CENTER FOR ACCOUNTANCY REVIEW&TRAINING

E S T A B L I S H E D 2003
2ndFlr.,ManangoBldg., City Road., Centro East, Santiago City, Philippines; Mobile No.: 09108298588

MANAGEMENT ADVISORY SERVICES

Jimmy I. Peru, MBM, MICB, CPA

COMPREHENSIVE EXAM

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each item
by shading the box corresponding to the letter of your choice on the answer sheet. Strictly No Erasures Allowed.

1. Lakers Company had a P 18,000 favorable volume game are P 35 variable cost and P 35,000 fixed. D is
variance, a P 15,000 unfavorable variable overhead considering several options:
spending variance, and P 12,000 total over-applied * Option 1: cut the price to P45 and perhaps sell
overhead. The fixed overhead budget variance was 5,000 units
a. P 9,000 Favorable b. P 9,000 Unfavorable * Option 2: cut the price to P35, reduce material
c. P 16,000 Favorable d. P 16,000 Unfavorable costs by P2, and cut advertising by P 20,000.
Anticipated volume for this option is 30,000 units.
2. At the end of last year, Jack Company had 30,000 * Option 3: cut the price to P50 and include a P 5
units in its ending inventory. Jack’s variable mail-in rebate offer. It is anticipated that 4,000 units
production costs are P10 per unit and its fixed could be sold and only 25% of the rebate coupons
manufacturing overhead costs are P5 per unit every would be redeemed.
year. The company’s net income for the year was
P12,000 higher under variable costing than Which option is preferred?
absorption costing. Given these facts, the number of a. Option 1 b. Option 2
units of product in inventory at the beginning of the c. Option 3 d. Equally preferred
year must have been?
a. 32,400 b. 27,600 For item # 8,9,10 and 11 are based on the following:
c. 28,800 d. 31,200
Dave, Inc. evaluates manufacturing overhead in its
3. Caring Company has standard variable costs as factory by using variance analysis. The ff.
follows: information applies to the month of July:
Materials, 3 pounds at P 4.00 per pound P 12.00 ACTUAL BUDGETED
Labor, 2 hours at P 10.00 per hour P 20.00 No. of units produced 19,000 20,000
Variable overhead, P 7.50 per labor hour P 15.00 Variable overhead costs 4,100 2 per DLHr
During September, Body Heat produced 6,000 units Fixed overhead costs 22,000 20,000
using 11,560 labor hours at a total wage of P Direct labor hours 2,100 0.1 per unit
113,870 and incurring P 88,600 in variable
overhead. What is variable overhead efficiency 8. The controllable variance amounts to
variance? a. P2,500 u b. P2,300 u
a. P 4,400 Unfavorable b. P 1,900 Unfavorable c. P1,000 u d.P2,000 u
c. P 1,400 Favorable d. P 3,300 Favorable
9. Using three –way variance analysis, the spending
4. Which cost is not subtracted from selling price to variance amounts to
calculate the contribution margin per unit? a. P100 f b. P2,000 u
a. Variable manufacturing overhead c. P1,900 u d. P2,100 u
b. Variable selling expense
c. Direct labor 10. The non-controllable variance is
d. Fixed manufacturing overhead a. P2,300 u b. P1,000 u
c. P400 u d. 0
5. Hannah has a P 20,000 UF fixed overhead budget
variance, a P 12,000 UF variable overhead spending 11. The fixed overhead efficiency variance is
variance, and P 4,000 F volume variance. The total a. P400 u b. P400 f
overhead was? c. P2,000 u d. 0
a. P 28,000 Over-applied
b. P 28,000 Under-applied 12. Butterfly Forest has total budgeted fixed
c. P 36,000 Over-applied overhead costs of P 150,000. Actual production of
d. P 36,000 Under-applied 39,000 units resulted in a favorable P 6,000 volume
variance. What normal capacity was used to
6. Sculptured Body Works Company determines the determine the fixed overhead rate?
selling price by marking up variable costs by 60%. If a. 33,000 b. 37,500
the company breaks even at P 400,000, what is the c. 39,500 d. 40,500
amount of fixed cost?
a. P 150,000 b. P 240,000 13. If a company follows the practice of isolating
c. P 250,000 d. P 640,000 variance at the earliest point in time, what would be
the appropriate time to isolate and recognize a direct
7. Sugar Free Company manufactures a variety of material price variance?
computer games. The Director is disappointed in the a. When material is issued to the requesting
sales of a new basketball game. The game sold is department or division
only 2,000 units in 2011 when 10,000 were b. When material is purchased
projected. Sales for 2012 look no better. At P 75 per c. When material is used in production
game, it is not a hot seller. Direct costs of the board d. When purchase order is originated

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14. RH Computer System designs and develops 20. The method of least squares was used to develop
specialized software for companies and use a normal a cost equation to predict the cost of purchasing
costing system. The following data are available for goods. Eighty points were used for the regression.
2015: The following output was received:
Budgeted Intercept P 30,500
Overhead P600,000 Slope 10
Machine hours 24,000 Coefficient of correlation 0.85
Direct labor hours 75,000 Standard error P 30,000
Actual The driver used was number of purchase orders.’
Units produced 100,000 What is the cost of purchasing if 10,000 orders are
Overhead P 603,500 processed?
Prime costs 900,000 a. 39,000 b. 130,500
Machine Hurs 25,050 c. 38,500 d. 130,000
Direct Labor hours 75,700
21. Sales in XXX Company declined from P 100,000
Overhead is applied on the basis of direct labor to P 80,000, while income declined by 300%. Given
hours. these data, what is the company’s operating
What is the unit cost for the year? leverage?
a. P15.03 c.P15.09 a. 0.066 b. 0.60
b. P15.06 d.P15.00 c. 15 d. 12

15. Which of the following would decrease unit 22. Sisters is investigating the purchase of a piece of
contribution margin the most? automated equipment that will be save P 150,000
a. A 15% decrease in selling price each year in direct labor and inventory carrying
b. A 15% decrease in variable expenses costs. This equipment costs P 700,000 and is
c. A 15% increase in variable expenses expected to have a five year useful life with no
d. A 15% increase in fixed expenses salvage value. The company requires a minimum of
10% return on all equipment purchases.
16. Piolo Company uses 8,000 units of a certain Management anticipates that this equipment will
part in production each year. Presently, this part is provide intangible benefits such as greater flexibility
purchased from an outside supplier at P12 per unit. and higher quality output.
For some time now, there has been idle capacity in
the factory that could be utilized to make this part. What peso value per year would the intangible
The following information has been assembled on the benefits have to have in order to make the
unit costs of making this part internally: equipment an acceptable investment?
a. 184,647.85
Direct Materials 3.25 b. 160,352.15
Direct labor 2.75 c. 34,647.85
Variable manufacturing overhead 2.00 d. 43,352.15
Fixed manufacturing overhead 5.00
The fixed manufacturing overhead listed above 23. Righter Co. has considerable excess
represents an allocation of existing cost to this part. manufacturing capacity. A special job order’s cost
However, there would be an increase of P 12,000 in sheet includes the following applied manufacturing
fixed manufacturing overhead costs for the salary of overhead costs:
a new supervisor. Assume other things stay the Fixed costs 21,000
same; at what price per unit from the outside Variable costs 33,000
supplier should Rubio be indifferent (on economic
grounds) to buying or making the part? The fixed costs include a normal P 3,700 allocation
a. P 8.00 b. P 8.50 for in-house design costs, although no in-house
c. P 9.00 d. P 9.50 design will be done. Instead, the job will require the
use of external designers costing P 7,750. What is
17. Highlander Company earned P 100,000 on sales the total amount to be included in the calculation to
of P 1,000,000. It earned 130,000 on sales of P determine the minimum acceptable price for the job?
1,100,000. Contribution margin as a percentage of a. P 36,700 b. P 40,750
sales is? c. P 54,000 d. P 58,050
a. 30% b. 70%
c. 40% d. 90% 24. ABC Company plans to replace its old sing-along
equipment. This information is available:
18. Bakekang Company manufactures one product Old New
with a standard direct manufacturing labor cost of Equipment cost P 70,000 P 120,000
four hours at P12.00 per hour. During June, 1,000 Current salvage value 10,000
units were produced using 4,100 hours at P 12.20 SV, end of useful life 2,000 16,000
per hour. The unfavorable direct labor efficiency Annual operating costs 56,000 38,000
variance was Accumulated depreciation 55,300
a. P 820 b. P 400 Estimated useful life 10 years 10 years
c. P 1,200 d. P 1,220 Income tax rate 30%
Ignoring tax effects, what is the present value of all
19. To control purchasing and accounts payable, an the relevant cash flows at time zero?
information system must include certain sources a. (92,000) b. (110,000)
documents. For a manufacturing concern, these c. (124,000) d. (120,000)
documents should include
a. purchase orders, receiving reports, and inventory 25. Hello Company currently sells 10,000 units of
reports of goods needed product M for P 18.00 each. Variable costs are P 8.00
b. purchase requisition, purchase orders, per unit. A discount store has offered P 16.00 for
receiving reports, and suppliers’ invoices 4,000 units of product M. The managers believe that
c. purchase requisition, purchase orders, inventory if they accept the special order, they will lose some
reports of goods needed, and suppliers’ invoices sales at regular price. Determine the number of units
d. purchase order, receiving reports, and suppliers’ Hello could lose before the order became
invoices unprofitable.
a. 2,000 units b. 2,667 units
c. 3,200 units d. 5,000 units

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26. Onyok Corporation has a P 20,000 unfavorable five years in total but ignoring the time value of
fixed overhead budget variance, a P 12,000 money and income taxes, C’s should
unfavorable variable overhead spending variance, a. replace due to P400,000 advantage
and a P 4,000 favorable volume variance. What was b. not replace due to P150,000 disadvantage
the total overhead? c. replace due to P500,000 advantage
a. P 28,000 debit b. P 28,000 credit d. not replace due to P100,000 disadvantage
c. P 36,000 debit d. P 36,000 credit
33. The most likely strategy to reduce the break-
27. Owws Corporation carries no debt in its capital even point would be
structure. Its beta is 0.8. The risk-free rate is 9 a. increase both the fixed costs and the
percent and the adjusted risk premium is 6 percent. contribution margin
The company has an opportunity to invest in a b. decrease both the fixed costs and the
project that earns 12%. What is cost of capital? contribution margin
a. 4.8% b. 9% c. decrease the fixed costs and increase the
c. 12% d. 13.8% contribution margin
d. increase the fixed cost and decrease the
28. Ti Nakaw Corporation is planning to invest P contribution margin
80,000 in a three- year project. Ti Nakaw’s expected
rate of return is 10%. The present value of P1 at 34. Economies often experience inflation but seldom
10% for 1st year, 2nd year and 3rd year are 0.909, experience long period of deflation. Which of the
0.826, and 0.751 respectively. The cash flows, net of following is true about deflationary economy?
income taxes, will be P 30,000 for the first year a. Companies are hesitant to make investment
(present value: P 27,270) and P 36,000 for the b. The lower prices encourage consumers to make
second year (present value: P 29736). Assuming the major purchases
rate of return is exactly 10%, what will be the net c. Interest rates tend to be high
cash flow, net of income taxes, for the third year? d. Actual GDP is above potential GDP
a. P 17,260 b. P 22,000
c. P 22,904 d. P 30,618 35. A manufacturer at the end of its fiscal year
recorded the data below:
29. The production possibility frontier curve tends to Prime cost 800,000
bow inward rather than outward when there is Variable manufacturing overhead 100,000
a. Technological enhancements Fixed manufacturing overhead 160,000
b. Scarcity of economic resources Variable selling & other expenses 80,000
c. Economic growth Fixed selling & other expenses 40,000
d. Capital accumulation
Using full costing, inventoriable costs are
30. Which of the following statements regarding the a. 100,000 b. 180,000
difference between a flexible budget and a static c. 1,060,000 d. 1,140,000
budget is true?
a. A flexible budget primarily is prepared for 36. In deciding whether to replace a machine, which
planning purposes, whereas a static budget is of the following is not a sunk cost?
prepared for performance evaluation a. The expected resale price of the existing
b. A flexible budget provides cost allowances for machine
different levels of activity, whereas a static budget b. The book value of the existing machine
provides cost for one level of activity. c. The original cost of the existing machine
c. A flexible budget includes only variable costs d. The depreciated cost of the existing machine
whereas a static budget includes only fixed costs.
d. Variance will always be larger with a flexible 37. Selected information concerning the operations
budget than with a static budget. of Prima Donna Company for the year ended
December 31, 2014, is available as follows:
31. Due to erratic sales of its sole product (a high- Unit produced 10,000
capacity battery for laptop computers), New York Co. Units sold 9,000
has been experiencing difficulty for some time. The Direct Material Used P 40,000
income statement for the most recent month is given Direct labor cost incurred 20,000
below: Fixed factory overhead 25,000
Sales(19,500 units @ P300) P 5,850,000 Variable factory overhead 12,000
Less variable expenses 4,095,000 Fixed Selling and
Contribution margin 1,755,000 Administrative Expense 30,000
Less fixed expenses 1,800,000 Variable Selling and
Net loss P ( 45,000) Administrative Expense 4,500
Finished Goods Inventory,01/01/12 NONE
The president believes that a P 160,000 increase in There were no work in process inventories at the
the monthly advertising budget, combined with an beginning and end of 2014
intensified effort by the sales staff, will result in P A.What would be Prima Donna finished goods
800,000 increase in monthly sales. If the president is inventory cost at December 31, 2014, under the
right, what will be the effect on the company’s Variable (Direct) costing method?
monthly net income or loss? a. P7,200 b. P8,000
a. P 120,000 increase b. P 80,000 increase c. P7,650 d. P9,700
c. P 120,000 decrease d. P 80,000 decrease
38. A Company’s production facility has an ideal
32. Hello Incorporation has an opportunity to acquire capacity of 12,500 units, which was used as the
a new equipment to replace one of its existing basis for the normal capacity of 10,000 units. The
equipments. The new equipment would cost P company was able to produce 11,000 units during
900,000 and has a five year useful life, with a zero the period. Fixed manufacturing costs were P
terminal disposal price. Variable operating cost would 200,000 while variable manufacturing costs were
be P 1,000,000 per year. The present equipment has also P 200,000.
a book value of P 500,000 and a remaining life of What was the volume or capacity variance for the
five years. Its disposal price now is P 150,000 but production?
would be zero after five years. Variable operating a. P 20,000 UF b. P 24,000 F
cost would be P 1,250,000 per year. Considering the c. 20,000 F d. 24,000 UF

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39. Remar Inc. reported the following result from 46. The following information pertains to Cling Co’s
sales of 5,000 units of product C for the month of 2014 manufacturing operations:
June 2013.
* Standard direct manufacturing labor hours per
Sales 200,000 unit – 2.
Variable cost 120,000 * Actual direct manufacturing labor hours – 10,500
Fixed Cost 60,000 * Number of units produced – 5,000
Operating Income 20,000 * Standard variable overhead per standard direct
manufacturing labor hour – 3
Assume that Remar, Inc. increases the selling price * Actual variable overhead – 28,000
of Product C by 10% on July 1, 2013. How many
units of Product C would have to be sold in July 2013 Cling 2014 unfacvorable variable overhead efficiency
in order to generate an operating income of P variance was
20,000? a. 0
a. 4,000 b. 1,500
b.4,300 c. 2,000
c. 4,500 d. 3,500
d.5,000
Item # 47 and 48 are based on the following:
40. In computing the amount of initial investment for
decision making, taxes would be relevant for all of Carry Co. manufactures copier equipment and has
the following, except: the opportunity to replace one of its existing
a. Avoidable repairs of old asset machines with a new model. The existing machine
b. Profit on sale of old asset replaced by a new one has a net book value of P 120,000 and a market
c. Loss on write-off of other assets disposed value of P 60,000. It has an estimated remaining life
because of new capital investment of four years, at which time it will have no salvage
d. Increase in working capital required to support value. The company uses straight line depreciation of
new capital investment. P 30,000 per year on the machine, and its annual
cash operating cost is P 280,000.
41. Which statement describes the relevance of
depreciation in calculating cash flows? The new model costs P500,000 and has a four year
a. Depreciation is relevant only when income taxes estimated life with no salvage value. Its annual cash
exist operating cost is estimated at 160,000. The firm will
b. Depreciation is always relevant use straight line depreciation. The tax rate is 40%
c. Depreciation is relevant only with discounted and the cost of capital is 12%. The purchase of the
cash flow methods new, more efficient machine will enable the company
d. None of the above to reduce its investment in inventory by P 80,000.

42. Which of the following is not a characteristics of 47. Determine the investment required to purchase
management accounting the new machine.
a. Internal focus a. 336,000
b. Broad based and multidisciplinary b. 335,000
c. Subjective information may be used c. 334,000
d. Historical orientation d. 340,000

43. Which of the following changes would result in 48. Determine the net present value of the
the highest present value for a series of cash flows? investment.
a. a 100 decrease in taxes each year for four years a. 1,930
b. a 100 decrease in the cash outflow each year for b. ( 1,930 )
three years c. 1,830
c. a 100 increase in disposal value at the end of d. ( 1,830 )
four years
d. a 100 increase in cash flow each year for three 49. Onyok company uses a standard costing system
years in connection with the manufacture of a “one size fits
all” product made of rubber. Each unit of finished
44. Management of Under Corporation is attempting product contains two feet of direct material.
to estimate the firm’s cost of equity capital. However, a 20% direct material spoilage calculated
Assuming that the firm has a constant growth rate of on input quantities occurs during the manufacturing
5%, a forecasted dividend of 2.11, and a stock price process. The cost of the direct materials is 3 per
of 23.12, what is the estimated cost of common foot. The standard direct materials cost per unit of
equity using the dividend-yield-plus-growth finished product is:
approach? a. 7.50
a. 9.1% b. 6
b. 14.1% c. 7.2
c. 15.6% d. 4.8
d. 12.3%
50. Owws Corporation carries no debt in its capital
45. Milem is budgeting sales of 53,000 units of structure. Its beta is 0.8. The risk-free rate is 9
product XXX for October, 2015. The manufacture of percent and the adjusted risk premium is 6 percent.
one unit of XXX requires four kilos of chemical SSS. The company has an opportunity to invest in a
During October 2015, Milem plans to reduce the project that earns 12%. What is cost of capital?
inventory of SSS by 50,000 kilos and increase the a. 4.8%
finished goods inventory of XXX by 6,000 units. b. 9%
There is no XXX work in process inventory. c. 12%
d. 13.8%
How many kilos of SSS is Milem budgeting to
purchase in October, 2015?
a. 138,000
b. 162,000
c. 186,000
d. 238,000

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