Accountancy Program

Take-home Diagnostic Examination (MS)

INSTRUCTIONS: Select the correct/best answer for each of the following questions. Mark only one answer for each
item in the answer sheet provided. Strictly no erasures are allowed. Use blue pen only.

1. The three summary ratios basic to the DuPont system of analysis are
a. net profit margin, total asset turnover, and return on investment.
b. net profit margin, total asset turnover, and return on equity.
c. net profit margin, total asset turnover, and equity multiplier.
d. net profit margin, financial leverage multiplier, and return on equity.

For Items 2 to 7:
Balance Sheet
MELODY Enterprises
December 31, 2018
Cash $4,500 Accounts Payable $10,000
Accounts Receivable Notes Payable
Inventory Accruals 1,000
 Total Current Assets  Total Current Liabilities
Net Fixed Assets Long-Term Debt
 Total Assets Stockholders’ Equity
Total Liabilities & S.E.
Information (2018 values)

1. Sales totaled $110,000

2. The gross profit margin was 25 percent.

3. Inventory turnover was 3.0.

4. There are 360 days in the year.

5. The average collection period was 65 days.

6. The current ratio was 2.40.

7. The total asset turnover was 1.13.

8. The debt ratio was 53.8 percent.

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2. Inventory for MELODY in 2018 was _________.
a. $ 9,167 b. $27,500 c. $32,448 d. $36,667
3. Notes payable for MELODY in 2018 was _________.
a. $113,466 b. $ 52,372 c. $ 41,372 d. $ 10,608
4. Accounts receivable for MELODY in 2018 was _________.
a. $14,056 b. $14,895 c. $18,333 d. $19,861
5. Net fixed assets for MELODY in 2018 were _________.
a. $45,484 b. $48,975 c. $54,511 d. $69,341
6. Total assets for MELODY in 2018 were _________.
a. $ 45,895 b. $ 58,603 c. $ 97,345 d. $124,300
7. Long-term debt for MELODY in 2018 was _________.
a. $10,608 b. $30,737 b. $41,372 d. $52,372

8. Relative to cash flows of domestic firms, by diversifying internationally, multinationals

a. can increase cash flows. c. are unable to change the risk.
b. can achieve further risk reduction. d. are not attempting to change risk.

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9. The depreciable life of an asset is of concern to the financial manager. In general,
a. a longer depreciable life is preferred, because it will result in a faster receipt of cash flows.
b. a shorter depreciable life is preferred, because it will result in a faster receipt of cash flows.
c. a shorter depreciable life is preferred, because management can then purchase new assets, as the old
assets are written off.
d. a longer depreciable life is preferred, because management can postpone purchasing new assets, since
the old assets still have a useful life.

10. _________ may result in expansion of operations in an existing product line and elimination of a competitor.
a. Congeneric merger c. Conglomerate merger
b. Horizontal merger d. Vertical merger

11. Statement 1: If the interest rate is zero, the future value interest factor equals zero.
Statement 2: As the interest rate increases for any given period, the future value interest factor will increase.
a. TRUE, TRUE b. TRUE, FALSE c. FALSE, TRUE d. FALSE, FALSE

12. The lower the coefficient of variation, the lower the risk. Given the following expected returns and standard
deviations of assets B, M, Q, and D, which asset should the prudent financial manager select?

Asset Expected Return Standard Deviation

 B 10% 5%
 M 16% 10%
 Q 14% 9%
 D 12% 8%

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 a. Asset B b. Asset M c. Asset Q d. Asset D

13. A firm purchased goods with a purchase price of $,000 and credit terms of 1/10 net 30. The firm paid for these
goods on the 5th day after the date of sale. The firm must pay _________ for the goods.
a. $900 b. $990 c. $1,000 d. $1,100

14. Statement 1: By offering credit to customers, the firm may increase the price of the good to cover its costs.

Statement 2: If a firm gives up the cash discount on goods purchased on credit, the firm should pay the bill on the
last day of the credit period.
a. TRUE, TRUE b. TRUE, FALSE c. FALSE, TRUE d. FALSE, FALSE

15. The cost of giving up a cash discount under the terms of sale 1/10 net 60 (assume a 360-day year) is
a. 7.2 percent. b. 6.1 percent. c. 14.7 percent. d. 12.2 percent.

16. Because equity holders are the last to receive any distribution of assets as a result of bankruptcy proceedings,
common stockholders expect
a. fixed dividend payments.
b. greater compensation in the form of dividends and rising stock prices.
c. all profits to be paid out in dividends.
d. warrants to be attached to the stock issue as a sweetener.

17. When making replacement decisions, the development of relevant cash flows is complicated when compared to
expansion decisions, due to the need to calculate _________ cash inflows.
a. Conventional b. non-conventional c. incremental d. initial

18. One basic technique used to evaluate after-tax operating cash flows is to
a. add noncash charges to net income. c. subtract depreciation from operating revenues.
b. add cash expenses to net income. d. subtract cash expenses from noncash charges.

19. A firm with unlimited funds must evaluate five projects. Projects 1 and 2 are independent and Projects 3, 4, and 5
are mutually exclusive. The projects are listed with their returns.

Project Status Return(%)

1 Independent 14
2 Independent 12
3 Mutually exclusive 10
4 Mutually exclusive 15
5 Mutually exclusive 12

A ranking of the projects on the basis of their returns from the best to the worst according to their acceptability
to the firm would be
a. 4, 1, 2 or 5, and 3. c. 3, 2 or 5, 1, and 4.
b. 4, 1, and 2. d. 4, 1, 5, and 3.

20. If the demand for a product is INELASTIC, then increasing the price of the product will
a. Increase total revenue c. Increase competition
b. Decrease total revenue d. Have no effect on the total revenue

21. If firm increases its current assets relative to total assets,

a. it increases return and reduces risk. c. it reduces return and reduces risk.
b. it increases return and increases risk. d. it reduces return and increases risk.

22. An investment with a positive NPV also has

a. a positive profitability index. c. a profitability index of one.
c. a profitability index less than one. d. a profitability index greater than one.

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23. If the government regulates a product in a competitive market by setting a maximum price below the equilibrium
price, what is the long-run effect?
a. A surplus c. A decrease in demand
b. A shortage d. No effect on the market

24. A company is considering replacing a machine with one that will save $50,000 per year in cash operating costs
and have $20,000 more depreciation expense per year than the existing machine. The tax rate is 40%. Buying the
new machine will increase annual net cash flows of the company by
a. $12,000. b. $20,000. c. $30,000. d. $38,000.

25. A major difference between an investment in working capital and one in depreciable assets is that
a. an investment in working capital is never returned, while most depreciable assets have some residual
value.
b. an investment in working capital is returned in full at the end of a project's life, while an investment in
depreciable assets has no residual value.
c. an investment in working capital is not tax-deductible when made, nor taxable when returned, while an
investment in depreciable assets does allow tax deductions.
d. because an investment in working capital is usually returned in full at the end of the project's life, it is
ignored in computing the amount of the investment required for the project.

26. An investment opportunity costing $75,000 is expected to yield net cash flows of $23,000 annually for five years.
The NPV of the investment at a cutoff rate of 14% would be
a. $(3,959). b. $3,959. c. $75,000. d. $78,959.

27. Just-in-time system is often considered as a

a. Demand-pull system (JIT) c. Supply-pull system
b. Demand-push system d. Supply-push system

28. The flexible budget formula for total overhead for the HIMIG Corporation is ₱ 720,000 + ₱ 16 per direct labor
hour.
The combined overhead rate is ₱ 40 per direct labor hour. The following data have been recorded for the year:

Actual total overhead: ₱ 1,160,000

Total overhead spending variance: ₱ 320,000 unfavorable
Volume variance: ₱ 48,000 (debit balance)

How many actual labor hours were spent by HIMIG Corporation?

a. 24,500 hours c. 29,500 hours
b. 25,500 hours d. 32,000 hours

29. The condensed monthly estimated income data for NOTA Stores are presented in the following table for June
2017:
Uptown Store Downtown Store Total
Sales ₱ 80,000 ₱ 120,000 ₱ 200,000
-Variable Expenses 32,000 84,000 116,000
Contribution Margin ₱ 48,000 ₱ 36,000 ₱ 84,000
-Fixed Expenses 20,000 40,000 60,000
Operating Income ₱ 28,000 (₱ 4,000) ₱ 24,000

Additional information
1) Management estimates that closing the downtown store would result in a 10% decrease in Uptown Store
sales, while closing the mall store would not affect Downtown Store sales.

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 2) One-fourth of each store’s fixed expenses would continue through December 31, 2017 if either store
were closed.
3) The operating results for June 2017 are representatives of all months.

How much is the decrease in NOTA monthly operating income during 2017 if the Downtown Store is closed?
a. ₱ 6,000 b. ₱ 10,800 c. ₱25,200 d. ₱ 40,800

30. R&B Manufacturing has 31,000 labor hours available for producing M1 and N2. Consider the following
information:
Product M1 Product N2
Required labor time per unit (hours) 2 3
Maximum demand (units) 6,500 8,000
Contribution margin per unit ₱ 5.00 ₱ 5.70
Contribution margin per labor hour ₱ 2.50 ₱ 1.90

If R&B follows proper managerial accounting practices in terms of setting a production schedule, how much
contribution margin would the company expect to generate?
a. ₱ 31,450 b. ₱ 63,100 c. ₱ 66,700 d. ₱ 78,100

For Items 31 and 32: EGBDF makes and sells two types of shoes, Plain and Fancy. Data concerning these products
are as follows:
Plain Fancy
Unit selling price ₱ 20.00 ₱ 35.00
Variable cost per unit 12.00 ₱ 24.50

Sixty percent of the unit sales are Plain, and annual fixed expenses are ₱ 45,000.

31. What is the weighted-average unit contribution margin?

a. ₱ 4.80 b. ₱ 9.00 c. ₱ 9.25 d. ₱ 17.00

32. Assuming that the sales mix remains constant, what is the number of units of Fancy that the company must sell
to break even?
a. 2,000 b. 3,000 c. 3,375 d. 5,000

For Items 33 to 37:

Cost standards for product no. C77:
Direct material 3 pounds at $2.50 per pound $ 7.50
Direct labor 5 hours at $7.50 per hour 37.50

Actual results:
Units produced 7,800 units
Direct material purchased 26,000 pounds at $2.70 $ 70,200
Direct material used 23,100 pounds at $2.70 62,370
Direct labor 40,100 hours at $7.30 292,730

33. The direct-material quantity variance is:

a. $750F. b. $750U. c. $6,500U. d. $7,250U.

34. The direct-material price variance is:

a. $4,620F. b. $4,620U. c. $5,200F. d. $5,200U.

35. The direct-labor rate variance is:

a. $7,800F. b. $7,950F. c. $8,020F. d. $8,000U.

36. The direct-labor efficiency variance is:

a. $8,000F. b. $8,000U. c. $8,250F. d. $8,250U.

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37. The standard hours allowed for the work performed are:
a. 5. b. 5.14. c. 39,000. d. 40,100.

38. The information that follows relates to Katz Corporation:

Sales margin: 7.5%
Capital turnover: 2
Invested capital: $20,000,000

On the basis of this information, the company's sales revenue is:

a. $1,500,000. b. $3,000,000. c. $10,000,000. d. $40,000,000.

39. AutoTech's Northern Division is currently purchasing a part from an outside supplier. The company's Southern
Division, which has no excess capacity, makes and sells this part for external customers at a variable cost of $19
and a selling price of $31. If Southern begins sales to Northern, it (1) will use the general transfer-pricing rule
and (2) will be able to reduce variable cost on internal transfers by $3. On the basis of this information,
Southern would establish a transfer price of:

a. $16. b. $19. c. $28. d. $31.

40. Management accounting:

a. Is PFRS-based
b. Does not depend on cost accounting information
c. Is optional yet vital for managerial decisions
d. Focuses on meeting external reportorial requirements

41. Identify the committed cost that is most likely a shutdown cost.
a. Rental b. Research c. Advertisement d. Special projects

For Items 42 to 44: RASTA Company has the following information for its first year of operations:

Units produced 10,000

Units sold 7,000
Variable costs per unit
Direct materials ₱8
Direct labor 9
Factory overhead 3
SG & A 4
Fixed costs
Manufacturing overhead ₱70,000
SG & A 30,000

42. Based on full costing, what amount of period costs will RASTA deduct?
a. ₱ 30,000 b. ₱ 58,000 c. ₱ 70,000 d. ₱ 100,000

43. Based on variable costing, income will be

a. ₱ 21,000 lower than it would be under absorption costing
b. ₱ 30,000 lower than it would be under absorption costing
c. ₱ 70,000 lower than it would be under absorption costing
d. Lower than it would be under absorption costing but the exact difference cannot be determined from
given information

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44. Based on absorption costing, the Cost of Goods Manufactured would be
a. ₱ 200,000 b. ₱210,000 c. ₱ 270,000 d. ₱ 300,000

45. Which coefficient has the strongest inverse correlation?

a. +1.01 b. -1.01 c. +0.95 d. -0.95

46. The following information is for WORSHIP COMPANY:

Product A Revenue P8.00
Variable cost P2.00
Product B Revenue P4.00
Variable cost P1.00
Total fixed costs are P400,000. Actual sales are 300,000 units (sales mix is one unit of product A and two units of
product B). What is the degree of operating leverage?
a. 3 times c. 2 times
b. 2.5 times d. 1.5 times

47. Which of the following would be a nonvalue-added activity for a pizzeria?

a. Home delivery c. Buying fresh pepperoni
b. Recording daily receipts d. Preparing thick pizza dough

48. SONG COMPANY reports the following December 31, 2018 balance sheet data:
Current liabilities 280,000
Bonds payable, 16% 120,000
Preferred stock, P100 par 200,000
Common stock, P25 par value, 16,800 shares 420,000
Premium on common stock 240,000
Retained earnings (adjusted) 180,000
Total liabilities and stockholders’ equity 1,440,000
 Market price per share of common stock is P35.
 Income before tax for 2018 is P160,000
 The tax rate is 40%
 No additional contribution from stockholders was made during 2018
 Common stockholders’ equity in the previous year was P860,000
If in 2018’s earnings per share is P3.50, then what should be the preferred dividend rate?
a. 18.6% b. 29.4% c. 48.0% d. 50.6%
49. Which is not considered in determining the cash conversion cycle?
a. Age of receivables c. Inventory conversion period
b. Age of marketable securities d. Payable deferral period

50. Simple regression analysis provides the means to evaluate a line of regression which is fitted to a plot of data
and represents
a. The way cost change in respect to independent variable
b. The way cost change in respect to dependent variable
c. The variability of expense with pesos of operation
d. The variability of expense with respect to pesos of production

51. The performance measurement system should encourage each manager to act in a manner that
a. Makes the manager’s units profits as high as possible
b. Increases his/her performance reward in the form of profit sharing
c. Most positively supports the organization’s mission and competitive strategies
d. Reduces the need for informational elements in support of the manager’s planning function

52. Cost-volume-profit (CVP) analysis is a simple but powerful tool to assist management make operating decisions.
Which of the following does NOT represent a potential use of CVP analysis?
a. Ability to compute the break-even point
b. Ability to determine optimal sales volume
c. Aids in evaluating tax planning alternatives
Aids in determining optimal pricing policies

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53. The opportunity cost of funds invested in accounts receivable refers to
a. The firms cost of short-term borrowing
b. The cost of credit analysis and bad debt expense
c. The rate of return on the best alternative use of funds
d. The lost sales involved with a tight credit policy

54. Debt is generally the least expensive source of capital. This is primarily due to
a. Fixed interest payments
b. Its position in the priority of claims on assets and earnings in the event of liquidation
c. The tax deductibility of interest payments
d. The secured nature of a debt obligation

For Items 55-56: PRAISES COMPANY planned to make 50,000 units of product. The company actually produced
51,000 units of product. The fixed cost predetermined overhead rate was P4.50 per unit. Actual fixed overhead costs
amounted to P210,000.

55. The fixed cost volume variance for the company is

a. P19,500 favorable c. P4,500 favorable
b. P19,500 unfavorable d. P4,500 unfavorable

56. The fixed cost spending variance for the company is

a. P15,000 favorable c. P19,500 favorable
b. P15,000 unfavorable d. P19,500 unfavorable

57. The difference between variable costing and absorption costing net income centers on how to account for
a. Direct materials costs
b. Fixed indirect costs
c. Variable indirect costs
d. Variable and fixed indirect costs

58. Which of the following activity is not a batch level activity?

a. Production line setup
b. Production line inspection
c. Installation of vehicle engine
d. Scheduling

59. The following financial ratios relate to DANCES COMPANY:

. debt ratio: 40%
. return on sales: 7.5%
. assets turnover: 2 times
. times interest earned: 4 times
What is the company’s return on equity?
a. 6.25 % b. 9.38% c. 25% d. 37.5%

60. Which of the following statements regarding standard cost systems is TRUE?
a. Managers will investigate all variances from standards.
b. Favorable variances are not necessarily good variances.
c. The production supervisor is generally responsible for material price variances.
d. Standard costs cannot be used for planning purposes since costs normally change in the future.

61. Cost accounting information is used by financial accounting for (I) while management accounting uses the same
information for (II).
a. (I) product costing (II) producing financial statements
b. (I) financial reporting (II) management decision-making
c. (I) price setting (II) determining profit or loss
d. (I) performance evaluation (II) external reporting

62. A common approach to achieving the goal of Total Quality Management (TQM) is Continuous Improvement.
Which of the following correctly describes the intended changes and improvement effort?

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 a. Kaizen (radical); business process reengineering (radical)
b. Kaizen (radical); business process reengineering (gradual)
c. Kaizen (gradual); business process reengineering (radical)
d. Kaizen (gradual); business process reengineering (gradual)

63. Which of the following is correctly associated with multiple regression analysis?
a. Y = a + bX c. Multiple independent variables
b. Multiple dependent variables d. Multiple dependent and independent variables

For Items 64 to 66:

XYZ is contemplating a major investment in a new flexible manufacturing system (FMS). The company’s minimum
desired rate of return is 16%. The total investment is P2.5 million with a 10% residual value at the end of its 8 – year
expected life. The company uses straight line depreciation. The FMS should produce P1.4 million of additional
revenue annually. Annual cash operating costs are expected to be P776,375.

64. What is the expected payback period for the proposed FMS purchase?
a. 4.009 years b. 3.954 years c. 3.625 years d. 3.125 years

65. What is the expected net present value of the proposed FMS? (round off factors to three decimal places).
a. Positive net present value of P1,051,450
b. Negative net present value of P12,455
c. Positive net present value of P285,277
d. Negative net present value of P62,235

66. Using the accounting rate of return method, what is the expected rate of return from the proposed FMS
purchases?
a. 37.7 % b. 26.6 % c. 24.9 % d. 19.2 %

67. Determine the primary role of the Controller in the (A) accounting department and (B) entire company or
organization.
a. (A) Line (B) Line c. (A) Staff (B) Line
b. (A) Line (B) Staff d. (A) Staff (B) Staff

68. A responsibility accounting system provides information to top management about the
a. Organizational responsibilities of each subunit manager
b. Performance of each organizational subunit and its manager
c. Ability of each subunit manager to ensure a satisfactory cost-to-revenue relationship
d. Future plans and prospects of each subunit in relation to over-all company goals and objectives

69. Measuring the firm’s performance against established objectives is part of which of the following functions?
a. Planning c. Controlling
b. Staffing d. Subordinating

70. If a firm produces more units that it sells, absorption costing, relative to variable costing, will result in
a. Lower income and assets c. Lower income but higher assets
b. Higher income and assets d. Higher income but lower assets

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