Management Consultancy Comprehensive Exams
time?
1. Which of the following is not a characteristic of management
services?
a. A wider variety of assignments are encountered in
MAS than in audit. 8.
b. MAS engagements are recurring.
c. MAS pinpoint actions to be taken, the benefits of
which will be received in the future.
d. In MAS engagements, the nature of work involved
requires lesser need for junior assistance.
2. The Revised Accountancy Law incorporates the Code of
Professional Ethics for CPAs. The provision of management
advisory services is among the areas of public accounting.
Considering these premises, which of the following statements 9.
is applicable?
a. Management advisory services as a field of practice is
considered as an integral part of public accounting
thus, the Code of Professional Ethics for CPAs covers
management advisory services.
b. CPAS in the practice of audit and management
consulting services may advertise and charge
contingent fees.
c. The practice of management advisory services should
not be extended to existing audit clients since this will 10.
adversely affect the CPA’s independence.
d. CPAs in the practice of management advisory services
are not bound by the Board of Accountancy but are
bound by the said law in the practice of audit.
3. Which of the following acts is not performed by an independent
CPA engaged to design the accounting system?
a. Formulation of the chart of accounts.
b. Design of business and accounting forms.
c. Supervision of implementation of system and 11. Starrs Company has current assets of P300,000 and current
procedures recommended
d. Preparation of an accounting manual
4. A CPA should reject management advisory services engagement
if
a. It would require him to make management decisions
for an audit client.
b. The proposed engagement is not accounting related
c. His recommendations are to be subjected to a review
by the client.
d. He audits the financial statements of a subsidiary of
the prospective client.
5. Which of the following is not among the reasons for hiring
management consultants
a. Professional advisor and counselor
b. Independent viewpoint
c. They serve as agents of change
d. They involve permanent professional service
6. Which of the following is not among the eight standards of
AICPA’s Management Advisory Services Division
a. Competence c. Client Benefit
b. Due Care d. All of the above
7. Snobiz, Inc. has P 2 million invested in treasury bills yielding 8%
per annum; this investment will satisfy the firm’s need for funds 14. Accounts receivable turnover will normally decrease as a result
during the coming year. If it costs P50 to sell these bills,
regardless of the amount, how much should be withdrawn at a
a. P 50,000 c. P 250,000
b. P 100,000 d.P 500,000
A CPA should reject management advisory services engagement
if
a. It would require him to make management decisions
for an audit client.
b. The proposed engagement is not accounting related
c. His recommendations are to be subjected to a review
by the client.
d. He audits the financial statements of a subsidiary of
the prospective client.
A company had P 500,000 of sales for the year just ended and is
projecting sales of P 600,000 for the coming year. For every P 1
increase in sales, 0.38 cents of additional financing is required
for the purchase of additional assets. The projected profit
margin is 20%, and 60% of profits will be retained for
reinvestment in the company. The amount of additional
external financing needed by the company in the coming year is
a. P -0- c. P 86,000
b. P 38,000 d. P 110,000
M&L Co. has the following information on inventory:
Sales 20,000 units per year.
Order quantity 4,000 units
Safety stock 2,600 units
Lead time 4 weeks
What is the reorder point? (For calculation purposes, use
50-week year)
a. 4,200 units c. 5,600 units
b. 2,600 units d. 1,600 units
liabilities of P200,000. Starrs could increase its working capital
by the
a. Prepayment of P 50,000 of next year’s rent.
b. Refinancing of P50,000 of short-term debt with long-
term debt
c. Purchase of P 50,000 of temporary investments for
cash
d. Collection of P 50,000 accounts receivables
12. A lock-box system
a. Reduces the need for compensating balance
b. Provides security for late night deposits
c. Reduces the risk of having checks loss in the mail
d. Accelerates the inflow of funds.
13. A precautionary motive for holding excess cash is
a. To enable a company to meet the cash demands from
the normal flow of business activity
b. To enable a company to avail itself of a special
inventory purchase before prices rise to higher levels
c. To enable a company to have cash to meet
emergencies that may arise periodically
d. To avoid having to use the various types of lending
arrangements available to cover projected cash
deficits.
of
 a. The write-off of an uncollectible account (assume the When the average cash balance is higher, the <list A> the
use of the allowance for doubtful accounts method) cash balance is <list B)
b. A significant sales volume decrease near the end of the List A List B
accounting period. a. Opportunity cost
c. An increase in cash sales in proportion to credit sales of holding Higher
d. A change in credit policy to lengthen the period for b. Total transactions costs
cash discounts. Associated with
Obtaining Higher
15. An increase in sales resulting from an increased cash discount c. Opportunity
for prompt payment would be expected to cause Cost of holding Lower
a. An increase in the operating cycle d. Total cost of
b. An increase in the average collection period Holding Lower
c. A decrease in the cash conversion cycle
d. A decrease in purchase discount taken. 21. If the average cash balance for the company during the year is P
20, 916.50 the opportunity cost of holding cash for tphe year
16. The level of accounts receivable will most likely increase as will be:
a. Cash sales increase and number of sales a. P 2,091.65 c. P 8,750
b. Credit limits are expanded, credit saes increase, and b. P 4,183.30 d. P 17,500
credit terms remain the same
c. Credit limits are expanded, cash sales increase, and 22. A company has daily receipts of P 150,000. The treasurer of the
aging of the receivables is improving company has investigated a lock box service whereby the bank
d. Cash sales increase, current receivables ratio to past that offers this service will reduce the company’s collection
due increases, credit limits remains the same time by four days at a monthly fee of P 2,500. If money market
rates average 4% during the year, the additional annual income
17. A strict credit and collection policy is in place in Star Co. as (loss) from using the lock box service would be:
Finance Director you are asked to advice on the propriety of a. P 6,000 c. P 12,000
relaxing the credit standards in view of stiff competition in the b. (P 6,000) d. (P 12,000)
market. Your advise will be favourable if
a. The competitor will do the same thing to prevent lost 23. Sixty percent of Baco’s annual sales of P 900,000 is on credit. If
sales its year-end receivable turnover is 4.5, what is the average
b. There is a decrease in the distribution level of your collection period and the year-end receivables, respectively
product, and a more aggressive stance is necessary to (assume a 365-day year)?
retain market share a. 81 days and P 120,000
c. The projected margin from increased sales will exceed b. 73 days and P 120,000
the cost of carrying the incremental receivables c. 73 days and P 108,000
d. The account receivable level is improving, so the d. 81 days and P 200,000
company can afford the carrying cost of receivables
24. Numero 1 Co.’s budgeted sales for the coming year are P 96
18. Bully Corporation purchases raw materials on July 1. It converts million, of which 80% are expected to be credit sales at terms of
the raw materials into inventory by September 30. However, n/30. The company estimates that a proposed relaxation of
Bully pays for the materials on July 20. On October 31, it sells credit standards would increase credit sales by 30% and
the finished goods inventory. Then, the firm collects cash from increase the average collection period from 30 days to 45 days.
the sale 1 month later on November 30. If this sequence Based on a 360-day year, the proposed relaxation of credit
accurately represents the average working capital cycle, what is standards would result to an increase in accounts receivable
the firm’s cash conversion cycle in days? balance of
a. 92 days c. 123 days a. P 6,880,000 c. P 2,880,000
b. 133 days d. 153 days b. P 1,920,000 d. P 6,080,000

19. Hakuna Inc. sells on terms of 3/10, net 30 days. Gross sales for 25. Mr. S. Mart assumed the presidency of Riches Corp. He
the year are P2,400,000 and the collections department instituted new policies and with respect to credit policy, below
estimates that 30% of th customers pay on the 10th day and is a summary of relevant information
take discounts; 40% pay on the 30th day; and the remaining Old Policy New Policy
30% pay, on the average, 40 days after the purchase. Assuming Sales P 1,800,000 P 1,980,000
360 days per year, what is the average collection period? Average Collection 30 days 36 days
a. 40 days c. 20 days The company requires a rate of return of 10% and a
b. 15 days d. 27 days variable cost ratio of 60%. Using a 360-day year, the pre-tax
cost of carrying the additional investment in receivables
For the next two questions under the new policy would be
20. A company has a 10% cost of borrowing and incurs fixed costs a. P 4,800 c. P 3,000
of P500 for obtaining a loan. It has stable, predictable cash b. P 2,880 d. P 4,080
flows, and the estimated total amount of net new cash needed
for transactions for the year is P 175,000. The company does 26. According to Value Line, Bestway has a beta of 1.15. If 3-month
not hold safety stocks of cash. Treasury bils currently ield 7.9% and the market risk premium is
estimated to be 8.3%, what is Bestway’s cost of equity capital?
 a. 17.45% c. 9.55% a. Proposal
b. 8.36% d. 10.55% b. Engagement program
c. Source data
27. Determine the annual financing cost of foregoing a cash d. Fee earned on each important part of the engagement.
discount under credit terms of 2/30, n/90.
a. 8.0% c. 12.2% 36. Which of the following written reports represents both the
b. 24.0% d. 12.4% work product and the presentation of results of a consultancy
engagement?
28. Which of the following best represents the optimal economic a. Formal reports c. Discussion outlines
order quantity (EOQ), where total usage of the inventory item is b. Graphic summaries d. Prospectuses and Manuals
100,000 units for the planning period, the cost per order is
P180, and the carrying costs per unit for each period is P1? 37. Consultancy project controls include all the following, except
a. 6,000 units. c. 556 units a. Administrative controls
b. 4,243 units d. 4 units b. Internal control
c. Time reporting procedures
29. If the average age of accounts payable is 15 days, the average d. Independent quality assurance reviews.
age of accounts receivable is 60 days, and the average age of
inventory is 10 days, the number of days in the operating cash 38. It involves an existing situation that can be improved.
conversion cycle is a. Corrective problem
a. 70 days c) 55 days b. Opportunistic problem
b. 85 days d) 60 days c. Progressive problem
d. Speculative problem
30. An objective of cash management is to
a. Maximize the cash balance to avoid the risk of 39. A personal attribute of a consultant that refers to his/her ability
illiquidity. to view situations in perspective and to take action needed on a
b. Minimize the cash balance to maximize the return calm and controlled basis without being diverted from a sound,
from idle cash. logical and ethical course by outside pressure.
c. Invest cash for a return while retaining sufficient a. Psychological maturity.
liquidity to satisfy future needs. b. Courage
d. Reserve as much cash as possible for potential c. Physiological equilibrium.
investment opportunities. d. Judgment

31. A decision approach under an environment of uncertainty 40. A consultant’s ability to identify what information is needed in a
where worst outcomes for each state of nature are identified particular situation is an example of
and the alternative with the greatest worst outcome is chosen a. Rapport-building skills
a. Maximin approach b. Project management skills
b. Minimax approach c. Analysis skills
c. Maximax approach d. Interpersonal skills
d. Rationality approach

32. An approach to analysis whereby opinions are obtained from

managers concerning impending present problems or future
conditions and a consensus of the opinions is used to arrive at a
decision
a. Brainstorming c. Dephi Approach
b. Structured Analysis d. Dececion Level Analysis

33. Which of the following is not included in the project

management skills of a consultant
a. An ability to develop formal plans
b. An ability to sequence and prioritize tasks
c. An ability to recognize human expertise necessary to
deliver the project.
d. An ability to evaluate the business’ markets and how
they are developing.

34. Which of the following is not among the four major factors that
must be considered by the consultant when defining the target
level of competence?
a. Scope of practice area c. Client requirements
b. Service variety d. Staff competence

35. In conducting post-engagement follow-up, the following areas

will be covered, except