Professional Documents
Culture Documents
MOCKBOARD EXAMINATION
MANAGEMENT ACCOUNTING AND SERVICES
1. Controllership has attained special recognition in corporate management as business expand in complexity
and reach and as the controller exerts influence for to take organization’s goals. Controllership and
treasurership constitute corporate finance. These are among corporate finance’s traditional functions.
1. Tax management
2. Finance reporting and interpretation
3. Credit management
4. Sourcing and investing funds
5. Reporting to government regulatory agencies
6. Risk management
7. Economic appraisal
8. Planning for control
2. What kind of costs can be conveniently and economically traced to a cost object or pool?
a. Indirect Costs.
b. Relevant Costs.
c. Direct Costs.
d. Overhead Costs.
3. Wesleyan University Hospital plans to use activity-based costing to assign hospital indirect costs to the
care of patients. The hospital has identified the following activities and activity rates for the hospital’s
indirect costs:
Activity Activity Rate
Room and meals P150 per day
Radiology P 95 per image
Pharmacy P 20 per physician order
Chemistry lab P 85 per test
Operating room P550 per operating room
hour
The records of two representative patients were analyzed, using the activity rates. The activity
information associated with the two patients is as follows:
Patient Flor Patient Laura
Number of days 7.0 3
Number of images 4.0 2
Number of physician orders 5.0 1
Number of tests 6.0 2
Number operating room 4.5 1
hours
Determine the activity cost associated with Patient Flor:
a. P4,500
b. P4,550
c. P4,495
d. P4,515
4. What would be the per unit overhead cost for Model A if direct labor hours were the allocation base?
a. P20.50
b. P41.00
c. P82.00
d. P76.00
5. What would be the per unit overhead cost for Model A if activity-based costing were used?
a. P20.50
b. P74.00
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c. P82.00
d. P76.00
6. If both the fixed and variable expenses associated with a product decrease, what will be the effect on the
contribution margin ratio and the break-even point, respectively?
7. Hopi Corporation expects the following operating results for next year:
Sales...................................................... P400,000
Margin of safety....................................... P100,000
Contribution margin ratio........................... 75%
Degree of operating leverage..................... 4
8. Escareno Corporation has provided its contribution format income statement for June. The company
produces and sells a single product.
If the company sells 8,200 units, its total contribution margin should be closest to:
a. P301,000
b. P311,600
c. P319,200
d. P66,674
9. Holt Company's variable expenses are 70% of sales. At a P300,000 sales level, the degree of operating
leverage is 10. If sales increase by P60,000, the degree of operating leverage will be:
a. 12
b. 10
c. 6
d. 4
10. Tonswift Company produces a single product. Last year, the company had net operating income of
P40,000 using variable costing. Beginning and ending inventories were 22,000 and 27,000 units,
respectively. If the fixed manufacturing overhead cost was P3.00 per unit, what was the income using
absorption costing?
a. P15,000 c. P40,000
b. P25,000 d. P55,000
11. Gent Corporation manufactures and sells a spice rack. Shown below are the actual operating results for
the first two years of operations:
Year 1 Year 2
Units (spice racks) produced................................. 40,000 40,000
Units (spice racks) sold........................................ 37,000 41,000
Absorption costing net operating income................. P44,000 P52,000
Variable costing net operating income.................... P38,000 ???
Gent's cost structure and selling price were the same for both years. What is Gent's variable costing net
operating income for Year 2?
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a. P48,000
b. P50,000
c. P54,000
d. P56,000
12. The local video store’s business increased by 12% after the movie theater raised in prices from
P6.50 to P7.00. This is an example of
a. Substitute goods
b. Superior goods
c. Complementary goods
d. Public goods
13. Which of the following would be not included in the calculation of the gross domestic product
(GDP)?
a. Purchase of new home
b. An automative worker’s wages
c. A doctor’s fee
d. Purchase of common stock
14. The Fletcher Company uses standard costing. The following data are available for October:
15. The auto repair shop of Empire Motor Sales uses standards to control labor time and labor cost in
the shop. The standard time for a motor tune-up is 2.5 hours. The record showing time spent in
the shop last week on tune-ups has been misplaced; however, the shop supervisor recalls that 50
tune-ups were completed during the week and the controller recalls that the labor rate variance on
tune-ups was P87, favorable. The shop has a set standard labor rate of P9 per hour for tune-up
work. The total labor variance for the week on tune-up work was P93, unfavorable.
The actual hourly rate of pay for tune-up work last week was:
a. P8.40 per hour
b. P9.00 per hour
c. P9.60 per hour
d. Cannot be computed without further information
Variable overhead
Indirect material P1.20 per DLH
Indirect labor 2.15 per DLH
Other indirect costs 3.45 per DLH
Annual Fixed Costs
Salaries P100,000
Depreciation 14,000
Rent 30,000
Beebo’s annual budget is based on total production of 240,000 units, for which 2.5 DLH per unit is
required. It may be assumed that Beebo’s fixed costs and production activity occur evenly
throughout the year. During its first month of operations in the current year Beebo produced
22,000 units, logged 57,200 direct labor hours, and reported the following cost figures.
18. Pitkins Company collects 20% of a month's sales in the month of sale, 70% in the month following
sale, and 6% in the second month following sale. The remainder is uncollectible. Budgeted sales
for the next four months are:
19. Traverse Company manufactures and sells women's skirts. Each skirt (unit) requires 2.5 yards of
cloth. Selected data from Traverse's master budget for next quarter are shown below:
Each unit requires 1.5 hours of direct labor, and the average hourly cost of Traverse's direct labor
is $10. What is the cost of Traverse Company's direct labor in September?
a. $135,000
b. $180,000
c. $157,500
d. $120,000
20. Haylock Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct
labor budget indicates that 5,600 direct labor-hours will be required in August. The variable
overhead rate is $5.40 per direct labor-hour. The company's budgeted fixed manufacturing
overhead is $69,440 per month, which includes depreciation of $15,680. All other fixed
manufacturing overhead costs represent current cash flows. The August cash disbursements for
manufacturing overhead on the manufacturing overhead budget should be:
a. $99,680
b. $84,000
c. $53,760
d. $30,240
26. Ratzlaff Company has a current production level of 20,000 units per month. Unit costs at this
level are:
Current monthly sales are 18,000 units. Jim Company has contacted Ratzlaff Company about
purchasing 1,500 units at P2.00 each. Current sales would not be affected by the one-time-only
special order, and variable marketing/distribution costs would not be incurred on the special order.
What is Ratzlaff Company’s change in operating profits if the special order is accepted?
a. P400 increase in operating profits
b. P400 decrease in operating profits
c. P1,800 increase in operating profits
d. P1,800 decrease in operating profits
28. Camera Corner is considering eliminating Model AE2 from its camera line because of losses over
the past quarter. The past three months of information for Model AE2 are summarized below.
Overhead costs are 70% variable and the remaining 30% is depreciation of special equipment for
model AE2 that has no resale value.
If Model AE2 is dropped from the product line, operating income will
a. increase by P10,000.
b. decrease by P20,000.
c. increase by P30,000.
d. decrease by P10,000.
29. India Corporation has P200,000 of joint processing costs and is studying whether to process J and
K beyond the split-off point. Information about J and K follows.
Product J Product K
Tons produced 25,000 15,000
Separable variable processing costs beyond split-off P64,000 P100,000
Selling price per ton at split-off 15 52
Selling price per ton after additional processing 21 58
If India desires to maximize total company income, what should the firm do with regard to
Products J and K?
Product J Product K
a. Sell at split-off Sell at split-off
b. Sell at split-off Process beyond split-off
c. Process beyond split-off Sell at split-off
d. Process beyond split-off Process beyond split-off
30. In the decision on whether or not to drop an unprofitable product line, the product line will most
likely be dropped if:
a. all of the product line's fixed costs are unavoidable.
b. the product line's total fixed costs are less than the contribution margin lost from dropping the
product line.
c. the contribution margin lost from dropping the product line is less than the fixed costs avoided
from dropping the product line.
d. the contribution margin lost from dropping the product line is more than the fixed costs
avoided from dropping the product line.
A B C Total
Sales P20,000 P35,000 P22,000 P77,000
Variable costs 8,000 10,000 14,000 32,000
Contribution margin 12,000 25,000 8,000 45,000
Fixed costs 4,000 11,000 9,000 24,000
Net income P 8,000 P14,000 P (1,000) P21,000
Management is considering dropping product line C. If it is discontinued, one-half of its fixed costs
can be avoided. The discontinuation of product line C would:
a. decrease net income by P3,500.
b. increase net income by P1,000.
c. decrease net income by P12,500.
d. increase net income by P4,500.
32. You are evaluating the performance of Department X of B Corp. for the year 2015. You are given
the following facts:
Based on the above information, the department’s residual income for the year 2015 was
a. P26,400
b. P105,600
c. P79,200
d. P42,240
33. JW is the general manager of the Industrial Product Division, and his performance is measured
using the residual income method. Webb is reviewing the following forecasted information for his
division for next year:
Category Amount
(thousands)
Working capital P1,800
Revenue 30,000
Plant and equipment 17,200
If the imputed charge is 15% and Webb wants to achieve a residual income target of P2,000,000,
what will costs have to be in order to achieve the target?
a. P9,000,000
b. P10,800,000
c. P25,150,000
d. P25,690,000
34. The following selected information is from the financial statements of Bishop Corporation for the
last fiscal year.
Bishop has a cost of capital of 10%. The company’s economic value added (EVA) for last year was
a. P535,000
b. P570,000
c. P935,000
d. P970,000
35. Which of the following types of responsibility centers has accountability for revenues?
a. Cost center and investment centers
b. Profit centers and investment centers
c. Cost centers and profit centers
d. Expense and investment centers
36. Ferndale Distributors is reviewing its inventory policy with respect to safety stocks of its most
popular product. Four safety stock levels were analyzed and annual stockout costs estimated for
each level.
The cost of this product is P20 per unit, holding costs are 4% per year, and the cost of short-term
funds is 10% per year. What is the optimal safety stock level?
a. 1,000 units.
b. 1,250 units.
c. 1,500 units.
d. 2,000 units.
37. In monitoring collection policy, the firm should look at all of the following, except
a. Average collection period
b. Agin of accounts receivable
c. Ratio of bad debts to credit sales
d. Terms of credit
38. Caloocan, Inc. uses 40,000 butterballs per year. On average, butterball cost P12, and the annual
cost of carrying one in inventory is P1.50. The cost to place an order is P50. Based on this
information, what is Caloocan’s annual ordering cost for purchasing butterball if they observe the
EOQ model?
a. P1,155
b. P1,731
c. P1,225
d. P2,450
40. A company had P500,000 of sales for the year just ended and is projecting sales of P600,000 for
the coming year. For every P1 increase in sales, 38% 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. P38,000
b. P86,000
c. P110,000
d. None of the above
42. The Nelmina Corporation, an entertainment ticketing service, is considering the following means of
speeding cash flow for the corporation.
Which of these methods of speeding cash flow should Rolling Stone Corporation adopt?
a. Lock box and electronic transfer only.
b. Bank float and electronic transfer only.
c. Lock box, drafts, and electronic transfer only.
d. Lock box, bank float, and electronic transfer only.
Samson’s Sailboats Inc. recently reported the following 2002 income statement (in millions of
pesos):
Sales P1,225
Operating costs 875
EBIT P 350
Interest 70
EBT P 280
Taxes (40%) 112
Net income P 168
Dividends (33.333%) P 56
Addition to retained earnings P 112
The company is forecasting a 30 percent increase in 2003 sales, and it expects that its year-end
operating costs will equal 75 percent of sales. Gourmet’s tax rate, interest expense, and dividend
payout ratio are all expected to remain constant.
43. What is Samson’s projected 2003 net income (in millions of pesos)?
a. P1,056
b. P143.4
c. P196.88
d. P775
44. All of the following are alternative marketable securities suitable for investment except
a. U.S. Treasury bills.
b. Europesos.
c. Commercial paper.
d. Convertible bonds.
Assets
Cash and short-term investments P40,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets P295,000
Income Statement
Sales P85,000
Cost of goods sold 45,000
Gross margin 40,000
Operating expenses 20,000
Net income P20,000
52. A beverage stand can sell either softdrinks or coffee on any given day. If the stand sells
softdrinks and the weather is hot, it will make P2,500; if the weather is cold, the profit will be
P1,000. If the stand sells coffee and the weather is hot, it will make P1,900; if the weather is
cold, the profit will be P2,000. The probability of cold weather on a given day at this time is
60%. The expected payoff if the vendor has perfect information is
a. P3,900 c. P2,200
b. P1,360 d. P1,960
A. Pay a factor to buy the company's receivables, which average P125,000 per month and have
an average collection period of 30 days. The factor will advance up to 80% of the face value of
receivables at 10% and charge a fee of 2% on all receivables purchased. The controller estimates
that the firm would save P24,000 in collection expenses over the year. Assume the fee and
interest are not deductible in advance.
B. Borrow P110,000 from a bank at 12% interest. A 9% compensating balance would be
required.
C. Issue P110,000 of 6-month commercial paper to net P100,000. (New paper would be issued
every 6 months.)
D. Borrow P125,000 from a bank on a discount basis at 20%. No compensating balance would be
required. Assume a 360-day year in all of your calculations.
57. Which one of the following credit terms is most apt to produce the shortest accounts receivable
period?
a. net 10 c. 2/20, net 45
b. 2/10, net 30 d. 3/5, net 10
58. Baker Industries offers credit terms of 2/20, net 60 to Charlie Co. Charlie Co. has an inventory
period of 15 days and an operating cycle of 45 days. Given this, which of the following
statements are correct? (I. The credit terms of Baker Industries are too restrictive; II. If Charlie
Co. forgoes the discount on its purchases, it will have a negative cash cycle; III. Baker
Industries is financing the accounts receivable of Charlie Co; IV. If Charlie Co. is delinquent in
its payment, Baker Industries should be concerned)
a. III and IV only
b. I and II only
c. I, III, and IV only
d. II, III, and IV only
59. Which one of the following statements is correct concerning the accounts payable period?
a. Managers generally prefer a shorter accounts payable period than a longer one.
b. The accounts payable period is equal to the cost of goods sold divided by the average
accounts payable.
c. Extending the accounts payable period effectively decreases the cash needs of a firm.
d. Increasing the accounts payable turnover rate increases the accounts payable period.
60. Which of the following statements concerning correlation coefficients is (are) true?
a. A correlation of zero indicates that the returns on two stocks move exactly opposite each
other.
b. A correlation of +1 indicates that the returns on two stocks move exactly like each other.
c. If you combine two stocks with zero correlation in a portfolio, it is possible to totally
eliminate all risk from the portfolio composed of the two stocks.
d. Both A and B
61. Which one of the following factors might cause a firm to increase the debt in its financial
structure?
a. An increase in the corporate income tax rate
b. Increased economic uncertainty
c. An increase in the Bangko Sentral Funds rate
d. An increase in the price/earnings ratio
62. In general, it is more expensive for a company to finance with equity capital than with debt
capital because
a. Long-term bonds have a maturity date and must therefore be repaid in the future
b. Investors are exposed to greater risk with equity capital
c. The interest on debt is a legal obligation
d. Equity capital is in greater demand than debt capital
63. Mariday, Inc. paid a cash dividend to its common shareholders over the past twelve months of
P2.20 per share. The current market value of the ordinary shares is P40 per share and investors
are anticipating the common dividend to grow at a rate of 6 percent annually. The costs to issue
new ordinary shares will be 5 percent of the market value. The cost of a new ordinary shares
issue will be
a. 11.50% c. 11.83%
b. 11.79% d. 12.14%
66. Which of the following techniques can be used to determine the variable and fixed portion of a
company’s costs?
a. Game theory c. Regression analysis
b. Queuing theory d. Poisson analysis
67. There are several capital budgeting decision models that do not use discounted cash flows. What
is the name of the simple technique that calculates the total time it will take to recover, using
cash inflows from operations, the amount of cash invested in a project?
a. Recovery period c. External rate of return
b. Payback model d. Accounting rate of return
68. For P450,000, Maleen Corporation purchased a new machine with an estimated useful life of five
years with no salvage value. The machine is expected to produce cash flow from operations, net
of 40 percent income taxes, as follows:
Maleen will use the sum-of-the-years-digits’ method to depreciate the new machine as follows:
First year P150,000
Second year 120,000
Third year 90,000
Fourth year 60,000
Fifth year 30,000
The present value of 1 for 5 periods at 12 percent is 3.60478. The present values of 1 at 12
percent at end of each period are:
End of:
Period 1 0.89280
Period 2 0.79719
Period 3 0.71178
Period 4 0.63552
Period 5 0.56743
Had Maleen used straight-line method of depreciation instead of declining method, what is the
difference in net present value provided by the machine at a discount rate of 12 percent?
a. Increase of P 9,750 c. Decrease of P24,376
b. Decrease of P 9,750 d. Increase of P24,376
69. Diamond Company is planning to buy a coin-operated machine costing P400,000. For book and
tax purposes, this machine will be depreciated P80,000 each year for five years. Diamond
estimates that this machine will yield an annual inflow, net of depreciation and income taxes, of
P120,000. Diamond’s desired rate of return on its investments is 12%. At the following
discount rates, the NPVs of the investment in this machine are: