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MANAGEMENT ADVISORY SERVICES TRINIDAD/ALENTON

MAS Preweek Lecture OCTOBER 2021

1. Four themes are common to many managers. The critical theme for all of these is
a. developing relationships with suppliers.
b. benchmarking and continuous improvement.
c. reducing costs and improving efficiencies.
d. improving customer focus and customer satisfaction.

2. In JIT manufacturing, each operation produces

a. only what is necessary for the succeeding operations
b. all that it can to offset fixed costs
c. a fixed percentage in excess of orders to ensure adequate quality stock
d. all that it can in order to build inventories

3. Management accounting
A. is governed by generally accepted accounting principles.
B. draws from disciplines other than accounting.
C. is geared primarily to the past rather than the future.
D. places more emphasis on precision of data compared with financial accounting which does snot.

4. Advantages of the high-low method include all of the following except

a. only two observations are required to develop the cost function
b. any two observers will arrive at the same conclusion
c. the method is quick to use and easy to understand
d. the data points used represent a typical cost and activity relationships

5. After the level of volume exceeds the breakeven point

a. the contribution margin ratio increases
b. the total contribution margin exceeds the total fixed costs
c. total fixed costs per unit will remain constant
d. the total contribution margin will turn form negative to positive

6. Which department is customarily held responsible for an unfavorable materials usage variance?
A. Quality control. C. Engineering.
B. Purchasing. D. Production.

7. Which of the following statements regarding standard cost systems is true?

a. Favorable variances are not necessarily good variances.
b. Managers will investigate all variances from standard.
c. The production supervisor is generally responsible for material price variances.
d. Standard costs cannot be used for planning purposes since costs normally change in the future.
e. None of the above statements is true

8. The sales price variance is created by a difference between

a. actual and standard contribution margin.
b. actual and expected sales price.
c. expected and standard net income.
d. actual and expected sales volume.

9. If sales exceed production, one would expect net income under variable costing method to be
A. the same as net income under the absorption method
B. greater than net income under absorption method
C. differing in as much as the difference between sales and production
D. less than net income under absorption costing method

10. Slack in operating budgets

a. results from unintentional managerial acts.
b. makes an organization more efficient and effective.
c. requires managers to work harder to achieve the budget.
d. is greater when managers are allowed to participate in the budgeting process.

11. The budgeting technique that is most likely to motivate managers is

a. Top-down budgeting.
b. Program budgeting and review technique.
c. Zero-base budgeting.
d. Bottom-up budgeting.

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12. The capital intensity ratio is the:

a. ratio of total assets to total equity.
b. amount of fixed assets required to generate P1 in sales.
c. amount of total assets required to generate P1 in sales.
d. the amount of sales generated from every P1 in total assets.

13. If the sales mix shifts toward lower contribution margin products, the break-even point
A. decreases.
B. increases.
C. remains constant.
D. It is impossible to tell without more information.

14. The opportunity cost of making a component part in a factory with excess capacity for which there is no
alternative use is
a. the total manufacturing cost of the component
b. the fixed manufacturing cost of the component
c. the total variable cost of the component
d. zero

15. Which of the following costs are relevant to a make-or-buy decision?

a. original cost of the production equipment
b. annual depreciation of the equipment
c. the amount that would be received if the production equipment was sold
d. the cost of direct materials purchased last month and used to manufacture the component

16. The biggest challenge in making a decentralized organization function effectively is:
a. earning maximum profits through fair practices.
b. minimizing losses.
c. taking advantage of the specialized knowledge and skills of highly talented managers.
d. obtaining goal congruence among division managers.

17. A company with a current ratio of 2.4 times will see that ratio decrease when the company
a. pays a large current liability.
b. declares a 10 percent stock dividend on its common stock.
c. borrows cash by issuing a short-term note payable.
d. converts a short-term liability to a long-term liability.

18. A high receivable turnover indicates that

a. many customers are defaulting on their debts.
b. a large proportion of the company's sales is on credit.
c. the company's inventory is moving very quickly.
d. customers are making payments very quickly.

19. Which of the following credit and collections decisions would typically not increase the accounts receivable
balance?
a. extending credit to less creditworthy customers
b. increasing the discount offered for prompt payment
c. extending the time allowed for payment of a customer's bill
d. delaying dunning letters from the credit department

20. The economic order quantity model is designed to minimize:

a. production costs.
b. inventory obsolescence.
c. the carrying costs of inventory.
d. the total costs of holding inventory.

21. Working capital policy involves a tradeoff between easier operation and ____.
a. more working capital
b. spontaneous liabilities
c. temporary financing
d. the cost of carrying short-term assets

22. Williams Sisters Inc. has always paid out all of its earnings as dividends, hence the firm has no retained
earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its
cost of equity, its target capital structure consists of common stock, preferred stock, and debt. W hich of the
following events would reduce its WACC?
a. The market risk premium declines.
b. The flotation costs associated with issuing new common stock increase.
c. The company’s beta increases.
d. Expected inflation increases.

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23. The principle of diversification tells us that:

a. concentrating an investment in two or three large stocks will eliminate all of the unsystematic risk.
b. concentrating an investment in three companies all within the same industry will greatly reduce the
systematic risk.
c. spreading an investment across five diverse companies will not lower the total risk.
d. spreading an investment across many diverse assets will eliminate some of the total risk.

24. Which of the following capital budgeting techniques does not routinely rely on the assumption that all cash flows
occur at the end of the period?
a. internal rate of return
b. net present value
c. profitability index
d. payback period

25. When a profitable corporation sells an asset at a loss, the after-tax cash flow on the sale will
a. exceed the pre-tax cash flow on the sale.
b. be less than the pre-tax cash flow on the sale.
c. be the same as the pre-tax cash flow on the sale.
d. increase the corporation's overall tax liability.

26. Of the following, which is the best reason for using activity-based costing?
a. to keep better track of overhead costs
b. to more accurately assign overhead costs to cost pools so that these costs are be tter controlled
c. to better assign overhead costs to products
d. to assign indirect service overhead costs to direct overhead cost pools

27. Pare Corporation is a wholesaler that sells a single product. Management has provided the following cost data
for two levels of monthly sales volume. The company sells the product for P133.60 per unit.
Sales volume (units) 4,000 5,000
Cost of sales P383,600 P479,500
Selling, general, and administrative costs P124,400 P136,000
The best estimate of the total contribution margin when 4,300 units are sold is:
a. P112,230 c. P28,380
b. P162,110 d. P45,150

28. Galaxy Company is preparing a flexible budget for the coming year and the following maximum capacity
estimates for Department 05 are available:
Direct labor hours 60,000
Variable factory overhead P150,000
Fixed factory overhead P240,000
Assume that Galaxy’s normal capacity is 80% of maximum capacity. What would be the total factory overhead rate,
based on direct labors, in a flexible budget at normal capacity?
a. P6.00 c. P7.50
b. P6.50 d. P8.13

Use the following information for the next three questions.

Super Men’s Clothing’s revenues and cost data for 2019 are:
Revenues P500,000
Cost of goods sold (40% of sales) 200,000
Gross margin P300,000
Operating costs:
Salaries fixed P150,000
Sales commissions (10% of sales) 50,000
Depreciation of equipment and fixtures 12,000
Store rent (P4,000 per month) 48,000
Other operating costs 50,000 310,000
Operating income (loss) P(10,000)
Mr. Super, the owner of the store, is unhappy with the operating results. An analysis of other operating costs
reveals that it includes P40,000 variable costs, which vary with sales volum e, and P10,000 (fixed) costs.

29. What is the contribution margin of Super Men’s Clothing?

a. P300,000 c. P210,000
b. P260,000 d. P200,000

30. What is the contribution margin percentage?

a. 42% c. 52%
b. 60% d. 40%

31. Mr. Super estimates that he can increase revenues by 20% in the coming year by incurring additional
advertising costs of P10,000. As a result, how much would Super Men’s Clothing operating income be?

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a. P32,000 c. P40,000
b. P22,000 d. P50,000

32. Ultra Vogue Co. sells 50,000 units of “yo” a top-of-the-line garden sprinkler. These were taken from the
company’s records:
Accounts receivable, P129,000. Contribution margin ratio, 49%.
Days sales outstanding, 15 days. Profit for the period was P485,040.
The ending receivables balance is the average balance during the year. Assume a 360 -day year. All sales are
on credit. Determine the company’s break-even revenue.
a. P2,106,122 c. P1,032,000
b. P3,096,000 d. P1,517,040

Use the following information for the next five questions.

Navarro, Inc. evaluates manufacturing overhead in its factory by using variance analysis. The following information
applies to the month of July:
ACTUAL BUDGETED
Number of units produced 19,000 20,000
Variable overhead costs P4,100 P2 per direct labor hour
Fixed overhead costs P22,000 P20,000
Direct labor hours 2,100 0.1 hour per unit

33. The controllable variance amounts to

a. P2,500 unfavorable c. P2,300 unfavorable
b. P1,000 unfavorable d. P2,000 unfavorable

34. Using the three-way variance analysis, the spending variance amounts to
a. P100 favorable c. P2,000 unfavorable
b. P1,900 unfavorable d. P2,100 unfavorable

35. The efficiency variance amounts to

a. P400 unfavorable c. P400 favorable
b. P1,900 unfavorable d. P1,000 unfavorable

36. The non-controllable variance is

a. P2,300 unfavorable c. P2,000 unfavorable
b. P400 unfavorable d. P1,000 unfavorable

37. The fixed overhead efficiency variance is:

a. P400 unfavorable c. P400 favorable
b. P2,000 unfavorable d. 0

Use the following information for the next two questions.

Operational budgets are used by a retail company for planning and controlling its business activities. Data regarding
the company's monthly sales for the last 6 months of the year and its projected collection patterns are shown below.

The cost of merchandise averages 40% of its selling price. The company's policy is to maintain an inventory equal to
25% of the next month's forecasted sales. The inventory balance at cost is P80,000 as of June 30.
Forecasted Sales
July P775,000
August 750,000
September 825,000
October 800,000
November 850,000
December 900,000

Types of Sales
Cash sales 20%
Credit sales 80%
Collection Pattern for Credit Sales
Month of sale 40%
First month following the sales 57%
Uncollectible 3%
38. The budgeted cost of the company's purchases for the month of August would be
a. P302,500 c. P307,500
b. P305,000 d. P308,750

39. The company's total cash receipts from sales and collections on account that would be budgeted for the month of
September would be
a. P757,500 c. P793,800
b. P771,000 d. P856,500

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40. Doy Products had the following unit costs:

Direct materials P24
Direct labor 10
Variable factory overhead 8
Fixed factory overhead (allocated) 18
A one-time customer has offered to buy 2,000 units at a special price of P48 per unit. Because of capacity
constraints, 1,000 units will need to be produced during overtime. Overtime premium is P8 per unit. How much
additional profit (loss) will be generated by accepting the special order?
a. P30,000 loss c. P24,000 loss
b. P4,000 loss d. P4,000 profit

41. House Corporation manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as
follows:
Direct materials P 32
Direct labor 40
Variable overhead 16
Fixed overhead 32
Total P120
Home Company has offered to sell House Corporation 5,000 units of the part for P112 per unit. If House
Corporation accepts Home Company's offer, total fixed costs will be reduced to P60,000. What alternative is
more desirable and by what amount is it more desirable?
Alternative Amount
a. Make P 20,000
b. Make P120,000
c. Buy P 40,000
d. Buy P100,000

42. Bonner Milling Company purchases logs and mills them into various grades of lumber. During the sawing and
planning process, a considerable amount of sawdust is generated. Currently, Bonner sells the sawdust to a particle
board manufacturer for P50 per truckload. Bonner is considering processing the sawdust into particle board itself.
One truckload of sawdust can be made into 20 sheets of particle board selling for P8 per sheet. Further processing
costs are P7 per board. Should Bonner process the sawdust into particle board?
a. Yes, income will increase by P20 per truckload of sawdu st.
b. Yes, income will increase by P50 per truckload of sawdust.
c. Yes, income will increase by P103 per truckload of sawdust.
d. No, income will decrease by P50 per truckload of sawdust.
e. No, income will decrease by P30 per truckload of sawdust.

43. Rodder, Inc. manufactures a component in a router assembly. The selling price and unit cost data for the component
are as follows:
Selling price P15
Direct materials cost 3
Direct labor cost 3
Variable overhead cost 3
Fixed manufacturing overhead cost 2
Fixed selling and administration cost 1
The company received a special one-time order for 1,000 components. Rodder has an alternative use of
production capacity for the 1,000 components that would produce a contribution margin of P5,000. What
amount is the lowest unit price Rodder should accept for the component?
a. P9 c. P14
b. P12 d. P24

44. Oakes Inc. manufactured 40,000 gallons of Bromate and 60,000 gallons of Calcate in a joint production process,
incurring P250,000 of joint costs. Oakes allocates joint costs based on the physical volume of each product produced.
Bromate and Calcate can each be sold at the split-off point in a semi-finished state or, alternatively, processed
further. Additional data about the two products are as follows.
Bromate Calcate
Sales price per gallon at split-off point P7 P15
Sales price per gallon if processed further P10 P18
Variable costs if processed further P125,000 P115,000
An assistant in the company's cost accounting department was overheard saying “....that when both joint and
separable costs are considered, the firm has no business processing ei ther product beyond the split-off point.
The extra revenue is simply not worth the effort.” Which of the following strategies should be recommended for
Oakes?
a. Bromate: Sell at split-off; Calcate: Process further.
b. Bromate: Process further; Calcate: Sell at split-off.
c. Bromate: Process further; Calcate: Process further.
d. Bromate: Sell at split-off; Calcate: Sell at split-off.

45. An old machine that originally cost P9,500 thus far has accumulated depreciation of P1,900. The remaining useful life
is four years, with no salvage value at the end of its useful life. A new machine is now available that costs P8,500,
with a useful life of four years and no residual value. The old machine could be sold now for P4,200. The annual cash

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operating costs for the old machine are P5,000, but for the new machine they would be only P2,500. Gross revenue
from the products would be P12,000 annually for either machine. The company should
a. keep the old machine to avoid a P4,200 loss on its disposal.
b. keep the old machine to avoid a P3,400 loss on its disposal.
c. replace the old machine because of P5,700 advantage.
d. keep the old machine to avoid an P4,300 decrease in cash.

46. During its first year of operations, a company produced 275,000 units and sold 250,000 units. The following costs
were incurred during the year:
Variable Cost per Unit Fixed Costs
Direct materials P15.00
Direct labor 10.00
Manufacturing overhead 12.50 P2,200,000
Selling and administrative 2.50 1,375,000
The difference between operating income calculated on the absorption-costing basis and on the variable costing
basis is that absorption-costing operating income is
a. P200,000 greater. c. P325,000 greater.
b. P220,000 greater. d. P62,500 lesser.

Use the following information for the next two questions.

Each month, Haddon Company has P275,000 total manufacturing costs (20% fixed) and P125,000 distribution and
marketing costs (36% fixed). Haddon’s monthly sales are P500,000.
47. The markup percentage on full cost to arrive at the target (existin g) selling price is
a. 25%. c. 80%.
b. 75%. d. 20%.

48. The markup percentage on variable costs to arrive at the existing (target) selling price is
a. 20.00% c. 80.00%
b. 40.00% d. 66.67 %

49. A Corp. has a target return of 15 percent. If a prospective investment has an estimated return on investment of
20 percent, and a residual income of P10,000, what is the estimated cost of the investment?
A. P200,000
B. P66,667
C. P50,000
D. The answer can't be determined from this information.

Use the following information for the next three questions.

The Post Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to
the Lamp Division of the M.T. Woodhead Company. Last Year the Lamp Division bought all of its 25,000 posts from Post at
P1.50 each. The following data are available for last year's activities of the Post Division:
Capacity in units 300,000 posts
Selling price per post to outside customers P1.75
Variable costs per post P0.90
Fixed costs, total P150,000
50. Suppose there is ample capacity so that transfers of the posts to the Lamp Division do not cut into sales to
outside customers. What is the lowest transfer price that would not reduce the profits of the Post Division?
A. P0.90. C. P1.41.
B. P1.35. D. P1.75.

51. Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by 15,000 units. What is
the lowest transfer price that would not reduce the profits of the Post Division?
A. P0.90. C. P1.41.
B. P1.35. D. P1.75.

52. Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by 15,000 units. Further
suppose that an outside supplier is willing to provide the Lamp Division with basic posts at P1.45 each. If the
Lamp Division had chosen to buy all of its posts from the outside supplier instead of the Post Division, the
change in net operating income for the company as a whole would have been:
A. P1,250 decrease. C. P1,000 decrease.
B. P10,250 increase. D. P13,750 decrease.

53. Russell Securities has P100 million in total assets and its corporate tax rate is 40 percent. The company
recently reported that its basic earning power (BEP) ratio was 15 percent and its return on assets (ROA) was 9
percent. What was the company’s interest expense?
a. P0
b. P2,000,000
c. P6,000,000
d. P15,000,000

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Use the following information for the next two questions.

The current assets of Mayon Enterprise consists of cash, accounts receivable, and inventory. The following
information is available:
Credit sales 75% of total sales
Inventory turnover 5 times
Working capital P1,120,000
Current ratio 2 to 1
Quick ratio 1.25 to 1
Average Collection period 42 days
Working days 360
54. The estimated inventory amount is:
a. 840,000 c. 720,000
b. 600,000 d. 550,000

55. The estimated costs of goods sold is:

a. 840,000 c. 6,000,000
b. 720,000 d. 4,200,000

56. Ren-Ren Inc.’s current capital structure is shown below. This structure is optimal, and the company wishes to
maintain it
Debt 25%
Preferred Equity 5%
Common Equity 70%
Ren-Ren’s management is planning to build a P75 million facility that will be financed according to this desired
capital structure. There is currently P15 million of cash that is available for capital expansion. Th e percentage
of the P75 million that will come from a new issue of common stock is
a. 52.5% c. 50%
b. 56.25% d. 56%

57. Roma Company obtained a short-term bank loan for P1,000,000 at an annual interest rate 12%. As a condition
of the loan Roma required to maintain a compensating balance of P200,000 in its checking account. The
checking account earns interest at an annual rate of 6%. Roman would otherwise maintain only P100,000 in its
checking account for transactional purposes. Roma’s effective interest costs of the loan is
a. 12% c. 13.50%
b. 14.00% d. 12.67%

58. Lion Co. 1can issue three-month commercial paper with a face value of P1,000,000 for P980,000. Transaction
costs would be P1,200. The annualized percentage cost of the financing would be
a. 2.17% c. 8.67%
b. 8.48% d. 8.00%

59. Diverse Corporation just paid a dividend of P0.75 per share, and that dividend is expected to grow at a constant
rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%,
and the risk-free rate is 4.50%. What is the company's current stock price?
a. P14.52 c. P15.26
b. P14.89 d. P15.64

60. Bosio Inc.'s perpetual preferred stock sells for P97.50 per share, and it pays an P8.50 a nnual dividend. If the
company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by
investors. What is the company's cost of preferred stock for use in calculating the WACC?
a. 8.72% c. 9.44%
b. 9.08% d. 9.82%

61. Sorento Systems Inc. is expected to pay a P2.50 dividend at year end (D 1 = P2.50), the dividend is expected to
grow at a constant rate of 5.50% a year, and the common stock currently sells for P52.50 a share. The before -
tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55%
common equity. What is the company’s WACC if all the equity used is from retained earnings?
a. 7.07% c. 7.67%
b. 7.36% d. 7.98%

62. Goode Inc.'s stock has a required rate of return of 11.50%, an d it sells for P25.00 per share. Goode's dividend
is expected to grow at a constant rate of 7.00%. What was the last dividend, D 0?
a. P0.95 c. P1.16
b. P1.05 d. P1.27

63. Diliman Republic Publishers, Inc. is considering replacing an old press that co st P800,000 six years ago with a
new one that would cost P2,250,000. Shipping and installation would cost an additional P200,000. The old
press has a book value of P150,000 and could be sold currently for P50,000. The increased production of the
new press would increase inventories by P40,000, accounts receivable by P160,000 and accounts payable by
P140,000. Diliman Republic’s net initial investment for analyzing the acquisition of the new press assuming a
35% income tax rate would be

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a. P2,450,000 c. P2,600,000
b. P2,425,000 d. P2,250,000

64. Hooker Oak Furniture Company is considering the purchase of wood cutting equipment. Data on the equipment
are as follows:
Original investment P30,000
Net annual cash inflow P12,000
Expected economic life in years 5
Salvage value at the end of five years P3,000
The company uses the straight-line method of depreciation with no mid-year convention.
What is the accounting rate of return on original investment rounded off to the nearest percent, assuming no taxes
are paid?
a. 40.0% c. 24.0%
b. 20.0% d. 22.0%

65. CBN Products, Inc. is considering to invest in one of two projects. Both projects have a net present value of
P25,000; however Project #1 requires an initial investment of P700,000 wh ile Project #2 requires an initial
investment of P300,000. Based on this information, which of the following statements is true?
a. Project #2 will have a higher profitability index
b. Project #1 will have a higher profitability index
c. Both project will have the same profitability index
d. There is not enough information to determine the profitability index of either project

66. APJ, Inc. is planning to purchase a new machine that will take six years to recover the cost. The new machine is
expected to produce cash flow from operations, net of income taxes, of P4,500 a year for the first three years of
the payback period and P3,500 a year of the last three years of the payback period. Depreciation of P3,000 a
year shall be charged to income of the six years of the payback period. How much shall the machine cost?
a. P12,000 c. P24,000
b. P18,000 d. P36,000

67. Given the following data, what is the marginal propensity to consume?
Level of
Disposable income Consumption
P40,000 P38,000
48,000 44,000
a. 1.33 c. 0.95
b. 1.16 d. 0.75

Use the following information for the next two questions.

Number of workers Total units of product Average selling price

10 20 P50

11 25 P49

12 28 P47.5

68. The marginal physical product when one worker is added to a team of 10 workers is
a. 1 unit
b. 8 units
c. 5 units
d. 25 units

69. The marginal revenue per unit when one worker is added to a team of 11 workers is
a. P105
b. P225
c. P35
d. P47.5

70. Gerald's Manufacturing is operating at 78 percent of its fixed asset capacity and has current sales of P575,000.
How fast can the firm grow before any new fixed assets are needed?
a. 22.00% c. 31.16%
b. 28.21% d. 37.00%

– end -

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