TO ORAALEIEE BN TN A Page 1 of 4 | MAS Physical Handout ot R EAL. BASIC CONSIDERATIONS IN MAS 4 EXCELLENCE x naraco, See cee BASIC CONSIDERATIONS IN MAS K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE TOPIC OUTLINE 4.0 Management Accounting 4.1. Objectives, role and scope of management accounting 4.1.1. Basic management functions and concepts 4.1.2 Distinction among management accounting, cost accounting and financial accounting 1.1.3’ Roles and activities of controller and treasurer 4.1.4 International certifications in management accounting 1.1.5. Global trends in management accounting (Effective October 2022) MULTIPLE CHOICE QUESTIONS [1.1.1 Basic management functions and concepts} 1." Which of the following characterizes MAS? |. Broad and diversity in scope. I Management is the main beneficiary of the service II, Limited to CPAs. A andi D. lland itl Bland il Answer not given C. tand il 2. Managerial accounting provides data to achieve all of the following major objectives except: ‘A. Planning and control of costs, B. Supporting management planning C. Compliance with SEC reporting requirements D. _ Determining the costs of products 3. The main focus of managerial accounting ‘A. decision making B. Documenting cash flows. C. the preparation of financial statements. D. The preparation of budgets. : 4, Which of the following statements is false? * ‘A. CPAs have historically been business consultants to their clients. B. Management consultants are licensed and regulated by laws. C. The primary purpose of management consultancy is to improve the firm's use of its capabilities and resources D. to achieve its objectives. Management consultancy services are provided not only to big business enterprises but also to medium-size ‘and small companies. 5. Which of the following statements is/are correct?ee Page 2 of 4 MAS Physical Handout 01 Be Ekdtence Kesoraco syceguse tosis day-to- Managers carry out their planning function by mobilizing the organization's resources and overseeing day operations. s are being Managers carry out their decision-making function by obtaining feedback to ensure that the plan: followed. kept separate from such manager's decision-making activities. ing alt ‘The managers planning function involves setting of the organization's goals and identifying a! selecting the alternative that best furthers such goals set for the organization, in ‘Titan Company has set various goals, and management is now taking appropriate action to ensut a achieves tress goals. One such sation is to reduce outlays for overhead, which have exceeded budgeted am ‘Which of the following functions best describes this process? A. Decision making. D. © Controlling. B. Planning. E, — Organizing. C. Coordinating A B. ©.’ The planning, directing and motivating, and controlling functions of a manager are D. itematives and [1.1.2 Distinction among management accounting, cost accounting and financiat accounting) to financial accounting? 7t Anich ofthe following is true regarding the comparison of manage A Managerial accounting is generally more precise ©. Managerial accounting has a past focus and financial accounting has a future focus seo timeliness Ona soc an managerial accounting fs relevance and the emphasis on fancial accouting rr Sone ena Sourting need not folow generally accepted accounting principles (GAAP) wile finan accounting must follow them. 8. Incomparing management and nancial accounting which ofthe folowing more accurately describes management accounting information? , A comparable, verifiable, monetary ©. required, estimated, internal B. budgeted, informative, adaptable D. historical, precise, useful 9, To distinguish between management accounting and financial accounting, the following statements are correct, except FP enagement accounting, in view ofits various integrated recipients should have a separate data recording ‘and reteval system from financial accounting. 2 Francist secounting is bound by GAAP, and management accounting need not be in conformity with GAAP. ©. ~ Enoncial accounting can be regarded as the process while management accounting can be regarded as the product ofthe process D. Management accounting output must be released on time so as not to erode its usefulness; Financial accounting output can still be useful even when delayed. : 40. Which ofthe following statements is true when comparing managerial accounting to financial accounti A. Both are highly dependent on timely information. : ial scour? B. Both rely on the same accounting information system. C. Managerial accounting is concerned with external decision makers. D. Managerial accountng places more emphasis on precision than financial accounting 1 ; 1. Te.daingish between management accounting and franc accounting, the folowing statements are cock Management accounting, in view ofits various integrated recipi * gurdretoytemon ran acura tegrated recipients should have a separate data recording Financial accounting is bound by GAAP, and aceot f nani accounting is bound by GAAP, and managoment accountng need not be in conformity with GAAP re C ile management accounting can be regarded as the ©. Management accounting output must be released accourting output can stil be useful even when delayed. “” °» "Ot (0 erode lis usefulness; Financial REO CPA REVIEW PHILIPPINES www.feocpareview.ph Effectiveness. Efficiency ic . -y. Convenienc REAL EXCELLENCE ONLINE GPA REVIEW @ (074) 6656774 @ 0919093 8620 @ [email protected] MAY 2023 CPA REVIEW SEASONs Page 3 of 4 MAS Physical Handout 01 a REAL me SZ EXCELLENCE Ae eee NTGNS Nes [1.1.3 Roles and activities of controller and. treasurer] 2. Which of the following exhibits a staff position? |. Chairman of the board of directors of San Miguel Corporation UL Cashier of a branch of McDonalds’ Ill, Bagger of Puregold Retail Store 1 A Vand tl D. I,land itt B. Mandit E. Answer not given C. tand itl 13. Each of the following would be considered a staff function EXCEPT the: |. vice-president of finance Ul. plant foreman Il, vice-president of production A. land tl D. |,Mland ttt B. Mandl E. Answer not given Cc. land tit 14. Controllership has attained special recognition in corporate management as business expands in complexity and reach, and as the controller exerts influence for management to take organization's goals. Controllership and treasurership constitute corporate finance. These are among the controller's traditional functions: Reporting to government regulatory agencies. 4. Tax management. 5. 2. Financial reporting and interpretation. 6 Risk management 3. Credit management. 7. Economic appraisal. 4. Sourcing and investing of funds. 8 Planning for control. A. Alleight items. C. Items 1, 2, 3, 4, 5, 7, and 8 only. B. Items 1, 2, 5, 7, and 8 only. D. 2,3,5, and 7, and 8 only. . 45. Which of the following functions are being done by a chief accountant? |.” Credit limit determination Il. Tax administration Ill. . Cash flow statement preparation A tandil D. I Mand il B. Wandill Answer not given Cc. Landill [1.1.4 Intemational certifications in management accounting) 46. The Institute of Management Accountants’ Standards of Ethical Conduct contains a policy regarding confidentiality that requires that management accountants: ‘A. __efrain from disclosing confidential information acquired in the course of their work except when authorized by management. refrain from disclosing confidential information acquired in the course of their work in alll situations. B. C. refrain from disclosing confidential information acquired in the course of their work except when authorized by o. management, unless legally obligated to do so. refrain from disclosing confidential information acquired in the course of their work in all cases since the law requires them to do so. 47. Itrequires a practitioner to be, among other things, honest and candid within the constraints of client confidentiality. A. Integrity Cc. Maturity B. Objectivity D. Independence in mental attitude [1.1.5 Global trends in management accounting} 18. Which of the following choices best depicts the progression of data? ‘A. Data, Information, Knowledge, Insights, Action REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience ” www.reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 6656774 @ 0919093 8620 @ [email protected]’ MAY 2023 CPA REVIEW SEASONone MD Page 4 of 4 |MAS Physical Handout 01 fg pac K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE EXCELLENCE ‘BASIC CONSIDERATIONS IN MAS Data, Insights, Knowledge, Information, Action Data, Information, Insights, Knowledge, Action Data, Insights, Information, Knowledge, Action 19. Which of the following is not a purpose of an accounting information system? A B. c. i 20. Tr A B. c. D. To collect and store data about internal and external events, transactions, and activities To detect and report all management and employee fraud To process collected and stored data into valuable information To provide appropriate internal controls to safeguard assets, including dat he primary functions of a computerized information system include input, processing, and output input, processing, output, and storage collecting, sorting, summarizing, and reporting input, processing, output, storage, and control -~ END OF HANDOUT —— REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience www. reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074 0656774 @ 0910083 620 ©, eupportereocparevow.nh, MAY 2023 CPA REVIEW SEASONy Page 1 of & | MAS Physical Handout 02 e REAL . oz ens, ; tuba « ove Aba yak EXCELLENCE OABTAGO, Soe Ee te COST BEHAVIOR & COST-VOLUME-PROFIT (CVP) ANALYSIS K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE TOPIC OUTLINE 4.0 Management Accounting 1.2 Management accounting concepts and techniques for planning & control 1.21 Cost terms, concepts and behavior 1.2.1.1 Nature and classification of costs 1212 Analysis of cost behavior (variable, fixed, semi- variable/mixed, step-cost) 1.2.2 _Cost-volume profit (CVP) analysis 4.22.1, Uses. assumptions and imitations of CVP analysis 1222 Factors affecting profit 1.2.2.3 Breakeven point in unit sales and peso sales 1.2.2.4 Required selling price, unit sales and peso sales to achieve a target profit 1.22.5 Sensitivity analysis (including indifference point in unit sales and peso sales) 1.22.6 Use of sales mix in multi-product companies 1.22.7 Concepts of margin of safety and degree of operating leverage 1.2.2.8 Different scenarios using CVP analysis indifference point, step fixed, multiple drivers) MULTIPLE CHOICE QUESTIONS [1.2 Management accounting concepts and techniques for planning & control] 11.2.1 Cost terms, concepts and behavior} 1.2.1.1 Nature and classification of costs 1.24.2 Analysis of cost behavior (variable, fixed, semi- variable/mixed, step-cost) 1. The coefficient between two variables is zero, how might a scatter diagram of these variables appear? Random points Atleast squares line that slopes up to the right side Atleast squares line that is vertical At least squares line that is horizontal At least squares line that slopes down to the right side. Under this condition, a scatter diagram could not be plotted on a graph. ich one of the following is correct regarding a relevant range? Total variable costs will not change Total fixed costs will not change ‘The relevant range cannot be changed after being establ Unit variable cost changes . Unit fixed cost does not change mope>s xamsom> 3. A company has space that it uses to make @ component It could rent the space to another company. The rent it could eam is:i Qo Page 2 of 8 | MAS Physical Handout 02 REAL EXCELLENC KOABITAGO, S\U.CESGUERRA, AVF ESTOQUE A. Asunk cost. B. An opportunity cost C. Anavoidable cost D. An imputed cost . 4 ‘The segregation of fixed and variable costs is key to proper cost analysis. Regression analysis is a technique used for his purpose. Identity the appropriate statements below on regression analysis, i Ttassumes that a change in the value of a dependent variable is related to the change in the Value of an independent variabl ji, Alinear relationship between direct cost and production volume can cause a problem when. Using accounting data for regression analysis, ili Mtattempts to find an equation for the linear relationship among variables. 'v. Itestablishes a cause and effect relationship. A. All four statements are appropriate B. Statements 1, 3 and 4 only C. Statements 1'and 3 only D. Statements 2 and 4 only Use the following information in answering the next item(s): The Sparrow Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost. (C=Php80,000+Php12M where ‘C=monthly manufacturing overhead cost Memachine hours ‘The standard time required to manufacture one six-unit case of Sparrow's single product is 4 machine hours. ‘Sparrow applies manufacturing overhead to production on the basis of machine hours, and its normal annual production is 60,000 cases. 5. Sparrow's estimated variable manufacturing overhead cost for a month in which scheduled production is 5,000 cases. will be 3 A. P80,000 B. P320,000 C. P240,000 D. 360,000 6. Sparrow's predetermined fixed manufacturing overhead rate would be A. P1.60 per machine hour B. P1.20 per machine hour C. 4.00 per machine hour D. P4.80 per machine hour 7. The following data of Umbrella pertains to activity and costs for two months: May June Activity level in units 10,000 20,000 Variable costs P20,000 P ? Fixed costs 15,000 2 REO CPA REVIEW PHILIPPINES _ Effectiveness. Efficiency. Convenience www. reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 665 6774 @ 0919083 8620 @ [email protected] MAY 2023 CPA REVIEW SEASONage 3 of 8 | MAS Physical Handout 02 REA am CELLENCE ‘COST BEHAVIOR & CVP ANALYSIS Mixed costs. 10,000 a Total costs ot 45,000 P70,000 Assuming that these activity levels are within the relevant range, the mixed costs for June 2023 for Umbrella is: AP 10,000. B. P35,000. CP 15,000. 8. Variable costs are assumed to be! A. Linear in relation to activity changes 8 Cunvilinear C. Expressed in equation formas Y= 'a +bX D._ Non-linear. The classification of an item of cost as either fixed or variable depends on how that cost behaves: ‘A. per unit, as the volume of activity changes B. In total, as the volume of activity changes. ©. When someone is observing it. - D. Per changes in peso E. When the company ceases to operate. 10. Gi 9. iven the cost formula Y = P17,500 + P4X, at what level of activity will total cost be P42,500? A. 10,625 units. B. 4,375 units C. 6,250 units. D. 5,250 units, [1.2.2.1 Uses, assumptions and limitations of CVP analysis) 11. Towhich function of management is CVP analysis most applicable? A. Planning B. Organizing C. Directing . DB. Controlling 42. Select the correct statement concerning the cost-volume-profit graph at right: ‘A. The point identified by "B" is the break-even point. B. Line F is the variable cost line. C. At point B, profits equal total costs. D. ~ Line Eis the total cost line. 43. Which of the following is not a limiting factor of Cost-Volume-Profit analysis? ‘A. Efficiency is assumed to be constant B. The analysis assumes a linear relationship among the variables. C. The analysis assumes variable costs pef unit are variable. D. The entity's Inventory levels are constant Cost-volume-profit analysis is a technique available to management to better understand the interrelationships of several factors that affect a firm's profit. As with many such techniques, the accountant oversimplifies the real world by making assumptions. Which of the following is not a major assumption underlying CVP analysis? ‘A. Allcosts incurred by a firm can be separated into their fixed and variable components. 14, REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency: Convenience www. reacpareview. ph. REAL EXCELLENCE ONLINE CPA REVIEW’ (074) 6856774 @ 0919093 8620 @ support@reocpareview ph MAY 2023 CPA REVIEW SEASONB. c. D. Page 4 of 8 | MAS Physical Handout 02 REAL ESTOQUE K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F. EXCELLENCE ‘COST BEHAVIOR & CVP ANALYSIS The product selling price per unit is constant at ail volume levels. Operating efficiency and employee productivity are constant at ail volume levels. For multi-product situations, the sales mix can vary at all volume levels. [1.2.2.2 Factors affecting profil) 15. All of the following statements related to the use of break-even analysis are true except: (E*) A B. c. D E change in fixed costs changes the break-even point but not the contribution margin figure combined change in fixed and variable costs in the same direction causes a sharp change in the break- ‘even point ‘a change in fixed costs changes the contribution margin figure but not the break-even point a change in per-unit variable costs changes the contribution margin ratio a change in sales price changes the break-even point 16. A company’s breakeven point in sales pesos may be affected by equal piercentage increases in both selling price and variable cost per unit (assume all other factors are equal within the relevant range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven point in sales pesos to A B. c. o. E m decrease by less than the percentage increase in selling price. decrease by more than the percentage increase in the selling price. remain the same. increase by more than the percentage increase in selling price increase by less than the percentage increase in the selling price No relationship can be found between breakeven point and selling price 17. If the sales mix shifts toward higher contribution margin products, the break-even point (M) A B. c D. increases, decreases. remains constant, It is impossible to tell without more information, 18. On January 1, 1992, Lake Co. increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Lake budgeted breakeven point and budgeted margin of safety? A B. c . Budgeted Breakeven Point increase Increase Decrease Decrease Budgeted Margin of Safety Increase Decrease Decrease Increase [1.2.2.3 Breakeven point in unit sales and peso sales) [1.2.2.4 Required selling price, unit sales and peso sales to achieve a target profit] Use the following information in answering the next item(s): After reviewing its cost structure (variable costs of P7.50 per unit and monthly fixed costs of P60,000) and potential market, FRANCE INC. established what it considered to be a reasonable selling price. The company expected to sell 50,000 units per month and planned its monthly results as follows. Sales 500,000 Variable costs : 375,000 Contribution margin 125,000 Fixed costs 60,000 Income before taxes 65,000 Income taxes (at 40%) 26,000 Net income P 39,000 NOTE: Answer the following questions independently, unless otherwise stated EO CPA REVIEW-PHILIPPINES Effectiveness. Efficiency. Convenience REO reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 665.6774 @ 0019 093 8620 @ suppot@recspareview ph MAY 2023 CPA REVIEW SEASON aPage 5 of 8 | MAS Physical Handout 02 7 K.G.ABITAGO, $.V.C.ESGUERRA, R.V.F.ESTOQUE F EXCELLENCE ‘COST BEHAVIOR & CVP ANALYSIS 19. _ Whatis the break-even point in units? A 24,000 units ©. 20,000 units 8B. 30,000 units D. 35,000 units 20. Ifthe company wants a P60,000 before-tax profit, how many units must it sell? ‘A. 24,000 units C. 54,000 units B. 48,000 units D. 60,000 units 21. Ifthe company wants a 10% before-tax retum on sales, what level of sales, in pesos, does it need? ‘A. 400,000 C. P625,000 B. —P500,000 D. — P350,000 22, Ifthe company wants a P45,000 after-tax profit, how many units must it sell? A. 24,000 units C. 54,000 units B. 48,000 units D. 60,000 units t 23. Ifthe company wants an after-tax return on sales of 9%, how many units must it sel? A 24,000 units C.” 54,000 units B. 48,000 units D. 60,000 units 24, Ifthe company wants an after-tax profit of P45,000 on its expected sales volume of 50,000 units, what price must it charge? A P1120 Cc. P10.96 B P10.20 D. P1190 25. If the company wants a before-tax return on sales of 16% on its expected sales volume of 50,000 units, what price must it charge? A P14,20 Cc. P1036 B. P10.20 D. P11.90 [1.2.2.5 Sensitivity analysis (including indifference point in unit sales and peso sales)] 26. PORTUGAL CORP. manufactures and sells T-shirts imprinted with college names and slogans. ‘Last year, the shirts sold for P7.50 each, and the variable cost to manufacture them was P2.25 per unit. The company needed to sell 20,000 shirts to break even. The net income tax last year was P5,040. PORTUGAL's expectations for the coming year include the following: The sales price of the T-shirts will be P9.00, © Variable costs to manufacture will increase by one-third, % Fixed costs wil increase by 10%, The income tax rate of 40% will be unchanged. Sales for the coming year are expected to exceed last year’s by 1,000 units. If this occurs, PORTUGAL's sales volume in the coming year will be 5 A. 22,600 units. C. 23,400 units B. 21,960 units. D. 21,000 units 27. SPAIN CORP. eams an after-tax profit of P2,400 on sales of P88,000. The average tax rate of the company is 25%. ‘The only product in this operation sells for P20, of which P15 is in variable cost. You were asked to analyze the break-even point of this project and its sensitivities to change in cost levels and of product price. A decrease in variable costs of P1.00 per unit and an increase in fixed costs of P6,000 would bring the break-even point to ° ‘A. nochange at all. c. P8260 B. alower evel, D. 45,000 [1.2.2.6 Use of sales mix in mult-product companies] REO CPA REVIEW PHILIPPINES © & ” *: Effectiveness: Efficiency: Convenience www reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 6656774 @ 0919093 8620 © [email protected] MAY 2023 CPA REVIEW SEASON ERNE: MT IER TE iene einen einiu Page 6 of 8 | MAS Physical Handout 02 a REAL y AGO, $.V.C.ESGUERRA, R.V.F.ESTOQUE EXCELLENCE AO AON CUP ALTSIS ONLINE 1m, accounting for 70% and 30% of the total peso 28. White Inc., manufactures two types of products, Xylem and Hyle sales of the company. Variable costs, as a percentage of sales, are 60% for Xylem and 80% for Hylem, Total fixed Costs amount fo P340,000. There are no other costs involved. if fixed costs of White, Inc. is increased by 10%, the amount of peso sales needed to assure a net income of P34,000 is A. P4,020,000 C. — P1,200,000 B. P1,068,000 1D. P1,500,000 29, The POLAND CORP. makes three products, The cost data for these three products is as follows: Product A. Product B Produ Sell P10 P20 jane cost 7 12 16 Variable costs, Total annual fixed costs are P840,000. The firm's experience has from product A, 60 percent from B, and 20 percent from C. What is the units’ sale of Product C in order to break even? been that about 20 percent of dollar sales come A. 10,000 c. 40,000 B. 110,000 DB. 16,474 [1.2.2.7 Concepts of margin of safety and degree of operating leverage} . 30. ICELAND CORP’'s variable expenses are 70% of sales. Ata P300,000 sales level, the degree of operating leverage is 10, If sales increase by PE0,000, the degree of operating leverage wil be: A 4 a4 B 6 D2 31." The following information relates to MOROCCO CORP. Sales at the break-even point P312,500 Total fixed expenses 250,000 150,000 Net operating income What is MOROCCOs margin of safety? A P62,500 C.. P187,500 B. _ 100,000 D. 212,600 32. Ipitipil Corp. would lke to market a new product at a selling price of P15 per unit. Fixed costs for this product are 1,000,000 for less than 00,000 units of output and P1,500,000 for 500,000 or more units of output. The contribution margin percentage is 20%. What would be the amount of the sales pesos to eam a target operating income of P14 million? AS P14,323,500 : C.. P12,382,950 B. 42,500,000 DB. . P11,779,800 33, FINLAND WATCHES CORP. sells the best and top-of-the-line watches in town. The following information relates to its operating results this year: ‘Number of watches sold 35,000 Margin of safety in terms of watches. 21,000 Rate P 1,750,000 loss ‘What is FINLAND's contribution margin ratio? 210,000, A 66.67% Cc. 60.00% B. 20.00% D. 12.00% [1.2.2.8 Different scenarios using CVP analysis (indifference point, step fixed, multiple drivers)] ‘34. The company is considering offering its salespeople a 5% commission on sales. What would the total sales, in dollars, have to be in order to implement the commission plan and still earn the planned pre-tax income of P65,000? A P400,000 ». C, P625,000 B. — P500,000 D. 360,000 REO CPA REVIEW PHILIPPINES’ > ««" + “Effectiveness. Efficiency. Convenie ~ www.teocpareview,ph i ‘REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 665.6774 @ 0919.093 8620. _support@reocpareview,ph “ MAY.2023 CPA REVIEW SEASON aencinmW ETS RE TEARS eR IONS MSN econ Noreennantes 7 Page 7 of 8 | MAS Physical Handout 02 e REAL KoAbrraco, 81. Es@ueRnn Riv resToQUe peé. EXCELLENCE ABA, SSSR NE RRL 35. AMSTERDAM CORP. operates on a contribution margin of 30% and currently has fixed costs of P200,000. Next year, sales are projected to be P1,000,000. An advertising campaign is being evaluated that costs an additional 30,000. How much would sales have to increase to justify the additional expenditure? A.” P60,000 C, P100,000 B. — P90,000 ©. P300,000 | _Use the following information in answering the next item(s): ‘Accompany sells two products, Aipha and Beta, The sales mix consists of a composite unit of two units of Alpha for every five units of Beta (2:5). Fixed costs are P49,500. The unit contribution margin for Alpha and Beta are P2.50 and P1.20 respectively 36. Considering the company as a whole, the number of composite units to break even is: A 31,500 B 4,500 Cc. 8250 D. 9,900 Use the following information in answering the next item: ‘The Cardiac Center has a capacity of 90 beds and operates 24 a day everyday. The measure of activity in the center is patient days where one patient day represents one patient occupying a bed for one day. The average revenue per patient day is P1,300 and the average variable cost per patient day is P500. The fixed cost of the department (not including personnel costs) is P4,540,000. ‘The only personnel directly employed by the Cardiac Centers are attendants, nurses and supervising nurses. The center has minimum staffing requirements for the department based on total annual patient-days in Cardiac Center requirements beginning at the minimum expected level of activity follows: “Annual Patient Days ‘Attendants Nurses ‘Supervising Nurses 10,000-44,000 24 4 4 414,001-17,000 22 2 4 17,001-23,725 22 13 4 23,726-25.550 25, 14 5 25,551-27,375 26 14 5 27,376-29,200 29 16 6 ‘These staffing levels represent full time equivalents and it should be assumed that the Cardiac Center always ‘employs only the minimum number of required full time equivalent personnel . ‘Average annual salaries for each class of employee are: ‘Attendants — 180,000 Nurses — 260,000 Supervising Nurses - 360,000 30. What is the minimum number of patient days required for the Cardiac Center to break even? AL 15,75 REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience ‘www.reocpareview.ph . REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 6656774 @ 0919093 8620 @ [email protected]_ MAY 2023 CPA REVIEW SEASONpage 8of 8 {MAS PhyscaiHandout 02 | REAL UERRA, R.V.F.ESTOQUE = | EXCELLENCE AGABITAGD, 8 CS TOR& OVP ANALYSIS & ONLINE B. 18,100 Cc. 16,650 D. 16,325 ~~ END OF HANDOUT — REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience www.reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 665 6774 .@ 0919093 8620 © [email protected] MAY 2023 CPA REVIEW SEASONPage 1 of 3| MAS Physical Handout 03 e REAL , ‘STANDARD COSTING & VARIANCES m4 EXCELLENCE K oaarTacd Be eeCNENRR uF Ear OOUE STANDARD COSTING & VARIANCES K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE 4 TOPIC OUTLINE °2'5 Apply the concept of standard costing and variance analysis in planning and control in terms of cost, sales, and {gross profit variations. Apply appropriate techniques in 2.5.1 Budget variance analysis, 25.2. Standard costing and variance analysis 2.5.3 Determination of direct material variances 2.54 Determination of direct labor variances 2.55 Determination of factory overhead variances using two-way; three-way and four-way methods STRAIGHT PROBLEM EXERCISES PROBLEM 1 (STANDARD SETTING) TINY INC. is famous for its rugby manufacturing. The main ingredient of its rugby is a chemical material known as *RUGGIBEE”. This material is usually purchased on a 20-gallon container costing P240 per container. TINY’s supplier usually offers a 5% for payments within 15-day discount period. TINY takes all available discounts. Transportation cost and freight cost amounts to P100 for an average shipment of 50 20-gallon containers of RUGGIBEE. ‘According to TINY’s bill of materials, each bottle of its rugby contains 9.2 quarts of ruggibee (there are 4 quarts on each gallon). When ruggibee is boiled, about 8% of the mixture is lost through evaporation and spillage. In addition, inspection reports show the one out of six bottles rejected at final inspection due to instability of the solution. REQUIREMENT. What is the direct material standard cost per unit of TINY's rugby products? PROBLEM 2 (COMPREHENSIVE) The Manila plant of KGA MOTOR DIVISION produces a major subassembly for motorcycles. The plant uses a standard costing system for production costing and control. The standard cost sheet for the subassembly follows: Direct materials (7.0 Ibs. @ P6.00) P42.00 Direct labor (2 hrs. @ P12.00) 24.00 Variable overhead (2 hrs. @ P10.00) ' 20.00 Fixed overhead (2 hrs. @ P6.00) se tt2.00 Standard unit cost.” 98.00 During the year, the Manila plant had the following actual production activity: (a) Production of subassemblies totaled 70,000 units. (b) A total of 465,000 pounds of materials was purchased at PS.80 per pound (c) There were 26,400 pounds of materials in beginning inventory (carried at P6 per pound). There was no ending inventory. (d) The company used 150,000 direct labor hours at a total cost of P1,950,000, {e) Actual fixed overhead totaled P913,000. () Actual variable overhead totaled P'1,470,000. The Manila plant's practical activity is 75,000 units per year. Standard overhead rates. are ‘computed based on practical activity measured in standard direct labor hours. REQUIREMENTS: 7. Compute the materials price and usage variances 2. Compute the labor rate and efficiency variances 3. Compute the overhead variances using two-way, three-way and four-way analysis 4. Compute the conversion cost efficiency variance= eR REAL Page 2 of 3 | MAS Physical Handout 03 he K.G-ABITAGO,$.V.CESGUERRA, RVFeSTOQUE van EXCELLENCE ‘STANDARD COSTING & VARIANCES & Compute the total budget variance PROBL Ears ne loural entries to record the given transactions, including the variances, Foch arnt 3 (DIRECT LABOR VARIANCES — WORKBACK PROBLEM) oAthe following independent situations relates to direct labor. Fill in the blanks : os A B : Cc D Units produced 4,000 3,000 — ‘Actual hours worked 1,900 5400 , —s ‘Standard hours for production achieved 2,000 6,000 Standard hours per unit 05 2 3 ‘Standard rate per hour P12 P10 PAZ ies Actual labor cost P83,600 24,500 Rate variance P310U P900U P300F Efficiency variance P2,000U_ P1,800F P800 U PROBLEM 4 (MIX AND YIELD VARIANCES) EDIWOW CORP. produces EATS HEALTHY, a new health food. For a 50-kilo batch, the standard costs for materials and labor are as follows: Wheat 25 kilos 0.20 per kilo P5,00 Chickpeas 25 kilos PO.10 per kilo 250 Com! 10 kilos PO.05 per kilo 050 Skilled labor 3 hours P70 per hour P210 Unskiled labor 2 hours P50 per hour 400 During the previous month, the following materials and labor were used in producing 600 batches of EATS HEALTHY: ‘Wheat 18,000 kilos at PO.22 per kilo Chickpeas 14,000 kilos at PO.11 per kilo Corn 10,000 kilos at PO.04 per kilo Skilled labor 1,600 hours at P80 per hour 128,000 Unskilled labor 1,600 hours at P40 per hour 60,000 Total Actual Labor Costs, 188,000 REQUIREMENTS: (@) Calculate the materials price, quantity, mix, and yield variances. (b) Calculate the labor rate, efficiency, mix, and yield variances, MULTIPLE CHOICE QUESTIONS 4. Standard costs ‘A. are estimates of costs attainable only under the most ideal conditions. B._._ are difficult to use with a process costing system. C. can, if properiy used, help motivate employees. D. require that significant unfavorable variances be investigated, but do not require that significant favorable variances be investigated. 2. Which kinds of variances should be investigated? Those that are large and unfavorable, ‘Those that are large and either favorable or unfavorable. Allvariances, despite their size. - D. Only use variances. om> 3. Which of the following choices correctly notes a characteristic associated with perfection standards and one associated with practical standards? Perfection Standards Practical Standards REO CPA REVIEW PHILIPPINES. Effectiveness. Efficiency. Convenience www.reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 6656774 @ 0919093 8620 © support@reocpareview ph MAY 2023 CPA REVIEW SEASONbE. ~~ e Page 3 of 3| MAS Physical Handout 08 REAL - EXCELLENC! K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE CEL E ‘STANDARD COSTING & VARIANCES A Attainable in an ideal environment Incorporate abnormal occurrences when setting quantity and efficiency targets B. Result in many unfavorable variances Are often attainable by workers Cc. Tend to boost worker morale Generally preferred by behavioral scientists Dd. Generally, are easily achieved by workers Result in both favorable and unfavorable variances & ‘Generally preferred by behavioral scientists ‘Are easier to achieve than perfection standards: 4. A debit balance in the labor efficiency variance indicates that A. Actual hours exceed standard hours. C. Standard hours exceed actual hours. B. Actual rate exceeds standard rate. D. ‘Standard rate exceeds actual rate. ‘A.company would most likely have an unfavorable labor rate variance and a favorable labor efficiency variance if the mix of workers used in the production process was more experienced than the normal mix. the mix of workers used in the production process was less experienced than the normal mix. workers from another part of the plant were used due to an extra heavy production schedule. the purchasing agent acquired very high quality material that resulted in less spollage. gop> ~~ END OF HANDOUT — REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience \www.reocpareview.ph " REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 6656774 @ 09190938620 © [email protected] . MAY 2023 CPA REVIEW SEASONsane “ out 04 : Page 1 of 3] MAS Physical Hand? e REAL VARIABLE AND AasoRPTION COSTING an, EXCELLENCE KGABITAGO, S.V.C ESGUERRA, RV.F.ESTOO VARIABLE AND ABSORPTION COSTING jopegsete cents : sooranamncaaera K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE ‘TOPIC OUTLINE 2.3 Apply the concept of traditional and activity-based costing in: 2.3.1 Product costs and period costs 2.32 Inventory costing 2.3.3 Treatment of fixed factory overhead cost 2.3.4 Reconciliation of income under absorption and variable costing ‘STRAIGHT PROBLEM EXERCISES PROBLEM 1 (PRODUCT COSTING METHODS) CABADBARAN CORP. produces non-fat yogurt which it sells to restaurants and ice cream shops. The product is sold in 10-gallon containers, which have the following price and variable costs. Sales price P30 Direct materials, 10 Direct labor A Variable overhead 6 Budgeted fixed overhead in 2023, the company's first year of operations, was P600,000. Actual production was 150,000 10-gallon containers, of which 125,000 were sold. CABADBARAN incurred the following selling and administrative expenses Fixed 100,000 for the year Variable . P2 per container sold REQUIREMENTS: : E G (@) Compute the unit product cost per container of frozen yogurt under variable costing and absorption costing, respectively {b) Prepare the operating income statements for 2023 using absorption costing and variable costing, (©) Reconcile the operating income reported under the two methods. (@) Compute the throughput margin and income under throughput costing, PROBLEM 2 (CONVERSION FROM ABSORPTION NET INCOME) KALIBO CORP. prepared the following absorption-costing income statement for the year ended May 31, 2023 Sales (16,000 units) P 320,000 Cost of goods sold 216,000 Gross margin 104,000 Selling and administrative expenses 46,000 Operating income P 58,000 ‘Additional information fol Selling and administrative expenses include P1.50 of variable cost per unit sold. There was no beginning inventory, and 17,500 units were produced. Variable manufacturing costs were P11 per unit. Actual fixed costs were equal to budgeted fixed costs, REQUIREMENT: Prepare a variable-costing income statement for the same period. PROBLEM 3 (WITH STANDARD COSTING APPLICATION)Page 2 of 3 | MAS Physical Handout 04 e REAL 7 GO, S.V.C.ESGUERRA, R.v.F.ESTOQUE A EXCELLENCE nN een COSTING ’ one nd BAGUIO COMPANY recently organized a new division to manufacture and sell specially designed tables for mounting 2! Using personal computers. Its new plant is highly automated and requires high monthly fixed costs as shown below: Manufacturing Costs: Standard variable costs per unit Direct materials ee Direct tabor te Overhead : a Budgeting fixed overhead 240,000 Selling and administrative expenses: eau . 12% of sales a 160,000 During the month of operations, the following activity was recorded: Units produced 5,500 Units sold 5,200 Selling price per unit F300 Net material variance — unfavorable 142,000 Net direct labor variance — favorable ena Net variable overhead variance — favorable ‘The company has a normal capacity of 6,000 units. The actual amount of fixed manufacturing overhead is equal to its budgeted amount. REQUIREMENTS: (@) Determine the total cost of ending inventory under variable and absorption costing. (b) Calculated the net income under variable and absorption costing (©). Compute for the cost of goods sold at actual under variable and absorption costing, MULTIPLE CHOICE QUESTIONS 4. Operating income using direct costing as compared to absorption costing would be higher A. Under no circumstances. B. When the quantity of beginning inventory equals the quantity of ending inventory. C. When the quantity of beginning inventory is less than the quantity of ending inventory. D. When the quantity of beginning inventory is more than the quantity of ending inventory. 2. What factor, related to manufacturing costs, causes the difference in net earnings computed using absorption costing and net earnings computed using variable costing? ‘A. Absorption costing “inventories” all direct costs, but variable costing considers direct costs to be period costs. B. Absorption costing inventories” al xed costs forthe period in ending finished goods inventory, but variable costing expenses all fixed costs. f C. Absorption costing considers all costs in the determination of net earnings, wher i Absorption costing considers ings, whereas variable costing considers D. Absorption costing allocates fixed overhead costs between cost of goods sold and it ie costing considers all fixed costs to be period costs. Per tam kere anes 3, Absorption costing differs from variable costing in that ‘A, standards can be used with absorption costing, but not with variable costing, B. absorption costing inventories are more correctly valued. C. production influences income under absorption costing, but not under variable costin D. __ companies using absorption costing have lower fixed costs, 2. REO CPA REVIEW PHILIPFINES. Effectiveness. Efficiency. Convenience www reocpareview pI REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 6656774 @ 0919093 8620 © [email protected] MAY 2023 CPA REVIEW SEASONseweneona a eo e REAL Page 9 of 3 | MAS Physical Handout 04 K.G.ABITAGO, .V.C.ESGUERRA, Rv. ESTOQUE | vam EXCELLENCE VARIABLE AND ABSORPTION COSTING | 4. a eanmtacturing company prepares income statements using both absorption- and variable-costing methods. At the * '¢ period, actual sales revenues, total gross margin, and total contribution margin approximated budgeted ‘Gures, whereas net income was substantially below the budgeted amount, There were no beginning or ending inventories. The most likely explanation of the net income shortfall is that, compared to budget, actual : Manufacturing fixed costs had increased. B. ‘Selling and administrative fixed expenses had increased. c. ‘Sales price and variable costs had declined proportionately. D. Sales prices had declined proportionately more than variable costs. 5. Ifa division manager's compensation is based upon the division's net income, the manager may decide to meet the fret income targets by increasing production when using ‘A. variable costing, in order to increase net income. B. variable costing, in order to decrease net income. C. absorption costing, in order to increase net income, D. absorption costing, in order to decrease net income. -—- END OF HANDOUTS -—~ Effectiveness. Efficiency. Convenience REO CPA REVIEW PHILIPPINES ;reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 6656774 @ 09190938620 © [email protected] MAY 2023 CPA REVIEW SEASONwer i AEE sf staan cs 05 ape 103 UAs ryt Hondo 5 e REAL : uoeTIne 7 NE EXCELLENCE Kco,atraco, Svcescuenma nv eeToaUE BUDGETING K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F. ESTOQUE ‘TOPIC OUTLINE 24.1, Describe the budgeting process 2.42 Prepare a master budget by analyzing the behavior of revenues and costs and use it to calculate and prepare different types of supporting budgets (e.9., production, inventory levels, operating expenses, cash budget) for planning and control purposes Financial planning and budgets 1. Definition and coverage of the budgeting process 2. Master budget and its components (operating and financial budgets) 1.2.5.3 Types of budgets (static, flexible, zero-based, continuous) STRAIGHT PROBLEM EXERCISES PROBLEM 1 (PURCHASES BUDGET ~ MERCHANDISING COMPANY) PIKACHU INC. has the following information: 4.24 12. 1.2: Month, Budgeted Sales March 50,000 April - 53,000 May 51,000 June 54;500 July 52,500 In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month's cost of sales. REQUIREMENT: Prepare a purchases budget for April through June PROBLEM 2 (BUDGETS OF A MNUFACTURING COMPANY) MEWTWO INC. has the following budgeted sales for the next six month period: June 90,000 August 210,000 October 180,000 July 420,000 September 150,000 November 120,000 There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month. Five pounds of materials are required for each unit produced. Each pound of material costs P8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15,000 pounds. Each unit requires 0.50 direct labor hours at a rate of PS per hour. Overhead is applied on the basis of P2 per direct labor hour. REQUIREMENTS: (@) Prepare production budgets in units for July, August, and September. (b) Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month, 6 (©) Compute for the total labor hours and total labor cost for July, August and September. (d) Prepare the overhead budget PROBLEM 3 (CASH BUDGET) The following historical pattern on its credit sales of GENGAR CO. was presented: + 70% collection during the month of sale. + 15% in the first month after sale. + 10% in the second month after sale. GPA REVIEW. LNT Et ONsical Handout 05 Page 20f3 Phy ‘RB REAL wceseuena nv pestoaue EXCELLENCE K.G.ABITAGO, 5.V.C.ESGUERRA, RVEESTO- i le 4% in the third month after sale. “The oc’ uncolectibe. 'e sales on account of the last six months of the year were reported as follows: July 120,000 August 140,000 September 160,000 October 180,000 November 200,000 December 170,000 REQUIREMENT: The total cash collections during the fourth calendar quarter from sales made on account during the fourth calendar quarter would be PROBLEM 4 (COMPREHENSIVE) CELEBI CORP. has the following sales forecast for the first four months of 20X9. January 70,000 February 70,000 larct 90,000 April 80,000 CELEBI's cost of sales is 60% of sales. Fixed costs are P12,000 per month. CELEBI maintains inventory at 150% of the coming month’s budgeted sales requirements and has P55,000 inventory at January 1 CELEB! pays for its purchases 40% in the month of purchase, 60% in the following month. CELEB! collects 60% of its sales in the month of sale, 40% in the following month. All fix costs require cash disbursements. CELEBI's balance sheet at December 31, 20X8 appears below. ‘Assets Equities Cash P 20,000 Accounts payable P 16,000 Receivables 30,000 Inventory 55,000 " Stockholders’ equity 87,000 Total Total REQUIREMENTS: (2) Prepare a budgeted income statement for the first three months of 20X89, in total, not by month. () Prepare a purchase budget for the first three months of 20X9 b month “ (c) Prepare a cash receipts budget for each of the first three months of 20X9 and for the quarter as a whole. (d) Prepare a cash disbursement budget for each of the first three months of 20X9 and for the quarter as a whole. {e) Prepare a cash budget for each of the first three months of 20X9 and for the quarter as a whole ()__ Prepare a pro forma balance sheet as of March 31, 20X9. MULTIPLE CHOICE QUESTIONS 4. Wilson Corporation is budgeting its equipment needs on an on-going basis, with a new quarter being added to the budget as the current quarter is completed. This type of budget is most commonly known as a: A. capital budget. D. pro-forma budget B. rolling budget. E. * financial budget, C.- revised budget 2. Astatic budget report 5 ‘shows costs at only 2 or 3 different levels of activity. is appropriate in evaluating a manager's effectiveness in controlling variable costs. should be used when the actual level of activity is materially different from the master budget activity level. may be appropriate in evaluating a manager's effectiveness in controlling costs when the behavior of the costs in response to changes in activity is fixed. 3. Statement 1: Budget committee suggests changes and modifications on the proposed budget since they are not the preparer of it Statement 2: The bottom-up approach in budget preparation should always be used. Statement 3: Budgets serves as a control tool not a communication tool, A B. Cc. D. com> REO CPA REVIEW PHILIPPINES - Effectiveness. Efficiency. Convenience www.reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 685.6774, @ 0919083 8520 @ support@reocpareview ph MAY 2023 CPA REVIEW SEASONAP Be RaIEENe 6 Page 9of3 Mas Physical Handout O! K.G.ABITAGO, S.V.C.ESGUERRA, RvpesTooue EXCELLENCE auoceril ONLINE Statement 7 False False True True Statement 2 True False False True Statement 3 True Tre False False 4. Evaluate the following statements: The cash budget is known as the anchor budget since cash Is the fuel of the company's operations. |i, A flexible budget is adjusted to reflect expected costs at the actual level of activity. lA budget serves as a control tool for a company since budget reports are prepared to analyze any difference from the budget The company does not need to modify future plans since the operations had already started A B. Cc. D. ‘Statement True True False True Statement I False True True True Statement II True False False True 5. Which of the following represents a proper sequencing in which the budgets below are prepared? ‘A. Direct Material Purchases, Cash, Sales. B. Production, Sales, Income Statement C. Sales, Balance Sheet, Direct Labor D. Sales, Production, Manufacturing Overhead —- END OF HANDOUT — REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience www. reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 065.6774 @ 019.093 8620 G support@reocpareview ph MAY 2023 GPA REVIEW SEASONTa ne 06 | ? Page 1 of2 | MAS Physical Handout O° / REAL 7% X pata) EXCELLENCE KG ABITAGO, S.V.C.ESGUERRA, RV.F.ESTOQUE, J Sa ‘ PRICING ABITAGO, ESGUERRA, ESTOQUE MULTIPLE CHOICE QUESTIONS Use the following information in answering the next item(s): ‘The following information is related to BLUE CORP: Manufacturing Costs: P1.00 Direct materials Direct labor 1.20 Variable indirect cost 0.80 Fixed indirect cost 0.50 Selling and Other Costs: Variable P1.50 Fixed 0.90 4. The company is planning to set up a selling price with a mark-up of 50% based on conversion costs. The selling price is A P5900 c. P6.90 B P525 D. P7415 2. The company is planning to set up a selling price with a mark-up of 40% based on full production costs. The selling price is A P7410 - C PB26 B P730 D. P7415 . 3. The company is planning to set up a selling price with a mark-up of 45% based on variable production costs. The selling price is A P725 Cc. Pas6 B P7.92 D, P748 : 4, The company is planning to set up a selling price with a mark-up of 30% based on full (total) costs. The selling price is A P695 c. P767 B. P50 D. .P665 5, The company is planning to set up a selling price with a mark-up of 35% based on variable’(marginal) costs. The selling price is A P695 c. P765 B P670 D. P748 6. The company is planning to set up a selling price with a mark-up of 60% based on prime costs. The selling price is, A P722 C. PB.00 B P7.40 Dd. P770 7. RED CORP. is planning to produce a product that is expected to have a two-year life cycle. The estimated whole-lfe. cost for a budgeted production of 160,000 units is as follows: Life-cycle costs:lovescommenn = is No. 06 ; Page 2 of 2 | MAS Live Handout a REAL ‘ABITAGO, ESGUERRA, ESTOQUE EXCELLENCE DET 7 BOSTM, ONUINE Upstream costs (research and development, design! 1,600,000 Production costs ’ 2,400,000 Downstream costs (marketing, distribution, customer service) ‘900,000 Total life-cycle costs 4,800,000 Ater-purchases costs (operating, support, repair and disposal incurred by customers "700,000 Total whole-lfe costs P5,600,000 If the product is to be priced at 130% of the whole life unit cost, the budgeted unit selling price is A, 39.81 C. P45.50 B. P2692 D. P35.00 =— END OF HANDOUTS —~ REO CPA REVIEW PHILIPPINES - Effectiveness. Efficiency. Convenience wwrw.reocpareview ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 605.5774 @ 0016 6400861 @ support@eocpareview ph May 2023 CPA REVIEW SEASON« Pert SUSIE TT ig 4 tease RY REAL o7 page 1014] MAS Physical Handout costing RELEVANT COSTE y ' a EXCELLENCE KG ABITAGO, SV.CESGUERRA RVF RELEVANT COSTING K.GABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE TOPIC OUTLINE 4.1. Identify and use appropriate relevant costs in making analysis and business decision for short-term non routine Scenarios. Understand and apply the concept of opportunity costs . non-routine decisions (Alternatives involving make or DUY, 4.3. Application of approaches in analyzing alternative aeapt or reject special order, continue or shut-down, sell or process further, product combinations and pricing decisions). STRAIGHT PROBLEM EXERCISES PROBLEM 1 (MAKE OR BUY DECISION) : From the previous years, DARK MAGICIAN INC. has been manufacturing its own.wheels for its skateboards DARK MAGICIANS skateboards have the highest demand on the market since it can be used also for water activities. Due 10 8 ee ention sttended by the company’s CFO in London, he met an outside supplier who has offered to produce and sell {he Same type of wheels DARK MAGICIAN Is using for its skateboards. DARK MAGICIAN's present cost fo manufacture one wheel is given below (based on 60,000 wheels per year): Direct material 10.00 Materials handling (10% of direct material cost) : 4.00 Direct labor 6.00 Variable overhead : 2.20 Fixed overhead (P2.80 general company overhead, 2.45 depreciation and, PO.75 supervision) 6.00 P2520 Total cost per drum Material handling represents the direct varial purchased components on the basis of their cos! ble costs of the Receiving Department that are applied to direct materials and {A decision about whether to make or buy the wheels is especially important tt this time since the equipment being used to make the drums is completely worn out and must be replaced. Thus if the Gompany will chose to continue making the wheels, it should buy a new equipment costing P600,000 to be depreciated over its 5 year useful life using straight-ine method. The old equipment has no resale value. ‘Asupervisor would have to be hired to oversee production of the wheels and the company's total general company overhead would be unaffected by this decision If the wheels were to be purchased at P22 DARK MAGICIAN could use the freed capacity to launch a new product generating a segment margin of P200,000. REQUIREMENT: Prepare computations helping DARK MAGICIAN if it will accept the outside supplier's offer? PROBLEM 2 (ACCEPT OR REJECT A SPECIAL ORDER) BLUE EYES INC. makes outdoor shirts. Data relating to the coming year’s planned operations are as follows, Sales (230,000 shirts) 4,140,000 Cost of goods sold 2,760,000 Gross profit 1,320,000 Selling and administrative expenses 805,000 Income : 575,000 APAISINAANAN GIANG7 Sabra eianansneesnin ne ) / =) REAL Page 2014 | MAS Physica Handout 07 / q uenea, nvr estoaul : (a EXCELLENCE OARITAGO, SCESOUET i COSTING The factor only variable eaieaPaety {© make 250,000 shits per year. Fixed costs included in cost of goods sold are P690,000, The y Selling, general and administrative expenses are a 10% sales commission and a P1.50 per shirt licensing fee Bid to the designer. ane manager has approached the sales manager of BLUE EYES INC. offering to buy 15,000 shirts at P15 per aoceptnes Shits would be sold in areas where BLUE EYES’ shirts are not now sold, The sales manager believes that PeOe ang the offer would result in a loss because the average-total cost of the shirt is P15.50 ({2,760.000 + °,000}/230,000). He feels that even though sales commissions would not be paid on the order, a loss would stil result REQUIREMENTS 1. Determine whether the company should accept the offer 2. Suppose that the order was for 40,000 shirts instead of 15,000. What would the company's income be if it accepted the order? 3. Assuming the same facts as in requirement 1, what is the lowest price that the company could accept and stil eam P575,000? 4, How many units of sales at the regular price could the company loss before it become unprofitable to accept the order in requirement 2? PROBLEM 3 (KEEP OR DROP A SEGMENT) BABY DRAGON MERCHANDISING COMPANY has products, A and B. A recent monthly income statement for the company follows: : TOTAL PRODUCT A PRODUCT B No. of units sold 250,000 150,000 100,000 Sales 4,000,000 3,000,000 P1,000,000 Less: Variable expenses 4,300,000 900,000 400,000 . Contribution Margin 2,700,000 2,100,000 600,000 Less: Fixed expenses 2,200,000 1,400,000 800,000 Net operating income (loss) P 500,000 P 700,000 (200,000) A study indicates that P340,000 of the fixed expenses being charged to PRODDUCT B are sunk costs or allocated costs that will continue even if B is dropped. . REQUIREMENTS: Answer each of the following questions independently, unless otherwise instructed. (@) Management is considering dropping PRODUCT B but will result in a 10% decrease in the sales of PRODUCT.A. If the company will push through the proposed action, what would be its effect on the company’s net income as a whole? (b) The managers are considering increasing advertising for product A by P40,000. They expect to achieve a 10% increase in volume for product A with no change in selling price, but some of that increase will be the expense of product B. Sales of B are expected to deciine by 5%. What will total profit be if the managers approve the proposed action? (©) What is the maximum percentage decline in volume of product B that would leave the action in requirement (b) just barely desirable? (4) The managers are considering dropping product B and replacing it with produet C. Introducing product C would increase total fixed costs by P175,000. C’s contribution margin percentage is 40% and is expecting sales of 1,500,000. What is the expected new profit of the company after approving the proposal? () The company is considering increasing the sales price of B is increased to P15 with a decrease in the number of units sold to 90,000. What is the effect on income of the proposed action? . () Partof the plant in which A is produced can easily be adapted to the production of B, but changes in quantities may make changes in sales prices advisable. If production of A is reduced to 100,000 units (to be sold at P25 each) and production of B is increased by 50,000 units (fo be sold at P8,00 each), the total effect on income will be? PROBLEM 4 (SELL AS IS OR PROCESS FURTHER A PRODUCT) BLADE SKATER CORP. manufactures three products from a common input in a joint processing operation. Joint processing cost up to the split-off point total P500,000 per quarter. The company allocates these costs to the joint products on the basis of their total sales value at the spiit-off point. Unit selling prices and total output at the split-off point are as follows: REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience www.reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW. @ (074) 685.6774 @ 09190938620 © [email protected] MAY 2023 CPA REVIEW SEASON=) REA Page 3 of 4 | MAS Physical Handout 07 L. le a K.G ABITAGO, .V.C ESGUERRA,R.V.F-ESTOOU COSTING van, EXCELLENCE RELEVANT COS Product Selling Price Quarterly Output Economy P16 per pound 15,000 pounds Deluxe, 8 per pound 20,000 pounds Supreme 25 per gallon 4,000 gallons Batch product can be processed further after the spilt-off point. Additional processing costs (per quarter) and unit selling Prices afer further processing are given below. Product Adtitional Processing Costs Selling Price Economy 55,000 P19 per pound Deluxe 118,000 414 per pound Supreme 26,000 31 per gallon REQUIREMENT: Which product(s) should BLADE SKATER sell at the split-off point and which product(s) should it continue processing? PROBLEM 5 (SHUTDOWN OR CONTINUE OPERATIONS) i rmpally ) that is used by furniture manufacturers. The company nor th, White Glue is sold for P280 per gallon, variable costs is P168 th, and the fixed selling costs totals P620,000 per month. DANCING ELF INC. produces white glue (2 wood glue’ produces and sells 10,000 gallons of the glue each mont per gallon, fixed tactory overhead cost totals P460,000 per mon Labor strikes in the furniture manufacturers that buy the bulk of White Glue have caused the monthly sales of DANCING ELF to temporarily decrease to only 30% of its normal monthly volume. DANCING ELF's management expects that the strikes wil last for about 2 months, after which, sales of White Glue should return to normal, However, due to the dramatic drop in the sales level, DANCING ELF’s management is considering to close down its plant during the two-month period that the strikes are on. If DANCING ELF INC. will temporarily shut down its operations, itis expected that the fixed factory overhead costs can be reduced to P340,000 per month and that the fixed seling costs can be reduced by P62,000 per month. Start-up costs at the fend of the shut-down period would total P56,000. DANCING ELF uses the JIT system, so no inventories are on hand. REQUIREMENTS. (a) Atthe sales level of only 30% of the normal volume, should the company continue operating or shutdown temporarily fortwo months? (b) Compute for the shut-down point PROBLEM 6 (PRODUCT MIX DECISION) ELEMENTAL HERO CORP. makes three products in a single facility. Data conceming these products follow: Product A Product B Product C Selling price per unit P64.50 64.80 P63.30 Direct materials 20.90 P1450 P18.30 Direct labor 30.80 33.40 26.00 Variable manufacturing overhead P1.60 P10 P2.10 Variable selling cost per unit P1.00 P3.40 P1.50 Mixing minutes per unit 3.50 3.10 + 3.50 Monthly demand in units 4,000 2,000 4,000 ‘The mixing machines are potentially the constraint in the production facility. A total of 32,400 minutes are available per month on these machines. Direct labor is a variable cost in this company. REQUIREMENTS: (@) How many minutes of mixing machine time would be required to satisfy demand for all products? (b) Which orders would you advise the company to accept first, second and third? How many units of each product should be produced to maximize net operating income? (Round off to the nearest ©) whole unit.) (4) Whats the expected total contribution margin of ELEMENTAL HERO fit wll folow the proposed action maximizing its net income? {e) Upto how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience wwnw-reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 6856774 @ 0919093 8620 © suppor@reocpareview ph MAY 2023 CPA REVIEW SEASON: f . 4 of 4 | MAS Physical Handout 07/ : REAL Page 4 of 4| hysical " ped EXCELLENC E K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE RELEVANT COSTING MULTIPLE CHOICE QUESTIONS WdGe M/AN ING. is a manufacturer operating al 95% of capacty. JUDGE MAN has been offered a new order at der ere a ceauiting 15% of capacity, No other use of the 5% current idle capacity can be found. However. ifthe vane ne socePled, the subcontracting for the required 10% additional capacity would cost P7.50 per unit. The Variable cost of production for JUDGE MAN on a per-unit basis follows Materials P3.s0 Labor 1.50 Variable overhead 1.50 76.50 \n applying the contribution margin approach to evaluating whether to accept the new order, assuming subcontracting, ‘what is the average variable cost per unit? A R683 c. P77 s B. P70 D. P7256 Use the following information in answering the next item(s): GAIA CORP. has assembled the data appearing in the next column pertaining to two products. Past experience has shown that the unavoidable fixed manufacturing factory overhead included in the cost per machine hour averages P10. GAIA has a policy of fling all sales orders, even if it means purchasing units from outside suppliers. Total ‘machine capacity is 50,000 hours. Blender Electric mixers Direct materials P6 Pit Direct labor 4 9 Factory overhead at P16 per hour 16 32 Cost if purchased from an outside supplier 20 38 Annual demand (units) 20,000 28,000 If GAIA CORP. desires to follow an optimal strategy, it should produce ‘A. 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed B. 20,000 blenders and purchase all other units as needed. C. 25,000 electric mixers and purchase all other units as needed. D. 28,000 electric mixers and purchase all other units as needed, ‘With all other things constant, if GAIA CORP. is able to reduce the direct materials for an electric mixer to PS per unit, the company should A Purchase all units as needed. B. Produce 20,000 blenders and purchase all other units as needed. Cc. Produce 25,000 electric mixers and purchase all other units as needed. D. Produce 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed. —: END OF HANDOUTS ---— REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience www.reoopareview.ph REAL EXCELLENCE ONLINE CPA REVIEW (© (074) 665.6774 @ 09190838520 © support@reocpareview ph MAY 2023 CPA REVIEW SEASONTate at ESTES RINT URE Ba BEN Ath AS physical Handout OF << sl Page 1 of 31M x REAL , caprTAal. BUDGETING ‘ea EXCELLENCE K.GABITAGO, 6 V.C.ESGUERRA, RV.F-ESTOOU CAPITAL BUDGETING K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE TOPIC OUTLINE 4.1 Determine the key elements of capital budgeting investment decisions (net investment, operating cash flow and cost of capital) and evaluate the same using both discounted and non- discounted cash flow techniques. (5) 4.2. Determine the key elements of capital budgeting investment decisions (net investment, operating cash flow and ‘cost of capital) and evaluate the same using both discounted and non-discounted cash flow techniques. (2) STRAIGHT PROBLEM EXERCISES PROBLEM 1 (NET INVESTMENT & OPERATING CASH FLOW AFTER TAX) FREYA CORP. is planning to replace an old machine with the following related information’ ‘Book value 300,000 Remaining useful life 5 years Current market value 150,000 Additional information: ‘©The replacement machine can be acquired at a list price of P500,000. A 5% cash discount is available if the said machine is paid within 30 days from acquisition date. Freight and installation costs is estimated at P75,000. © Should the company decide not to acquire the new machine, it needs to repair the old one at a cost of P50,000. Otherwise, additional cost of removing the old unit is estimated at P10,000. : © Additional gross working capital of P15,000 will be needed to support operation planned with the new equipment © The new machine is estimated to reduce cash operating costs amounting to P150,000 per year and is to be depreciated using the straight-line method over its useful life of 5 years. FREYA is subject to a 30% income tax rate. REQUIREMENTS: (1) Whatis the net initial cost of investment to be used in decision making? (2) Whats the increase in annual net income? (3) Whats the increase in annual net cash flows if the company replaces the machine? PROBLEM 2 (NON-DISCOUNTED TECHNIQUES) BANE BUS TERMINAL INC. is planning to install vending machines with a cost of P300,000. It is estimated that these vending machines will generate annual sales of 20,000 cups with a price of P10 per cup. Cash variable costs are P4 per cup while cash fixed costs are expected to be P50,000 per year. The vending machine's estimated economic life would be 5 years with a salvage value of P50,000 and depreciated using the straight-line method, BANE is subject to a 35% income tax rate. REQUIREMENTS: (a) Determine the payback period; (b) Determine the accounting rate of retum based on original investment; (c) Determine the accounting rate of return based on the average investment PROBLEM 3 (NON-DISCOUNTED TECHNIQUES ~ BAILOUT PERIOD) LING INC. purchased a new machine on January 1 of this year for P90,000, with an estimated useful fe of 5 years and a salvage value of P10,000. The machine will be depreciated using the straight-line method, ‘The machiné is expected to produce cash flow from operations, net of income taxes, of 36,000 a year in each of the next § years. The new machine's, ‘salvage value is P20,000 in years 1 and 2, and P16,0000 in years 3 and 4. REQUIREMENT: What will be the bailout period (rounded) for the new machine? PROBLEM 4 (DISCOUNTED TECHNIQUES - NET PRESENT VALUE) ZILONG CORP. is planning to acquire a new asset with the following expectations: eae g oP STARE atp 08 / . REA Page 2 of 3| MAS Physical Handout 0° L que JERRA, RVF.ESTO! B Badkience Keaaraco ave taut sere ONLINE 4 Annual expected sales volume 80,000 units for five years Selling price PAS Unit variable cost 6 Cost of required machinery 550,000 Salvage value 50,000 Annual cash fixed costs 400,000 Increase in receivables 60,000 Increase in inventory 40,000 nat increase in working capital will be returned in full at the end of the five years, The tax rate is 30% and cost of capital is REQUIREMENT; How much is the project's NPV? PROBLEM 5 (DISCOUNTED TECHNIQUES ~ RELATIONSHIPS) Fill in the blanks for each of the following independent cases. Each investment has a useful life of ten years and no salvage value. A B. C. D. E, ‘Annual Net Investment Cost of Capital Internal Rate of Net Present Cash Inflow Retum Value 1 45,000 P 188,640 14% =e P, 2. P 75,000 12% 18% P 3 P. peli 16% P 87,440, 4 P. 12%. 118,000 MULTIPLE CHOICE QUESTIONS 1. CLINT COMPANY is planning to invest to a.project with a lfe of 10 years. CLINT's cost of capital is 10% while the project's internal rate of return (IRR) is 12%, Whats profitabiity index? ‘A. Cannot be solved using the given information B 0.92 Cc. 1.08 BD. 083 E120 2. ALUCARD CORP. bought a major equipment which is depreciable over 7 years on a straight-line basis without any salvage value. tis estimated that it would generate cash flow from operations, net of income taxes, of P800,000 in each of the seven years. The company’s expected rate of retum is 12%. Based on estimates, the project has a net present value of P127,200. What is the cost of the equipment? To facilitate computations, below are present value factors: Present value of P1 at 12% for seven years is 0.452. Present value of an ordinary annuity of P1 at 12% for seven years is 4.564. ‘A. P3,651,200 C. P2,404,000 B. 3,524,000 D. P3.778,400 3. Amajor difference between an investment in working capital and one in depreciable assets is that ‘A. an investment in working capital is never returned, while most depreciable assets have some residual value. B. an investment in working capital is returned in full at the end of a project's life, while an investment in depreciable assets has no residual value. C. an investment in working capital is not tax-deductible when made, nor taxable when returned, while an investment in depreciable assets does allow tax deductions. D. because an investment in working capital is usually returned in full at the end of the project’ if, itis ignored in computing the amount of the investment required for the project. * REO CPA REVIEW PHILIPPINES Effectiveniess. Efficiency. Convenience www. reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 665 6774 @ 0919093 8620 © [email protected] MAY 2023 CPA REVIEW SEASONa! ut 08 Page 3 of3 | MAS Physical Hand” REAL qué K.G.ABITAGO, S.V.C.ESGUERRA, R.V: PESTO! e EXCELLENCE Bean Sen 4. Which of the following statements about investment decision models is true? the Ree rn eee ater ecie is to accept the investment ifthe opportunity cost of capital is greater tha” Oe $2: Payback period is more concerned on the return of investment rather than return on investment. 53: The advantage of net present value over payback period is that it considers all the cash flows after-tax cover the life of the investment. A Stand S2 D. Stand $3 B. S2andS3 E S3only ©. Stonly . 5. A project with 2 10-year fe has a proftabilty index of 1.21. The ony cash now provided by the projects the anna ‘cash inflow after tax which is equal every year. Which of the following ‘statements is correct in relation to the previous ‘statements? . . ‘A. The project's NPV is negative. B. The present value factor of discount rate is greater than the present value factor of internal rate of return C. The discount rate is higher than the internal rate of return. D. None from the choices is correct. — END OF HANDOUT — REO CPA REVIEW PHILIPPINES, Effectiveness. Efficiency. Convenie www. reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 6656774 @ 09190938620 © [email protected] MAY 2023 CPA REVIEW SEASON¥ R Page 1 of 5 | MAS Physical Handout 09 eB EAL : FINANCIAL STATEMENTS ANALYS! ‘ = EXCELLENCE KGABITAGO, SUIS ESGUERRA,RV.F ESTOQUE FINANCIAL STATEMENTS ANALYSIS ate OSEAN PS K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE TOPIC OUTLINE 2.0 Financial Management 2.2 Financial Management Concepts and Techniques for Planning, Control & Decision Making 224 Financial statement analysis Vertical analysis (common-size financial statements) Horizontal analysis (trend percentages and index analysis) Cash flow analysis (interpretation of cash flows including free cash flow concept) Gross profit variance analysis (price, cost and volume factors) Financial ratios (liquidity, solvency, activity, profitability, growth and other ratios; DuPont mode!) 2.2.1.6 Financial forecasting using additional funds needed (AFN) RERPNN MULTIPLE CHOICE QUESTIONS [2.2.1.1 Vertical analysis (common-size financial statements) In common size analysis, A. a base amount is required B. a base amount is optional C. the same base is used across all financial statements analyzed. D. the results of the horizontal analysis are necessary inputs for performing the analysis. 2. Moon Beam, Inc. has the following income statement (in millions): MOON BEAM, INC. Income Statement For the Year Ended December 31, 2023 Net Sales P180 Cost of Goods Sold 120 Gross Profit 60 Operating Expenses 33 Net Income P27 Using vertical analysis, what percentage is assigned to Net Income? ‘ A 100% C. 15% B. 85% D. None of the above 3. Which of the following is not revealed on a common size balance sheet? ‘A. The debt structure of a firm, B. The capital structure of a firm, C. The peso amount of assets and liabilities. D. The distribution of assets in which funds are invested,“> . F 7 Page 2 of 5 MAS Physical Handout O REAL eB EXCE K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F- ESTOQUE a LLENCE FINANCIAL STATEMENTS ANAL. 4. Statements in which all items are expressed only in relative terms are termed: A. Vertical statements B. Horizontal Statements C. Funds Statements D. Common-Size Statements 5. Last year, a business had no long-term investments; this year long term investments amount to 100,000. .In @ horizontal analysis the change in long-term investments should be expressed as A. Anabsolute value of P100,000, and an increase of 100% B. An absolute value of P100,000 and an increase of 1,000% C. . Anabsolute value of P100,000 and no value for a percentage change D. _Nochange in any terms because there was no investment in the previous year. [2.2.1.2 Horizontal analysis (trend percentages and index analysis)) 6. Assume the following sales data for a company: 2010 1,000,000 2009 ‘900,000 2008 750,000 2007 600,000 12007 is the base year, what is the percentage increase in sales from 2007 to 20097 A 100% C. 50% . B. 150% D. 66.7% [2.2.1.3 Cash flow analysis (interpretation of cash flows including free cash flow concept)] 7, Johnson, Inc. has just ended the calendar year making a sale in the amount of P10,000 of merchandise purchased uring the year at a total cost of P7,000. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow for the year are ‘A. P3,000 and P10,000, respectively. B. P3,000 and -P7,000, respectively. C. P7,000 and -P3,000, respectively. D. P3,000 and P7,000, respectively. 8. Which of the following is NOT one of the categories for a project's relevant after-tax cash flows? A. Financing flows B. Initial cash outflow C. Differential flows over the project’ life * D. Terminal cash flow [2.2.1.4 Gross profit variance analysis (price, cost and volume factors)) ‘9. Osmanthus Wine Company had the following limited information gathered from their records: 200A 2008 Net Sale 192,500 P210,210 Cost of Sales 115,500 165,400 Gross Profit P 77,000 P 44,810 ‘The only additional data provided was that due to tough competition, sales prices had to be slashed by 22%. Prepare a Gross Profit Variance Analysis. 40. More insight into the sales-volume variance can be gained by subdividing it into: ‘A. the sales-mix variance and the sales-quantity variance REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience www. reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW © (074) 665.6774 @ 0919093 8620 © suppor@reocpareviewph MAY 2023 CPA REVIEW SEASON:~~ 09 Page 3 of | MAS Physical Handout e REAL ae KOABITAGO, $.vc.EscuERRA, RVEESTOO perf. EXCELLENCE 1 UE RA AE ERALYSIS B. the market-share variance and the market-size variance C. the flexible-budget variance and the market-size variance D. acost hierarchy [2.2.1.5 Financial ratios (liquidity, solvency, activity, profitability, growth and other ratios; Ou Pont model)] Use the following information in answering tho noxt Hom(s) lon at the end of the current year indicates the following: ‘The balance sheet for KGA Corporat Bonds payable, 7% ‘4,000,000 6% Preferred stock, P100 par 1,000,000 Common stock, P10 par 3,000,000 10,000 and income taxes expense for the current year amounted to P336,000- Income before income taxes was PA, 12 Cash dividends paid on common stock were P300,00 end of the year. There were no ownership changes during the is P12 milhon and P15 million, respectively. 14. Determine times that bond interest was earned. 10, and the common stock was selling for P45 per share at the year. Total assets at the beginning and end of the year A 3times D. 5times B 4times E. 6.20times C. 1.80times 12. What is KGA's price earings ratio? A 1274 Dd. 3214 B 1867 E3041 Cc 1722 43. Compute for the company's earings per share A 140 D241 Bo 148 E261 Cc 353 14. Determine KGA’s retum on asset? A 581% D. 3.73% B 830% E 653% C. 7.26% ‘ 416. Consider the following data about a company: ‘Current ratio 35to1 Acid-test ratio 3.0to1 Current liabilities at year-end 150,000 Inventory, beginning of the year P 125,000 8 times Inventory turnover ‘What is the value of the company's inventory at the end of the year? A P75,000 C. — P150,000 B. —P'125,000 D. 525,000 46. Merit, Inc. uses the direct write-off method to account for uncollectible accounts receivable. If the company subsequently collects an account receivable that was written off in a prior accounting period, the effect of the collection of the account receivable on Merit's current ratio and total working capital would be. _A. B. C. D. Current Ratio None Increase Increase None Working Capital None Increase None Decrease 17. Farrow Co. is applying for a loan in which the bank requires a quick ratio of at least 1. Farrow’s quick ratio is 0.8. ‘Which of the following actions would increase Farrow’s quick ratio? REO OPA REVIEW PHILIPPINES Effectiveness. Efficiency. Gonvenience www reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW @ (074) 665.6774 @ 0919093 8620 © [email protected] MAY 2023 CPA REVIEW SEASONy REAL Page 4 of 5 | MAS Physical Handout 09 -ExXc EI K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE a LLENCE FINANCIAL STATEMENTS ANALYSIS A Selling obsolete inventory at a loss. eI Paying an existing account payable. ¢ Purchasing inventory through the issuance of a long-term note. Implementing stronger procedures to collect accounts receivable at a faster rate. 18. The following information pertains to LAGUNA CORP. for the calendar year 2009: Sales (all on credit) 2,000,000 Gross profit on sales ‘900,000 Purchases 4,000,000 Inventory at end of year 200,000 Accounts receivable at beginning of year 600,000 ‘Accounts receivable at end of year 400,000, LAGUNA's inventory tumover for 2009 was (M1* A 20times, C. 4.4times. B. 2.2 times. D. 5.0times. 19. QUEZON CORP. has 100,000 shares of P10 par value common stock issued and outstanding. Total stockholders’ equity is P2,800,000 and net income for the year is P800,000. During the year Richmond paid P3.00 per share in Gividends on its common stock. The market value of QUEZON's common stock is P24. What is the price-earnings ratio? A 30 C48 B35 Dd 80 20. CAVITE INC. has a debt ratio of 0.5, a total assets turnover ratio of 0.25, and a profit margin of 10 percent. The Board of Directors is unhappy with the current return on equity (ROE), and they think it could be doubled. This could be accomplished (1) by increasing the profit margin to 12 percent and (2) by increasing debt utilization. Total assets tumover will not change. What new debt ratio, along with the new 12 percent profit margin, would be required to double the ROE? A 55% D. 70% B. 60% E 75% C. 65% : 21. A firm has a debtiequity ratio of 50 percent. Currently it has interest expense of P500,000 on P5,000,000 of total debt outstanding. Its tax rate is 40 percent. If the firm's ROA is 6 percent, by how many percentage points is the firm's ROE greater than its ROA? A 0.0% c. 52% B 3.0% Dd. 7.4% [2.2.1.6 Financial forecasting using additional funds needed (AFN)] 22. 11 Stranger has the following financial statements that are representative of the company's historical average. Income Statement ‘Sales 300,000 Expenses, 250,000, ‘Eamings before taxes | P_ 60.000) Taxes 20,000 Earnings after taxes | P_30,000. Dividends, 18,000 Balance Sheet Asses I Liabilties and Stockholders’ Equity REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience ‘www.reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW (@ (074) 665.6774 @ 0019003 8620 [email protected] MAY 2023 CPA REVIEW SEASONSe RN SRE NG a REAL Page § of 5 | MAS Physical Handout 09 K.G.ABITAGO, S.V,.C.ESGUERRA, R.V.F.ESTOQUE peg. EXCELLENCE ERC UeRI BME STOR Cash P_ 6,000 Accounts 2,000 cn {sess aE Fixed Assets 70,000 20,000) ae ee ee ee Total Assets. P190,000__| Total Equity 190,000 11 Stranger is expected to increase sales by 20% next year and management is concerned about the company's need for external funds. The increase in sales Is expected to be carried out without any expansion of fixed assets but rather through more efficient asset utilization in the existing stores. Among liabilities, only current liabilities vary directly with sates. Using the percent-of-sales method, determine whether 11 Stranger has additional funds needed (AFN)? 23. BATANGAS CORP. has forecasted the following year-end balance sheet: Assets ~_Liabilfies and Equity: ‘Cash and marketable Securities P 300” Notes payable P 600 Inventories 500 Accounts payable 400 Accounts receivable 700 Total current liabilities 1,200 Total current assets P7500 Long-term debt 3,000 Net fixed assets 5,000 __ Stockholders’ equity 2,300 Total assets, 6,500 Total iabiities and equity 6,500 The company also forecasts that its days sales outstanding (DSO) on @ 360-day basis will be 35 days. Now, assume instead that Mondale is able to reduce its DSO to the industry average of 30 days without reducing its * sales. Under this scenario, the reduction in accounts receivable would generate additional cash. This additional cash would be used to reduce its notes payable. If this scenario were to ocour, what would be the company's current ratio? A 135 147 a 127 E245 Ce) END OF HANDOUT — REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience www.reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW. @ (074) 685 674 @ 0919093 8620 © [email protected] MAY 2023 CPA REVIEW SEASONPago 1 of 6 | MAS Physical Handout 10 e REAL ABZ EXCELLeNce xenomco sve RN FE “AER PERFORMANCE EVALUATION SOTA ORT K.G.ABITAGO, S.V.C.ESGUERRA, R.V.F.ESTOQUE TOPIC OUTLINE 1.3 Management accounting concepts and techniques for performance measurement 1.3.1 Responsibility accounting and transfer pricing 4.3.1.1 Concepts of decentralization, segment reporting, goal congruence and motivation 4.3.1.2 Controllable and non-controliable costs, direct and common costs 1.3.1.3 Type of responsibilty centers (cost, revenue, profit and investment centers) 1.3.1.4 Preparation of segmented income statement 1.3.1.5 Performance margin (manager vs. segment performance) 1.3.1.6 Return on investment (RON), residual income and economic value added (EVA) 1.3.1.7 Rational and need for transfer price 1.3.1.8 Transfer pricing schemes (minimum transfer price, market-based transfer price, cost-based transfer price and negotiated price) 4.3.2 Balance scorecard 1.3.2.1 Nature and perspectives of balanced scorecard 4.322 Financial and non-financial performance measures (productivity, cycle efficiency and throughput measures) . MULTIPLE CHOICE QUESTIONS 11.3.1.1 Concepts of decentralization, segment reporting, goal congruence and motivation) 1. Why would a company adopt a decentralize organization? ‘A. totrain and motivate division managers B. to focus top management's attention to operating decisions CC. toallow division managers to concentrate on strategic planning D. _alllofthe given choices 2. 21. Ina rresponsibilty accounting system, the process in which a supervisor and a subordinate jointly determine the subordinate's goals and plans for achieving these goals Is A. Top-down budgeting B. Imposed budgeting C. Bottom-up budgeting D. Management by objective 3. When managers of subunits throughout an organization strive to achieve the goals set by top management, the result is: ‘A. goal congruence. D. delegation of decision making, B. planning and control. E. strategic control CC. responsibility accounting, [1.3.1.2 Controllable and non-controllable costs, direct and common costs} 4, Controllable costs, as used in a responsibility accounting system, consist of: A. only fixed costs.