SOLUTION - MANAGEMENT ADVISORY SERVICES TEST BANK

1. ANSWER B

Diff. in costs (P12,415 P11,737) P 678

diff. in hours (150 120) 30
Variable rate per hour P22.60

Total cost P12,415 P11,737

Less variable cost (22.60x150) 3,390 (22.60x120) 2,712
Fixed costs P 9,025 P 9,025

2. ANSWER B

Variable cost (140 x P22.60) P 3,164

Fixed cost 9,025
Total cost P12,189
number of hours 140
Cost per hour P 87.06

3. ANSWER B

Prime costs P 900,000

Applied overhead (P600,000/75,000 DLH x 75,700) 605,600
Total cost P1,505,600
Units produced 100,000
Unit cost P 15.06

4. ANSWER C

Activity 1 (P20,000 x 100/500) P 4,000

Activity 2 (P37,000 x 800/1,000) 29,600
Activity 3 (P91,200 x 800/3,800) 19,200
Total allocated cost P52,800
number of units 8,000
Cost per unit P 6.60

5. ANSWER A

Activity costs, Patient 2:

Room and meals (3 x P150) P 450
Radiology (2 x P95) 190
Pharmacy (1 x P28) 28
Chemistry lab (2 x P85) 170
Operating room (1 x P550) 550
Total P1,388

6. ANSWER B

Assembly department = P9/machine hour x 3 machine hours x 20 sets = P540

7. ANSWER D

8. ANSWER C

Projected sales (125,000 x P6) P750,000

Less contribution margin:
Income before tax (75,000/0.60) P125,000
Add fixed cost 250,000 375,000
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Variable costs P375,000

number of units 125,000
Variable cost per unit P 3.00
9. ANSWER D

Let S = Sales; CM = 0.40S; NY = 0.10S

Fixed Cost = (0.40S 0.10S) = 0.30S

Sales (P60,000 0.30) P200,000

Less breakeven sales (P60,000 0.40) 150,000
Margin of safety P 50,000

10. ANSWER B

Increase in profit (P40,000 x 20%) P 8,000

Present profit:
Contribution margin P40,000
Less fixed costs 30,000 10,000
% change in profit 80%

11. ANSWER C
Expected sales - units 20,000
Less break-even sales:
Fixed costs (20,000 x [10 + 5]) P300,000
Unit contribution margin
(120 [35 + 15 + 10 + 20]) P40 7,500
Margin of safety 12,500 units
Margin of safety in pesos (12,500 x P120) P1,500,000
Margin of safety ratio (12,500 20,000) 62.5%

12. ANSWER C

Fixed costs P148,500

P22,440
Add desired profit ( )
1 0.32 33,000
Total P181,500
60 [22.50 + 4.50]
CMR ( )
60 55%_
Required sales to earn desired profit P330,000

13. ANSWER B
Fixed costs:
Manufacturing (148,500 x 60% x 120%) P106,920
Non-manufacturing (148,500 x 40% x 110%) 65,340
Total fixed costs P172,260
Contribution margin ratio:
Selling price P75.00
Less variable costs:
Manufacturing (P22.50 + P4.50) P27.00
Selling and administrative 4.50 31.50
Contribution margin per unit P43.50
Selling price 75.00
Contribution margin ratio P 58%

Required peso-sales to earn a desired profit ratio:

Fixed Cost P172,260

RS = = = P358,875
CMR PR 58% 10%
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14. ANSWER A

15. ANSWER C

Fixed cost P122,500

Add desired profit (P250,000 x 32%) 80,000
Total P202,500
CM per unit [P15 x (100% - 58%)] 6.30
Required sales in units 32,143

16. ANSWER B
Mix variance P450 U
Yield variance 150 U
Quantity variance P600 U

17. ANSWER A

Total standard cost P72,000

Std qty for actual production (14,400 x 4) 57,600
Standard price per unit of materials P1.25

The usage variance is P3,000 unfavorable. The standard price is P1.25. Using the formula for Usage
variance, the difference in quantity may be computed as follows:

Usage variance =Difference in quantity x Std. price

3,000 U = Difference in quantity x P1.25

Difference in quantity = 3,000 P1.25
= 2,400 unfavorable

If the difference in quantity is unfavorable, the actual quantity is greater than the standard quantity:

Standard quantity (14,400 x 4) 57,600

Add unfavorable difference in quantity 2,400
Actual quantity used 60,000 units

Price Variance = (AP SP) x AQ

= ([P126,000 84,000] P1.25) x 60,000

= P15,000 unfavorable

18. ANSWER D

Actual price (P10,080 4,200) P2.40

Standard price 2.50
Difference in prices - favorable P 0.10
X actual quantity purchased 4,200
Price variance favorable P 420

19. ANSWER C

Actual time hours 4,100

Less standard time (1,000 x 4) 4,000
Difference in time unfavorable 100
X standard rate per hour P 12
Efficiency variance unfavorable P1,200

20. ANSWER C
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21. ANSWER B

22. ANSWER A

23. ANSWER D

24. ANSWER D

20 TO 24
Actual variable overhead P4,100
Actual time x std. var. rate (2,100 x P2) 4,200
Spending variance favorable P 100

Actual time x std. var. rate (2,100 x P2) P4,200

Std. variable overhead [(19,000 x 0.1) x P2] 3,800
Efficiency variance unfavorable P 400

Actual fixed overhead P22,000

Less budgeted fixed overhead 20,000
Fixed spending variance unfavorable P 2,000

Budgeted fixed overhead P20,000

Less standard fixed overhead
[1,900 x (P20,000/<20,000 x 0.1>)] 19,000
Volume variance unfavorable P 1,000

20. Controllable variance (P100 F + P400 U + P2,000 U) = 2,300 U

21. Spending variance (P100 F + P2,000 U) = P1,900 U

25. ANSWER D

26. ANSWER C

27. ANSWER A

28. ANSWER B

Absorption income P30,000

Diff. in income (8,000-5,000) x (P100k/8k) 37,500
Variable costing income (P 7,500)

29. ANSWER B

Sales (5,000 x P40) P200,000

Less cost of goods sold (5,000 x P21.50) 107,500
Gross profit P 92,500
Less profit 30,000
Selling, gen. & admin. expenses P 62,500

30. ANSWER C

Ending inventory units (8,000 5,000) 3,000

X product cost per unit (3 + 5 + 1) P 9
Cost of ending inventory P 27,000
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31. ANSWER D

32. ANSWER C
Change in inventory (100k 80k) 20,000
x fixed overhead cost per unit (P180k 100 1.80
Difference in income P36,000

33. ANSWER B
Product X Product Y
CM per unit P 50 P 64
hours per unit 5 8
CM per hour P 10 P 8

80% of capacity must be applied to Product X, the product with the higher CM per hour.

Product X (25,000 x 80%) 5 = 4,000 units x P50 P 200,000

Product Y (25,000 x 20%) 8 = 625 units x P64 40,000
Total contribution margin P240,000

34. ANSWER A

Loss P15,000
Desired profit 10,000
Required increase in profit P25,000
number of units 5,000
Profit per unit P 5.00
Add production costs:
Materials (P6.00 P1.50) P 4.50
Labor 10.00
Variable overhead 3.00
Variable selling exp (P2 P1) 1.00 18.50
Sales price per unit P23.50

35. ANSWER C

Avoidable sales P1,000,000

Avoidable costs:
Var. CGS (P800,000 x 75%) P600,000
Fixed CGS (P800,000 P600,000) x 60% 120,000
Selling expenses 100,000
Admin. exps. (P250,000 x 10%) 25,000 845,000
Decrease in income P155,000

36. ANSWER D
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37. ANSWER D

The special order is for 500 boxes of 24 bottles each or a total of 12,000 bottles. Materials costs will be:
Chem 1: Total required 12,000 bottles x 4 ml 48,000 ml
Available Chem 5 that can be substituted
for Chem 1, 20,000 ml, salvage value * P 6,000
Balance of Chem 1 required
(48,000 ml 20,000 ml) x P0.54 15,120
Chem 2: 12,000 bottles x 3 ml x P0.36 12,960
Chem 3 12,000 bottles x 2 ml x P0.20 4,800
Chem 4 12,000 bottles x 5 ml x (P0.40 P0.10)* 18,000

Total materials cost P56,880

* The relevant cost of existing stocks is equal to their salvage value that will not be realized if the stocks are
used in the Clever order.

38. ANSWER A

Labor: Total required time 12,000 bottles x 2 hours 24,000 hours

Labor cost at regular rate (24,000 hours x P3) P72,000
Overtime premium (24,000 20,000) x P3 x 30% 3,600
Total labor cost P75,600
Factory overhead variable (24,000 hours x P2) 48,000
Total relevant conversion cost P123,600

The overtime premium is part of labor cost, not of overhead cost, because the overtime work is attributable to a
particular job.

The total fixed factory overhead is assumed to remain constant whether or not the special order is accepted,
hence, irrelevant.

39. ANSWER C

Materials cost (from Item #44) P 56,880

Variable conversion cost (from Item #45) 123,600
Fixed factory overhead (24,000 hours x P4) 96,000
Full manufacturing cost P276,480
Number of bottles ordered (500 boxes x 24) 12,000
Full cost per bottle P 23.04
130%
Bid price per unit P 29.95

40. ANSWER D

Materials:
Chem 1 12,000 bottles x 4 ml x P0.54 P25,920
Chem 2 12,000 bottles x 3 ml x P0.36 12,960
Chem 3 12,000 bottles x 2 ml x P0.20 4,800
Chem 4 12,000 bottles x 5 ml x P0.40 24,000
P67,680
Variable conversion cost (from Item #45) 123,600
Total variable manufacturing costs P191,280

For subsequent orders, the company will have to buy all the required materials because by this time,
the inventory of Chem 4 and Chem 5 would have been fully utilized in the first order.
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41. ANSWER A
Fixed costs under continued operations (for 2 months):
Factory overhead (P460,000 x 2 months) P 920,000
Selling costs (P620,000 x 2 months) 1,240,000
Total P2,160,000
Less shutdown costs*:
Factory overhead (P340,000 x 2 months) P 680,000
Selling costs ([P620,000 P62,000] x 2 months) 1,116,000
Start-up costs 56,000 1,852,000
Difference P 308,000
Divide by CM per unit (P280 P168) P112
Shutdown point in units 2,750 units

42. ANSWER A

43. ANSWER C

PAT CHIN
Cont. margin P200,000 P2,000,000
units (P300k P30) 10,000 50,000
CM per unit P 20 P 40
X change in units 25,000 (5,000)
Change in CM P500,000 (P200,000)

Increase in CM (P500k P200K) P300,000

Less incremental fixed cost 245,000
Increase in profit P 55,000

44. Answer A

Acquisition cost, new lathe P300,000

Less salvage value of old lathe 20,000
Net cost of investment P280,000
savings in cash operating costs (P50,000 P200,000) 150,000
Payback period 1.87 years

45. Answer A

Present value of cost savings (P150,000 x 3.1699) P475,485

Present value of salvage value (P60,000 x 0.6830) 40,980
Total PV of cash inflows P516,465
Less net cost of investment 280,000
Net present value P236,465

46. ANSWER A

Yearly net cash inflow P 45,000

x PVF, 18% for 6 years 3.4976
Initial cost of the machine P157,392

47. ANSWER D
Cost of DPS P12
Preferred = Net issuance P120 P10 = 10.91%
Stocks price
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48. ANSWER C

Depreciation expense, as a tax shield, provides tax savings. The difference in the present
values of the tax savings under the two depreciation methods will represent the difference
in the net present values of the equipment.
Year 1 P144,000 x 32% = P46,080 0.909 P41,886.72
2 108,000 x 32% = 34,560 0.826 28,546.56
3 72,000 x 32% = 23,040 0.751 17,303.04
4 36,000 x 32% = 11,520 0.683 7,868.16

Total present value of tax savings, SYD method P95,604.48

PV of tax savings, straight-line method
(P360,000 4 years = P90,000 x 32% x 3.170) 91,296.00
Decrease in net present value P 4,308.48

49. ANSWER B

Break-even time: the cumulative present value of cash inflows equals the cost of investment
Cash Inflows x PVF = PV
1 216,309.75 0.926 P200,302.83
2 216,309.75 0.857 185,377.46
3 216,309.75 0.794 171,749.94
4 216,309.75 0.735 158,987.67
5 216,309.75 0.681 147,306.94

Total PV of cash inflows, first 4 years = P716,417.90

Break even time = 4 years

50. ANSWER C
D 1.20
Price = = = P30
KG 13 9

51. ANSWER A

Annual lease expense, net of tax (P65,000 x 60%) P 39,000

x PVF, 9%, 5 years 3.8897
Present value of the after-tax cost of leasing P151,698

52. ANSWER B

Demand 200
Less beginning inventory 70
Production 130

53. ANSWER B

54. ANSWER C

Projected sales price P50

Less required profit 12
Target cost P38

55. ANSWER D

A/R balance from April sales P 21,000

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uncollected portion (100% - 70% - 15%) 15%

April sale P140,000

56. ANSWER B

Increase in inventory 3,000

30%
Sales increase for April over March 10,000

57. ANSWER A

It is assumed that each unit of product requires one unit of materials. So, production is equal to raw materials
to be used.
Budgeted raw materials to be used (or production) 140,000+ 5,000 145,000 units
Add raw materials ending inventory 18,500
Total 163,500
Less raw materials beginning inventory 16,000
Budgeted purchases 147,500
Less actual purchases, 1st quarter 27,500
Required purchases in the remaining 3 quarters 120,000 units

Cost computation:
First quarter purchases (27,500 units) P1,760,000
Second quarter (120,000/3 or 40,000 x [P1,760,00027,500] or P64/unit) 2,560,000
Third and fourth quarters ([40,000/qtr. x 2] x[P64 x 105%]) 5,376,000
Total cost of budgeted purchases P9,696,000

58. ANSWER B

Materials inventory, December 31, 2015 18,500

x Purchase price (P64 x 1.05) P67.20
Cost of materials inventory, December 31, 2015 P1,243,200

The company uses the FIFO method of costing inventory. Thus, the ending inventory should be valued at the new
purchase price of P67.20.

59. ANSWER D

Original labor cost per unit (P784,000 140,000 units) P 5.60

th
Labor cost per unit effective on the beginning of the 4 quarter (P5.60 x 108%) P6.048
Budgeted labor cost:
First to third quarters (25,000 + 40,000 + 40,000) x P5.60) P588,000
Fourth quarter (40,000 x P6.048) 241,920
Total budgeted labor cost P 829,920

60. ANSWER B

Materials:
Inventory, January 1 P 960,000
Add purchases 9,696,000
Available for use P10,656,000
Less inventory, December 31 1,243,200 P 9,412,800
Labor 829,920
Factory overhead:
Variable:

Indirect materials (P9,412,800 x 10%) P 941,280

Other variable P2,009,600 P889,600 x
( ) . 1,160,000
overhead 140,000 145,000
Total variable overhead P2,101,280
Fixed 1,120,000 3,221,280
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Budgeted cost of goods manufactured P13,464,000

61. ANSWER A

Cost of goods manufactured (from Item #74) P13,464,000

Add finished goods inventory, January 1 744,000
Total cost of goods available for sale P14,208,000
Less finished goods inventory, December 31
(3,300 units x [P13,464,000 145,000]) 306,422
Budgeted cost of goods sold P13,901,578

62. ANSWER B

Internal growth rate is the percentage increase in assets kept in business.

Increase in assets (P30,000 P10,000) P 20,000
Total assets, beginning of 200B 500,000
Internal growth rate 4%

63. ANSWER C

ROS x ATO = ROA

ROS x 5 = 20%
ROS = 20% 5 = 4%

64. ANSWER A

Total assets P375,000

Less equity 206,250
Debt P168,750

Debt-to-Equity Ratio (P168,750 P206,250) 81.82%

*Total financing required for the capital budget P62,500

181.82%
Amount to be financed by equity P34,375

Amount to be financed by debt without changing

the debt-to-equity ratio (P62,500 P34,375) P28,125

65. ANSWER C

Sales volume variance P80,000 F

Cost volume variance 64,000 U
Gross profit volume variance P16,000 F

OR
200B units @ 200A gross profit per unit
(P160,000 x 110%) P176,000
Less 200A gross profit 160,000
Gross profit volume variance P 16,000 F

66. ANSWER A

Sales
Asset Turnover
= Average Total =3
last year
Assets
Asset Turnover
= 3 x 1.25 = 3.75 = 3.9
this year 1 x 0.95 0.95
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67. ANSWER B

Capital budget P80,000

Fund from net income (P60,000 x 30%) 18,000
External funding needed P62,000

68. ANSWER B
Average Age
Turnove
(360 days
r
Turnover)
R M Inventory RM used P96,000 360
1. = = 12 times 30 days
Turnover Ave. RM Inventory P8,000 12

P576,000 x
FG Inventory Cost of Goods Sold 360
2. = = 75% 36 times 10 days
Turnover
Ave. FG Inventory P12,000 36

Net Credit Sales P576,000 360

3. A/R Turnover = = 7.2 times 50 days
Ave. A/R P80,000 7.2

Net Credit Purchases P120,000 360

4. A/P Turnover = = 24 times (15) days
Ave. A/P P5,000 24
Average number of days in the operating cash conversion
75 days
cycle

69. ANSWER C

Cost of goods sold =Average inventory x Inventory turnover

P500,000 + P300,000*
= x8
2
= P3,200,000

Current assets
* Current ratio =
Current liabilities
Current assets
3.50 = Current assets = 2,100,000
600,000

Quick assets
Acid-test ratio =
Current liabilities
Quick assets
3.00 = Quick assets = 1,800,000
600,000
Inventory, ending 300,000

70. ANSWER C

71. ANSWER B

72. ANSWER C

Failure costs:
Rework cost (750 units x P10) P7,500
Returned units (150 x P15) 2,250
Not reworked (250 units x P15) 3,750 P13,500
Prevention costs 10,000
Appraisal cost 5,000
Total quality costs P28,500
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73. ANSWER C

74. ANSWER C

Purchase price P45

Cost if purchased from within:
Variable cost P20
Opportunity cost 30 50
Loss per unit P 5
x number of units 4,000
Decrease in profit P20,000

75. ANSWER B

Sales P600,000
Less cost of goods sold 250,000
Gross margin P350,000
Variable selling P30,000
Fixed selling (P50,000 x 80%) 40,000
Fixed admin (P20,000 x 50%) 10,000 80,000
Controllable income P270,000
Assets 800,000
ROI 33.75%

76. ANSWER A

After-tax operating income (P800,000 x [1 0.32]) P544,000

Less desired return on investment:
Total assets (P800,000 + P3,200,000) P4,000,000
Less current liabilities 400,000
Investment base P3,600,000
x Weighted-average cost of capital 10% 360,000
Economic value added P184,000

77. ANSWER A

EOQ = = 1,000 units

500 units 1,000 units

Carrying cost (500/2)2; (1,000/2)2 P 500 P1,000
Ordering cost (10,000/500) x P100 2,000
(10,000/1,000) x P100 1,000
Total cost P2,500 P2,000

Savings (P2,500 P2,000) P500

78. ANSWER D

1,400 units is the only amount that will not cause Constraint 1 to be violated.

79. ANSWER D

Average daily usage (1,200,000 300) 4,000

x lead time 12
Lead time usage 48,000
add safety stock 10,000
Order point 58,000
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80. ANSWER B

Based on the given data, the expected payoffs are:

Sell halo-halo (15,000 x 60%) + (6,000 x 40%) P11,400
Sell mami (11,400 x 60%) + (12,000 x 40%) 11,640
Therefore, despite the fact that the weather is hot, the canteen should sell mami because it has the
higher expected value or expected payoff.

81. ANSWER D

Plan A P5,000 x 60% = P3,000

B 2,000 x 30% = 600
C 1,000 x 10% = 100
Expected value P3,700 per square meter

82. ANSWER A

Expected value of sales volume:

80,000 x 70% 56,000
10,000 x 30% 3,000 59,000
X CM per unit 5
Total CM P295,000
Less fixed costs 200,000
Expected profit P 95,000

83. ANSWER B

84. ANSWER C

85. ANSWER A

86. ANSWER B

87. ANSWER D

88. ANSWER A

89. ANSWER A

90. ANSWER D

91. ANSWER D

92. ANSWER A

93. ANSWER D

94. ANSWER D

95. ANSWER C

96. ANSWER C

97. ANSWER A

98. ANSWER D

99. ANSWER A
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100. ANSWER D

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