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# EASY 1

Sia Company has a debt-equity ratio of 3 times, cost of equity of 10% and WACC of 10%. Assuming a tax rate of
20%, what is the effective interest rate of the debt financing?

EASY 2

## 100% - (Dividend yield x PE ratio) =

a. Payout Ratio
b. Combined Ratio
c. Operating Ratio
d. Retention Ratio

EASY 3

## The following information relates to Cinder Co.'s Northeast Division:

Sales \$600,000
Variable costs 360,000
Traceable fixed costs 60,000
Average invested capital 120,000
Imputed interest rate 8%

## Cinder's residual income was

a. \$170,400
b. \$180,000
c. \$189,600
d. \$230,400

Answer (A) is correct. Residual income is income of an investment center minus an imputed interest charge for
invested capital. Accordingly, Cinder's residual income is \$170,400 [(\$600,000 sales - \$360,000 variable costs -
\$60,000 traceable fixed costs) net income - (8% x \$120,000 average invested capital) imputed interest].

EASY 4

BCP Corporation’s common stocks currently sell for P75 per share. Floatation cost is 4.5%. In the past, the
company paid dividends of P3.50 per share. The next dividend would be P3.85 per share. Using the dividend
growth model, the cost of retained earnings is _____. (Round your answers up to two decimal %)

EASY 5
Careful Co.’s break-even point is P150,500 and its unit contribution margin is P2.3. Operating results for 2014 show
a net income of P27,000. Assuming that the unit price was P5.50, what was the sale revenue for 2014 rounded to
the nearest hundred peso?

EASY 6

## Standard direct labor hours 10,000

Standard direct labor rate 3.75
Actual direct labor rate 3.50
Direct labor usage (efficiency) variance – unfavorable 4,200
What were the actual hours worked, round to the nearest hour?

EASY 7

A company plans to sell 20,000 units at a price of P60 per unit. The cost to bring the product to market, including
design and development, is P900,000. The desired return on investment (ROI) is 2.22222%. What target cost per
unit must the company achieve to ensure it attains its desired ROI?

EASY 8

Copeland Inc. produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at
the split-off point or upgrade the product to become Xylene. The following information has been gathered.

## 1) Selling price per pound of X-547

2) Variable manufacturing costs of upgrade process.
3) Avoidable fixed-costs of upgrade process.
4) Selling price per pound of Xylene.
5) Joint manufacturing costs to produce X-547

## Which items should be reviewed when making the upgrade decision?

a. 1, 2, 4
b. 1, 2, 3, 4
c. 1, 2, 3, 4, 5
d. 1, 2, 4, 5

EASY 9

Systems Corporation is a manufacturer of a versatile statistical calculator. The following information is a summary
of defective and returned units for the previous year.

## Total defective units 1,000

Number of units reworked 750
Number of customer units returned 150
Profit for a good unit P40
Profit for a defective unit P25
Cost to rework a defective unit P10
Cost of a returned unit P15
Total prevention cost P10,000
Total appraisal cost P5,000

## The profit lost by selling defective units not reworked is

a. P25,000.
b. P15,000.
c. P18,750.
d. P3,750.

EASY 10

Because this allocation method recognizes that service departments often provide each other with
interdepartmental service, it is theoretically considered to be the most accurate method for allocating service
department costs to production departments. This method is the

a. Direct method.
b. Variable method.
c. Reciprocal method.
d. Linear method.

Answer (C) is correct. The three most common methods of allocating service department costs are the direct
method, the step method, and the reciprocal method (also called the simultaneous equations method). The
reciprocal method is theoretically the preferred method because it recognizes reciprocal services among service
departments.

AVERAGE 1

Which of the following statements are false regarding financial and managerial accounting?

## I. Both are mandatory.

II. Both rely on the same underlying financial data.
III. Both emphasize the segments of an organization, rather than just looking at the organization as a whole.
IV. Both are geared to the future, rather than to the past.

## ANSWER: I, III and IV only

AVERAGE 2

If activity-based costing is implemented in an organization without any other changes being effected, total
a. be reduced because of the elimination of non-value-added activities.
b. be reduced because organizational costs will not be assigned to products or services.
c. be increased because of the need for additional people to gather information on cost drivers and cost pools.
d. remain constant and simply be spread over products differently.

AVERAGE 3

## A very high degree of operating leverage indicates a firm

a. has high fixed costs.
b. has a high net income.
c. has high variable costs.
d. is operating close to its break-even point.

AVERAGE 4

## Current liabilities P 280,000

Bonds payable, 16% 120,000
Preferred stock, 15%, P 100 par value 200,000
Common stock, P 25 par value, 16,800 shares 400,000
Retained earnings 180,000

Income before taxes is P 150,000. The tax rate is 40 percent. Common stockholders’ equity in the previous year
was P 900,000. The market price per share of common stock is P 35. What is the company’s return on common
stock?

AVERAGE 5

ABC Company has a machine with a 7 year useful life for which they paid P160,000, on 01/02/13, with an expected
P6,000 salvage value. On 01/02/16, they have owned the machine for 3 years and have found a technologically
advanced machine that costs P80,000. It has a 4-year useful life and P12,000 salvage value. The machine will save
P10,000 a year in operating expenses.
The current machine can be sold for P40,000.

## Should ABC Company replace the existing machine?

a. No, ABC suffers a P54,000 loss by disposing of the machine.
b. Yes, ABC saves P6,000.
c. Yes, the old machine has a book value of P94,000 and the new machine only costs P80,000.
d. Yes, selling the old machine is proper because it only has a P6,000 salvage value and we can sell it for a
P40,000 gain.

AVERAGE 6

The Hollow Company manufacturers only one type of shoe and has two divisions, the Sole Division and the
Assembly Division. The Sole Division manufactures soles and then "sells" them to the Assembly Division, which
completes the shoes and sells them to retailers. The market price for the Assembly Division to purchase a pair of
soles is ₱20. Fixed costs are per pair at 100,000 units.

## Sole's costs per pair of soles are:

Direct materials ₱4
Direct labor 3
Division fixed costs 1

## Assembly's costs per completed pair of shoes are:

Direct materials ₱5
Direct labor 1
Division fixed costs 9

Assume the transfer price for a pair of soles is 180% of full costs of the Sole Division and 125,000 of soles are
produced and transferred to the Assembly Division. The Sole Division's operating income is:

AVERAGE 7

The data available for the current year are given below:

## Whole Division Division Division Division

Company 1 2 3 4
--------- -------- -------- -------- --------
Variable
manufacturing
cost of goods sold P400,000 P140,000 P80,000 P70,000 P110,000
Unallocated costs
(e.g., president's
salary) 100,000
Fixed costs
controllable by
division managers
engineering,
supervision costs) 90,000 30,000 20,000 20,000 20,000
Net revenue 1,000,000 300,000 200,000 250,000 250,000
Variable selling
costs 120,000 40,000 20,000 30,000 30,000
Fixed costs
controllable by
others (e.g.,
depreciation,
insurance) 120,000 40,000 30,000 25,000 25,000

Using the information presented, the contribution by which of the four divisions was the highest?

DIVISION 3. The contribution margin for Division 3 is \$150,000 (\$250,000 net revenue - \$100,000 total variable
costs). The contribution controllable by Division 3's manager is \$130,000 (\$150,000 contribution margin -
\$20,000 controllable fixed cost). The total contribution by Division 3 equals its net revenue minus all costs
traceable to it. Accordingly, the total contribution is \$105,000 (\$130,000 controllable contribution - \$25,000
allocated but controllable by others). Unallocated costs are excluded from the calculation. If separate amounts
are determined for the division's contribution and the controllable contribution, the difference between the
division's and the manager's performance may be ascertained (assuming controllability of fixed costs can be
assigned).

AVERAGE 8

## A condensed comparative balance sheet for a company

appears below:

12-31-Year 1 12-31-Year 2
----------------- ----------------
Cash P40,000 P30,000
Accounts receivable 120,000 100,000
Inventory 200,000 300,000
Property, plant, & equipment 500,000 550,000
Accumulated depreciation (280,000) (340,000)
--------------- --------------
Total assets P580,000 P640,000
======== ========
Current liabilities P60,000 P100,000
Long-term liabilities 390,000 420,000
Stockholders' equity 130,000 120,000
-------------- --------------
Total liabilities and equity P580,000 P640,000
======== ========

In looking at liquidity ratios at both balance sheet dates, what happened to the (1) current ratio and (2) acid-test
(quick) ratio?

(1) (2)
Current Ratio Acid-Test Ratio
------------- -------------------
a. Increased Increased
b. Increased Decreased
c. Decreased Increased
d. Decreased Decreased

Answer (D) is correct. The current ratio is determined by dividing current assets by current liabilities. The acid-
test ratio is determined by dividing quick assets by current liabilities. At December 31, year 1, the current ratio is
6 to 1 [(P40,000 + P120,000 + P200,000)/P60,000]. At December 31, year 2, the current ratio is 4.3 to 1 [(P30,000
+ P100,000 + P300,000)/P100,000]. Hence, there was a decrease in the current ratio. At December 31, year 1, the
acid-test ratio is 2.667 to 1 [(P40,000 + P120,000)/P60,000]. At December 31, year 2, the acid-test ratio is 1.3 to 1
[(P30,000 + P100,000)/P100,000]. Thus, the acid-test ratio also declined.
AVERAGE 9

## Information about the Harmonious Company's two products includes:

Product X Product Y
Unit selling price P11.25 P11.25
Unit variable costs:
Manufacturing P5.25 P6.75
Selling .75 .75
Total P6.00 P7.50
Monthly fixed costs are as
follows:
Manufacturing P82,500
Total P127,500

What is the total monthly sales volume in units required to break even when the sales mix in units is 70
percent Product X and 30 percent Product Y?

AVERAGE 10

DIFFICULT 1

In the cost of quality, which of the following is/are not example/s of internal failure?

## I. Cost of inspecting products on the production line by quality inspectors

II. Labor cost of product designers whose task is to design components that will not break under extreme
temperature conditions
III. Cost of reworking defective parts detected by the quality assurance group
IV. Cost of parts returned by customers

## ASNWER: I, II and IV only

DIFFICULT 2

The following events took place when Managers A, B, and C were preparing budgets for the upcoming period:

I. Manager A increased property tax expenditures by 2% when she was informed of a recent rate hike by
local authorities.
II. Manager B reduced sales revenues by 4% when informed of recent aggressive actions by a new
competitor.
III. Manager C, who supervises employees with widely varying skill levels, used the highest wage rate in the
department when preparing the labor budget. Assuming that the percentage amounts given are
reasonable, which of the preceding cases is (are) example/s of building slack in budgets?
a. I
b. II
c. III
d. None of the Above

DIFFICULT 3

## The market share variance equals

a. Actual units x (budgeted weighted-average UCM for planned mix - budgeted weighted-average UCM for actual
mix).

b. (Actual units - master budget units) x budgeted weighted-average UCM for the planned mix.

c. Budgeted market share percentage x (actual market size in units - budgeted market size in units) x budgeted
weighted-average UCM.

d. (Actual market share percentage – budgeted market share percentage) x actual market size in units x
budgeted weighted-average UCM.

Answer (D) is correct. The market share variance gives an indication of the amount of contribution margin
gained (forgone) because of a change in the market share.

DIFFICULT 4

Condensed monthly operating income data for Korbin Inc. for May follows:

Urban Suburban
Store Store Total
---------- ------------ ------------
Sales P80,000 P120,000 P200,000
Variable costs 32,000 84,000 116,000
----------- ------------ ------------
Contribution margin P48,000 P36,000 P84,000
Direct fixed costs 20,000 40,000 60,000
----------- ------------ ------------
Store segment margin P28,000 P(4,000) P24,000
Common fixed cost 4,000 6,000 10,000
----------- ------------ ------------
Operating income P24,000 P(10,000) P14,000
======= ======== ========
Additional information regarding Korbin's operations follows:
 One-fourth of each store's direct fixed costs would continue if either store is closed.
 Korbin allocates common fixed costs to each store on the basis of sales dollars.
 Management estimates that closing the Suburban Store would result in a 10% decrease in the Urban Store's
sales, while closing the Urban Store would not affect the Suburban Store's sales.
 The operating results for May are representative of all months.

A decision by Korbin to close the Suburban Store would result in a monthly increase (decrease) in Korbin's
operating income of

10,800. If the Suburban Store is closed, one-fourth of its direct fixed costs will continue. Thus, the segment
margin that should be used to calculate the effect of its closing on Korbin's operating income is \$6,000 {\$36,000
contribution margin - [\$40,000 direct fixed costs x (1.0 - .25)]}. In addition, the sales (and contribution margin) of
the Urban Store will decline by 10% if the Suburban store closes. A 10% reduction in Urban's \$48,000
contribution margin will reduce income by \$4,800. Accordingly, the effect of closing the Suburban Store is to
decrease operating income by \$10,800 (\$6,000 + \$4,800).

DIFFICULT 8

DIFFICULT 9

Eastern Company manufactures special electrical equipment and parts. Eastern uses standard costs, with separate
standards established for each product. A special transformer is manufactured in the Transformer Department.
Production volume is measured by direct labor hours in this department and a flexible budget system is used to
plan and control department overhead. Standard costs for the special transformer are determined annually in
September for the coming year. The standard cost of a transformer for 2013 was P 67.00.

Direct materials:
Iron 5 sheets @ P 2.00 P 10.00
Copper 3 spools @ P 3.00 P 9.00
Direct labor 4 hours @ P 7.00 P 28.00
Variable overhead 4 hours @ P 3.00 P 12.00
Fixed overhead 4 hours @ P 2.00 P 8.00
Total P 67.00

Overhead rates were based on normal and expected monthly labor hours for 2013, both of which were 4,000
direct labor hours. Practical capacity for this department is 5,000 direct labor hours per month. Variable overhead
costs are expected to vary with the number of direct labor hours actually used.

During October 2013, 800 transformers were produced. This was below expectations because a work stoppage
occurred during contract negotiations with the labor force. Once the contract was settled, the department
scheduled overtime in an attempt to catch up to expected production levels.

## Direct materials: Purchased Used

Iron 5,000 sheets @ P 2 per sheet 3,900 sheets
Copper 2,200 spools @ P 3.10 2,600 spools
Direct labor:
Regular time 2,000 hours @ P 7.00
1,400 hours @ P 7.20
Overtime 600 of the 1,400 hours were subject to overtime premium.
The total overtime premium of P 2,160 is included in variable overhead in
accordance with corporate accounting practices

## I. The material spending variance for Copper is

II. The variable overhead efficiency variance

a. P600UF; P2000UF
b. P220UF; P600UF
c. P220UF; P2000UF
d. P600UF; P2000F

DIFFICULT 10

The Pilinut Company is a wholesaler distributor of candy. The company serves grocery, convenience and drug
stores in a large metropolitan area. Small but steady growth in sales has been achieved by the company over the
past few years, while candy prices have been increasing. The company is formulating its plans for the coming fiscal
year. Presented below are the data used to project the current year’s after-tax net income of P 110,400.

## Average sales price per box P 4.00

Average variable costs per box:
Cost of candy P 2.00
Selling P 0.40
Total P 2.40
Annual fixed costs:
Selling P 160,000
Total P 440,000
Expected annual sales volume (390,000 boxes) P 1,560,000
Tax rate 40%

Pilinut manufacturers have announced that they will increase prices of their products by 15% in the coming year
due to increases in materials and labor costs. The Pilinut Company expects that all other costs will remain at the
same rates or levels as the current year. What should be the sales price per box that the company must charge to
cover the 15% increase in the cost of candy and still maintain the same contribution margin ratio?

## Questions 9 through 11 are based on the following information.

Del Sol Corporation employs an absorption costing system for internal reporting purposes; however,
the company is considering using variable costing. Data regarding Del Sol’s planned and actual
operations for the 2015 calendar year are presented below.
Planned Actual
Activity Activity
Beginning finished goods
inventory in units 35,000 35,000
Sales in units 140,000 125,000
Production in units 140,000 130,000

The planned per unit cost figures shown in the next schedule were based on the estimated production
and sale of 140,000 units in 2015. Del Sol uses a predetermined manufacturing overhead rate for
applying manufacturing overhead to its product. Thus, a combined manufacturing overhead rate of
P9.00 per unit was employed for absorption costing purposes in 2015. Any over- or under-applied
manufacturing overhead is closed to the cost of goods sold account at the end of the reporting year.
Planned Cost
Per Incurred
Unit Total Costs
Direct materials P12.00 P1,680,000 P1,560,000
Direct labor 9.00 1,260,000 1,170,000
Variable 4.00 560,000 520,000
manufacturing
Fixed 5.00 700,000 715,000
manufacturing
Variable selling 8.00 1,120,000 1,000,000
expenses
Fixed selling 7.00 980,000 980,000
expenses
Variable 2.00 280,000 250,000
expenses
expenses
Total P50.00 P7,000,000 P6,620,000

The 2015 beginning finished goods inventory for absorption costing purposes was valued at the 2014
planned unit manufacturing cost, which was the same as the 2015 planned unit manufacturing cost.
There are no work-in-process inventories at either the beginning or the end of the year. The planned
and actual unit selling price for 2015 was P70.00 per unit.

9. De Sol Corporation’s total fixed costs expensed in 2015 on the absorption costing bases were
a. P2,095,000 c. P2,120,000
b. P2,055,000 d. P2,030,000

10. Del Sol Corporation’s actual manufacturing contribution margin for 2015 calculated on the variable
costing basis was
a. P4,375,000 c. P4,935,000
b. P4,910,000 d. P5,625,000.

11. The amount of profit for 2015 for Del Sol Corporation calculated on the absorption costing basis
was
a. P2,255,000 c. P2,330,000
b. P2,280,000 d. P2,295,000