Set B Instructions: Choose The BEST Answer For Each of The Following Items. Mark Only One
Set B Instructions: Choose The BEST Answer For Each of The Following Items. Mark Only One
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MANAGEMENT ADVISORY SERVICES Saturday, April 16, 2016
Final Preboard Examination 8:00 a.m. to 9:30 a.m
SET B
Instructions: Choose the BEST answer for each of the following items. Mark only one
answer for each item on the Special Answer Sheet provided. Strictly no erasure allowed.
Use Pencil No. 2 only.
a. Organizations must use firewalls if they wish to maintain security over internal
data.
b. Companies must apply to the Internet to gain permission to create a homepage
to engage in electronic commerce.
c. Companies that wish to engage in electronic commerce on the Internet must
meet required security standards established by the coalition of Internet
provider.
d. All of the above.
4. As a business owner you have determined that the demand for your product is
inelastic.
a. Information technology
b. Accurate forecast
c. Customer relations
d. Communication
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6. It s tool to achieve large, quick gains in effectiveness or efficiency through
redesigning the execution of specific business functions. It is a method of examining
process to identify and then eliminate, reduce, or replace functions and process that
add little customer value to products or services. It is designed to bring radical
changes to an organization’s operations.
a. Process Identification
b. Downsizing
c. Business Process Reengineering
d. Enterprise Resource Planning System
a. Cost management
b. Kaizen costing
c. Target costing
d. Life-cycle costing
8. The projected sales price for a new product (which is still in the development stage
of the product life cycle) is P50. The company has estimated the life-cycle cost to be
P30 and the first-year cost to be P60. On this type of product, the company requires
a P12 per unit profit. What is the target cost of the new product?
a. P30 c. P42
b. P38 d. P60
9. A company annually consumes 10,000 units of Part C. The carrying cost of this part
is P2 per year and the ordering costs are P100. The company uses an order quantity
of 500 units. By how much could the company reduce its total costs If It purchased
the economic order quality instead of 500 units?
a. P500 c. P2,500
b. P2,000 d. P0
10. The optimal size of the safety stock is defined by the point where the
11. Hooper Corporation operates its factory 300 days per year. Its annual consumption
of Material Y is 1,200,000 gallons. It carries a 10,000 gallon safety stock of Material
Y and its lead time is 12 business days. What is the order point for Material Y?
a. total quantity of output generated from a limited amount of input during a time
period.
b. quantity of good output generated from a specific amount of input during a time
period.
c. quantity of good output generated from the quantity of good Input used during a
time period..
d. total quantity of input used to generate total quantity of output for a time period.
a. P15,000 c. P28,500
b. P15,750 d. P11,250
14. A small manufacturing company recently stated its sales goal for a period was
P100,000. At this level of activity, its budgeted expenses were P80,000. Its actual
sales were P100,000, but Its actual expenses were P85,000. This company operated
15. The weighted average cost of capital that is used to evaluate a specific project
should be based on the
a. mix of capital components that was used to finance a project from last year.
b. overall capital structure of the corporation.
c. cost of capital for other corporations with similar investments.
d. mix of capital components for all capital acquired in the most recent fiscal year.
16. All other factors equal, a large number is preferred to a smaller number for all
capital project evaluation measures except
17. Which of the following statements is true regarding capital budgeting methods?
a. P157,392. c. P165,812.
b. P174,992. d. P170,303.
19. For the next two years, a lease is estimated to have an operating net cash inflow of
P7,500 per annum, before adjusting for P5,000 per annum tax basis lease
amortization, and a 40% tax rate. The present value of an ordinary annuity of P1 per
year for two years is 1.74. What is the lease’s after tax present value using a 10%
discount factor?
a. P2,610 c. P9,570
b. P4,350 d. P11,310
An organization has four Investment proposals with the following costs and cash inflows:
Note: Round off present value factors to four (4) decimal places.
20. If Project A has an internal rate of term (IRR) of 15%, then it has a cost of
a. P8,696 c. P24,869
b. P22,832 d. P27,232
21. If the discount rate is 10%, the net present value (NPV) of Project B is
a. P4,079 c. P 9,869
b. P6,789 d. P39,204
a. 0 years c. 2 years
b. 1 year d. 3years
23. If the discount rate is 5% and the discounted payback period of Project D is exactly
two (2) years, then the Year two cash inflow of Project D is
a. P 5,890 c. P12,075
b. P10,000 d. P14,301
24. A company enters into an agreement with a firm who will factor the company’s
accounts receivable. The factor agrees to buy the company’s receivables, which
average P100,000 per month and have an average collection period of 30 days. The
factor will advance up to 80% of the face value of receivables at an annual rate of
10% and charge a fee of 2% on all receivables purchased. The controller of the
company estimates that the company would save P18,000 in collection expenses
over the year. Fees and Interest are not deducted in advance. Assuming a 360-day
year, what is the cost of engaging in this arrangement?
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a. 10.0% c. 16.0%
b. 14.0% d. 17.5%
25. A company with P4.80 million in credit sales per year plans to relax its credit
standards, projecting that this will increase credit sales by P720,000. The company’s
average collection period for new customers is expected to be 75 days, and the
payment behavior of the existing customers is not expected to change. Variable
costs are 80% of sales. The firm’s opportunity cost is 20% before taxes. Assuming a
360-day year, what is the company’s benefit (loss) from the planned change in
credit terms?
a. PC c. P144,000
b. P28,800 d. P120,000
26. A firm is attempting to estimate its cost of equity capital. Assuming that the firm has
a constant growth rate of 5%, a forecasted dividend of P2.11, and a stock price of
P23.12, what is the estimated cost of common equity using the dividend-yield-plus-
growth, approach?
a. 9.1% c. 15.6%
b. 14.1% d. 12.3%
27. A company has determined that it can minimize its weighted average cost of capital
(WACC) by using a debt/equity ratio of 2/3. If the firm’s cost of debt is 9% before
taxes, the cost of equity is estimated to be 12% before taxes, and the tax rate is 40%,
what is the firm’s WACC?
a. 6.48% c. 9.36%
b. 7.92% d. 10.80%
The following is selected data for the Consumer Products Division of a company for 2016:
Sales P50,000,000
Average Invested capital (assets) 20,000,000
Net income 2,000,000
Cost of capital 8%
a. P2,000,000 c. P1,000000
b. P1,600,000 d. P 400,000
29. What is the amount of interest rate spread for the division?
a. 8% c.2%
b. 10% d. 20%
The following are selected data from Nyam Corporation for the year ended 2016:
30. Which of the following measures economic value added for Nyam Corporation for
the year?
31. Which of the following measures the amount of free cash flow for Nyam Corporation
for the year?
32. Spikey, Inc. produces a single product that sells for P150 per Unit. The product is
processed through the Cutting and Finishing Departments. Additional data for these
departments are as follows:
Cutting Finishing
Annual capacity (36,000 direct
labor hours available in each 180,000 unit 135,000 Units
department) 108,000 units 108,000 Units
Current production rate (annualized) P1,296,000 P1,944,000
Fixed non-manufacturing expenses P864,000 P1,296,000
Direct materials cost per unit P45 P15
The current production rate is the budgeted rate for the entire year. Direct labor
employees earn P20 per direct labor hour and the company has a “no layoff” policy
In effect. What is the amount of the throughput contribution per unit as computed
using the theory of constraints?
a. P90.00 c. P46.67
b. P76.67 d. P26.67
33. Which of the following is used to describe the practice of adding resources to
shorten selected activity time on the critical path of a project?
34. Rover Corporation accumulated the following cost information for its two products,
A and B:
A B Total
Production volume 2,500 20,000
Total direct labor hours 5,000 20,000 25,000
Set up cost per batch P1,000 P2,000
Batch size 100 50
Total set up costs incurred P20,000 P40,000 P60,000
Direct labor hours per unit 2 1
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A traditional costing system would allocate costs on the basis of direct labor hours.
An ABC System would trace costs by spreading the costs per batch over the units in
a batch. What is the set up cost per unit of Product A under each costing system?
Traditional ABC
a. P4.80 P10.00
b. P2.40 P10.00
c. P40.000 P200.00
d. P4.80 P20.00
35. In Its first year of operations, Blowf Manufacturers had the following costs when It
produced 100,000 and sold 80,000 units for its only product:
How much lower would Blowf’s net Income be if it used variable costing instead of
full absorption costing?
a. P36,000 c. P68,000
b. P54,000 d. P94,000
Operational budgets are used by a retail company for planning and controlling Its business
activities. Data regarding the company’s monthly sales for the last six months of the year
and its projected collection patterns are shown below.
The cost of merchandise averages 40% of the selling price. The company’s policy is to
maintain an inventory equal to 25% of the next month’s forecasted sales. The inventory
balance at cost is P80,000 as of June 30.
Forecasted sales:
July P775,000 October P800,000
August 750,000 November 850,000
September 825,000 December 900,000
36. The budgeted cost of the company’s purchases for the month of August would be:
a. P302,500
b. P305,000
c. P307,500
d. P318,750
37. The company’s total cash receipts from sales and collections on account that would
be budgeted for the month of September would be:
a. P757,500 c. P793,800
b. P771,000 d. P856,500
39. A 2017 cash budget is being prepared for the purchase of Hello Tiki, a merchandise
item. Budgeted data for 2017 are:
Purchases will be made in twelve equal monthly amounts and paid for in the
following month. What Is the 2017 budgeted cash payment for purchases of Hello
Tiki?
a. P295,000 c. P306,000
b. P300,000 d. P312,000
40. The management of Rover Corporation has decided to implement a transfer pricing
system. Rover’s MIS department is currently negotiating a transfer price for its
services with the four producing divisions of the company as well as the marketing
department. Charges will be assessed based on number of reports (assume that all
reports require the same amount of time and resources to produce). The cost to
operate the MIS department at its full capacity of 1,000 reports per year is budgeted
at P45,000. The user subunits expect to request 250 reports each this year. The cost
of temporary labor and additional facilities used to produce reports beyond capacity
is budgeted at P48.00 per report. Rover could purchase the same services from an
external Information Services firm for P70,000. What amounts should be used as the
ceiling and the floor in determining the negotiated transfer price?
Fixed cost of goods sold are allocated to each segment based on the number of
employees. Fixed selling and administrative expenses are allocated equally. if
Segment B is eliminated, P1,500 of fixed cost of goods sold would be eliminated.
Assuming Segment B is closed, the effect on operating income would be
Total production costs of prior periods for a company are listed below. Assume that
the same cost behavior patterns can be extended linearly over the range of 3,000 to
35,000 units and that the cost driver for each cost is the number of units produced.
42. What is the average cost per unit at a production level of 8,000 units for Cost X?
a. P5.98 c. P7.90
b. P5.85 d. P4.83
43. Identify the cost curve for the average cost per unit for Cost Y:
a. Curve 1 c. Curve 3
b. Curve 2 d. Curve 4
44. A company obtaining short term financing with trade credit will pay a higher
percentage financing cost, everything else being equal, when
45. A consultant recommends a company hold funds for the following two reasons:
Reason 1 Reason 2
a. Speculative balances Speculative balances
b. Speculative balances Precautionary balances
c. Precautionary balances Speculative balances
d. Precautionary balances Precautionary balances
46. What is the relationship between the allowance for doubtful accounts and working
capital?
a. When bad debt expense is recorded for the period, working capital decreases.
b. When bad debt expense is recorded for the period, cash increases.
c. When an account is written off against the allowance, working capital decreases.
d. When an account is written off against the allowance, cash decreases.
47. In a lean accounting environment, a company accepts a special order to make 200
units of a product each month for the next two months for P130 per unit. The
company normally sells the unit for P170 per unit with variable costs per unit at
P80. The company plans to use excess capacity. By what amount would this spedal
order increase profit?
a. P16,000 c. P36,000
b. P20,000 d.P52,000
48. A company uses a standard costing system. the production budget for Year 1 was
based 200,000 units of output. Each unit requires two standard hours of
manufacturing labor for completion. Total overhead was budgeted at P900,000 for
the year, and the standard fixed overhead rate was P1.50 per direct manufacturing
labor hour. Both variable and fixed overhead costs are allocated to the products
based on direct manufacturing labor hours. The actual data for Year 1 are as follows:
a. P21,750 c. P43,500
b. P33,250 d. P55,000
49. In Year 1, a company’s cash is 15% of sales, accounts receivable Is 10% of sales,
inventory is 20% of sales, accounts payable is 30% of sales, and long term debt is
5% of sales. The company is preparing its forecasts and anticipates that sales will
increase from P50,000 in Year 1 to P55,000 in Year 2. The company uses the
percentage-of-sales method. What amount would be the required working capital In
Year 2?
a. (P2,750) c. P7,500
b. P5,500 d. P8,250
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50. At the start of its fiscal year, a company anticipated producing 300,000 units
throughout the year. The annual budgeted manufacturing overhead was P150,000
for variable costs and P600,000 for fixed costs. In April, when there was a beginning
inventory of finished goods of 5,000 units, the company showed an income P40,000
using absorption costing. The same month, ending inventory for finished goods was
7,000 units. What amount would the company recognize as Income for April using
variable costing?
a. P35,000 c. P44,000
b. P36,000 d. P45,000
51. A company is conducting a risk analysis on a project. One task has a risk probability
estimated to be 15%. The task has a budget of P35,000. If the risk occurs, it will cost
P6,000 to correct the problem caused by the risk event. What is the expected
monetary value of the risk event?
a. P900 c. P5,250
b. P4,350 d. P6,150
52. Internal controls are likely to fail for any of the following reasons, except
53. In Year 1, a large domestic manufacturer, produces all of its motors domestically
arid sells them internationally. The company’s management team is in the process of
developing its Year 2 budget, and copper costs represent a significant line item in
the budget. In Year 1, the company spent P1,000,000 in purchasing 250,000 kilos of
copper. Economic data indicate that In Year 1, copper costs had a price index of
120.0, and expectations are that the Index will Increase to 126.0 In Year 2.
Management anticipates a 5% increase in copper usage for Year 2. What amount
represents the Year 2 budget for copper purchases?
a. P1,000,000 c. P1,102,500
b. P1,050,000 d. P1,300,000
54. In the two following constraint equations, X and V represent two products (in units)
produced by the Majestic Corporation.
Constraint 1: 3X + SY ≤ 4,200
Constraint 2: 5X + 2Y ≤ 3,000
a. 4,200 c. 600
b. 3,000 d. 1,400
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55. The contribution Income statement differs from the traditional income statement in
which of the following ways?
a. The traditional Income statement separates costs into fixed and variable
components.
b. The traditional income statement subtracts all variable costs from sales to
obtain the contribution margin.
c. Cost-volume-profit relationships can be analyzed more easily from the
contribution income statement.
d. The contribution income statement separates costs into product and period
categories.
56. When using a graphical solution to a linear programming problem, the optimal
solution will lie In an area commonly known as the:
a. region of maximization.
b. feasible region.
c. objective region.
d. constraint region.
Variable costs:
Direct materials P40
Direct labor 20
Manufacturing support 35
Marketing costs 15
Fixed costs:
Manufacturing support 45
Marketing costs ____15
Total costs P170
Markup (50%) ____85
Targeted selling price P255
a. P110 c. P255
b. P170 d. P85
a. P85 c. P145
b. P110 d. P255
59. For Welch Manufacturing, what is the minimum acceptable price of this special
order?
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a. P110. c. P170
b. P145 d. P255
60. What is the change in operating profits if the one-time-only special order for 1,000
units is accepted for P180 a unit by Welch?
61. Costs that cannot be changed by any decision made now or In the future are:
a. fixed costs
b. indirect costs
c. avoidable costs
d. sunk costs
62. Which of the following statements does not apply to decision tree analysis?
a. The sum of the probabilities of the events is less than one (1).
b. All of the events are mutually exclusive.
c. All of the events are included in the decision.
d. The branches emanate from a node from left to right.
63. Yak Yachts, Inc. manufactures and sells luxury yachts. From the time an order is
placed till the time the yacht reaches the customer averages 200 days. These 200
days are spent as follows:
a. 0.55 c. 0.60
b. 0.50 d. 0.65
65. The following information relates to the break-even point at Rover Corporation:
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Sales P120,000
Total fixed expenses 30,000
If Rover wants to generate net operating Income of P12,000, what will its sales
pesos have to be’
a. P132,000 c. P168,000
b. P136,000 d. P176,000
66. Isabel Industries is bidding on a contract to make eight batches of landing gear
assemblies for an aircraft company. Isabel’s engineers expect direct labor and
variable overhead for the first batch to be P80,000. Variable overhead is related to
direct labor. Isabel usually achieves an 80% learning curve. They also expect the
cost of materials and purchased components to be P25,000 per batch.
The price that Isabel must bid to earn P15,000 average contribution margin per
batch for eight batches is:
a. P120,000 c. P80,960
b. P 68,760 d. P65,960
67. At Key Enterprises, the controller is responsible for directing the budgeting process.
In this role, the controller has significant influence with executive management as
Individual department budgets are modified and approved. For the current year, the
controller was instrumental in the approval of a particular line manager’s budget
without modification even though significant reductions were made to the budgets
submitted by other line managers. As a token of appreciation, the line manager has
given the controller a gift certificate for a popular local restaurant. In considering
whether or not to accept the certificate, the controller should refer to which section
of IMA’s Statement of Ethical Professional Practice?
a. Competence
b. Confidentiality
c. Integrity
d. Credibility
68. A company’s controller is adjusting next year’s budget to reflect the impact of an
expected 5% inflation rate. Listed below are selected item’s from next year’s budget
before the adjustment:
After adjusting for the 5% inflation rate, what Is the company’s total budget for the
selected Items before taxes for next year?
a. P470,250 c. P473,500
b. P472,138 d. P475,388
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69. Which of the following is one of the four perspectives of a balanced scorecard?
a. Just in time.
b. Innovation.
c. Benchmarking.
d. Activity-based costing.
END