JOSE MARIA COLLEGE

COLLEGE OF BUSINESS EDUCATION

PR 4 MANAGEMENT ADVISORY SERVICES DIAGNOSTIC EXAM

INSTRUCTIONS:
This is a diagnostic test and not a graded examination. The objective of this test is to determine the
extent and depth of knowledge you have gained and retained at this point. The result will guide your
instructors as to the level of learning to be facilitated during the next five months. Answer the
questions BY YOURSELF and to the best you can. Know that when you take the CPA board examination,
there is no one you can ask for help or confer with.

Select the best answer for each of the following questions. Use the separate Google Form to
mark your answers. Deadline for completing the form is EXACTLY 10:00 AM

1. Of most relevance in deciding how indirect costs should be assigned to products is the degree
A. Controllability C. Linearity
B. Avoidability D. Causality

2. Jackson Co. is considering a project that will use 2,000 square feet of storage space at one of its facilities to store
used equipment. What will determine Jackson’s opportunity cost?
A. The net present value of the project.
B. The internal rate of return of the project.
C. The value of the next best use of the space.
D. The depreciation expense on the space.

3. Which combinations of object of cost and classification of cost is most reasonable? Cost object Cost Classification
A. Materials used to make products Discretionary fixed cost
B. Advertising cost Discretionary fixed cost
C. Straight-line depreciation Variable cost
D. President’s salary Avoidable fixed cost

4. The regression analysis results for AB Co. is shown as y = 90x + 45. The standard error (S b) is 30 and coefficient of
determination (r2) is 0.81. The budget calls for production of 100 units. What is AB’s estimate of total costs?

A. P3,090 C. P9,030
B. P4,590 D. P9,045

5. If a scattergraph contains points that do not fall in a perfect line.

A. The relationship between the variables is not good enough to warrant fitting a line to the data. B. This is an
indication that there is no relationship whatsoever between the variables.
C. The visual fit method and high-low methods should not be used, but least-squares regression can be used.
D. A straight line can still be used to approximate the relationship if a general linear trend can be discerned.

6. Which of the following items is not an assumption of CVP analysis?

A. Total costs can be divided into a fixed component and a component that is variable with respect tothelevel of
output.
B. When graphed, total costs curve upward.
C. The unit-selling price is known and constant.
D. All revenues and costs can be added and compared without taking into account the time value of money.

7. ABC Corporation manufactures and sells two products: A and B. The operating results of the company areasfollows:
Product A Product B
Sales in units 2,000 3,000
Sales price per unit P10 P5
Variable costs per unit 7 3

In addition, the company incurred total fixed costs in the amount of P9,000. How many units would the company have
needed to sell to produce a profit of P12,000?
A. 8,750 C. 10,000
B. 20,000 D. 8,400

8. A manager would like to see a decreasing trend in all of the following operating measures except: A. Customer
complaints as a percentage of units sold.
B. Scrap as a percentage of total cost.
C. Setup time.
D. Manufacturing cycle efficiency.
9. In manufacturing cycle efficiency, the primary difference between throughout time and lead time is based
on_______.
A. Move time C. Process time
B. Waiting time D. Inspection time

10. A company practicing Just-In-Time (JIT) philosophy for the manufacture of its lone product shall expect A. Even
point to be higher than the non-JIT conventional system’s
B. Standard cost variances to be mostly favorable
C. Most production costs to be irrelevant in decision-making
D. Absorption costing and variable costing income to be equal

11. After careful planning, ABC, Inc. has decided to switch to a just-in-time inventory system effective on July 1of the
current year. As of July 1, the corporation has 70 units of product in inventory. It has 1,000 labor hours available for the
month of July. These hours could produce 250 units of product. Customer demand for July is 200 units. If just-in-time
principles are correctly followed, how many units should ABC Inc. plan to produce in July?

A. 200 C. 180
B. 130 D. 250

12. ABC Company is considering continuing Department B, one of the three departments it maintains. The following
information has been gathered for the three departments:

Dept A Dept B Dept

Sales P60,000 P50,000 P80,000

Cost of
P40,000 P42,000 P60,000
sales

Operating
expenses:

Salaries 8,000 6,400 12,000

Rent 2,000 2,000 3,000

Utilities 1,000 2,700 2,000

Total costs P51,000 P53,100 P77,000

Net
P9,000 (P3,100) P3,000
income

If Department B is eliminated, the space it occupies will be divided equally among Departments A and C. Utilities are
allocated on the basis of floor space occupied. 70% of the salaries in Department B would be eliminated; the other 30%
would be split equally between Department A and C. If Department B is eliminated, income would have: A. Decreased
by P3,520 C. Increased by P1,180
B. Decreased by P1,520 D. Increased by P1,520

13. Which of the following would produce a labor rate variance?

A. Poor quality materials causing breakage and work interruptions.
B. Use of persons with high hourly wage rates in tasks that call for low hourly wage rates.
C. Excessive number of hours worked in completing a job.
D. An unfavorable variable overhead spending variance.

14. Which of the following is NOT considered as controllable overhead variance?

A. Overhead capacity variance C. Fixed overhead budget variance B. Overhead efficiency variance D. Variable overhead
spending variance

15. Which of the following is used to describe the practice of adding resources to shorten selected activity timeonthe
critical path of a project?
A. Making adjustments. C. Slack time.
B. Project crashing. D. Reengineering.
16. ABC Company uses a learning curve of 80% for all new products it develops. A trail run of 500 units of new product
shows total labor-related costs (direct, indirect labor, and fringe benefits) of P120,000. Management plans to produce
1,500 units of the new product during the next year.

The total cost of production for next year for labor-related costs (rounded to ‘000s). A. P307,200 C. P187,200
B. P192,000 D. P116,000

17. A company annual consumes 10,000 units of Part C. the carrying cost of this part is P2 per year and the
orderingcosts are P100. The company uses an order quantity of 500 units. By how much could the company
reduceitstotal costs if it purchased the economic order quantity instead of 500 units?
A. P500 C. P2,500
B. P2,000 D. P0

18. Management of organizations that engage in business process management view business processes as A.
Requirements for good control over the organization.
B. Systems that provide information for good management.
C. Strategic assets that must be understood, managed and improved.
D. Mechanism that keep employees from shirking.

19. Jem Enterprises manufactures two products, facial soap and bath soap, in two departments, the Mixing
Department and the Packaging Department. The Mixing Department has 800 hours per month available, and the
Packaging Department has 1,200 hours per month available. Production of the two products cannot exceed36,000
kilos. Data on the two products follow:

CONTRIBUTION MARGIN HOURS PER 100 KILOS

(per 100 kilos) Mixing(M) Packaging(P)
Facial soap (F) P200 5.0 3.6
Bath soap (B) 150 2.4 6.0

The objective function for the linear program Jem would use to determine the optimal monthly production of each
soap would be:
A. Z = 150F + 200B C. 2F + 1.5B ≤ 36,000
B. 2F + 1.5B ≥ 36,000 D. Z = 200F + 150B

20. The following information is available for Nesting Enterprises for 2017:

Net operating profit (income) after taxes P36,000,000

Depreciation expense 15,000,000
Change in net working capital 10,000,000
Capital expenditures 12,000,000
Total assets 105,000,000
Current liabilities 5,000,000
Weighted-average cost of capital 10%

What is the amount of the economic value added (EVA)?

A. P20,000,000 C. P15,000,000
B. P26,000,000 D. P36,000,000

21. The following information is given for the Alpha Division of ABC Corporation.
Sales P600,000
Var. cost of goods sold 200,000
Fixed manufacturing costs 50,000
Variable selling 30,000
Fixed admin.(50% allocated) 20,000
Fixed selling (20% allocated) 50,000
Assets at cost 800,000
Accumulated depreciation 200,000

If ABC Corporation uses ROI to evaluate division managers and uses historical cost as the investment base, the ROI for
Alpha Division is:
A. 31.25% C. 41.67%
B. 33.75% D. 45.00%

22. The Alpha Division of ABC Products manufactures batteries that it sells primarily to the Delta Division for inclusion
with that division’s main product. In 2020, half of the batteries were sold to outside companies at a price of P2each.
The remaining batteries went to the Delta Division. Cost data for 2020 for the Alpha Division are given below:
Production 120,000

Variable manufacturing costs P120,000

Fixed overhead P60,000

 Selling expense (all variable) P30,000

Administrative expenses (all fixed) P20,000

A negotiated transfer price that will yield a markup of 20% on its product cost (absorption cost) is set for Alpha.
Assuming this transfer price, the total divisional contribution margin is
A. P45,000 C. P90,000
B. P78,000 D. P108,000

23. Based on potential sales of 500 units per year, a new product has estimated traceable costs of P990,000. What
isthe target price to obtain a 15% profit margin on sales?
A. P2,329 C. P1,980
B. P2,277 D. P1,935

24. Which of the following is not a measure of asset utilization?

A. Inventory turnover.
B. Average accounts receivable collection period.
C. Fixed asset turnover.
D. Debt to total assets.

25. Which of the following transactions would be most detrimental to a firm’s current ratio, which is currently at 4.0?A.
Buy raw materials on credit
B. Settle accounts payable with cash
C. Selling marketable securities at cost
D. Pay off a portion of long-term debt with cash

26. ABC Company has P500,000 cash, P3,000,000 in total assets and the following ratios:

Inventory turnover 10x

Total assets turnover 2x

Accounts receivable turnover 10x

Debt ratio 0.25

Gross profit margin 20%

Return on equity 8%

How much was ABC’s inventory?

A. P120,000 C. P830,000
B. P480,000 D. P1,200,000

27. ABC Company is dissatisfied with last year’s return on equity (RoE) of 15%. If the profit margin and assets
turnoverremained unchanged at 8% and 1.25, respectively, by how much must the total debt ratio increase to
achievea20% RoE?
A. 5% C. 15%
B. 10% D. 50%
28. A corporation manages inventory performance by monitoring its inventory turnover. Selected financial records for
the corporation are as follows:
Year 1 Year 2 Year 3
Annual Sales P1,262,500 P1,062,500 P1,459,00 Gross annual profit percentage 45% 30% 40%

The beginning finished goods inventory for year 2 was 20% of year 2 sales. The ending finished goods inventory for
year 2 was 18% of year 3 sales. What was the corporation’s inventory turnover for year 2? A. 1.34 C. 3.03
B. 2.83 D. 3.13

29. ABC Company will pay a dividend of P1.50 per share at the end of the next 12 months. The required rate of
returnfor ABC’s share is 10% and the constant growth rate is 5%. What is the approximate current market price per
common share of ABC Company?
A. 30.00 C. 15.00
B. 26.63 D. 10.00

30. Dividend payout ÷ Dividend yield = _____________

A. Plowback ratio C. Price-earnings ratio
B. Earnings per share D. No meaningful amount
31. If a firm’s payable deferral period is longer, then its:
A. Normal operating cycle is expected to be shorter
B. Cash conversion cycle is also expected to be longer
C. Investment in working capital is expected to be lower
D. Degree of financial leverage is expected to be higher

32. A company with P4.8 million in credit sales per year plans to relax its credit standards, projecting that this will
increase credit sales by P720,000. The company’s average collection period for new customers is expectedtobe75 days,
and the payment behavior of the existing customers is not expected to change. Variable costs are80%of sales. The
firm’s opportunity cost is 20% before taxes. Assuming a 360-day year, what is the company’s benefit(loss) from the
planned change in credit terms?
A. P0 C. P144,000
B. P28,800 D. P120,000

33. ABC Company turns out 200 portable fans a day at a cost of P250 per fan for materials and variable conversion
cost. It takes the firm 18 days to convert raw materials into calculator. ABC’s usual credit terms extended to its
customers is 30 days, and the firm generally pays its supplies in 20 days. Assuming the foregoing cycles are constant,
what amount of working capital must ABC finance?
A. P900,000 C. P1,800,000
B. P1,400,000 D. P2,400,000

34. A corporation obtains a loan of P200,000 at an annual rate of 12%. The corporation must keep a compensating
balance of 20% of any amount borrowed on deposit at the bank, but normally does not have a cash balance account
with the bank. What is the effective cost of the loan?
A. 12.0% C. 15.0%
B. 13.3% D. 16.0%

35. Assume a firm is expected to pay a dividend of P5.00 per share this year. The firm along with the dividend is
expected to grow at a rate of 6%. If the current market price of the stock is P60 per share, what is the estimated cost of
equity?
A. 8.3% C. 14.3%
B. 6.0% D. 12.0%

36. Under the Capital Asset Pricing Model (CAPM), what is the expected rate of return of stock of Johnny Walker, given
a beta of 1.25, risk-free rate of 7.5%, and a market risk premium of 6%?

A. 9.00% C. 15.00%
B. 13.50% D. 15.38%

37. ABC Company has the following data from its balance sheet:
Book Value Market Value
Current liabilities P200,000 P200,000
Long-term debt 10,000,000 8,500,000
Preferred stock 1,000,000 1,500,000
Common stock equity 9,000,000 15,000,000
Total P20,200,000 P25,200,000

ABC Company’s cost of common equity and preferred stock is 20% and 14%, respectively. The company’s before- 50%-
tax cost of debt is 10%. The after-tax weighted average cost of capital must be:
A. 16.24% C. 14.50%
B. 14.70% D. 12.20%

38. The ABC Company is trying to decide between keeping an existing machine and replacing it with a new machine.
The old machine was purchased just two years ago for P50,000 and had an expected life of 10 years. It nowcostsP1,000
a month for maintenance and repairs due to a mechanical problem. A new machine is being considered to replace it at
a cost of P60,000. The new machine is more efficient and it will only cost P200 a month for maintenance and repairs.
The new machine has an expected life of 10 years. In deciding to replace the old machine, which of the following
factors, ignoring income taxes, should ABC not consider? A. Any estimated salvage value on the old machine.
B. The original cost of the old machine.
C. The estimated useful life of the new machine.
D. The lower maintenance cost on the new machine.

39. All of the following capital budgeting analysis techniques use cash flows as the primary bases for the calculation
except for the
A. Net present value. C. Discounted payback period.
B. Payback period. D. Accounting rate of return.

40. Which is not among the principles of total quality management (TQM)? A. Be customer-oriented C. Do it right the
first time B. Strive for zero defects D. Build teamwork and empowerment
 END OF EXAMINATION
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