JPIA-CMDI ACCOUNTING HAWK 2021

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Management Accounting Question and answer.

1. Which of the following is not classifiable as a management advisory service by CPA?

a. Systems design.
b. Project feasibility study.
c. Make or buy analysis.
d. Assistance in budget preparation.

2. The primary purpose of management advisory services is:

a. To conduct special studies, preparation of recommendations, development of plans and
programs, and provision of advice and assistance in their implementation.
b. To provide services or to fulfill some social need.
c. To improve the client’s use of its capabilities and resources to achieve the objectives of the
organization.
d. To earn the best rate of return on resources entrusted to its care with safety of investment
being taken into account and consistent with the firm’s social and legal responsibilities.

3. A cost system that first traces costs to activities and then traces cost from activities to products
a. Job order cost system.
b. Process cost system.
c. Activity-based cost system
d. Flexible cost system.

4. The payback method assumes that all cash inflows are reinvested to yield a return equal to
a. Zero
b. the Discount Rate
c. The Time-Adjusted-Rate-of-Return
d. The Cost-of-Capital

5. Why do the NPV method and the IRR method sometimes produce different rankings of mutually
exclusive investment projects?
a. The NPV method does not assume reinvestment of cash flows while the IRR method
assumes the cash flows will be reinvested at the internal rate of return.
b. The NPV method assumes a reinvestment rate equal to the discount rate while the IRR
method assumes a reinvestment rate equal to the internal rate of return.
c. The IRR method does not assume reinvestment of the cash flows while the NPV assumes
the reinvestment rate is equal to the discount rate.
d. The NPV method assumes a reinvestment rate equal to the bank loan interest rate while
the IRR method assumes a reinvestment rate equal to the discount rate.

6. The least risky strategy for converting from a manual to a computerized accounts receivable
system would be a
a. Direct conversion c. Parallel conversion
b. Pilot Conversion d. Data based conversion

7. The batch processing of business transactions can be the appropriate mode when
a. the sequence of master file records is not relevant
b. timeliness is a major issue
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c. a single handling of the data is desired

d. economy of scale can be gained because of high volumes of transactions

8. An integrated set of computer programs that facilitates the creation, manipulation, and
querying of integrated files is called a(n)
a. Compiler
b. Operating system
c. Assembly language
d. Database management system

9. Opportunity costs:
a. Are treated as period costs under variable costing.
b. Have already been incurred as a result of past action.
c. Are benefits that could have been obtained by following another course of action.
d. Do not vary among alternative courses of action.

10. Return on investment (ROI) is a term often used to express income earned on capital invested in
a business unit. A company’s ROI would be increased if
a. Sales increased by the same peso amount as expenses and total assets increased.
b. Sales remained the same and expenses were reduced by the same peso amount that
total asset increased.
c. Sales decreased by the same peso amount that expenses increased.
d. Sales and expenses increased by the same percentage that total assets increased.

11. The ratio that measures a firm’s ability to generate earnings is

a. Times interest earned.
b. Sales to working capital.
c. Days’ sales in receivables.
d. Operating asset turnover.

12. When a firm prepares financial reports by using absorption costing, it may find that
a. Profits will always increase with increase in sales.
b. Profits will always decrease with decreases in sales.
c. Profit may decrease with increased sales even if there is no change in selling price and
costs.
d. Decreased output and constant sales result in increased profit.

13. The Liberal Marketing Co. is expecting an increase of fixed costs by P78,750 upon moving their
place of business to the downtown area. Likewise, it is anticipating that the selling price per unit
and the variable expenses will not change. At present, the sales volume necessary to breakeven
is P750,000 but with the expected increase in fixed costs, the sales volume necessary to
breakeven would go up to P975,000. Based on these projections, what were the total fixed costs
before the increase of P78,750?
a. P341,250 c. P183,750
b. P262,500 d. P300,000

CMR: Change in Fixed Costs ÷ Change in Breakeven Sales

78,750 ÷ (975,000 – 750,000) = 0.35
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Fixed costs before an increase of 78,750:

750,000 x 0.35 = 262,500

14. Bacolod Corporation had sales of P120,000 for the month of May. It has a margin of safety ratio
of 25 percent, and after-tax return on sales of 6 percent. The company assumes its sales
constant every month. If the tax rate is 40 percent, how much is the annual fixed costs?
a. P36,000 c. P432,000
b. P90,000 d. P360,000

CMR = Before Tax Profit Margin

M/S Ratio
= (0.06 ÷ 0.6) ÷ .25
= 40%
FC = (120,000 x .40) – (120,000 x .10) = P36,000
Annual FC = 36,000 x 12
= P432,000

15. At 40,000 units of sales, Luna Corporation had an operating loss of P3.00 per unit. When sales
were 70,000 units, the company had a profit of P1.20 per unit. The number of units to
breakeven is
a. P 35,000 c. P52,500
b. P 45,000 d. P57,647

UCM = (70,000 x 1.20) +(40,000 x 3)

= 70,000 – 40,000
= P6.80

FC = Units (UCM – profit per unit)

= 70,000(6.80 – 1.20)
= P392,000
BEU = 392,000/6.80
= 57,647

16. The manager of Seven Store reviewed the following data:

Fruits Meat Canned

Products

Contribution
margin ratio 40% 50% 40%
20% 30% 50%
Sales mix in
Pesos

Fixed costs, P1,290,000 per month. The breakeven sales for each month is

A. P1,677,000 C. P4,500,000
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B. P3,000,000 D. P6,000,000

Break-even Sales for multi-products firm = Total Fixed Costs/Weighted CM Ratio

= 1,290,000/.43
= 3,000,000

Weighted CM Ratio = (.40+.50+.40)/3

= .43

17. Drive Me, Inc. has a total of 2,000 rooms in its nationwide chain of hotels. On the average, 70
percent of the rooms are occupied each day. The company’s operating costs are P21 per
occupied room per day at this occupancy level, assuming a 30-day month. This P21 figure
contains both variable and fixed cost elements. During October, the occupancy dropped to only
45 percent. A total of P792,000 in operating cost was incurred during the month. What would be
the expected operating costs, assuming that the occupancy rate increases to 60 percent during
November?
a. P1,056,000 c. P846,000
b. P 756,000 d. P829,500

18. The following data relate to Gala Company which sells a single product:
Unit selling price P 20.00
Purchase cost per unit 11.00
Sales commission, 10% of 2.00
selling price
Monthly fixed costs P80,000

The firm’s salespersons would like to change their compensation from a 10 percent commission
to a 5 percent commission plus P20,000 per month in salary. They now receive only
commissions. At what sales volume would the two compensation plans be indifferent?
a. 12,500 c. 20,000
b. 22,222 d. 22,860

19. Hello Company’s cost allocation and product costing procedures follow activity-based costing
principles. The following activities have been identified and classified as being either value-
adding or non-value adding as to each product.

1. Raw materials storage activity

2. Design engineering activity
3. Drill press activity
4. Heat treatment activity
5. Quality control inspection activity
6. Issuance of purchase order activity
How are the foregoing activities classified? Value-adding to Non-value adding
a. 1, 2, 5, 6 3, 4
b. 1, 2, 4 3, 5, 6
c. 2, 4, 5 1, 3, 6
d. 2,3,4 1,5,6
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20. The Oilfield plant has two categories of overhead: maintenance and inspection. Costs expected
for these categories for the coming year are as follows:

Maintenance P100,000
Inspection 150,000
The plant currently applies overhead using direct labor hours and expected capacity of 50,000
direct
labor hours. The following data have been assembled for use in developing a bid for a proposed
job:
Direct materials P1,000
Direct labor P4,000
Machine hours 500
Number of inspections 4
Direct labor hours 800
Total expected machine hours for all jobs during the year is 25,000, and the total expected
number
of inspections is 1,500. Using activity-based costing and the appropriate activity drivers, the total
cost of the potential job would be
a. P2,400 c. P7,400
b. P3,600 d. P7,750

21. The cost to manufacture an unfinished unit is P40 (P30 variable and P10 fixed). The selling price
per unit is P50. The company has unused production capacity and has determined that units
could be finished and sold for P65 with an increase in variable costs of 40%. What is the
additional net income per unit to be gained by finishing the unit?
a. P 3 c. P15
b. P10 d. P12

22. Jar Division of Handy, Inc. expects the following result for 2004:
Unit sales 70,000
Unit selling price P 10
Unit variable cost P 4
Total fixed costs P300,000
Total investment P500,000

The minimum required ROI is 15 percent, and divisions are evaluated on residual income. A
foreign customer has approached Jar’s manager with an offer to buy 10,000 units at P7 each. If
Jar accepts the order, it would not lose any of the 70,000 units at the regular price. Accepting
the order would increase fixed costs by P10,000 and investment by P40,000. What is the
minimum price that Jar could accept for the order and still maintain its expected residual
income?
a. P5.00 c. P4.75
b. P5.60 d. P9.00

23. Jap Company’s unit cost of manufacturing and selling a given item at an activity level of 10,000
units per month are:
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Manufacturing costs
Direct materials P39
Direct labor 6
Variable overhead 8
Fixed overhead 9
Selling expenses
Variable 30
Fixed 11

The company desires to seek an order for 5,000units from a foreign customer. The variable
selling expenses will be reduced by 40%, but the fixed costs for obtaining the order will
beP20,000. Domestic sales will not be affected by the order. The minimum break-even price per
unit to be considered on this special sale is
a. P71 c. P69
b. P75 d. P84

24. Below are a company’s monthly unit costs to manufacture and market a particular product.
Manufacturing Costs:
Direct materials P2.00
Direct labor 2.40
Variable indirect 1.60
Fixed indirect 1.00
Marketing Costs:
Variable 3.00
Fixed 1.50
The company must decide to continue making the product or buy it from an outside supplier.
The supplier has offered to make the product at the same level of quality that the company can
make it. Fixed marketing costs would be unaffected, but variable marketing costs would be
reduced by 30% if the company were to accept the proposal. What is the maximum amount per
unit that the company can pay the supplier without decreasing its operating income?
a. P8.50 c. P7.75
b. P6.75 d. P6.90

25. Shyr Company is a chemical manufacturer that supplies various products to industrial users. The
company plans to introduce a new chemical solution called Bysap, for which it needs to develop
a standard product cost. The following labor information is available on the production of Bysap.

a. The product, which is bottled in 10-liter containers, is primarily a mixture of Byclyn, salex, and
protex.
b. The finished product is highly unstable, and one 10-liter batch out of six is rejected at final
inspection. Rejected batches have no commercial value and are thrown out.
c. It takes a worker 35 minutes to process one 10-liter batch of Bysap. Employees work on eight-
hour a day, including one hour per day for rest breaks and cleanup. What is the standard labor
time to produce one 10- liter batch of Bysap?
a. 35 minutes c. 48minutes
b. 40 minutes d. 45 minutes
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26. ABC Electronics has the following standard costs and other data:
Part
beta Part
Zeta

Direct materials P 4.00 P80.00

Direct labor 10.00 47.00
Factory overhead 40.00 20.00
Unit standard cost P54.00
P147.00
Units needed per year 6,000 8,000
Machine hours per unit 4 2
Unit cost if purchased P50 P150.00

In past years, ABC has manufactured all of itsrequired components; however, this year only
30,000 hours of otherwise idle machine time can be devoted to the production of components.
Accordingly, some of the parts must be purchased from outside suppliers. In producing parts, factory
overhead is applied at P10 per standard machine hour. Fixed capacity costs that will not be affected by
any make-or-buy decision represent 60% of the applied overhead. The 30,000 hours available machine
time are to be scheduled so that ABC realizes maximum potential cost savings. The relevant unit
production costs that should be considered in the decision to schedule machine time are:

a. P54.00 for Beta and P147.00 for Zeta

b. P50.00 for Beta and P150.00 for Zeta
c. P14.00 for Beta and P127.00 for Zeta
d. P30.00 for Beta and P135.00 for Zeta

27. Zapatero, Inc. operates a chain of shoe stores around the country. The stores carry many styles
of shoes that are all sold at the same price. To encourage sales personnel to be aggressive in their sales
efforts, the company pays a substantial sales commission on each pair of shoes sold. Sales personnel
also receive a small basic salary. The following cost and revenue data relate to Store 9 and are typical of
the company’s many sales outlets:
Selling price P800
Variable expenses:
Invoice cost s P360
Sales commission 140
P500

Fixed expenses per year:

Rent P1,600,000
Advertising 3,000,000
Salaries 1,400,000
Total P6,000,000
The company is considering eliminating sales commissions entirely in its stores and increasing fixed
salaries by P2,142,000 annually. If this change is made, what will be the number of pairs of shoes to be
sold by Store 9 to be indifferent to commission basis?
a. 25,300 c. 18,505
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b. 15,300 d. 21,000

28. Liquid Company manufactures fire hydrants in Oriental Mindoro. The following information
pertains to operations during the month of May:

Processing time
(average per batch) 8.0 hours
Inspection time
(average per batch) 1.5 hours
Waiting time
(average per batch) 1.5 hours
Move time
(average per batch) 1.5 hours
Units per batch 20 units
The manufacturing cycle efficiency (MCE) is
a. 72.7% c. 36.0%
b. 64.0% d. 76.0%
SOLUTION:
Processing Time 8 hours
Divided by: Throughput Time 12.5 hours
MCE 64%

29. Using the information in No. 29, what is the throughput time?
The throughput time is
a. 12.5hours c. 8.0 hours
b. 4.5 hours d. 9.5 hours

SOLUTION:
Processing time 8.0 hours
Inspection time 1.5 hours
Waiting time 1.5 hours
Move time 1.5 hours
Throughput Time 12.5 hours

30. Data Corporation is a highly automated manufacturing firm. The vice president of finance has
decided that traditional standards are inappropriate for performance measures in an automated
environment. Labor is insignificant in terms of the total cost of production and tends to be fixed,
material quality is considered more important than minimizing material cost, and customer
satisfaction is the number one priority. As a result, production and delivery performance
measures have been chosen to evaluate performance. The following information is considered
typical of the time involved to complete and ship orders.
Waiting Time:
From order being placed
to start of production 8.0 days
From start of production
to completion 7.0 days
Inspection time 1.5 days
Processing time 3.0 days
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Move time 2.5 days

The Delivery Cycle Time is

A. 22days C. 11 days
B. 14 days D. 7 days
SOLUTION:
Waiting Time:
From order being placed
to start of production 8.0 days
From start of production
to completion 7.0 days
Inspection time 1.5 days
Processing time 3.0 days
Move time 2.5 days
Delivery Cycle Time 22 days

31. Information on Divine’s direct material costs for May is as follows:

Actual quantity of direct
materials purchased and used 30,000 lbs.
Actual cost of direct materials P84,000
Unfavorable direct materials
usage variance P 3,000
Standard quantity of direct
materials allowed for May
production 29,000 lbs
For the month of May, Divine’s direct materials price variance was:
a. P2,800 favorable c. P6,000 unfavorable
b. P2,800 unfavorable d. P6,000 favorable

32. Alma Company is a chemical manufacturer that supplies industrial users. The company plans to
introduce a new chemical solution and needs to develop a standard product cost for this new
solution.
The new chemical solution is made by combining a chemical compound (nyclyn) and a solution (salex),
boiling the mixture; adding a second compound (protet), and bottling the resulting solution in 20-liter
containers. The initial mix, which is 20 liters in volume, consists of 24 kilograms of nyclyn and 19.2 liters
of salex. A 20% reduction in volume occurs during the boiling process. The solution is then cooled
slightly before 10 kilograms of protet are added; the addition of protet does not affect the total liquid
volume. The purchase prices of the raw materials used in the manufacture of this new chemical solution
are as follows:
Nyclyn P15.00 per kilogram
Salex P21.00 per liter
Protet P28.00 per kilogram
The total standard materials cost of 20 liters of the product is
a. P1,043.20 c. P1,304.00
b. P 834.56 d. P1,234.00

33. William Furniture Company uses about 200,000 yards of a particular fabric each year. The fabric
costs P2.50 per yard. The current policy is to order the fabric four times a year. Incremental ordering
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costs are about P200 per order, and incremental carrying costs are about P0.75 per yard, much o f
which represents the opportunity cost of the funds tied up in inventory. How much total annual costs
are associated with the current inventory policy?
a. P19,550 c. P38,300
b. P18,750 d. P62,500

34. The following direct labor information pertains to the manufacture of Part XW:
Number of hours required to make a
part 2.5 DLH
Number of Direct workers 75
Number of total productive hours per
week 3000
Weekly wages per worker P 1,000

Laborers’ fringe benefits treated as

direct labor cost 25% of
wages
What is the standard direct labor cost per unit of Part XW?
a. P62.500 c. P41.670
b. P78.125 d. P84.125

35. Burma, Inc. analyzes manufacturing overhead in the production of its only one product, Odds.
The
following set of information applies to the month of April, 2004:

Budgeted Actual
Units produced 40,000 38,000
Variable
Manufacturing P4/DLH P16,400
overhead
Fixed manufacturing
Overhead P20/DLH P88,000

Direct labor hours 6 4,200

minutes/unit hours

What are the fixed overhead spending and volume variances for the month of April?

A b c d
Spending P4,000 F P8,000 U P4,000 F P8,000 U
Volume P4,000 F P4,000 U P8,000 F P8,000 U

36. Using the information in Number 36, what are the variable overhead spending and efficiency
variances for the month of April?
A b c d
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Spending P400F P400U P1,200F P1,200U

Efficiency P1,600U P1,600U P 800U P 800F

37. Tamaraw Company is negotiating to purchase equipment that would cost P200,000, with the
expectation that P40,000 per year could be saved in after-tax cash costs if the equipment were acquired.
The equipment’s estimated useful life is 10 years, with no salvage value, and would be depreciated by
the straight-line method. Tamaraw’s minimum desired rate of return is 12 percent. Present value of an
annuity of 1 at 12 percent for 10 periods is 5.65. Present value of 1 due in 10 periods at 12 percent is
0.322.
The average accrual accounting rate of return during the first year of asset’s use is
a. 20.0 percent c. 10.0 percent
b. 10.5percent d. 40.0 percent

38. Glenda Company expects to generate P10 million internally which could be available for
financing
part of its P12 million capital budget for this coming year. Glenda’s management believes
that a debt-equity ratio of 40 percent is best for the firm. How much should be paid in dividends if
the target debt-equity ratio is to be maintained?
a. P2,800,000 c. P8,571,429
b. P1,428,571 d. P4,000,000

39. Panama Insurance Company’s management is considering an advertising program that

would require an initial expenditure of P165,500 and bring in additional sales over the
next five years. The cost of advertising is immediately recognized as expense. The projected additional
sales revenue in Year 1 is P75,000, with associated expenses of P25,000.

The additional sales revenue and expenses from the advertising program are projected to increase by 10
percent each year. Panama Insurance Company’s tax rate is 40 percent.
The present value of 1 at 10 percent, end of each period:
Periods Present value Factory
1 0.90909
2 0.82645
3 0.75131
4 0.68301
5 0.62092
The net present value of the advertising program would be
a. P37,064 c. P(37,064)
b. P29,136 d. P(29,136)

40. For P450,000, Roxas Corporation purchased a new machine with an estimated useful life of five
years with no salvage value. The machine is expected to produce cash flow from operations, net
of 40
percent income taxes, as follows:
First year P160,000
Second year 140,000
Third year 180,000
Fourth year 120,000
Fifth year 100,000
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Roxas will use the sum-of-the-years-digits’ method to depreciate the new machine as follows:
First year P150,000
Second year 120,000
Third year 90,000
Fourth year 60,000
Fifth year 30,000

The present value of 1 for 5 periods at 12 percent is 3.60478. The present values of 1 at 12 percent
at end of each period are:
End of: Period 1 – 0.8928, Period 2 - 0.79719,Period 3 - 0.71178, Period 4 - 0.63552, Period 5 -
0.56743
Had Roxas used straight-line method of depreciation, what is the difference in net present
value provided by the machine at a discount rate of 12 percent?
a. Increase of P9,750 c. Decrease of P24,376
b. Decrease of P9,750 d. Increase of P24,376

41. GMA Company has an opportunity to acquire a new machine to replace one of its present
machines.
The new machine would cost P90,000, have a 5- year life and no estimated salvage value. Variable
operating costs would be P100,000 per year. The present machine has a book value of P50,000 and
a remaining life of 5 years. Its disposal value now is P5,000, but it would be zero after 5 years.
Variable operating costs would be P125,000 per year. Ignore income taxes. Considering the 5
years in total, what would be the difference in profit before income taxes by acquiring the new
machine as opposed to retaining the present one?
a. P10,000 decrease c. P35,000 increase
b. P15,000 decrease d. P40,000 increase

42. The board of directors of Contemporary Company was unhappy with the current return on
common
equity. Though the return on sales (profit margin) was impressively good at 12.5 percent, the asset
turnover was only 0.75. The present debt ratio is 0.40.
Atty. Tristan, the vice-president of corporate planning, presented a proposal as follows:
• Profit margin should be raised to 15 percent.
• The new capital structure will be revised by raising debt component.
• The asset turnover will be maintained at 0.75.
The proposed adjustment is estimated to raise return on equity by 50 percent. What debt ratio did Atty.
Tristan propose in order to raise the return on equity (ROE) to 150 percent of the present level?
a. 0.52 c. 0.68
b. 0.61 d. 0.72

43. Spec, Inc.’s stock is expected to generate a dividend and terminal value one year from now of
P57.00. The stock has a beta of 1.3, the risk-free interest rate is 6 percent, and the expected return
market return is 11 percent. What should the equilibrium price of Spec’s stock in the market now?
a. P50.67 C. P53.77
b. P51.35 D. P43.84
44. Tiger Company’s stock is currently selling for P60 a share. The firm is expected to earn P5.40 per
share and to pay a year-end dividend of P3.60. If investors require a 9 percent return, what rate of
growth must be expected for Tiger?
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a. Zero growth c. 40.0 percent

b. 3.0percent d. 50.0 percent

45. Galvez Company expects next year’s after-tax income to be P7,500,000. The firm’s debt ratio is
currently 40 percent. Galvez has P6,000,000 of profitable investment opportunities, and it wishes
to maintain its existing debt ratio. According to the residual dividend policy, what is the expected
dividend payout ratio next year?
a. 52.0percent c. 48.0 percent
b. 75.0 percent d. 25.0 percent

46. The Maru Company’s bonds have 5 years remaining to maturity. Interest is paid annually;
the bonds have a P1,000 face value; and the coupon interest rate is 9 percent. BONUS
What is the estimated yield to maturity of the bonds at their current market price of P850?
a.10.64 percent c. 11.76 percent
b. 11.00 percent d. 10.00 percent

47. Assume you are given the following relationships for the Bryan Company:

Sales/total assets 1.5X

Return on assets (ROA) 3%
Return on equity (ROE) 5%
The Bryan Company’s debt ratio is
a. 40% c. 35%
b. 60% d. 65%

48. Mirriam, Inc. expects net income of P800,000 for the next fiscal year. Its targeted and current
capital structure is 40% debt and 60% common equity. The director of capital budgeting has
determined that the optimal capital spending for next year is P1,200,000. If Mirriam follows a strict
residual dividend policy, what is the expected dividend payout ratio for next year?
a. 80.0 percent c. 40.0 percent
b. 66.7 percent d. 10.0percent

49. Villacorte, Inc. is considering changing its credit terms from 2/15, net 30, to 3/10, net 30. in
order to speed collections. At present, 40 percent of Villacorte’s customers take the 2 percent
discount. Under the new terms, discount customers are expected to rise to 50 percent.
Regardless of the credit terms, half of the customers who do not take the discount are expected
to pay on time, whereas the remainder will pay 10 days late. The change does not involve a
relaxation of credit standards; therefore bad debt losses are not expected to rise above their
present 2 percent level. However, the more generous cash discount terms are expected to
increase sales from P2 million to P2.6 million per year. Villacorte’s variable cost ratio is 75
percent, the interest rate on funds invested in accounts receivable is 9 percent, and the firm’s
income tax rate is 40 percent. The incremental carrying cost on receivable is
a. P843.75 c. P8,889
b. P643.75 d. P6,667

50. Elcinore Company is considering a switch to level production. Cost efficiencies will occur under
level production and after tax cost would decline by P70,000 but inventory would increase from
P1,000,000 to P1,800,000. Elcinore would have to finance the extra inventory at a cost of 10.5 percent.
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How low would interest rate need to fall before level production would be feasible?
a. 7.00 percent c. 8.75percent
b. 5.83 percent d. 10.00 percent

51. A learning curve of 80% assumes that production produced as an approximate percent of the
first
unit produced?
a. 30 percent c. 51 percent
b. 41percent d. 64 percent

52. Each stockout of a product sold by Arroyo Co.costs P1,750 per occurrence. The company’s
carrying cost per unit of inventory is P5 per year, and the company orders 1,500 units of product 20
times a year at a cost of P100 per order. The probability of a stockout at various levels of safety
stock are:
Units of Safety Stock Probability of Stockout
0 0.50
100 0.30
200 0.14
300 0.05
400 0.01
The optimal safety stock level for the company based on the units of safety stock level above is
a. 200 units c. 300 units
b. 100 units d. 400 units
53. Pidol, Inc. is considering a three-phase research project. The time estimates for completion of
Phase 2 of the project are:
Pessimistic 20 days
Most likely 16 days
Optimistic 10 weeks
Using the program evaluation and review technique (PERT), the expected time for completion of Phase 2
should be
a. 15.67 days c. 16 days
b. 15.33 days d. 20 days
54. The manager of Mush Company has developed the following probability distribution of dairy
sales of a highly perishable product. The company restocks the product each morning:
X(Units Sold) P(Sales=X)
200 0.25
240 0.40
255 0.15
260 0.10
275 0.05
300 0.05
If the company desires an 80% service level in satisfying sales demand, what should the initial
balance be for each day?
a. 225 c. 255
b. 245 d. 184

Questions 56 through 59 are based on the following information:

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Timex Sporting Goods Company, a wholesale supply company, engages independent sales agents to
market the company’s products throughout the country. These agents currently receive a commission of
20 percent of sales, but they are demanding an increase to 25 percent of sales made during the year
ending December 31, 2005. The controller already prepared the 2005 budget before learning of the
agents’ demand for an increase in commission. The budgeted 2005 income statement is shown below.
Assume that cost of goods sold is 100 percent variable cost.
Sales P10,000,000
Cost of goods sold 6,000,000
Gross margin P 4,000,000
Selling and
administrative
expenses
Commissions P2,000,000

All other expenses

(fixed) 100,000 2,100,000
Income before
Taxes P 1,900,000
Income tax (30%) 570,000
Net income P 1,330,000

Timex’s management is considering the possibility of employing full-time sales personnel. Three
individuals would be required, at an estimated annual salary of P30,000 each, plus commissions of 5
percent of sales. In addition, a sales manager would be employed at a fixed annual salary of P160,000.
All other fixed costs, as well as the variable cost percentages, would remain the same as the
estimates in the 2005 budgeted income statement.

55. How much is the estimated break-even point in peso sales for the year ending December 31,
2005, based on the budgeted income statement prepared by the controller?
a. P500,000 c. P250,000
b. P400,000 d. P125,000

56. How much is the estimated break-even point in peso sales for the year ending December 31,
2005, if the company employs its own sales personnel?
a. P542,857 c. P875,000
b. P742,857 d. P1,000,000

57. As the variable cost increases but the selling price remains constant, the
a. Degree of operating leverage declines
b. Breakeven point goes down
c. Margin of safety stays constant
d. Contribution margin ratio goes up
58. How much is the estimated volume in peso sales that would generate an identical net income
for the year ending December 31, 2005, regardless of whether Timex employs its own sales
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personnel or continues to use the independent sales agents and pays them a 25 percent
commission?
a. P1,000,000 c. P1,500,000
b. P1,250,000 d. P1,800,000

Questions 59 through 63 are based on the Red Corporation, a retailer whose sales are all made on
credit. Sales are billed twice monthly, on the 10 th of the month for the last half of the prior month’s
sales, and on the 20th of the month for the first half of the current month’s sales. The terms of all
sales are 2/10, net/30. Based upon past experience, the collection of accounts receivable is as follows:

Within the discount period 80%

On the 30th day 18%
Uncollectible 2%

Red’s average markup on its products is 20% of the sales price. All sales and purchases occur
uniformly throughout the month. The sales value of shipments for May and the forecasts for the next
four months follow:
May (actual) P500,000
June 600,000
July 700,000
August 700,000
September 400,000

Red purchases merchandise for resale to meet the current month’s sales demand and to maintain a
desired monthly ending inventory of 25% of the next month’s sales. All purchases are on credit
with terms of net/30. Red pays for 50% of a month’s purchases in the month of purchase and
50% in the month following the purchase.

59. How much cash can Red Corporation plan to collect from accounts receivable collections during
July?
a. P574,000 c. P619,000
b. P662,600 d. P608,600

60. How much cash can Red plan to collect in September from sales made in August?
a. P337,400 c. P400,400
b. P343,000 d. P280,000

61. The budgeted peso value of Red’s inventory on August 31 will be

a. P110,000 c. P112,000
b. P80,000 d. P100,000

62. How much merchandise should Red plan to purchase during June?
a. P520,000 c. P500,000
b. P460,000 d. P580,000

63. The amount Red should budget in August for the payment of merchandise is
a. P560,000 c. P600,000
b. P530,000 d. P667,000
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64. Red has found that most retailers in the area use markup percentages based upon cost rather
than sales. Assuming MS equals the markup percentage based upon sales price and MC equals
the markup percentage based upon cost, what formula would Red use to convert its markup on
sales to one based upon cost?
a. MC = MS/(1 + MS) c. MC = (1 – MS)/MS
b. MC=MS/(1-MS) d. MC = (1 + MS)/MS

65. Basic objectives of cost accounting is__________.

A. tax compliance.
B. financial audit.
C. cost ascertainment.
D. profit analysis.

66. Direct cost incurred can be identified with ________.

A. each department.
B. each unit of output.
C. each month.
D. each executive.

67. Overhead cost is the total of ____________.

A. all indirect costs.
B. all direct costs.
C. indirect and direct costs.
D. all specific costs.

68. Imputed cost is a__________.

A. notional cost.
B. real cost.
C. normal cost.
D. variable cost.

69. Operating costing is suitable for ___________.

A. job order business.
B. contractors.
C. sugar industries.
D. service industries.

70. Process costing is suitable for _________.

A. hospitals.
B. oil reefing firms.
C. transport firms.
D. brick laying firms.

71. Cost classification can be done in __________.

A. two ways.
B. three ways.
C. four ways.
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D. several ways.

72. Costing refers to the techniques and processes of __________

A. ascertainment of costs.
B. allocation of costs.
C. apportion of costs.
D. distribution of costs.

73. Cost accounting was developed because of the ________.

A. limitations of the financial accounting.
B. limitations of the management accounting.
C. limitations of the human resource accounting.
D. limitations of the double entry accounting.
ANSWER: A

74. Multiple costing is a technique of using two or more costing methods for ascertainment of cost
by.
A. the same firm.
B. the several firms.
C. the same industry.
D. the several industries.
ANSWER: A

75. Wages paid to a labor who was engaged in production activities can be termed as.
A. direct cost.
B. indirect cost.
C. sunk cost.
D. imputed cost.

76. The cost which is to be incurred even when a business unit is closed is a.
A. imputed cost.
B. historical cost.
C. sunk cost.
D. shutdown cost.

77. Classification of cost is useful .

A. to find gross profit.
B. to find net profit.
C. to identify costs.
D. to identify efficiency.

78. Elements of costs are.

A. three types.
B. four types.
C. five types.
D. seven types.
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79. Direct expenses are also called ________ .

A. major expenses.
B. chargeable expenses.
C. overhead expenses.
D. sundry expenses.

80. Indirect material used in production is classified as.

A. office overhead.
B. selling overhead.
C. distribution overhead.
D. production overhead.

81. Warehouse rent is a part of _________.

A. prime cost.
B. factory cost.
C. distribution cost.
D. production cost.

82. Indirect material scrap is adjusted along with ________.

A. prime cost.
B. factory cost.
C. labour cost.
D. cost of goods sold.

83. Which one of the following is not considered for preparation of cost sheet?
A. Factory cost.
B. Goodwill written off.
C. Selling cost.
D. Labour cost.

84. Sale of defectives is reduced from _________.

A. prime cost.
B. works cost.
C. cost of production.
D. cost of sales.

85. Tender is an.

A. estimation of profit.
B. estimation of cost.
C. estimation of selling price.
D. estimation of units.

86. Cost of sales plus profit is __________.

A. selling price.
B. value of finished product.
C. value of goods produced.
D. value of stocks.
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87. Prime cost includes.

A. direct materials, direct wages and indirect expenses .
B. indirect materials and indirect labor and indirect expenses.
C. direct materials, direct wages and direct expenses.
D. direct materials, indirect wages and indirect expenses.

88. Total of all direct costs is termed as _______.

A. prime cost.
B. works cost.
C. cost of sales.
D. cost of production.

89. Depreciation of plant and machinery is a part of ___________.

A. factory overhead.
B. selling overhead.
C. distribution overhead.
D. administration overhead.

90. Audit fess is a part of__________.

A. works on cost.
B. selling overhead.
C. distribution overhead.
D. administration overhead.

91. Counting house salary is part of___________.

A. factory overhead.
B. selling overhead.
C. distribution overhead.
D. administration overhead.

92. Factory overhead can be charged on the basis of___________-.

A. material cost.
B. labor cost.
C. prime cost.
D. direct expenses

93. Office and administrative expenses can be charged on the basis of__________.
A. material cost.
B. labor cost.
C. prime cost.
D. factory cost.

94. Selling and distribution expenses can be charged on the basis of______________.
A. material cost.
B. labor cost.
C. prime cost.
D. factory cost.
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95. The ratios which reflect managerial efficiency in handling the assets is.
A. turnover ratios
B. profitability ratios.
C. short term solvency ratio.
D. long term solvency ratio.

96. The ratios which reveal the final result of the managerial policies and performance is_____.
A. turnover ratios.
B. profitability ratios.
C. short term solvency ratio.
D. long term solvency ratio.

97. Return on investment is a_________.

A. turnover ratios.
B. short term solvency ratio.
C. profitability ratios.
D. long term solvency ratio.

98. Net profit ratio is a ___________.

A. turnover ratio.
B. long term solvency ratio.
C. short term solvency ratio
D. profitability ratio.

99. Stock turnover ratio is a___________.

A. turnover ratio.
B. profitability ratio.
C. short term solvency ratio.
D. long term solvency ratio.

100. AutoPass Company is an automobile replacement parts dealer in a large metropolitan

community. AutoPass is preparing its sales forecast for the coming year. Data regarding both
AutoPass and industry sales of replacement parts as well as both the used and new automobile
sales in the community for the last 10 years have been accumulated. If AutoPass wants to
determine whether its sales of replacement parts are dependent upon the industry sales of
replacement parts or upon the sales of used and new automobiles, the company should employ
a. Simulation techniques.
b. Correlation and regression analysis.
c. Statistical sampling.
d. Time series analysis.