1. Bellue Inc. manufactures a variety of products.

Variable costing net operating income was

P96,300 last year and ending inventory decreased by 2,600 units. Fixed manufacturing
overhead cost was P1 per unit. What was the absorption costing net operating income last
year?
a. P2,600
b. P93,700
c. P96,300
d. P98,900
2. Mulligan Corporation, which is subject to a 30% income tax rate, is considering a P150,000
asset that will result in the following over its seven-year life:
Total revenue: P1,190,000
Total operating expenses (excluding depreciation): P770,000
Total depreciation: P150,000
The accounting rate of return on the initial investment is:
a. 16%
b. 18%.
c. 26%.
d. 28%
3. Buchanan Company currently sells 4,000 units of product Q for P1 each. Capacity is 5,000
units. Variable costs are P0.40 and avoidable fixed costs are P400. A chain store has offered
P0.80 per unit for 400 units of Q. If Buchanan accepts the order, the change in income will be
a
a. P60 decrease.
b. P80 decrease.
c. P160 increase.
d. P480 increase.
4. Arnstrong, Inc. uses a flexible budget. Armstrong produced 16,000 units in May incurring
direct materials cost of P20,480. Its master budget for the year projected direct materials cost
of P362,500, at a production volume of 290,000 units. A flexible budget for May should reflect
direct materials cost of:
a. P20,480.
b. P20,000.
c. P21,000.
d. P19,750.
5.Pinecrest is considering a P600,000 investment in new equipment that is anticipated to
produce the following net cash inflows:
Year
1
2
3
4
5

Net Cash
Inflows
P120,000
250,000
110,000
80,000
160,000

If cash flows occur evenly throughout a year, the equipment's payback period is:
a.
b.
c.
d.

4 years, 2 months.
b. 4 years, 3 months.
c. 4 years, 4 months.
d. 5 years.

6. Tyler Company currently sells 1,000 units of product M for P1 each. Variable costs are P0.40
and avoidable fixed costs are P400. A discount store has offered P0.80 per unit for 400 units

of product M. The managers believe that if they accept the special order, they will lose some
sales at the regular price. Determine the number of units they could lose before the order
became unprofitable.
a. 267 units
b. 500 units
c. 600 units
d. Some other number.
Ross Corporation makes all sales on account. The June 30th balance sheet balance in its
accounts receivable is P400,000, of which P240,000 pertain to sales that were made during
June. Budgeted sales for July are P1,250,000. Ross collects 70% of sales in the month of sale;
20% in the following month; and the final 10% in the second month after the sale.
7. Refer to the information above. What are Ross's budgeted collections for July?
a. P800,000.
b. P939,000.
c. P1,083,000.
d. P915,000.
8. Portland is considering the acquisition of new machinery that will produce uniform benefits
over the next eight years. The following information is available:
Annual savings in cash operating costs: P350,000
Annual depreciation expense: P250,000
If the company is subject to a 30% tax rate, what denominator should be used to compute the
machinery's payback period?
a. P70,000.
b. P170,000.
c. P245,000.
d. P320,000
9. Bear Valley produces three products: A, B, and C. One machine is used to produce the
products. The contribution margins, sales demands, and time on the machine (in minutes)
are as follows:
time on
Demand
CM
machine
------ ----------A
100
P25
10
B
80
18
5
C
150
30
10

There are 2400 minutes available on the machine during the week. How many units should
be produced and sold to maximize the weekly contribution?
A
B
C
A B
C
a. 100 80
150
c. 90 0
150
b. 50 80
150
d. 100
80
100

On March 1, Hugh Corporation plans to borrow P550,000 from the Scotland State Bank by
signing a 12%, 15-year note payable. The note calls for 180 monthly payments of P6,000,
which includes both interest and principal components.

10. Refer to the information above. Hugh's budgeted interest expense for March is:
a. P500.
b. P2,444.
c. P5,500.
d. P6,000.
11. A piece of equipment costs P30,000, and is expected to generate P8,500 of annual cash
revenues and P1,500 of annual cash expenses. The disposal value at the end of the estimated
10-year life is P3,000. Ignoring income taxes, the payback period is:
a. 3.53 years.
b. 3.86 years.
c. 4.29 years.
d. 6.98 years.
12. Elk Grove produces three products: A, B, and C. A machine is used to produce the products.
The contribution margins, sales demands, and time on the machine (in minutes) are as
follows:

A
B
C

Demand
-----120
80
100

CM
---P20
36
50

time on
machine
-------5
10
15

There are 2400 minutes available on the machine during the week. How many units should
be produced and sold to maximize the weekly contribution?
A
B
C
A B
C
a. 120 80
100
c. 120 30
100
b. 20 80
100
d. 120
80
66
13. Wakefield evaluates future projects by using the profitability index. The company is currently
reviewing five similar projects and must choose one of the following:
Initial
Present Value
Projec
Investme
of Cash
t
nt
Inflows
1
P100,000
P 97,000
2
50,000
80,000
3
75,000
110,000
4
60,000
100,000
5
150,000
200,000
Which project should Wakefield select if the decision is based entirely on the profitability
index?
a. Project 1.
b. Project 2.
c. Project 3.
d. Project 4.
14. DJH Company produces 1,000 units of Part X per month. The total manufacturing costs of the
part are as follows:

Direct materials
Direct labor
Variable overhead
Fixed overhead

P10,000
15,000
5,000
30,000

------Total manufacturing cost

P60,000
=======
An outside supplier has offered to supply the part at P40 per unit. It is estimated that 20% of
the fixed overhead assigned to Part X will no longer be incurred if the company purchases the
part from the outside supplier. If DJH Company purchases 1,000 units of Part X from the
outside supplier per month, then its monthly operating income will
a. decrease by P20,000.
b. decrease by P4,000.
c. not change.
d. increase by P20,000.
15. Wateredge Corporation has budgeted a total of P361,800 in costs and expenses for the
upcoming quarter. Of this amount, P45,000 represents depreciation expense and P7,300
represents the expiration of prepayments. Wateredge's current payables balance is P265,000
at the beginning of the quarter. Budgeted payments on current payables for the quarter
amount to P370,000. The company's estimated current payables balance at the end of the
quarter is:
a. P179,500.
b. P204,500.
c. P203,500.
d. P310,000
16. St. Andrews ranks investments by using the profitability index (PI). The following data relate
to Project X and Project Y:
Project X
Initial investment
Present value of inflows

P400,00
0
600,000

Project
Y
P1,300,000
1,800,000

Which project would be more attractive as judged by its ranking, and why?
a. Project X because the PI is 1.50.
c. Project X because the PI is 0.67.
b. Project Y because the PI is 1.38.
d. Project Y because the PI is 0.72.

17. Colfax Company expects to incur the following costs at the planned production level of
10,000 units:
Direct materials
Direct labor
Variable overhead
Fixed overhead

P100,000
120,000
60,000
30,000

The selling price is P50 per unit. The company currently operates at full capacity of 10,000
units. Capacity can be increased to 13,000 units by operating overtime. Variable costs
increase by P14 per unit for overtime production. Fixed overhead costs remain unchanged
when overtime operations occur. Colfax Company has received a special order from a
wholesaler who has offered to buy 1,000 units at P45 each. What is the incremental cost
associated with this special order?
a. P14,000
b. P28,000
c. P42,000

d. P45,000
BT & T Corporation manufactures telephones. Recently, the company produced a batch of
600 defective telephones at a cost of P9,000. BT & T can sell these telephones as scrap for P9
each. It can also rework the entire batch at a cost of P6,500, after which the telephones could
be sold for P20 per unit.
18. Refer to the information above. Which of the following statements is false regarding the
defective units?
a. BT & T will not recover its costs if it sells the defective units as scrap.
b. BT & T will recover its costs if it reworks the defective units.
c. BT & T will not recover its costs if it reworks the defective units.
d. BT & T will recover more of its costs if it decides to rework the defective units.
19. Refer to the information above. If BT & T reworks the defective telephones, by how much will
its operating income change?
a. Increase by P500.
c. Increase by P5,500.
b. Decrease by P1,600.
d. Decrease by P6,500.
The Banderas Company, a merchandising firm, has budgeted its activity for December
according to the following information:

Sales at P550,000, all for cash.

Merchandise inventory on November 30 was P300,000.

Budgeted depreciation for December is P35,000.

The cash balance at December 1 was P25,000.

Selling and administrative expenses are budgeted at P60,000 for December and are
paid in cash.

The planned merchandise inventory on December 31 is P270,000.

The invoice cost for merchandise purchases represents 75% of the sales price. All
purchases are paid for in cash.

20. The budgeted cash receipts for December are:

a. P412,500
b. P137,500
c. P585,000
d. P550,000
21. The budgeted cash disbursements for December are:
a. P382,500
b. P442,500
c. P472,500
d. P477,500
22. The budgeted net income for December is:
a. P107,500
b. P137,500
c. P42,500
d. P77,500
Osawa Inc. manufactured 200,000 units of its only product in its first year of operations.
Variable manufacturing costs were P30 per unit. Fixed manufacturing costs were P600,000
and selling and administrative costs totaled P400,000. Osawa
sold 120,000 units at a selling price of P40 per unit.
23. Osawa's net operating income using absorption costing would be:
a. P200,000
b. P440,000

c. P600,000
d. P840,000
24. In eight years, Larson Company plans to receive P11,000 cash from the sale of a machine that
has a P16,000 book value. If the company is subject to a 30% income tax rate and has a 12%
after-tax hurdle rate, the correct discounted net cash flow would be:
a. P606.
b. P1,414.
c. P3,838.
d. P5,050.
25. Colfax Company expects to incur the following costs at the planned production level of
10,000 units:
Direct materials P100,000
Direct labor
120,000
Variable overhead 60,000
Fixed overhead 30,000
The selling price is P50 per unit. The company currently operates at full capacity of 10,000
units. Capacity can be increased to 13,000 units by operating overtime. Variable costs
increase by P14 per unit for overtime production. Fixed overhead costs remain unchanged
when overtime operations occur. Colfax Company has received a special order from a
wholesaler who has offered to buy 1,000 units at P45 each. What is the impact on Colfax's
operating income if this special order is accepted?
a. P17,000 increase
b. P3,000 increase
c. no change
d. P5,000 decrease
26. Seidman Company manufactures and sells 30,000 units of product X per month. Each unit of
product X sells for P16 and has a contribution margin of P7. If product X is discontinued,
P85,000 in fixed monthly overhead costs would be eliminated and there would be no effect
on the sales volume of Seidman Company's other products. If product X is discontinued,
Seidman Company's monthly income before taxes should:
a. Increase by P210,000.
c. Decrease by P210,000.
b. Increase by P125,000.
d. Decrease by P125,000.
27. In 10 years, Hopkins Company plans to receive P9,000 cash from the sale of a machine that
has a P5,000 book value. If the company is subject to a 30% income tax rate and has an 8%
after-tax hurdle rate, the correct discounted net cash flow would be:
a. P2,916.90
b. P3,611.40
c. P4,167.00
d. P4,722.60.
e. some other amount.
28. GMH Company manufactures 100,000 units of Part X annually for use in one of its main
products. The total manufacturing cost for 100,000 units of Part X is as follows:

Direct materials
Direct labor
Variable overhead
Fixed overhead

P120,000
80,000
40,000
160,000

Total cost

------P400,000
========

Selin Company has offered to sell GMH 100,000 units of Part X per year. If GMH accepts this
offer, the facilities used to produce Part X can be used in the production of other
components. This change would save GMH P10,000 in rent for the leased production facility
used at present to support the production of other components. What is the amount of
relevant costs for this make-or-buy decision?
a. P200,000
b. P240,000
c. P250,000
d. P400,000
29. Aircraft Products, a manufacturer of aircraft landing gear, makes 1,000 units each year of a
special valve used in assembling one of its products. The unit cost of producing this valve
includes variable costs of P70 and fixed costs of P60. The valves could be purchased from an
outside supplier at P77 each. If the valve were purchased from the outside supplier, 40% of
the total fixed costs incurred in producing this valve could be eliminated. Buying the valves
from the outside supplier instead of making them would cause the company's operating
income to:
a. Increase by P26,000.
c. Decrease by P9,000.
b. Increase by P17,000.
d. Decrease by P29,000.
30. A new machine is expected to produce a MACRS deduction in three years of P50,000. If the
firm has a 12% after-tax hurdle rate and is subject to a 30% income tax rate, the correct
discounted net cash flow to include in an acquisition analysis would be:
a. P0.
b. P10,680.
c. P24,920.
d. P46,280.
31. Last year, Tinklenberg Corporation's variable costing net operating income was P52,400 and
its ending inventory decreased by 1,400 units. Fixed manufacturing overhead cost was P8 per
unit. What was the absorption costing net operating income last year?
a. P41,200
b. P11,200
c. P63,600
d. P52,400
32. GMH Company manufactures 100,000 units of Part X annually for use in one of its main
products. The total manufacturing cost for 100,000 units of Part X is as follows:
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total cost

P120,000
80,000
40,000
160,000
-------P400,000
========

Sutton Company has offered to sell GMH 100,000 units of Part X per year. If GMH accepts this
offer, the facilities used to produce Part X can be used in the production of other
components. This change would save GMH P10,000 in rent for the leased production facility
used at present to support the production of other components. What is the maximum price
that GMH should be willing to pay Sutton for part X?
a. P1.20
b. P2.00

c. P2.40
d. P2.50
JCN Industries normally produces and sells 5,000 keyboards for personal computers each
month. Variable manufacturing costs amount to P25 per unit, and fixed costs are P146,000
per month. The regular sales price of the keyboards is P86 per unit. JCN has been approached
by a foreign company that wants to purchase an additional 1,000 keyboards per month at a
reduced price. Filling this special order would not affect JCN 's regular sales volume or fixed
manufacturing costs.
33. Refer to the information above. On the basis of the above information only, which of the
following is not true?
a. At the 5,000-unit level of production, JCN's average cost per unit is P54.20.
b. At the 6,000-unit level of production, JCN's average cost per unit is P49.33.
c. It would not be profitable for JCN to consider the special order at a price less than P49 per
unit.
d. Neither the fixed manufacturing costs of P146,000 nor the variable manufacturing costs of
P25 per unit is relevant to
this decision regarding the special order.

Muecke Inc. is working on its cash budget for April. The budgeted beginning cash balance is
P40,000. Budgeted cash receipts total P150,000 and budgeted cash disbursements total
P158,000. The desired ending cash balance is P50,000.
34. The excess (deficiency) of cash available over disbursements for April will be:
a. P32,000
b. P190,000
c. P48,000
d. (P8,000)
35. To attain its desired ending cash balance for April, the company needs to borrow:
a. P18,000
b. P0
c. P50,000
d. P82,000
36. Refer to the information above. Assume that the price offered by the foreign company is P43
per unit. Accepting the special order will cause JCN's operating income to:
a. Increase by P18,000.
c. Decrease by P33,000.
b. Decrease by P2,000.
d. Decrease by P35,000.
37. A machine is expected to produce increases in cash operating costs of P200,000 for the next
six years. If the firm has a 14% after-tax hurdle rate and is subject to a 30% income tax rate,
the correct discounted net cash flow would be:
a. P(233,340).
b. P(544,460).
c. P(777,800).
d. P(1,011,140).

38. Barrie, Inc., produces three products: A, B, and C. Two machines are used to produce the
products. The contribution margins, sales demands, and time on each machine (in minutes) is
as follows:
time
time

A
B
C

Demand
100
80
100

CM
P12
18
25

on M1
5
10
15

on M2
10
5
5

There are 2,400 minutes available on each machine during the week. How many units should
be produced and sold to maximize the weekly contribution?
A B
C
A
B
C
a. 100 80
100
c. 100 40
100
b. 20 80
100
d. 100
80
73
39. A machine is expected to produce annual savings in cash operating costs of P400,000 for the
next six years. If the firm has a 10% after-tax hurdle rate and is subject to a 30% income tax
rate, the correct discounted net cash flow would be:
a. P522,600.
b. P947,520
c. P1,219,400.
d. P1,742,000.
40. Barrie, Inc., produces three products: A, B, and C. Two machines are used to produce the
products. The contribution margins, sales demands, and time on each machine (in minutes) is
as follows:
time
time
Demand
CM
on M1
on M2
A
100
P12
5
10
B
80
18
10
5
C
150
25
5
10
There are 2,400 minutes available on each machine during the week. How many units should
be produced and sold to maximize the weekly contribution?
A B
C
A B
C
a. 100 80
150
c. 90 0
150
b. 50 80
150
d. 100 80
100