The National Teachers College

College of Accountancy and Business

MANAGEMENT ADVISORY SERVICES

Name: ___________________________ Section.: _____________Date: ______________

MULTIPLE CHOICE

DIRECTION: IN EACH OF THE FOLLOWING QUESTIONS, CHOOSE THE BEST ANSWER.

1. Management accounting is an integral part of the management process. As such, it

provides essential information for the following objectives except

A. Maintaining the current level of resource utilization as well as internal and

external communication
B. Measuring and evaluating performance.
C. Planning strategies and controlling current activities of the organization.
D. Enhancing objectivity in decision-making.

2. Statement 1: Managerial control and engineering control are synonymous.

Statement 2: Control from the viewpoint of management accounting is defined as
the process of setting maximum limits on financial expenditures.

A B C D
Statement 1 True False True False
Statement 2 True False False True

3. A difference between standard costs used for cost control and budgeted costs

A. Can exist because standard costs must be determined after the budget is
completed.
B. Can exist because standard costs represent what costs should be while
budgeted costs represent expected actual costs.
C. Can exist because budgeted costs are historical costs while standard costs are
based on engineering studies.
D. Can exist because establishing budgeted costs involves employee participation
and standard costs do not.

4. For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000
bags of flour with a quality rating two grades below that which the company
normally purchased. This purchase covered about 90% of the flour requirement for
the period. As to the material variances, what will be the likely effect?

A. B. C. D.

Price Unfavorable Favorable No effect Favorable

variance
Usage Favorable Unfavorable Unfavorable Favorable
variance

5. All of the following statements are valid except

A. The short term creditor is more interested in cash flows and in working capital
management that he is in how much accounting net income is reported.
B. If the return on total assets is higher than the after-tax cost of long-term debt,
then leverage is positive, and the common stockholders will benefit.
C. The results of financial statements analysis are of value only when viewed in
comparison with the results of other periods or other firms.

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 D. The inventory turnover is computed by dividing sales by average inventory.

6. The company issued new common shares in a three-for-one stock split. Identify the
statements that indicate the correct effect(s) of this transaction.
A. It reduced equity per share of common stock.
B. Share of each common stockholder is reduced.
C. The peso amount of capital stock is increased.
D. Sampras’ cost structure cannot be determined from this information. Working
capital and current ratio are increased

7. Which of the following statements is correct?

A. An increase in a firm’s inventories will call for additional financing unless the
increase is offset by an equal or larger decrease in some other asset account.
B. A high quick ratio is always a good indication of a well-managed liquidity
position.
C. A relatively low return on assets (ROA) is always an indicator of managerial
incompetence.
D. A high degree of operating leverage lowers the risk by stabilizing the firm’s
earnings stream.

8. Assume that a company's debt ratio is currently 50%. It plans to purchase fixed
assets either by using borrowed funds for the purchase or by entering into an
operating lease. The company's debt ratio as measured by the balance sheet will

A. Increase whether the assets are purchased or leased.

B. Increase if the assets are purchased, and remain unchanged if the assets are
leased.
C. Increase if the assets are purchased, and decrease if the assets are leased.
D. Remain unchanged whether the assets are purchased or leased.

9. The Mark X Corp. contemplates the temporary shutdown of its plant facilities in a
provincial area which is economically depressed due to natural disasters. Below are
certain manufacturing and selling expenses.

1. Depreciation 5. Sales commissions

2. Property tax 6. Delivery expenses
3. Interest expense 7. Security of premises
4. Insurance of facilities

Which of the following expenses will continue during the shutdown period?

A. All expenses in the list.

B. All except 5 and 6.
C. Items 1, 2 and 3 only.
D. Items 1, 2, 3, 4, 6, and 7 only.

10. There is a market for both product X and product Y. Which of the following costs
and revenues would be most relevant in deciding whether to sell product X or
process it further to make product Y?

A. Total cost of making X and the revenue from sale of X and Y.

B. Total cost of making Y and the revenue from sale of Y.
C. Additional cost of making Y, given the cost of making X, and additional revenue
from Y.
D. Additional cost of making X, given the cost of making Y, and additional revenue
from Y.

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11. When only differential manufacturing costs are taken into account for special-order
pricing, an essential assumption is that

A. Manufacturing fixed and variable costs are linear.

B. Selling and administrative fixed and variable costs are linear.
C. Acceptance of the order will not affect regular sales.
D. Acceptance of the order will not cause unit selling and administrative variable
costs to increase.

12. If a firm is at full capacity, the minimum special order price must cover

A. variable costs associated with the special order

B. variable and fixed manufacturing costs associated with the special order
C. variable and incremental fixed costs associated with the special order
D. variable costs and incremental fixed costs associated with the special order
plus foregone contribution margin on regular units not produced

13. In the development of accounting data for decision-making, relevant costs are

A. Historical costs which are the best available basis for estimating future costs.
B. Future costs which will differ under each alternative course of action.
C. Budgetary costs authorized for the administrative year.
D. Standard costs developed by time and motion experts.

14. In analyzing whether to build another regional service office, the salary of the Chief
Executive Officer (CEO) at the corporate headquarters is

A. Relevant because salaries are always relevant.

B. Relevant because this will probably change if the regional service office is build.
C. Irrelevant because it is future cost that will not differ between the alternatives
under consideration.
D. Irrelevant since another imputed costs for the same will be considered

15. In choosing from among mutually exclusive investments, the manager should
normally select the one with the highest;

A. Net present value

B. Internal rate of return
C. Profitability index
D. Book rate of return

16. Depreciation charges indirectly affect the after-tax cash flow because the company

A. Can deduct depreciation expenses on their financial statements, reducing

reported income before tax.
B. Can deduct depreciation expense on their financial statements, increasing cash
flows.
C. Can deduct depreciation expense on their income tax returns, reducing cash
flow for taxes.
D. Cannot deduct depreciation expenses on their income tax returns.

17. Sensitivity analysis is

A. an appropriate response to uncertainty in cash flow projections

B. useful in measuring the variance of the Fisher rate
C. typically conducted in the post investment audit
D. useful to compare projects requiring vastly different levels of initial investment

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18. When comparing NPV and IRR, which is incorrect?

A. With NPV, the discount rate can be adjusted to take into account increased risk
and the uncertainty of cash flows
B. With IRR, cash flows can be adjusted to account for risk
C. NPV can be used to compare investments of various size or magnitude
D. Both NPV and IRR can be used for screening decisions

19. Which of the following is the potential use of the payback method?

A. Help managers control the risk of estimating cash flows

B. Help minimize the impact of the investment on liquidity
C. Help control the risk of obsolescence
D. All of the answers are correct

20. Consider the following statements:

I. A division’s net operating income, after deducting both traceable and allocated
common corporate costs, is negative.
II. The division’s avoidable fixed costs exceed its contribution margin.
III. The division’s traceable fixed costs plus its allocated common corporate costs
exceed its contribution margin.

Which of the above statements give an economic reason for eliminating the
division?

a. Only I c. Only III

b. Only II d. Only I and II.

21. In a make or buy decision:

a. Only the variable costs are relevant.
b. Only the fixed costs are relevant.
c. Both the variable costs and the fixed costs which will continue regardless
of the decision are relevant.
d. Both the variable costs and the fixed costs which are avoidable are
relevant.

22. Which of the following best describes an opportunity cost?

a. It is a relevant cost in decision making, but it is not part of the traditional
accounting records.
b. It is not a relevant cost in decision making, but is not part of the
traditional accounting records.
c. It is a relevant cost in decision making, and is part of the traditional
accounting records.
d. It is not a relevant cost in decision making, and is not part of the
traditional accounting records.

23. The opportunity cost of making a component part in a factory with excess capacity
for which there is no alternative use is:
a. the variable manufacturing cost of the component.
b. the total manufacturing cost of the component.
c. the fixed manufacturing cost of the component.
d. zero.

24. Three companies are each manufacturing and selling annually 10,000 units of a
similar product at a sales price of P20 per unit. The companies have fixed and
variable costs as follows:

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 Company Fixed Cost Variable Cost per Unit
R P40,000 P 12
S 80,000 8
T 120,000 4

Each company contemplates a price decrease from P20 to P16 per unit in the
expectation that sales will increase from 10,000 to P15,000 units per year.

The contribution margin for each company at the present sales level is:
a. R, P80,000; S, 80,000; T, 80,000.
b. R, P160,000; S, P120,000; T, P80,000.
c. R, P80,000; S, P120,000; T, P120,000.
d. R, P40,000; S, P40,000; T, P40,000.

25. Refer to No. 24. The operating income for each company at the contemplated price
and sales levels are:
a. R, P60,000; S, P120,000; T, 80,000.
b. R, P60,000; S, P60,000; T, P80,000.
c. R, P80,000; S, P120,000; T, P160,000.
d. R, P20,000; S, P40,000; T, P60,000.

26. Refer to No. 24. The increase (decrease) in operating income for R Company
resulting from the price decrease and the sales volume increase is:

a. (P20,000) decrease. d. No increase or decrease.

b. P20,000 increase. e. None of the above.
c. P5,000 increase.

27. From the accounting records of Sta. Barbara Company, the following data on costs
for the quarter ended September 30, 2013 were determined:

Variable Costs Fixed costs

Direct materials P300,000
Direct labor 400,000
Factory overhead 80,000 P50,000
Marketing expenses 70,000 30,000
Administrative expenses 50,000 20,000

Sales for the quarter totaled P1,200,000.

The company is considering two alternative proposals that would change certain
cost items. Proposal A would increase fixed costs by P10,000 with sales and
variable costs remaining the same. Proposal B would involve acquiring modern
equipment at an annual increase of fixed costs of P25,000, with the expectation of
saving the same amount in each of the direct materials and direct labor costs.

If Proposal A is adopted, the company’s profit would be:

a. P110,000. c. P175,000.
b. P120,000. d. P190,000.

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28. Refer to Question No. 27. If Proposal B is adopted, the company’s profit would
be:

a. P110,000. c. P190,000.
b. P120,000. d. None of the above.

In order to increase production capacity, Lord Gee Industries is considering

replacing an existing production machine with a new technologically improved
machine effective January 1. The following information is being considered by Lord
Gee Industries:

 The new machine would be purchased for P160,000 in cash. Shipping,

installation, and testing would cost an additional P30,000.
 The new machine is expected to increase annual sales by 20,000 units at a sales
price of P40 per unit. Incremental operating costs include P30 per unit in variable
costs and total fixed costs of P40,000 per year.
 The investment in the new machine will require an immediate increase in working
capital of P35,000. This cash outflow will be recovered at the end of year5.
 Lord Gee uses straight-line depreciation for financial reporting and tax reporting
purposes. The new machine has an estimated useful life of 5 years and zero
salvage value.
 Lord Gee is subject to a 40% corporate income tax rate.

Lord Gee uses the net present value method to analyze investments and will employ
the following factors and rates:

Period Present Value pf P1 Present value of an

Ordinary Annuity of P1
1 0.909 0.909
2 0.826 1.736
3 0.751 2.487
4 0.683 3.170
5 0.621 3.791

29. Lord Gee Industries’ net cash outflow in a capital budgeting decision is
a. P190,000
b. P195,000.
c. P204,525.
d. P225,000.

30. Lord Gee Industries’ discounted annual depreciation tax shield for the year of
replacement is
a. P13,817.
b. P16,762.
c. P20,725.
d. P22,800.

31. The acquisition of the new production machine by Lord Gee Industries will
contribute a discounted net-of-tax contribution margin of
a. P242,624.
b. P303,280.
c. P363,936.

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 d. P454,920.

32. The overall discounted cash flow impact of Lord Gee Industries’ working capital
investment for the new production machine would be
a. P(7,959).
b. P(10,080).
c. P13,265).
d. P(35,000).

Pear Inc. uses a 12% hurdle rate for all capital expenditures and has done the following
analysis for four projects for the upcoming year:

Project 1 Project 2 Project 3 Project 4

Initial capital P200,000 P298,000 P248,000 P272,000
outlay
Annual net
cash inflows
Year 1 P65,000 P100,000 P80,000 P95,000
Year 2 70,000 135,000 95,000 125,000
Year 3 80,000 90,000 90,000 125,000
Year 4 40,000 65,000 80,000 60,000
Net present (3,798) 4,276 14,064 14,662
value
Profitability 98% 101% 106% 105%
index
Internal rate of 11% 13% 14% 15%
return

33. Which project(s) should Pearl Inc. undertake during the upcoming year assuming it
has no budget restrictions?
a. All of the projects.
b. Projects 1, 2, and 3.
c. Projects 2, 3, and 4.
d. Projects 1, 3, and 4.

34. Which project(s) should Pearl Inc. undertake during the upcoming year if it has only
P600,000 of funds available?
a. Projects 1 and 3.
b. Projects 2, 3, and 4.
c. Projects 2 and 3.
d. Projects 3 and 4.

35. Which project(s) should Pearl Inc. undertake during the upcoming year if it has only
P300,000 of capital funds available?
a. Projects 1.
b. Projects 2, 3, and 4.
c. Projects 3 and 4.
d. Project 3.

A proposed investment is not expected to have any salvage value at the end of its 5-
year life. For present value purposes, cash flows are assumed to occur at the end of each
year. The company uses a 12% after-tax target rate of return.

Year Purchase Cost and Annual Net After – Annual Net Income

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 Book Value Tax Cash Flows
0 P500,000 P 0 P 0
1 336,000 240,000 70,000
2 200,000 216,000 78,000
3 100,000 192,000 86,000
4 36,000 168,000 94,000
5 0 144,000 102,000

36. The accounting rate of return based on the average investment is

a. 84.9%
b. 34.4%
c. 40.8%
d. 12%

37. The net present value is

a. P304,060.
b. P212,320.
c. P(70,000).
d. (P712,320.

38. The traditional payback period is

a. Over 5 years.
b. 2.23 years.
c. 1.65 years.
d. 2.83 years.

39. The profitability index is

a. 0.61.
b. 0.42.
c. 0.86.
d. 1.425.

40. Which statement about the internal rate of return of the investment is true?
a. The IRR is exactly 12%.
b. The IRR is over 12%.
c. The IRR is under 12%.
d. NO information about the IRR can be determined.

41. During 2010, a department’s three-variance overhead standard costing system

reported unfavorable spending and volume variances. The activity level selected for
allocating overhead to the product was based on 80% of practical capacity. If 100%
of practical capacity had been selected instead, how would the reported unfavorable
spending and volume variances be affected?

Spending Volume Variance

Variance
A. Increased Unchanged
B. Increased Increased
C. Unchanged Increased
D. Unchanged Unchanged

42. Computechs is an all-equity firm that is analyzing a potential mass communications

project which will require an initial, after-tax cash outlay of $100,000, and will
produce after-tax cash inflows of $12,000 per year for 10 years. In addition, this
project will have an after-tax salvage value of $20,000 at the end of Year 10. If the

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 risk-free rate is 5 percent, the return on an average stock is 10 percent, and the
beta of this project is 1.80, then what is the project's NPV?

A. $10,655
B. $ 3,234
C. ($37,407)
D. ($32,012)

Questions 44 through 45 are based on the following information.

The Sampaguita Steam Laundry bought a laundry truck that can be used for 5 years.
The cost of the truck is P225,000 with a salvage value of P35,000. Since the truck is not
working efficiently, management has thought of selling the truck immediately and buy a
delivery wagon which will serve the company’s purposes more properly. The estimated
net returns of the truck for 5 years is P150,000. If the truck is sold, management can
only recover P175,000. (In all calculations, use the straight line method of depreciation)

43. The net gain (loss) that will arise if the Company decides to sell the truck is:

a. P(50,000) b. P(75,000) c. P75,000 d. P140,000

44. If the firm decides to keep the truck, the net gain (loss) over the 5-year period is

A. P(40,000)
B. P(75,000)
C. P50,000
D. P140,000

Questions 45 through 50 are based on the following information.

Turkey Company’s average production of valve stems over the past three years has been
80,000 units each year. Expectations are that this volume will remain constant over the
next four years. Cost records indicate that unit product costs for the valve stem over the
last several years have been as follows:

Direct materials P 3.60

Direct labor 3.90
Variable manufacturing overhead 1.50
Fixed manufacturing overhead* 9.00
Unit product cost P 18.00

* Depreciation of tools (that must now be replaced) accounts for one-third of the
fixed overhead. The balance is for other fixed overhead costs of the factory that
require cash expenditures.

If the specialized tools are purchased, they will cost P2,500,000 and will have a disposal
value of P100,000 at the end of their four-year useful life. Turkey Company has a 30%
tax rate, and management requires a 12% after-tax return on investment. Straight-line
depreciation would be used for financial reporting purposes, but for tax purposes, the
following amounts of variable depreciation will be used.

Year 1 P 832,500
Year 2 1,112,500
Year 3 370,000
Year 4 185,000

The sales representative for the manufacture of the specialized tools has stated, “The
new tools will allow direct labor and variable overhead to be reduced by P1.60 per unit.”
Data from another company using identical tools and experiencing similar operating
conditions, except that annual production generally averages 100,000 units, confirms the

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direct labor and variable overhead cost savings. However, the other company indicates
that it experienced an increase in raw material cost due to the higher quality of material
that had to be used with the new tools. The other company indicates that its unit product
costs have been as follows:

Direct materials P 4.50

Direct labor 3.00
Variable manufacturing overhead 0.80
Fixed manufacturing overhead 10.80
Unit product cost P 19.10

Referring to the figures above, the production manager stated, “These numbers look
great until you consider the difference in volume. Even with the reduction in labor and
variable overhead cost, I’ll bet our total unit cost figure would increase to over P20 with
the new tools.”

Although the old tools being used by Turkey Company are now fully depreciated, they
have a salvage value of P45,000. These tools will be sold if the new tools are purchased;
however, if the new tools are not purchased, then the old tools will be retained as
standby equipment. Turkey Company’s accounting department has confirmed that total
fixed manufacturing overhead costs, other than depreciation, will not change regardless
of the decision made concerning the value stems. However, the accounting department
has estimated that working capital needs will increase by P60,000 if the new tools are
purchased due to the higher quality of material required in the manufacture of the value
stems.

The present values of 1 at the end of each period using 12 percent are:

Period 1 0.89286
Period 2 0.79719
Period 3 0.71178
Period 4 0.63552
PV of annuity of 1, 4 periods 3.03735

45. The net investment in new tools amounted to:

A. P 1,873,300
B. P 2,515,000
C. P 2,528,500
D. P 2,546,500

46. How much annual cost savings will be generated if the Turkey Company purchases
the new tools?
A. P 128,000
B. P 216,000
C. P 936,000
D. P 1,008,000

47. The present value of tax benefits expected from the use of the new machine tools
is:
A. P 603,333
B. P 804,444
C. P 1,407,777
D. P 2,011,111

48. The present value of the salvage value of the new tools to be received at the end of
fourth year is:
A. P 63,552
B. P 19,065
C. P 44,486
D. P 212,615

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49. Using the minimum acceptable rate of return of 12 percent, the net present value of
the investment in new tools is
A. P 108,913
B. P 127,979
C. P 147,073
D. P 166,139

50. The net advantage of the use of declining method of depreciation instead of
straight-line method is
A. P 33,830
B. P 56,610
C. P 112,767
D. P 147,731

Questions 51 through 55 are based on the following information.

The Verbatim Corporation, which produces and sells to wholesalers a highly successful
line of summer lotions and insect repellents, has decided to diversify in order to stabilize
sales over the year. A natural area for the company to consider is the production of
special lotion and cream to prevent dry and chapped skin.

After considerable research, a special product line has been developed. However,
because of the conservatism of the company management, Verbatim’s president has
decided to introduce only one of the new products for this coming rainy season. If the
product is a success, further expansion will be initiated in future years.

The product selected (called Chaps) is a lip balm that will be sold in a lipstick-type tube.
The product will be sold to wholesalers in boxes of 24 tubes for P800 per box. Because of
available capacity, no additional fixed charges will be incurred to produce the product.
However, a P10,000,000 fixed charge will be absorbed by the new product to allocate a
fair share of the company’s present fixed costs to it.

Using the estimated sales and production of 100,000 boxes of Chaps as the standard
volume, the accounting department has developed the following costs:

Direct labor P 200 per box

Direct materials 300 per box
Total overhead 150 per box
Total P 650 per box

Verbatim has approached a cosmetics manufacturer to discuss the possibility of

purchasing the tubes for Chaps. The purchase price of the empty tubes from the
cosmetics manufacturer would be P90 per 24 tubes. If the Verbatim Corporation accepts
the purchase proposal, it is estimated that direct labor and variable overhead costs
would be reduced by 10% and direct material costs would be reduced by 20%.

51. What is the variable overhead rate per box of Chaps?

A. P100
B. P150
C. P 50
D. P200

52. What is the material cost per box of Chaps saved by purchasing them?
A. P300
B. P240
C. P 60
D. P 30

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53. How much would it cost Verbatim to produce the tubes per box?
A. P 60
B. P 85
C. P 90
D. P120

54. How much cost would Verbatim incur by making 125,000 boxes, assuming that
additional equipment, at an annual rental of P1,000,000, must be acquired to
produce this volume?
A. P 10,625,000
B. P 11,625,000
C. P 11,250,000
D. P 12,500,000

55. Referring to the previous question, what is the impact on its profit it Verbatim were
to buy 125,000 boxes?
A. Increase profit by P1,000,000
B. Increase profit by P1,250,000
C. Increase profit by P375,000
D. Decrease profit by P625,000

56. Mario Hernandez plans to buy a haymaker. It costs P175,000 and is expected to
last for five years. He presently hires 6 workers at P10,000 per month for each of
the three harvesting months each year. The equipment would eliminate the need
for two workers. Hernandez uses straight-line depreciation and projects a salvage
value of P25,000. His tax rate is 25% and opportunity cost of funds is 12.0%. The
present value of 1discounted at 12 percent at the end of 5 periods is 0.56743 and
the present value of an annuity of 1 for 5 periods is 3.60478. Which of the
following is true?
A. The present value of cash flows in year 5 is P22,710
B. NPV is P28,436
C. NPV is P15,250
D. NPV is P14,186

57. Tabucol Aggregates, Inc. plans to replace one of its machines with a new efficient
one. The old machine has a net book value of P120,000 with remaining economic
life of 4 years. This old machine can be sold for P80,000. If the new machine were
acquired, the cash operating expenses will be reduced from P240,000 to P160,000
for each of the four years, the expected economic life of the new machine. The new
machine will cost Tabucol a cash payment to the dealer of P300,000. The company
is subject to 32 percent tax and for this kind of investment, a marginal cost of
capital of 9 percent. The present value of annuity of 1 and the present value of 1
for 4 periods using 9 percent are 3.23972 and 0.70843, respectively.

The net present value to be provided by the replacement of the old machine is

A. P28,493
B. P46,794
C. P15,693
D. P59,594

58. Katol Company invested in a machine with a useful life of six years and no salvage
value. The machine was depreciated using the straight-line method. It was
expected to produce annual cash inflow from operations, net of income taxes, of
P6,000. The present value of an ordinary annuity of P1 for six periods at 10% is
4.355. The present value of P1 for six periods at 10% is 0.564. Assuming that
Katol used a time- adjusted rate of return of 10%, what was the amount of the
original investment?

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 A. P10,640
B. P22,750
C. P29,510
D. P26,130

59. Calma Company uses a standard cost system. The following budget, at normal
capacity, and the actual results are summarized for the month of December:

Direct labor hours 24,000

Variable factory OH P 48,000
Fixed factory OH P108,000
Total factory OH per DLH P 6.50
Actual data for December were as follows:
Direct labor hours worked 22,000
Total factory OH P147,000
Standard DLHs allowed for capacity attained 21,000

Using the two-way analysis of overhead variance, what is the controllable variance for
December?

A. P 3,000 Favorable C. P 5,000 Favorable

B. P 9,000 Favorable D. P10,500 Unfavorable

60. The following data are the actual results for Wow Company for the month of May:

Actual output 4,500 units

Actual variable overhead P360,000
Actual fixed overhead P108,000
Actual machine time 14,000 MH
Standard cost and budget information for Wow Company follows:
Standard variable overhead rate P6.00 per MH
Standard quantity of machine hours 3 hours per unit
Budgeted fixed overhead P777,600 per year
Budgeted output 4,800 units per month
The overhead efficiency variance is
A. P3,000 Favorable C. P3,000 Unfavorable
B. P5,400 Favorable D. P5,400 Unfavorable

61. The standard factory overhead rate is P10 per direct labor hour (P8 for variable
factory overhead and P2 for fixed factory overhead) based on 100% capacity of
30,000 direct labor hours. The standard cost and the actual cost of factory overhead
for the production of 5,000 units during May were as follows:

Standard: 25,000 hours at P10 P250,000

Actual: Variable factory overhead 202,500
Fixed factory overhead 60,000
What is the amount of the factory overhead volume variance?
A. 12,500 favorable C. 12,500 unfavorable
B. 10,000 unfavorable D. 10,000 favorable

62. The Fire Company has a standard absorption and flexible budgeting system and
uses a two-way analysis of overhead variances. Selected data for the June
production activity are:
Budgeted fixed factory overhead costs P 64,000
Actual factory overhead 230,000
Variable factory overhead rater per DLH P 5
Standard DLH 32,000
Actual DLH 32,000
The budget (controllable) variance for June is
A. P1,000 favorable C. P1,000 unfavorable

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 B. P6,000 favorable D. P6,000 unfavorable

63. Information of Hanes’ direct labor costs for the month of May is as follows:

Actual direct labor rate P7.50

Standard direct labor hours allowed 11,000
Actual direct labor hours 10,000
Direct labor rate variance – favorable P5,500
What was the standard direct labor rate in effect for the month of May?
A. P6.95 C. P8.00
B. P7.00 D. P8.05

64. A company’s breakeven point in peso sales may be affected by equal percentage
increases in both selling price and variable cost per unit (assume all other factors are
equal within the relevant range). The equal percentage changes in selling price and
variable cost per unit will cause the breakeven point in peso sales to

A. Decrease by less than the percentage increase in selling price.

B. Decrease by more than the percentage increase in the selling price.

C. Increase by less than the percentage increase in selling price.

D. Remain unchanged.

65. Which of the following is an incorrect statement?

A. The contribution income statement that is prepared for internal users is better
than the traditional income statement as a management tool to predict the results
of increases or decreases in sales volume, variable costs, and fixed costs.

B. The greater the proportion of fixed costs in a firm's cost structure, the smaller will
be the impact on profit from a given percentage change in sales revenue.

C. In an economic recession, the highly automated company with high fixed costs will
be less able to adapt to lower consumer demand than will a firm with a more
labor-intensive production process.

D. A major difference between income statements prepared under the traditional

format and those prepared under the contribution format is that expenses under
the traditional format are shown by function, while the expenses shown under the
contribution format are shown by function and cost behavior.

66. Marquez Co. manufactures a single product. For 2006, the company had sales of
P90,000, variable costs of P50,000, and fixed costs of P30,000. Marquez expects its
cost structure and sales price per unit to remain the same in 2007; however total
sales are expected to jump by 20%. If the 2007 projections are realized, net income
in 2007 should exceed net income in 2006 by

A. 100% C. 20%
B. 80% D 50%

67. Almos Corporation produces a product that sells for P10 per unit. The variable cost
per unit is P6 and total fixed costs are P12,000. At this selling price, the company
earns a profit equal to 10% of total peso sales. By reducing its selling price to P9 per
unit, the manufacturer can increase its unit sales volume by 25%. Assume that there
are no taxes and that total fixed costs and variable cost per unit remain unchanged.
If the selling price were reduced to P9 per unit, the company’s profit would have been
A. P3,000. C. P5,000.
B. P4,000. D. P6,000.

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68. Pansipit Company had a 25 percent margin of safety. Its after-tax return on sales is
6 percent. The company’s income is subject to tax rate of 40 percent. If fixed costs
amount to P320,000, how much peso sales did Pansipit make for the year?
A. P1,066,667 C. P1,280,000
B. P1,000,000 D. P800,000

69. A cost is variable if it varies with the

a. number of units manufactured.
b. number of units sold.
c. level of some activity.
d. selling price of the product.

70. Fixed costs that cannot be reduced within a short period of time are
a. committed.
b. variable.
c. avoidable.
d. unnecessary.

~ END OF EXAMINATION ~

ANSWER KEY
 
1 A 16 C 31 D 46 C 61 B
2 B 17 A 32 C 47 A 62 D
3 B 18 C 33 C 48 C 63 D
4 B 19 D 34 D 49 C 64 D
5 D 20 B 35 D 50 A 65 B
6 A 21 D 36 B 51 C 66 B
7 A 22 A 37 B 52 C 67 A
8 B 23 D 38 B 53 B 68 A
9 B 24 C 39 D 54 B 69 C
10 C 25 D 40 B 55 C 70 A
11 C 26 A 41 C 56 B    
12 D 27 D 42 D 57 C    
13 B 28 D 43 A 58 D    
14 C 29 D 44 A 59 A    
15 A 30 A 45 C 60 C    

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