St.

Scholasticas College Manila

SCHOOL OF ACCOUNTANCY
MANAGEMENT ACCOUNTING Part 1
Final Examination

NAME:
____________________________
SECTION: _____________________________

SCORE: _______________
DATE: _______________

Multiple Choices: Choose the best answer for each of the following questions.
I.

THEORIES

1. Which of the following is not a characteristic of management services?

a. Design/or installation of accounting system
c. Cost analysis of major decisions
b. Financial analysis for project feasibility studies
d. None of the above
2. The following characterize management advisory services, except
a. Involves decisions for the future
c. Utilize more junior staff than senior
members of the firm
b. Broader ins cope and varied in nature
d. Relate to specific problems where expert
help is required
3. A certified public accountants scope of management services is broad and covers all of the
following except
a. Change in management engagements
c. Audit engagement
b. Computerization engagements
d. Re-engineering engagement
4. Which of the following statements is not acceptable?
a. A CPA represents three major players in the industry in rationalizing the industrys
incentive before the government public hearings
b. A CPA shares with a new and substantial client information regarding another client
belonging to the same industry
c. A CPA provides consulting services to an existing audit client
d. A CPA offers and provides consulting services to two major competing clients
5. The Chief management accountant called controller traditionally performs these functions,
except
a. The establishment and implementation of the financial process
b. Financial and management reporting and interpretation
c. Protection of company resources and economic evaluation
d. Relate to specific problems where expert help is required
6. Which of the following is not a characteristic of s staff authority?
a. It gives support, advises and services to line managers
choices
b. It is exercised laterally and upward

d.

None

of

the

c. It has authority to command or give orders to subordinates

7. The term that refers to costs in the past that are not relevant to a future decision is
a. Full absorption cost
c. Sunk cost
b. Under allocate indirect cost
d. Incurred marginal cost
8. Opportunity costs are
a. Costs irrevocably incurred by past actions
c. Not recorded in the accounting
records
b. The difference between actual and standard costs d. Partly fixed costs and partly
variable costs
9. The salaries you could be earning by working rather than attending college is an example of
a. Outlay costs
b. Misplace costs
c. Sunk costs
d. Opportunity
costs
10. These are among the methods of segregating fixed cost and variable costs except
a. Breakeven method
c. Scatter graph method
b. Simple regression analysis
d. High low method
11. Cost volume profit analysis assumes that over the relevant range
a. Variable costs are nonlinear
c. Selling prices are unchanged
b. Fixed costs are nonlinear
d. Total costs are unchanged
12. One of the major assumptions limiting to reliability of break-even analysis is that
a. The cost of productivity will continually increase
b. The cost of production factors varies with changes in technology
c. Total variable cost will remain unchanged over the relevant range
d. Total fixed cost will remain unchanged over the relevant range
13. Cost volume profit analysis is a key factor in many decisions, including choice of product
lines, pricing of products, market strategy, and use of productive facilities. A calculation used
in a CVP analysis is the break-even point. Once the breakeven point has been reached,
operating income will increase by the
a. Gross margin per unit for each additional unit sold
b. Contribution margin per unit for each additional unit sold
c. Variable cost per unit for each additional unit sold
d. Sales price per unit for each additional unit sold
14. When an organization is operating above the breakeven point, the degree or amount that
revenues may decline before losses are incurred is the
a. Residual income
c. Margin of safety
b. Marginal rate of return
d. Target rate of return
15. If production is greater than sales (units), then absorption costing net income will generally
be
a. Greater than direct costing net income
c. Equal to direct costing net income
b. Less than direct costing net income
d. Additional data is needed to be able to
answer

16. Budgetary slack can best be described as

a. The elimination of certain expenses to enhance the budgeted income
b. The planned overestimation of budgeted expenses
c. A plug number used to achieve a preset level of operating income
d. The planned underestimation of budgeted expenses
17. The master budget process usually begins with the
a. Production budget
b. Operating budget
Sales budget

c. Financial budget

d.

18. The budget describing the long term position, goals and objectives of an entity within its
environment is the
a. Capital budget
c. Cash management budget
b. Operating budget
d. Strategic budget
19. A flexible budget is
a. Not appropriate when costs and expenses are affected by fluctuations in volume limits
b. Appropriate for any relevant level of activity
c. Appropriate by control of factory overhead but not for control of direct materials and
direct labor
d. Appropriate for control of direct materials and direct labor but not for control of the
factory overhead
20. Excess direct labor wages resulting from overtime premium will be disclosed in which type of
variance?
a. Yield
b. Quantity
c. Labor efficiency
d. Labor rate
II.

PROBLEMS

Questions 21 and 22 are based on the following selected budgeted data of CAB Company for
the coming year.
Selling price per unit
P12.00
Fixed expenses
P150,000
Budgeted sales
P600,000
Variable cost per unit
P 8.00
21. What is the break even in sales in units?
a. 35,000
b. 37,500
c. 40,000

d. 45,000

22. What is the margin of safety ratio in percent?

a. 15%
b. 20%
c. 30%

d. 25%

23. At the end of Chico Companys first year of operations, 1,000 units of inventory remained on
hand. Variable and fixed manufacturing cost per unit was P90 and P20, respectively. If Chico
uses absorption costing rather than direct costing, the result would be a higher pretax
income of
a. P20,000
b. P70,000
c. P0
d. P90,000
24. TIDE, Inc. reported the following data for 2006

Actual hours
Fixed predetermined overhead rate
Denominator hours
Variable predetermined overhead rate
Standard hours allowed for output

120,000
P6/hour
150,000
P4/hour
140,000

TIDEs volume variance was

a. P60,000 which is neither favorable nor underapplied
variance
b. P60,000 favorable
underapplied

c.
d.

No

volume
P60,000

25. A company is formulating its plans for the coming year, including the preparation of its cash
budget. Historically, the companys sales are 30% cash. The remaining sales are on credit
with the following collection pattern:
Collection on account
Percentage
In the month of sale
40%
In the month following the sale
58%
Uncollectible
2%
Sales for the first 5 months of the coming year are forecast as follows:
January
P3,500,000
April
P4,000,000
February
P3,800,000
May
P4,200,000
March
P3,600,000
For the month of April, the total cash receipts from sales and collection on account would be
a. P3,729,968
b. P3,781,600
c. P4,025,000
d. P4,408,000

26. In preparing its cash budget for May 2006, Roy Company made the following projections:
Sales
P3,000,000
Gross Margin (based on sales)
25%
Decrease in inventories
P140,000
Decrease in accounts payable for inventories
P240,000
For May 2006, the estimated cash disbursements for inventories were
a. P2,350,000
b. P2,110,000
c. P2,100,000
d. P1,870,000
Questions 27 to 29 are based on the following information. Macrburger uses a standard
costing system in the manufacture of its single product. The 35,000 units of raw material in
inventory were purchased for P105,000, and two units of raw materials are required to
produce one unit of final product. In November, the company produced 12,000 units of
product. The standard allowed for material was P60,000, and there was an unfavorable
quantity variance of P2,500.
27. Macrburgers standard price for one unit of materials is
a. P2.50
b. P3.00
c. P5.00
P6.00
28. The units of materials used to produce November output totaled

d.

a. 12,000 units

b. 23,000

c. 24,000

d. 25,000

29. The materials price variance for the units used in November was
a. P2,500 unfavorable
b. P15,000 unfavorable
c. P12,500 unfavorable
favorable

d. P2,500

30. Below are FL corporations standard costs to produce one concrete table:
Direct raw material: 2 kgs. @ P375 per kg
Direct labor: 30 mins. @ P31.25 per
hour
In September, FL produced 250 concrete tables. Five hundred twenty (520) kgs of raw
materials were used at a total costs of P193,440. A total of 128 direct labor hours were used
at a cost of P4,096. The direct labor rate variance is
a. P22.50
b. P93.00
c. P64.75
d. P96.00
Questions 31 to 33 are based on the following data:
OSO companys industrial photo finishing division, Otso, incurred the following cost and
expenses in 2006:
Variable
Fixed
Direct materials
P200,000
Direct labor
150,000
Factory overhead
70,000
P42,000
General, selling and administrative
30,000
48,000
Total
P450,000
P90,000
=======
======
During 2006, OTSO produced 300,000 units of industrial photo prints, which were sold for
P2.00 each. OSOs investment in OTSO was P500,000 and P700,000 at January 1, 2006
and December 31m 2006, respectively. OTSO normally imputes interest on investments at
15% of average invested capital.
31. For the year ended December 31, 2006, OSOs return on average investment was
a. 15%
b. 10%
c. 8.6%
d.

(0.5%)

32. Assume that the net operating income was P60,000 and that average invested capital was
P600,000. For the year ended December 31, 2006, OTSOs residual income (loss) was
a. P150,000
b. P60,000
c. P(P45,000)
d. (P30,000)
33. How many industrial photo print units did OTSO have to sell in 2006 to break even?
a. 180,000
b. 120,000
c. 90,000
d. 60,000
34. For the current year, Win, Inc. reported sales of P800,000 and an asset turnover of 2. The
rate of return on average assets was 20%. The companys margin for the year was
a. 10%
b. 25%
c. 40%
d. 50%

35. Singer Company is considering the purchase of` an equipment that costs P200,000. Annual
cash savings of P50,000, with a present value of 15% of P189,230, are expected for the
next six years. Given this information, which of the following statements is true?
a. This investment offers an actual rate of return of 15%.
b. This investment offers an actual rate of return of less than 15%.
c. This investment offers an actual rate of return of more than 15%
d. This investment offers a negative rate of return.
36. Liman, Inc. is considering the purchase of a machine costing approximately P40,000. Using
a discount rate of 20%, the present value of future cash inflows are calculated to be
P40,000. To yield at least a 20% return, the actual cost of the machine should not exceed
the P40,000 estimate by more than
a. P40,000
b. P8,000
c. P80,000
d. P0
37. Sirene, Inc. requires all its capital investments to generate an internal rate of return of 12%.
The company is considering an investment costing P150,000 that is expected to generate
equal annual cash inflows of P40,000 for 5 years. The present value of 1, end of 5 years is
0.56743 and the present value of annuity of 1 is 3.60478 based on 12% required rate of
return. To meet the 12% minimum acceptable rate of return by Sirene, the estimated salvage
value at the end of 5 years (ignoring income taxes) should be
a. P10,237
b. P1,611
c. P3,296
d.
P20,940
38. Levy Company has current assets of P4,000,000 and a current liabilities of P3,000,000.
Which of the following transactions would increase its working capital?
a. Prepayment of P50,000 of next years rent.
b. Refinancing P500,000 of short term debt with long term debt.
c. Acquisition of land valued at P1 million by issuing new common stock.
d. Purchase of P50,000 marketable securities for cash.
39. A weakness of the internal rate of return method for screening investment projects is that it
a. Does not consider the time value of money
b. Implicitly assumes that the company is able to reinvest cash flows from the project at
the companys discount rate.
c. Implicitly assumes that the company is able to reinvest cash flows from the project at
the internal rate of return
d. Fails to consider the timing of cash flows.
40. Diana sells a single product at P20 per unit. The firms most recent income statement
revealed unit sales of 100,000, variable costs of P800,000, and fixed costs of P400,000. If a
P4 drop in selling price will boost unit sales volume by 20%, the company will experience;
a. No change in profit because a 20% drop in sales is balanced by a 20% increase in
volume
b. An P80,000 drop in profitability
c. A P240,000 drop in profitability
d. A P240,000 drop in profitability
41. An investment in new equipment costing P150,000 is expected to yield net cash flows of
P45,000 annually for five years. The cost of capital is 10%. The average book rate of return
would be

a. 10%
33.3%

b. 30%

c. 20%

d.

42. Press Company is considering replacing a machine with a book value of P200,000, a
remaining useful life of 5 years, and annual straight line depreciation of P40,000. The
existing machine has a current market value of P200,000. The replacement machine would
cost P300,000, have a 5 year life, and save P100,000 per year in cash operating costs. If
the replacement machine would be depreciated using the straight line method an the tax
rate is 40%, what would be the increase in annual net cash flow if the company replaces the
machine?
a. P60,000
b. P76,000
c. P68,000
d. P84,000
43. Air Companys production budget is as follows:
Budgeted sales in units
Desired units in inventory, December 31
Total
Estimated units in inventory, January 1
Budgeted units of production

200,000
35,000
235,000
25,000
210,000
======
Each unit takes 20 minutes to produce and the standard labor rate is P15 per labor hour.
What is Airs direct labor budget?
a. P1,050,000
b. P1,175,000
c. P1,000,000
d.
P9,450,000

44. Cebu Star began business at the start of the current year. The company planned to produce
25,000 units and actually produced 23,000 units. Sales totaled 22,000 units at P30 each.
Cost incurred were;
Fixed manufacturing overhead
P150,000
Fixed selling and administrative cost
100,000
Variable manufacturing cost per unit
P8
Variable selling and administrative cost per unit
P2
Which of the following statements is true?
a. The variable costing income statement profit is P208,000
b. The difference in profit between absorption and variable costing methods is P6,000.
c. The absorption costing income statement profit is P196,000.
d. The volume variance is P6,000 unfavorable.
45. A company has fixed costs of P900 and a per unit contribution margin of P3. Which of the
following statements is (are) true?
a. Each unit contributes P3 toward covering the fixed costs of P900.
b. The situation described is not possible and there must be an error.
c. Once the break-even point is reached, the company will make money at the rate of
P3 per unit.
d. Statements A and C are true.

46. Eastwest manufactures a product requiring 0.5 ounces of platinum per unit. The cost of
platinum is approximately P360 per ounce; the company maintains an ending platinum
inventory equal to 10% of the following months production usage. The following data were
taken from the most recent quarterly production budget;
July
August
September
Planned production in units 1,000
1,100
980
It takes two direct labor hours to produce each unit and East wests cost per labor hour is
P15, direct labor cost for August would be budgeted at
a. P16,500
b. P31,200
c. P33,000
d.
P34,800
47. Consider the following:
Direct material purchased and used, 80,000 gallons
Standard quantity of direct material allowed for May production, 76,000 gallons
Actual cost of direct materials purchased and used, P176,000.
Unfavorable direct material quantity variance, P9,400.
The direct material price variance is
a. P11,400 F
b. P11,400 UF
c. P12,000 F
d. P12,000UF
48. The following data relate to Department 2 of Old Corporation;
Segment contribution margin
P480,000
Profit margin controllable by the segment manager
230,000
Segment profit margin
110,000
On the basis of this information, fixed costs traceable to Department 2 but controllable by
others are
a. P120,000
b. P140,000
c. P250,000
d. P370,000
49. The information that follows relates to Kathy Corporation
Sales margin,
7.5%
Capital turnover,
2
Invested Capital,
P20,000,000
On the basis of this information, the companys sales revenue
a. P1,500,000
b. P3,000,000
c. P10,000,000
P40,000,000

d.

50. Tronix Division reported a residual income of P200,000 for the year jut ended. The division
had P8,000,000 of invested capital and P1,000,000 of income. On the basis of this
information, the imputed interest rate was
a. 2.5%
b. 10%
c. 12.5%
d. 20%