MANAGEMENT ADVISORY SERVICES

PRE-WEEK September 2019

1. Chell Sporting Goods has P2.5 million in inventory and P2 million in accounts receivable. Its average daily sales are
P100,000. The firm’s payables deferral period is 30 days and average daily cost of sales are P50,000. What is the
length of the firm’s cash conversion period?
a. 100 days
b. 60 days
c. 50 days
d. 40 days

2. Llyn Company has P5,000,000 of average inventory and cost of sales of P30,000,000. Using a 365-day year,
calculate the firms inventory conversion period.
a. 30.25 days
b. 60.83 days
c. 45 days
d. 72.44 days

3. An organization has an opportunity to establish a zero balance account system using four different regional banks.
The total amount of the maintenance and transfer fees is estimated to be P6,000 per annum. The organization
believes that it will increase the float on its operating disbursements by an average of 4 days, and its cost of short
term funds is 4.5%. Assuming the organization estimates its average daily operating disbursements to be P40,000
what decision should the organization make regarding this opportunity?
a. Do not establish the zero balance account system because it results in estimated additional net costs of P6,000
b. Do not establish the zero balance account system because it results in estimated additional net costs of P1,200
c. Establish the zero balance account system because it results in estimated net savings of P1,200
d. Establish the zero balance account system because it results in estimated net savings of P7,200

Items 4 & 5 are based on the following

Lady D has the following investment portfolio:
Expected Return Investment Beta
Investment A 15% 100,000 1.2
Investment B 10% 300,000 -0.5
Investment C 8% 200,000 1.5
Investment D 8% 100,000 -1.0

4. What is the expected return of the portfolio?

a. 10.25%
b. 9.86%
c. 12.5%
d. 11.35%

5. If the management decided to sell one of the investments, which one should be selected?
a. Investment A
b. Investment B
c. Investment C
d. Investment D

Items 6-9 are based on the following information

The Dashi, Inc. is the major supplier of books for the 4 area colleges. An income statement for the first quarter of 2019 is
presented below:
Dashi, Inc.
Income Statement
For the Quarter Ended March 31, 2019
Sales P800,000
Cost of Goods Sold 560,000
Gross Margin 240,000
Less: Operating Expenses Sales P105,000
Administrative 105,000 210,000
Net Income P30.000
On average , a books selss P40. Variable selling expenses are P3 per book, the remaining selling expenses are fixed.
The variable administrative expenses are 5% of sales, the remainder is fixed.

6. The contribution margin of Dashi, Inc. for the first quarter of 2019 is
a. P660,000
b. P700,000
c. P180,000
d. P140,000

7. The net income using the contribution margin approach for the first quarter of 2019 is
a. P30,000
b. P180,000
c. P140,000
d. P0

8. The cost formula for operating expenses with “x” equal to the number of books sold is
a. y = P105,000 + P3x
b. y = P105,000 + P5x
c. y = P110,000 + P5x
d. y = P105,000 + P33x

9. If 25,000 books are sold during the second quarter of 2019, the company’s contribution margin would equal to
a. P875,000
b. P300,000
c. P175,000
d. P65,000

10. The segmented income statement for the retail company with 3 product lines is presented below:
Total Company Product Line 1 Product Line 2 Product Line 3
Volume (in units) 20,000 28,000 50,000
Sales Revenue P2,000,000 P800,000 P700,000 P500,000
Cost and Expenses:
Administrative P180,000 P60,000 P60,000 P60,000
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 Cost and Expenses P1,830,000 P670,000 P750,000 410,000
Operating profit (loss) P170,000 P130,000 P(50,000) 90,000

The company buys the goods in the three product lines directly from the manufacturers’ representatives. Each product
line is directed by a manager whose salry 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 cost of each
product line. Advertising promotes the entire company rather than the individual product lines. As a result, the
advertising expenses 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 ans 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

Items 11-13 are based on the following information:

Jessie Louise, 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:
 Jessie Louise
Statement of Financial Position
November 30

Assets Liabilities & Stockholder’s Equity

Cash P52,000 Accounts payable P175,000
Accounts Receivable, net 150,000 Common stock 900,000
Inventory 315,000 Retained earnings 442,000
Property, plant & Equipment 1,000,000
Total assets P1,517,000 Total Liabilities & Stockholder’s Equity P1,517,000

Additional information regarding Jessie Louise’s operations include 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

11. Jessie Louise’s budgeted collections for the month of December are
a. P462,000
b. P402,000
c. P520,000
d. P208,000

12. Jessie Louise’s projected balance in accounts payable on December 31 is

a. P201,600
b. P416,000
c. P166,400
d. P161,280

13. Jessie Louise’s projected gross profit for the month ending December 31 is
a. P0
b. P536,000
c. P104,000
d. P416,000

14. 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
b. 0.40
c. 0.60
d. 0.80

Items 15 to 18 are based on the following information:

An organization has four investment proposals with the following costs and expected inflows:
Expected cash Inflows
Projec Cost End of Year 1 End of Year 2 End of Year 3
t
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.

15. If Project A has an internal rate of return (IRR) of 15%, then it has a cost of
a. P8,696
b. P22,832
c. P24,869
d. P27,232
16. If the discount rate is 10%, the net present value (NPV) of Project B is
a. P4,079
b. P6,789
c. P9,869
d. P39,204

17. The payback period of Project C is

a. 0 year
b. 1 year
c. 2 years
d. 3 years

18. 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. P5,890
b. P10,000
c. P12,075
d. P14,301

Items 19 & 20 are based on the following information:

A company plans to tighten its credit policy. The new policy will decrease the average number of days in collection from
75 days to 50 days and reduce the ratio of credit sales to total revenue from 70% to 60%. The company estimates that
projected sales would be 5% less if the proposed new credit policy were implemented. The firm’s short-term interest cost
is 10%.

19. Projected sales for the coming year are P50 million. Calculate the dollar impact on accounts receivable of this
proposed change in credit policy. Assume a 360-day year.
a. P3,819,445 decrease
b. P6,500,000 decrease
c. P3,333,334 decrease
d. P18,749,778 increase

20. What effect would the implementation of this new credit policy have on income before taxes?
a. P2,500,000 decrease
b. P2,166,667 decrease
c. P83,334 increase
d. P33,334 increase

21. Management of Louie Corporation is considering the following two potential capital structures for a newly acquired
business.
Alternative 1
Long-term debt, 6% interest P3,000,000
Common equity P3,000,000
Cost of common equity 10%
Income tax rate 15%

Alternative 2
Long-term debt, 7% interest P5,000,000
Common equity P1,000,000
Cost of common equity 12%
Income tax rate 15%

Which of the alternatives has the lowest weighted average cost of capital and how much is the differential?
a. Alternative 1 by 1.5%
b. Alternative 2 by 0.59%
c. Alternative 1 by 0.167%
d. The alternatives have equal weighted average cost of capital
22. Roger Corporation accumulated the following cost information for its 2 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 P1,000 P2,000
Batch size 100 50
Total setup cost 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 cost 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

23. King Co. is budgeting sales of 53,000 units of product A for October 2019. The manufacture of one unit of A requires
four kilos of chemical J. During October 2019, King plans to reduce the inventory of J 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 J is King
budgeting to purchase in October 2019?
a. 138,000
b. 162,000
c. 186,000
d. 238,000

24. Heart Company incurred the following costs on Job 209 for the manufacture of 200 motors:
Original cost accumulation:
Direct materials P660
Direct labor 800
Overhead (150% of direct labor) 1200
P2,660
Direct costs of reworking 10 units
Direct materials P100
Direct labor 160
P260
The rework costs were attributable to the exacting specifications of Job 209, and the full rework costs were charged to
this specific job. What is the cost per finished unit of Job 209?
a. P13.30
b. P13.80
c. P14.60
d. P15.80

25. A company gathered the following information from a recent production run:
Standard variable overhead rate P10
Actual variable overhead rate 8
Standard process hours 20
Actual process hours 25

What is the company’s variable overhead spending variance?

a. P50 unfavorable
b. P50 favorable
c. P40 unfavorable
d. P40 favorable

26. 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 P225 per unit, variable cost 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
b. 39,000
c. 25,000
d. 14,625

27. The New Cave Co. is considering a new method for allocating overhead to its two products, regular and premium
coffee beans. Currently, New Cave is using the traditional method to allocate overhead, in which the cost driver is
labor costs. However, it is interested in using two different drivers: machine hours (MH) for separating and roasting
beans and kilos of coffee for packing and shipping. Machine hours for the current month are 700 hours, direct labor
costs per kilo of coffee is P1.25 and direct materials cost per kilo of coffee is P1.50. There are 1,000 kilos of coffee
packed and shipped for the current month. The following data are also available:
Regular Premium
Overhead for the current month P5,000.00
Cost pool for separating and roasting beans 3,500.00 150 MH 550 MH
Cost pool for packing and shipping 1,500.00 500 kilos 500 kilos

What is the total cost per kilo for the premium coffee using the new activity-based costing method?
a. P5.00
b. P5.75
c. P7.75
d. P9.75

28. For the current period production levels, Drewcarl Co. budgeted 11,000 board feet of production and purchased
15,000 board feet. The material cost was budgeted at P7 per foot. The actual cost for the period was P8.50 per foot.
What was Drewcarl’s material price variance for the period?
a. P6,000 unfavorable
b. P16,500 unfavorable
c. P19,500 unfavorable
d. P22,500 unfavorable

29. Mar Co.’s breakeven point was P780,000. Variable expenses averaged 60% of sales, and the margin of safety was
P130,000. What was Mar’s contribution margin?
a. P364,000
b. P546,000
c. P910,000
d. P1,300,000

30. Yam co. has two major categories of factory overhead: material handling and quality control. The costs expected for
these categories for the coming year are as follows:
Material handling P120,000
Quality inspection 200,000

The plant currently applies factory overhead based on direct labor hours. The estimated direct labor hours are 80,000
per year. The plant manager is asked to submit a bid and assembles the following data on a proposed job:
Direct materials P4,000
Direct labor (2,000 hours) 6,000

What amount is the estimated product cost on the proposed job?

a. P8,000
b. P10,000
c. P14,000
d. P18,000

31. A corporation manages inventory performance by monitoring its inventory turnover. Selected financial records for the
corporation are as follows:
Year 1 Year 2 Year 3
Annual sales P1,262,500 P1,062,500 P1,459,000
Gross annual profit percentage 45% 30% 40%
 The beginning finished goods inventory for year 2 was 20% of year 2 sales. The ending finished goods inventory for
year 2 was 18% of year 3 sales. What was the corporation’s inventory turnover for year 2?

a. 1.34
b. 2.83
c. 3.03
d. 3.13

Items 32 to 34 are based on the following information:

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 was 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.

32. 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
b. P68,400
c. (P17,400)
d. P86,400

33. 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
b. P75.30
c. P28.60
d. P28.80

34. Suppose the company does not have idle capacity to produce all 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
b. P52.50
c. P52.30
d. P61.83

Items 35 & 36 are based on the following information:

Rover Co., a manufacturer operating at 95% capacity, has been offered a new order at P7.25 per unit requiring 15% of
capacity. No other use of the 5% current idle capacity can be found. However, if the order were accepted, the
subcontracting for the required 10% additional capacity would cost P7.50 per unit.

The variable cost for production for Rover on a per unit basis is as follows:
Materials P3.50
Labor 1.50
Variable overhead 1.50
P6.50

35. In applying the contribution margin approach to evaluating whether to accept the new order, assuming the
subcontracting, what is Rover’s average variable cost per unit?
a. P7.50
 b. P7.25
c. P7.17
d. P6.83
36. Rover’s expected contribution margin per unit of the new order is:
a. P0.42
b. P0.33
c. P0.25
d. P0.08

37. 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 costing Absorption 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
b. P90,000
c. P60,000
d. P57,600

38. Raffy Company’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. The production volume is expected
to occur uniformly throughout the year. During September, Raffy produced 8,170 units of product, and the accounts
reflected actual depreciation on factory machinery of P20,500. Raffy controls manufacturing costs with a flexible
budget. The flexible budget amount for depreciation on factory machinery for September should be:
a. P20,500
b. P21,500
c. P19,875
d. P20,425

39. A company manufactures banana hooks for retail sale. The bill of materials for this item and the parts inventory for
each material required are as follows:

Bill of Materials
Raw materials Quantity required On Hand
Wooden neck 1 0
Wooden base 1 0
Swag hook 1 300
Wood screws 2 400
Foot pads 4 1,000

An incoming order calls for delivery of 2,000 banana hooks in 2 weeks. The company has 200 finished banana hooks
in current inventory. If no safety stocks are required for inventory, what are the company’s net requirements for swag
hooks and screws needed to fill this order?
Swag Hooks Wood Screws
a. 1,800 3,600
b. 1,700 3,600
c. 1,500 3,200
d. 1,500 1,400
40. Rue 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
b. 31,576
c. 32,424
d. 32,000

41. The following selected data pertain to the Elin Division of Keeth Co. for the year just ended:
Sales P400,000
Operating income 40,000
Capital turnover 4
Imputed interest rate 10%

What was Elin’s residual income for the year?

a. P30,000
b. P10,000
c. P4,000
d. P0

42. Jenny company reported the following information for the year just ended:
Segment A Segment B Segment C
Pre-tax operating income P4,000,000 P2,000,000 P3,000,000
Current assets 4,000,000 3,000,000 4,000,000
Long term assets 16,000,000 13,000,000 8,000,000
Current liabilities 2,000,000 1,000,000 1,500,000

If the applicable income tax rate and after-tax weighted average cost of capital for each segment are 30% and 10%,
respectively, the segment with the highest economic value added is:
a. Segment A
b. Segment B
c. Segment C
d. Not determinable

Items 43 to 46 are based on the following information:

Athena 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

43. According to traditional CVP analysis, how many units must be sold to generate operating income of P30,000?
a. 21,500
b. 16,500
c. 6,500
d. 5,000

44. According to ABC analysis, how many units must be sold to generate operating income of P30,000?
a. 16,500
b. 15,000
c. 12,500
d. 10,500

45. Assume that Athena’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
b. 13,750
c. 12,500
 d. 11,250

46. 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
b. 15,917
c. 13,750
d. 13,167

47. Water is supplied by BAYNILAD to Eastern Metro Manila by pumping water from the Novaliches Water Treatment
Plant to a storage tank at the highest elevation in the area, from which it then flows to the customers by gravity. The
water administrator notes that the costs to pump water vary to some extent by the number of cubic meters pumped,
but fixed costs are also included in these pumping costs. A record of cubic meters consumed per month and total
pumping costs consumed per month is as follows:
Cubic meters Cubic meters
Pumping cost Pumping cost
consumed (000) consumed (000)
1,750 P29,100 1,800 P29,700
1,900 30,800 2,300 35,900
2,150 34,000 2,000 31,800
2,050 32,600 1,500 25,500

In addition to pumping costs, P1.10 per cubic meter in variable cost and P75,000 in fixed costs are incurred to supply
water to residents. BAYNILAD charges its customers P4.60 per cubic meter consumed.

At what level of water consumption would BAYNILAD break-even?

a. 21,508
b. 23,143
c. 23,230
d. 67,385

48. In January, Harry Equipment Company of Kunot, Cavite purchased 50,000 parts at a total cost of P600,000. During
the month, 46,000 parts having a standard unit cost of P11 were used in production. The materials usage variance for
the month was unfavorable by P33,000. According to the standards, 5 parts should be used for each unit of product.

How many units of product were produced in January?

a. 8,600 units
b. 9,200 units
c. 10,000 units
d. 3,000 units

49. Sorbets, Inc. produces and sells 10,000 gallons per month of Dear’s Sweet Ice Cream. Capacity is 12,000 gallons. A
supermarket in another city has offered to buy 3,000 gallons of ice cream for P100 per gallon. Sorbetes would give up
some regular sales to fill the new order. Costs and revenues per unit are:
Ingredients and labor P60
Variable overhead 20
Fixed overhead 30
Cost per gallon P110
Sales price P130

What course of action should be taken by Sorbetes regarding the special order of 3,000 gallons?
a. Accept the special order because it will increase the company’s profit by P10,000
b. Reject the special order because the company will incur loss of P30,000 from such order
c. Accept the special order even if the company will incur a loss because this will give the company a chance to
reduce its idle capacity
d. Reject the special order because this will reduce profit from regular customers by P50,000

50. A lender and a borrower signed a contract for a P1,000 loan for one year. The lender asked the borrower to pay 3%
interest. Inflation occurred and prices rose by 2% over the next year. The borrower repaid P1,030. What is the amount
worth in real terms, after inflation?
a. P1,060.90
b. P1,050.60
c. P1,019.80
d. P1,009.80