset. A new asset costing ₱50,000 can be
purchased to replace the existing asset that originally cost the company ₱40,000 and has
accumulated depreciation of ₱32,000. A vendor of the company has offered ₱13,300 for the
old asset.

How much of the gain on the sale of the old asset is relevant to the decision of replacing
the old asset? Assume a tax rate of 30%.
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a. ₱1,590 c. ₱ 3,710
b. ₱5,300 d. ₱13,300

39. A company is considering a project that yields annual net cash inflows of ₱430,000 for Years
1 through 5, and a net cash inflow of ₱90,000 in Year 6. The project will require an initial
investment of ₱1,750,000. The company’s cost of capital is 10%. Present value information
is as follows:

Present value of ₱1 for five years at 10% is 0.65

Present value of ₱1 for six years at 10% is 0.59
Present value of an annuity of ₱1 for five years at 10% is 3.83

What is the company’s expected net present value for this project?
a. ₱5,400 c. ₱53,100
b. (₱50,000) d. ₱50,000

40. Which of the following is/are correct regarding the internal rate of return?

I.The internal rate of return method determines the present value factor and
related interest rate that yields a net present value equal to zero.
II. The internal rate of return focuses the decision maker on the discount rate at
which the present value of the cash inflows equals the initial investment.
III. Projects with an internal rate of return greater than the hurdle rate should be
rejected.
a. I and III c. I, II, and III
b. I and II d. I only

41. The discounted cash flow model is considered the best for long-term decisions. Which of
the following are discounted cash flow methods?
I. Net present value
II. Internal rate of return
III. Profitability index
a. I, II, and III c. I and III
b. I and II d. II and III

42. An analyst is looking to calculate the cost of a corporation’s common stock. In doing so, the
analyst evaluates the risk-free rate, the beta coefficient, and the rate of return on the
corporation’s common stock, as well as the rate of return on the market portfolio. The
valuation model that the analyst is using is the:
a. capital asset pricing model c. net present value model
b. constant growth model d. weighted marginal cost of capital model

43. If the profitability index of a project is exactly 1.0, which of the following is correct?
a. The present value of the outflows is greater than the present value of the inflows.
b. The present value of the inflows is greater than the present value of the outflows.
c. The present value of the inflows is equal to the present value of the outflows.
d. None of the above

44. A company is evaluating a capital investment proposal for a new machine. The investment
proposal shows the following information:
Initial cost ₱600,000
Life 4 years
Annual net cash inflows ₱220,000
Salvage value ₱100,000

If acquired, the machine will be depreciated using the straight-line method. What is the
payback period for this investment?
a. 2.27 c. 2.84
b. 2.73 d. 3.0
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45. A corporation purchased an equipment for ₱46,000. The salvage value of the equipment is
₱6,000. Pertinent information follows:

Year Net Cash Flows Present Value Factor

1 ₱ 9,000 0.943
2 15,000 0.841
3 19,000 0.776
4 25,000 0.719

What is the discounted payback period in years?

a. 3.484 years c. 3.692 years
b. 3.217 years d. 3.564 years

Year Net Cash Flows PVF PV Cumulative

of Cash Flows PV of Cash Flows
1 ₱ 9,000 0.943 ₱ 8,487 ₱8,487
2 15,000 0.841 12,615 21,102
3 19,000 0.776 14,744 35,846
4 25,000 0.719 17,975

Cost of investment ₱46,000

Total present value of cash inflows, years 1 to 3 35,846
Balance to be recovered from the year 4 present value ₱10,154

Year 4 fraction = ₱10,154 ÷ ₱17,975 = 0.564

Discounted payback period = 3 years and 0.564 year = 3.564 years

46. A company is evaluating its potential investment in a piece of equipment with a four-year
life and no salvage value. The tax rate is 35%. Discounted pretax cash flows are ₱399,874,
undiscounted after-tax cash flows are ₱286,600, and discounted after tax cash flows are
₱237,992. The company’s hurdle rate is 9%, and it anticipates that pretax cash flows in
each of the three years will equal 25%, 30%, and 50%, respectively, of the investment’s
face value. If the investment costs ₱244,500, what is the net present value of the
investment?
a. (₱6,508) c. (₱42,100)
b. ₱6,508 d. None of the above

47. A company is evaluating an investment in a piece of equipment with a four-year life and no
salvage value. The equipment has a cost of ₱218,340. The company anticipates that pretax
cash flows in each of the four years will equal to 10%, 32%, 40%, and 30%, respectively,
of the investment’s face value. The tax rate is 30%. Pretax cash flows, discounted at 9.5%,
are ₱387,655, and after-tax cash flows, discounted at 9.5%, are ₱218,340. Calculate the
internal rate of return.
a. 9.5% c. 11.5%
b. 10% d. Cannot be determined from the information
given

48. A company’s debt is 30% of its capital structure, its preferred stock is 10%, and common
stock is the remainder. The cost of common stock is 10%, preferred stock and debt have a
cost of 10% each. The tax rate is 25%.

How much is the company’s weighted average cost of debt capital?

a. 7.0% c. 9.25%
b. 8.25% d. 12%
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Source of Funds Cost of Capital Weight Weighted cost

Debt (10% x 75%) 7.50% 30% 2.25%
Preferred stock 10.00% 10% 1.00%
Common stock 10.00% 60% 6.00%
Weighted average cost of capital 9.25%

49. A company is a wholesaler of board and computer games. Using the Capital Asset Pricing
Model (CAPM), how much is the required rate of return assuming a beta of 0.95 when the
market return is 12% and the risk-free rate is 5%
a. 7% c. 11.65%
b. 13% d. 10.95%

50. During Year 5, a company’s current assets increased by ₱100,000, current liabilities
decreased by ₱35,000, and net working capital:
a. increased by ₱65,000 c. increased by ₱135,000
b. decreased by ₱65,000 d. decreased by ₱135,000

51. The following information pertains to a company:

Year 4 Year 5
Operating revenues ₱700,000 ₱900,000
Operating expenses 550,000 700,000
Operating assets 900,000 1,300,000

What percentage represents the return on investment in Year 5?

a. 15.38% c. 15.9%
b. 18.18% d. 16.7%

52. A corporation obtains a loan of ₱180,000 at an annual rate of 11%. The corporation must
keep a compensating balance of 20% of any amount borrowed on deposit at the bank but
normally does not have a cash balance with a bank. What is the effective cost of the loan?
a. 11% c. 13.75%
b. 13.5% d. 14%

53. A company sells 20,000 high-quality refractor telescopes on credit, per annum, for ₱25,000
each. The company’s average accounts receivables and average inventory are ₱30,000,000
and ₱40,000,000, respectively.
The company’s average accounts receivable collection period (using 365-day year)
approximates:
a. 61 days c. 22 days
b. 29 days d. 17 days

54. A company’s budgeted sales and budgeted cost of sales for the coming year are ₱7,500,000
and ₱3,800,000, respectively. Short-term interest rates are expected to average 6%. If the
company could increase inventory turnover from its current seven times per year to nine
times per year, its expected cost savings in the current year would be:
a. ₱18,236 c. ₱7,238
b. ₱9,712 d. ₱25,333

55. A company is considering a new cash management system that it estimates can add three
days to the disbursement schedule. Average daily cash outflows are ₱1 million. Assuming
that the company earns 5% on excess funds, how much should the company be willing to
pay per year for this cash management system?
a. ₱300,000 c. ₱90,000
b. ₱180,000 d. ₱1,000,000

56. The optimal level of inventory is affected by:

I. the time required to receive inventory
II. the cost per unit of inventory
III. the cost of placing an order
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IV. the current amount of inventory

a. II and III c. I, II, III, and IV

b. I and II d. I, II, and III

57. A company has ending accounts receivable of ₱13,000, sales of ₱105,000, and beginning
accounts receivable of ₱15,000. Cash decreased in the period by ₱1,900. If total expenses
are ₱20,000,what is the accounts receivable turnover ratio?
a. 7.50 c. 7.00
b. 8.80 d. 7.05

58. A company sells athletic footwear. One particular model, Model #5, sells an average of 200
pairs per month and costs ₱35 per pair. Ordering costs are ₱50 per order. The carrying cost
per unit is ₱3, which covers insurance on stored goods. The ₱3 also covers the opportunity
cost of carrying the footwear. The company wishes to minimize ordering and carrying costs.
How much is the ideal order level of the Model #5 footwear?

a. 178 pairs c. 375 pairs

b. 283 pairs d. 421 pairs

59. Which of the following is/are correct regarding conformance and nonconformance costs?
I. Conformance costs include both prevention and appraisal.
II. Nonconformance costs include internal and external failure.
a. I only c. Both I and II
b. II only d. Neither I nor II

60. Which of the following performance measures is/are nonfinancial?

I. Gross margin
II. Number of days missed due to workplace accidents.
a. I only c. Both I and II
b. II only d. Neither I nor II

61. 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.

62. A manufacturer has the following information for Year 1:

Sales ₱200,000
Contribution margin 120,000
Fixed costs 70,000
Income taxes 10,000

How much is the margin of safety?

a. ₱50,000 c. ₱82,667
b. ₱70,000 d. ₱83,333

63. A corporation has a sales goal of ₱500,000 for the coming year. Based on this level of
activity, the corporation budgets its total expenses at ₱450,000. Actual sales are ₱480,000
and actual costs are ₱460,000. The corporation’s operations were
a. both efficient and effective. c. efficient but not effective.
b. neither efficient nor effective. d. effective but not efficient.
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64. A company applied the high-low estimation for its costs data from July 1 through December
31 of the previous year:

Month Volume Costs

July 420 ₱7,260
August 470 7,840
September 370 6,820
October 364 6,834
November 410 7,110
December 520 8,350

If the cost behavior will remain the same next year, how many units must be sold if the
company plans to sell its product for ₱15 per unit and earn profit of ₱2 per unit?
a. 625 c. 453
b. 1,005 d. 1,018

65. Sales less variable costs less controllable fixed costs is referred to as the
a. contribution margin c. overhead efficiency variance
b. controllable margin d. volume variance

66. A company has a degree of operating leverage of 4 after experiencing a 24% increase in
earnings before interest and taxes (EBIT) as a result of earning additional revenue. What
percentage of additional revenue did the company earn in order to experience a 24%
increase in earnings before interest and taxes?
a. 20% c. 4%
b. 96% d. 6%

67. Mr. X is the divisional manager of a corporation. Mr. X receives a bonus based on 25% of
the residual income from the division. The results of the division include: divisional
revenues, ₱1,000,000; divisional expenses, ₱600,000; and divisional assets, ₱2,000,000.
The required rate of return is 15%. How much is Mr. X’s bonus?
a. ₱25,000 c. ₱ 75,000
b. ₱30,000 d. ₱100,000

68. Production of a special order will increase gross profit when the additional revenue from
the special order is greater than
a. The direct materials and labor costs in producing the order.
b. The fixed costs incurred in producing the order.
c. The indirect costs of producing the order.
d. The marginal cost of producing the order.

69. A company needs to determine its reorder point. What is the reorder point if the company’s
sales are 50,000 units per year, lead time is four weeks, and a safety stock of 750 units is
maintained? Assume that the company is closed for two weeks during the month of August.
a. 1,750 c. 4,250
b. 4,596 d. 4,750

70. An increase in wealth and an increase in overall confidence about the economic outlook will
cause:
a. an increase in the cost of capital.
b. a shift in the aggregate demand curve to the left.
c. a shift in the aggregate demand curve to the right.
d. Both A and B

ITEMS 71 TO 73 ARE BASED ON THE FOLLOWING:

X Company produces and sells a single product called Product. Annual production capacity
is 100,000 machine hours. It takes one machine hour to produce one unit of Product. Annual
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demand for the product is expected to remain at 80,000 units. The selling price is expected
to remain at ₱10 per unit.

Cost data for producing and selling the product are:

Variable costs (per unit):

Direct materials ₱1.50
Direct labor 2.50
Variable overhead 0.80
Variable selling 2.00

Fixed costs (per year):

Fixed overhead ₱100,000
Selling and administrative 50,000

71. X Company has 2,000 units of the product that were partially damaged in storage. It can
sell these units through regular channels at reduced prices. These 2,000 units will be
valueless unless sold this way. Sale of these units will not affect regular sales of the Product.
The relevant unit cost for determining the minimum selling price for these units is
a. ₱6.80 c. ₱4.00
b. ₱6.00 d. ₱2.00

72. Y Company offers to make and ship 25,000 units of Product directly to X Company’s
customers. If X Company accepts this offer, it will continue to produce and ship the
remaining 55,000 units. X Company’s fixed manufacturing overhead will drop to ₱90,000.
Its fixed selling and administrative expenses will remain unchanged. Variable selling
expenses will drop to ₱0.80 per unit for the 25,000 units produced and shipped by Y
Company.

What is the maximum amount per unit that X Company should pay Y Company for producing
and shipping the 25,000 units?
a. ₱6.80 c. ₱5.60
b. ₱6.40 d. ₱5.20

73. X Company receives a one-time special order for 5,000 units of Product. Acceptance of this
order will not affect the regular sales of 80,000 units. Variable selling costs for each of these
5,000 units will be ₱1.00.

What is the differential cost to X Company for accepting this special order?
a. ₱39,000 c. ₱30,250
b. ₱34,000 d. ₱29,000

74. To measure inventory management performance, a company monitors its inventory

turnover ratio. Listed are selected data from the company’s accounting records:

Current Year Prior Year

Sales ₱2,375,000 ₱2,455,000
Cost of goods sold 1,500,000 Not given
Ending inventory 350,500 259,100

If short-term interest rates are 4%, what was the company’s inventory turnover at the end
of the current period?
a. 5.45 c. 7.93
b. 4.92 d. 6.31

75. A company has a quick (acid test) ratio of 2.0, current assets of ₱5,000, and inventory of
₱2,000. What is the amount of current liabilities?
a. ₱6,000 c. ₱2,500
b. ₱3,500 d. ₱1,500
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76. An oil well has been drilled. The cost of site preparation was ₱10,000. Drilling costs were
₱90,000. Once drilled, the well may or may not be completed. If completed, the costs are
₱40,000 to fracture the underground formation (enabling the oil to flow freely) and ₱30,000
for production casing pipe and other costs to put the well into production. If the well is
completed, the present value of recoverable oil is ₱130,000.

The well should be

a. completed because the net benefit is ₱50,000.
b. completed because the net benefit is ₱60,000.
c. not completed because the overall loss will be ₱40,000.
d. not completed because the overall loss will be ₱30,000.

77. The primary reason for adopting total quality management is to achieve
a. greater customer satisfaction.
b. reduced delivery time.
c. reduced delivery charges.
d. greater employee participation.

78. The following information is available for the Wholesale Products Division of A Corporation:

Operating profit before interest and taxes ₱30,000,000

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. ₱30,000,000 c. ₱25,000,000
b. ₱13,000,000 d. ₱ 5,000,000

79. A company has ₱2.5 million in inventory and ₱2 million in accounts receivable. Its average
daily sales are ₱100,000. The firm’s payables deferral period is 30 days and average daily
cost of sales are ₱50,000. What is the length of the firm’s cash conversion period?
a. 100 days. c. 50 days.
b. 60 days. d. 40 days.

80. When the level of disposable income is P40,000, the level of consumption is P38,000. When
the level of disposable income increases to P48,000, the level of consumption increase by
P6,000. What is the marginal propensity to consume?
a. 1.33 c. 0.95
b. 1.16 d. 0.75

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