NF JPIA MAS CUP

Sponsor: P & A

Easy

1. Variance analysis includes all of the following except

a. taking corrective action
b. investigating all variances
c. developing performance measures to track activities causing the variance
d. identification of the cause

2. A lockbox plan is most beneficial to firms that

a. have suppliers who operate in many different parts of the country
b. have widely dispersed manufacturing facilities.
c. have a large marketable securities portfolio, and cash, to protect.
d. have customers who operate in many different parts of the country.

3. The ethical standards established for management accountants are in the areas of
a. competence, licensing, reporting, and education
b. budgeting, cost allocation, product costing, and insider trading
c. competence, confidentiality, integrity, and objectivity
d. disclosure, communication, decision making, and planning

4. ABC, Inc. is operating at full capacity with a sales level of P14M and fixed assets of P7M. What is
the required addition to fixed assets if sales are to increase by 10%?
a. 350,000
b. 700,000
c. 140,000
d. 280,000

5. Troch Manufacturing uses as average of 150 components per day, although usage can run as high
as 175 components per day. If lead time is three days, how much safety stock should Troch have on
hand?
a. 75 components
b. 450 components
c. 510 components
d. 150 components

6. Acme is considering the sale of a machine with a book value of P80,000 and 3 years in its useful
life, Straight-line depreciation of 25,000 annually is available. The machine has a current market
value of 100,000. What is the cash flow from selling the machine if the tax rate is 40%.
a. 25,000
b. 92,000
c. 80,000
d. 100,000

7. Citrus, Inc. used the high-low method to estimate that its fixed costs are P210,000. At its low level
of activity, 100,000 units, average cost was P2.60 per unit. What would Citrus predict its average
cost per unit to be when production is 200,000 units?
a. P1.05
b. P1.55
c. P2.60
d. P5.20

8. Dredger Company manufactures a single product using standard costing. Variable production
costs are P12 and fixed production costs are P125,000. Dredger uses a normal activity of 12,500
units to set its standard costs. Dredger began the year with 1,000 units in inventory, produced
11,000 units, and sold 11,500 units. The standard costs of goods sold under absorption costing
would be
a. P115,000
b. P132,000
c. P242,000
d. P253,000

9. The McNally Co. is considering an investment in a project that generates a profitability index of
1.3. The present value of the cash inflows on the project is P44,000. What is the net present value of
this project?
a. P10,154
b. P57,200
c. P13,200
d. P33,846

10. Tyson Enterprises has decided to take its company public by offering a total of 80,000 sahres of
common stock to the public in an initial public offering (IPO). Tyson has hired an underwriter who
arranges a full commitment underwriting and suggests an initial selling price of P32 a share with a
9% spread. As it turns out, the underwriters only sell 68,500 shares. How much cash will Tyson
receive from the IPO?
a. P1,840,400
b. P1,994,720
c. P2,192,000
d. P2,329,600

Average

1. Which of the following statements is true?

a. Adequate training and experience in both the analytical approach and process in the particular
undertaking are requisites for the CPA to be involved in a management service engagement.
b. A CPA with MBA and PhD degrees is automatically qualified to render management services.
c. Competence as a standard in the rendition of management services by a CPA may be equated to
having excellent scholarly preparation to include the usual baccalaureate degree, an MBA and other
post graduate studies.
D. A certified public accountant by virtue of having the necessary academic preparation and by
hurdling the licensure examinations required to have a CPA license can readily render management
services to the public.

2. The separation of fixed and variable cost is necessary for all of the following purposed except:
a. Absorption costing and net income analysis
b. Direct costing and contribution margin analysis
c. Break-even and cost-volume-profit analysis
d. Differential and comparative cost analysis
e. Capital budgeting analysis
3. The primary difference between a fixed (static) budget and a variable (flexible) budget is that a
fixed budget:
a. cannot be changed after the period begins; while a variable budget can be changed after the
period begins
b. is a plan for a single level of sales (or other measure of activity); while a variable budget consists of
several plans, one for each several levels of sales ( or other measure of activity)
c. includes only fixed costs; while variable budget includes only variable costs
d. is concerned only with future acquisitions of fixed assets; while a variable budget is concerned
with expenses that vary with sales

4. How will a favorable volume variance affect net income under each of the following methods?
Absorption Variable
a. Reduce No effect
b. Reduce Increase
c. Increase No effect
d. Increase Reduce

5. Zig Corp. provides the following information:

Pretax operating profit P 300,000,000

Tax Rate 40%
Capital used to generate profits 50% debt, 50% equity P 1,200,000,000
Cost of equity 15%
Cost of debt, after tax 5%

What of the following represents Zig’s year-end economic value added amount?
a. P0
b. P60,000,000
c. P120,000,000
d. P180,000,000

6. Altman Corporation has P1,000,000 of debt outstanding, and it pays an interest rate of 12 percent
annually. Altman’s annual sales are P4 million, its national-plus-state tax rate is 40 percent, and its
net profit margin sales is 10 percent. If the company does not maintain a TIE ratio of at least 5 times,
its bank will refuse to renew the loan, and bankruptcy will result. What is the maximum amount
Altman’s EBIT could decrease and its bank still renew its loan?

a. P186,667
b. P66,767
c. P45,432
d. P47,898

7. Which of the following minimize the risks of outsourcing?

a. The use of short-term contracts that specify price

b. The responsibility for on-time delivery is now the responsibility of the supplier
c. Building close relationships with the supplier
d. All of these answers are correct

8. 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
b. P2,200
c. P1,360
d. P1,960

9. The principle of diversification tells us that:

a. Concentrating an investment in two or three large stocks will eliminate all of the
unsystematic risk
b. Concentrating an investment in three companies all within the same industry will greatly
reduce the systematic risk
c. Spreading an investment across five diverse companies will not lower the total risk
d. Spreading an investment across many diverse assets will eliminate some of the total risk

C.4 If a company’s variable costs are 70% of sales, which formula represents the computation of
peso sales that will yield a profit equal to 10% of the contribution margin when P equals sales in
pesos for the period and FC equals total fixed costs for the period?

a. P=.2/FC
b. P=FC/.2
c. P=.27/FC
d. P=FC/.27

Difficult

1. Budget slack is a condition in which

a. Demand is low at various times of the year

b. Excess machine capacity exists in some areas of the plant
c. There is an intentional overestimate of expenses or an underestimate of revenues
d. Managers grant favoured employees extra time off

2. An increase in a company’s current ratio accompanied by a decrease in its acid-test (quick) ratio
could be a warning that the company is

a. Depleting its inventories

b. Having trouble collecting its receivables
c. Tightening its credit policies
d. Carrying excessive inventory

3. Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed
capital budget would be so large that it would have to issue new common stock. Since new stock has
a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the
following actions would REDUCE its need to issue new common stock?

a. Increase the dividend payout ratio for the upcoming year

b. Increase the percentage of debt in the target capital structure
c. Increase the proposed capital budget
 d. Reduce the amount of short-term bank debt in order to increase the current ratio

4. Which of the following combinations is NOT possible?

Profitability Index NPV IRR

a. Greater than 1 Positive More than cost of capital
b. Equals 1 Zero Equals cost of capital
c. Less than 1 Negative Less than cost of capital
d. Less than 1 Positive Less than cost of capital

5. Wiley’s new financing will be in proportion to the market value of its present financing, shown
below.

Book value (P000 omitted)

Long-term debt P7,000
Preferred stock (100 shares) 1,000
Common stock (200 shares) 7,000

The firm’s bonds are currently selling at 80% of par, generating a current market yield of 9%, and the
corporation has a 40% tax rate. The preferred stock is selling at its par value and pays a 6% dividend.
The common stock has a current market value of P40 and is expected to pay a P1.20 per share
dividend this fiscal year. Dividend growth is expected to be 10% per year. Wiley’s weighted-average
cost of capital is (round your calculations to tenths of a percent)

a. 13.0%
b. 8.3%
c. 9.6%
d. 9.0%

6. Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you
to forecast the firm’s additional funds needed (AFN). Date for use in your forecast are shown below.
Based on the AFN equation, what is the AFN for the coming year? Pesos are in millions.

Last year’s sales P350 Last year’s accounts payable P40

Sales growth rate 30% Last year’s notes payable P50
Last year’s total assets P580 Last year’s accruals P30
Last year’s profit margin 5% Target payout ratio 60%

a. P120.9
b. P139.6
c. P130.9
d. P143.9

8. Division P of Turbo Corporation has the capacity for making 75,000 wheel sets per year and
regularly sells 60,000 each year on the outside market. The regular sales price is P100 per wheel set,
and the variable production cost per unit is P65. Division Q of Turbo Corporation currently buys
30,000 wheel sets (of the kind made by Division P) yearly from an outside supplier at a price of P90
per wheel set. If Division Q were to buy the 30,000 wheel sets it needs annually from Division P at
P87 per wheel set, the change in annual net operating income for the company as a whole,
compared to what it is currently, would be:
 a. P600,000
b. P225,000
c. P750,000
d. P135,000

9. Martin and Beasley, an accounting firm, provides consulting and tax planning services. A recent
analysis found that 55% of the firm’s billable hours to clients resulted from tax planning and for
many years, the firm’s total administrative cost (currently P270,000) has been allocated to services
on this basis.

The firm, contemplating a change to activity-based costing, has identified three components of
administrative cost, as follows:

Staff support P200,000

In-house computing charges 50,000
Miscellaneous office costs 20,000
Total P270,000

A recent analysis of staff support found a strong correlation with the number of clients served. In
contrast, In-house computing and miscellaneous office cost varied directly with the number of
computer hours logged and number of client transactions, respectively. Consulting clients served
totalled 35% of the total client base, consumed 30% of the firm’s computer hours, and accounted for
20% of the total client transactions.

If Martin and Beasley switched from its current accounting method to an activity-based costing
system, the amount of administrative cost chargeable to consulting services would:

a. Decrease by P32,500
b. Increase by P32,500
c. Decrease by P59,500
d. Change by an amount other than those listed above

10. Tentosa Company is considering launching a new product which it believes has a 70% probability
of success. The company is, however, considering undertaking an advertising campaign costing
P60,000, which would increase the probability of success to 95%. If successful the product would
generate income of P240,000 otherwise P84,000 would be received. What is the maximum amount
that the company should be prepared to pay the advertising?

a. P34,800
b. P21,000
c. P39,000
d. P60,000