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Since 1977

MAS TRINIDAD/ALENTON
FIRST PRE-BOARD EXAMINATION AUGUST 01, 2021

Multiple Choice. Select the letter that corresponds to the best answer. This examination
consists of 70 items (please ignore the extra answer options in the answer sheet
after number 70) and the exam is good for three (3) hours. Good luck!

1. Which of the following characteristics does not relate to management accounting?

a. Accounting reports may include non-monetary information
b. It is subject to restrictions imposed by GAAP.
c. Reports are often based on estimates and are seldom useful for anything other than
the purpose for which they are prepared.
d. It provides data for internal users within the business organization.

2. A position in an organization that is directly concerned of achieving the basic objectives

of the entity:
a. Controller
b. Chief financial officer
c. A staff position
d. A line position

3. Which statement about the degree of detail in a report is true?

a. It depends on the level of the manager receiving the report.
b. It may depend on the frequency of the report.
c. It depends on the type of manager receiving the report.
d. All of the above.

4. Management accounting is concerned of the following, except

a. Future results
b. Quantitative and non-quantitative information
c. Decision analysis and implementation
d. External financial reporting

5. Which cost is LEAST likely to be direct to a particular product?

a. Salaries of salespeople who sell all of the company's products.
b. Advertising of the product.
c. License fees paid to the designer of the product.
d. Cost of materials used to make the product.

6. A committed fixed cost

a. can never be eliminated.
b. can be eliminated in the short-term and in the long-term.
c. can be eliminated in the long-term, but not in the short-term.
d. can be eliminated in the short-term, but not in the long-term.

7. Assuming costs are represented on the vertical axis and volume of activity on the
horizontal axis, which of the following costs would be represented by a line that starts
at the origin and reaches a maximum value beyond which the line is parallel to the
horizontal axis?
a. total direct material costs

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b. a consultant paid P100 per hour with a maximum fee of P2,000

c. employees who are paid P15 per hour and guaranteed a minimum weekly wage of
P300
d. rent on exhibit space at a convention.

8. Since Anytime Pan is open 24 hours a day, its oven is constantly on and is, therefore,
always using natural gas. However, when there is no pan in the oven, the oven
automatically lowers its flame and reduces its natural gas usage by 70%. The cost of
natural gas would best be described as a:
a. fixed cost d. step-variable cost
b. mixed cost e. true variable cost
c. step-fixed cost

9. The degree of operating leverage (DOL) is

a. A measure of the change in earnings available to common stockholders associated
with a given change in operating earnings.
b. A measure of the change in operating income resulting from a given change in
sales.
c. Lower if the degree of total leverage is higher, other things held constant.
d. Higher if the degree of total leverage is lower, other things held constant.

10. Which of the following is a true statement about sales mix?

a. Profits may decline with an increase in total peso sales if the sales mix shifts to
sell more of the high contribution margin product.
b. Profits may decline with an increase in total peso sales if the sales mix shifts to
sell more of the lower contribution margin product
c. Profits will remain constant with an increase in total peso sales if the total sales in
units remains constant.
d. Profits will remain constant with a decrease in total peso sales if the sales mix also
remains constant.

11. If fixed costs decrease while variable cost per unit remains constant, the contribution
margin will be
a. unchanged c. lower
b. higher d. indeterminate

12. The margin of safety would be negative if a company('s)

a. was presently operating at a volume that is below the break-even point.
b. present fixed costs were less than its contribution margin.
c. Variable costs exceeded its fixed costs.
d. degree of operating leverage is greater than 100.

13. A company using very tight (high) standards in a standard cost system should expect
that
a. no incentive bonus will be paid
b. most variances will be unfavorable
c. employees will be strongly motivated to attain the standards
d. costs will be controlled better than if lower standards were used

14. For fixed manufacturing overhead, there is no

a. spending variance c. flexible-budget variance
b. efficiency variance d. production-volume variance

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15. A favorable fixed overhead volume variance for a manufacturing company could
indicate
a. the creation of excess inventory.
b. the actual overhead exceeded the budgeted overhead.
c. sales exceeded production.
d. variable overhead costs were less than fixed overhead costs.

16. The flexible budget contains

a. budgeted amounts for actual output.
b. budgeted amounts for planned output.
c. actual costs for actual output.
d. actual costs for planned output.

17. What is the effect on manager’s bonus if it is tied to operating income using variable
costing and absorption costing respectively?

a. INCREASE INCREASE
b. DECREASE DECREASE
c. NO EFFECT INCREASE
d. INCREASE NO EFFECT

18. Using absorption costing, fixed manufacturing overhead costs are best described as
a. Direct period costs. c. Direct product costs.
b. Indirect period costs. d. Indirect product costs.

19. __________ method(s) expense(s) variable marketing costs in the period incurred.
a. Variable costing
b. Absorption costing
c. Throughput costing
d. All of these answers are correct.

20. Both Company Y and Company Z produce similar products that need negligible
distribution costs. Their assets operation and accounting are very similar in all
respects except that Company Y uses direct costing and Company Z uses absorption
costing.
a. Co. Y would report a higher inventory value than Co. Z for the years in which
production exceeds sales
b. Co. Y would report a higher inventory value than Co. Z for the years in which
production exceeds the normal or practical capacity
c. Co. Z would report a higher inventory value than Co. Y for the years in which
production exceeds sales
d. Co. Z would report a higher net income than Co. Y for the years in which production
equals sales

21. The decision to employ a resource in a specific way implies giving up the returns from
other possible uses of the same resource. Such returns are considered costs of the
alternative chosen as they are profits of the alternative forgone. These costs must be
evaluated by the decision-maker and they are called
a. Opportunity costs c. Standard costs
b. Incremental costs d. Manufacturing costs

22. The following items are the same for the flexible budget and the master budget except
a. the same variable cost per unit.
b. the same total fixed costs.
c. the same units sold.

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d. the same sales price per unit.

23. Each organization plans and budgets its operations for slightly different reasons. Which
one of the following is not a significant reason for planning?
a. Providing a basis for controlling operations.
b. Forcing managers to consider expected future trends and conditions.
c. Ensuring profitable operations.
d. Checking progress toward the objectives of the organization.

24. A firm develops an annual cash budget in order to

a. Support the preparation of its cash flow statement for the annual report.
b. Ascertain which capital expenditure projects are feasible and which capital
expenditure projects should be deferred.
c. Determine the opportunity costs of alternative sales and production strategies.
d. Avoid the opportunity costs of noninvested excess cash and minimize the cost of
interim financing.

25. Which of the following represents the normal sequence in which the indicated budgets
are prepared?
a. Direct Materials, Cash, Sales
b. Production, Cash, Income Statement
c. Sales, Balance Sheet, Direct Labor
d. Production, Manufacturing Overhead, Sales

26. ROI is most appropriately used to evaluate the performance of:

a. cost center managers.
b. revenue center managers.
c. profit center managers.
d. investment center managers.

27. Which of the following ratios would be least helpful in appraising the liquidity of current
assets?
a. Accounts Receivable turnover
b. Current Ratio
c. Days’ sales in inventory
d. Days’ sales in accounts receivable

28. Which of the following is an inventory cushion against delivery problems?

a. Anticipation inventory c. Theoretical inventory
b. Safety stock d. Transit stock

29. Which of the following is not a capital component when calculating the weighted
average cost of capital (WACC) for use in capital budgeting?
a. Long-term debt. d. Common stock.
b. Accounts payable. e. None of the above
c. Retained earnings.

30. The discount rate that equates the present value of the expected cash flows with the
cost of the investment is the
a. Net present value
b. Accounting rate of return
c. Internal rate of return
d. Payback period.

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31. Dwarf Company currently leases a delivery truck from David Enterprises for a fee of
P25,000 per month plus P40 per mile. Management is evaluating the desirability of
switching to a modern, fuel-efficient truck, which can be leased from Goliath, Inc., for
a fee of P60,000 per month plus P5 per mile. All operating costs and fuel are included
in the rental fees. In general, a lease from
a. Goliath, Inc., is economically preferable to a lease from David Enterprises regardless
of the monthly use.
b. David Enterprises is economically preferable below 1,000 miles per month.
c. David Enterprises is economically preferable to a lease from Goliath, Inc.,
regardless of the monthly use.
d. David Enterprises is economically preferable above 1,000 miles per month.

32. The following summations are available:

Sum of hours 860
Sum of costs 4,120
Sum of hours x cost 890,000
Sum of hours squared 187,000
Number of months analyzed 4

Using the “least squares method” for splitting a semi-variable cost, what is the
variable rate per hour?

Variable rate per hour Fixed cost

a. P3 P500
b. P2 P600
c. P2 P500
d. P4 P600

33. Fixed cost per unit is P9 when 20,000 units are produced and P6 when 30,000 units
are produced. What is the total fixed cost when nothing is produced?
a. P120,000
b. P270,000
c. P15
d. P180,000
e. P0

34. Northridge, Inc., uses the high-low method to analyze cost behavior. The company
observed that at 20,000 machine hours of activity, total maintenance costs averaged
P10.50 per hour. When activity jumped to 24,000 machine hours, which was still within
the relevant range, the average total cost per machine hour was P9.75. On the basis
of this information, the company's fixed maintenance costs were:
a. P24,000 c. P210,000
b. P90,000 d. P234,000

35. Domino Company’s operating percentages were as follows:

Revenues 100%
Cost of goods
sold
Variable 50%
Fixed 10% 60%
Gross profit 40%
Other operating
expenses
Variable 20%

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EXCEL PROFESSIONAL SERVICES, INC.

Fixed 15% 35%

Operating 5%
income

Domino’s sales totaled P2 million. At what revenue level would Domino break-even?
a. P1,900,000 c. P1,250,000
b. P1,666,667 d. P 833,333

36. Levina Corporation had sales of P120,000 for the month of May. It has a margin of
safety ratio of 25 percent, and an after-tax return on sales of 9 percent. The company
assumes its sales being constant every month. If the tax rate is 40 percent, how much
is the monthly fixed cost?
a. P54,000 c. P32,400
b. P648,000 d. P388,800 NASA TAAS YUNG SOLITION

37. Larz Company produces a single product. It sold 25,000 units last year with the
following results:

Sales P625,000
Variable costs P375,000
Fixed costs 150,000 525,000
Net income before P100,000
taxes
Income taxes 40,000
Net income P 60,000

In an attempt to improve its product in the coming year, Larz is considering replacing
a component part in its product that has a cost of P2.50 with a new and better part
costing P4.50 per unit. A new machine will also be needed to increase plant capacity.
The machine would cost P18,000 with a useful life of 6 years and no salvage value. If
Larz wishes to maintain the same contribution margin ratio after implementing the
changes, what selling price per unit of product must it charge next year to cover the
increase in material costs?
a. P27.00 c. P32.50
b. P25.00 d. P28.33

38. The following information pertains to the Duffy Company’s three products:
A B C
Unit sales per year 500 800 500
Selling price per unit P3.00 P4.00 P3.00
Variable costs per unit 1.20 3.00 3.30
Unit contribution margin P1.80 P1.00 P(0.30)
Contribution margin ratio 60% 25% (10)%

Assume that the selling price of product C is increased to P3.50 with a reduction in
annual sales to 350 units. Annual profits will
a. increase by P45. c. increase by P150.
b. increase by P70. d. increase by P220.

39. Tomas Corporation produces skincare products for men and women. An incredibly
smooth moisturizing cream has come to the market that the company is anxious to
produce and sell. Enough capacity exists in the company’s plant to produce 40,000
units of the cream each month. Variable costs to manufacture and sell one unit would
be P3.50, and fixed costs associated with the cream would total P340,000 per month.
The company’s Marketing Department predicts that demand for the new cream will

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exceed the 40,000 units that the company is able to produce. Additional manufacturing
space can be rented from another company at a fixed cost of P14,000 per month.
Variable costs in the rented facility would total P4.00 per unit, due to somewhat less
efficient operations than in the main plant. The new cream will sell for P12.00 per unit.
The monthly break-even point for the new cream in units is:
a. 41,750 d. 43,111
b. 41,647 e. 44,250
c. 40,000

40. Gardiner Furniture Company produces two kinds of chairs: an oak model and a
chestnut wood model. The oak model sells for P60 and the chestnut wood model sells
for P100. The variable expenses are as follows:

Oak Chestnut
Variable production costs per unit P30 P35
Variable selling & admin. expenses per 6 5
unit

Expected sales in units next year are: 5,000 oak chairs and 1,000 chestnut chairs.
Fixed expenses are budgeted at P135,000 per year. The company's overall
contribution margin ratio for the expected sales mix is:
A. 40%. C. 50%.
B. 45%. D. 60%.

41. The following information relates to Yellow Corporation:

Sales at the break-even point P312,500
Total fixed expenses P250,000
Net operating income P150,000
What is Yellow's margin of safety?
a. P62,500 c. P100,000
b. P187,500 d. P212,500

42. Recent economic conditions are forcing Mega Corporation to drop its price from P50 to
P40 per unit, but the company expects its sales to rise from 600,000 to 750,000 units.
The company's current cost of production is P38 per unit. Suppose Mega Corporation
would like to maintain a 16% target operating income on its sales revenue. To achieve
this target, the company must lower its cost of production by:
a. P2.00 per unit
b. P33.60 per unit
c. P4.40 per unit
d. P6.40 per unit

43. The most recent income statement for OPMACO COMPANY appears below:

OPMACO Company
Income Statement
For the Year Ended December 31
Sales [45,000 units @ P10] P450,000
Less: Cost of goods sold
Direct materials P90,000
Direct labor 78,300
Manufacturing overhead 98,500 266,800
Gross margin 183,200
Less: Operating expenses

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Selling expenses:
Variable:
Commissions P27,000
Shipping 5,400 32,400
Fixed advertising and 120,000
salaries
Administrative:
Variable 1,800
Fixed 48,000 202,200
Net loss P(19,000)

All variable expenses in the company vary in terms of unit sold, except for sales
commissions, which are based on peso sales. Variable manufacturing overhead is
P0.30 per unit. There was no beginning or ending inventories. OPMACO Company’s
plant has a capacity of 75,000 units per year. The company has been operating at a
loss for several years. Management is studying several possible courses of action to
determine what should be done to make next year profitable.

The company has been approached by an overseas distributor who wants to purchase
9,500 units on a special price basis. There would be no sales commission on these
units. However, shipping costs would be increased by 50% and variable administrative
costs would be reduced by 25%. In addition, a P5,700 special insurance fee would
have to be paid by OPMACO Company to protect the goods in transit. Regular business
would not be disturbed by this special order. What unit price would have to be quoted
on the 9,500 units by OPMACO Company to allow the company to earn a profit of
P14,250 on total operations?
a. P8.35 c. P7.35
b. P6.35 d. P9.35

44. Noli Company applies overhead on a direct labor hour basis. Each unit of product
requires 5 direct labor hours. Overhead is applied on a 30 percent variable and 70
percent fixed basis; the overhead application rate is P16 per hour. Standards are
based on a normal monthly capacity of 5,000 direct labor hours. During September,
Noli produced 1,010 units of product and incurred 4,900 direct labor hours. Actual
overhead cost for the month was P80,000. What is budgeted fixed overhead cost for
the month?
a. P56,000 c. P56,560
b. P672,000 d. P678,720

45. The following direct manufacturing labor information pertains to the manufacture of
Product B.
Time required to make one unit 2 direct labor hours
Number of direct workers 50
Number of productive hours per week, per worker 40
Weekly wages, per worker P500
Workers’ benefits treated as direct manufacturing labor costs20% of wages
What is the standard direct manufacturing labor cost per hour?
a. P30 c. P24
b. P15 d. P12

46. JKL Co. has total budgeted fixed costs of P75,000. Actual production of 19,500 units
resulted in a P3,000 favorable volume variance. What normal capacity was used to
determine the fixed overhead rate?
a. 18,750 c. 17,590
b. 20,313 d. 16,500

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47. Smith Company uses a standard cost system. The following information pertains to
direct labor costs for the month of June.
Standard direct labor rate per hour P10.00
Actual direct labor rate per hour P9.00
Labor rate variance P12,000 favorable
Actual output 2,000 units
Standard hours allowed for actual production 10,000 hours
How many actual labor hours were worked during March for Smith Company?
a. 10,000 d. 12,000
b. 2,000 e. 1,000
c. 1,200

48. Paw-Paw Products produces and sells flannel covered dog beds. In the current year,
Paw-Paw had expected to sell 8,000 beds but actually produced and sold 8,500 beds.
The following information is available regarding the standard cost to produce a single
dog bed:
Direct materials: 5 yards at P1.50 per yard
Direct labor: 40 minutes at P.20 per minute
In the current year, 44,000 yards of material were purchased and used at a cost of
P1.60 per yard and 365,500 direct labor minutes were incurred at a cost of P.23 per
minute. The company's direct labor efficiency variance for the current year was:
a. P5,100 U c. P5,865 F
b. P9,100 U d P20,065 F

49. Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct labor
hours were budgeted. If the fixed overhead volume variance was P12,000 favorable
and the fixed overhead spending variance was P16,000 unfavorable, fixed
manufacturing overhead applied must be
a. P516,000 c. P512,000
b P488,000 d. P496,000

50. Mayo Company that uses standard cost system in accounting for the cost of production
of its only product, Product A, had the following standards:

Direct materials 10 feet of Rubber at P0.75 per foot and 3 feet of Wood
at P1 per foot.
Direct labor 4 hours at P3.50 per hour
Overhead Applied at 150% of standard direct labor costs.

There was no inventory on hand at the beginning of the year. Materials price variances
are isolated at the time of recording the purchase. Following is a summary of costs
and related data for the production of Product A during the year:

100,000 feet of Rubber were purchased at P0.78 per foot.

30,000 feet of Wood were purchased at P0.90 per foot.
8,000 units of Product A were produced which required 78,000 feet of Rubber;
26,000 feet of Wood; and 31,000 hours of direct labor at P3.60 per hour.
6,000 units of Product A were sold.

If all standard variances are prorated to inventories and cost of goods sold, the amount
of material usage variance for Wood to be prorated to raw materials inventory would
be
a. P500 debit c. P333 debit
b. P333 credit d. P0

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51. The Glass Shop, a manufacturer of large windows, is experiencing a bottleneck in its
plant. Setup time at one of its workstations has been identified as the culprit. A
manager has proposed a plan to reduce setup time at a cost of P72,000. The change
will result in 8,000 additional windows. The selling price per window is P18, direct labor
costs are P3 per window, and the cost of direct materials is P5 per window. Assume
all units produced can be sold. The change will result in an increase in the throughput
contribution of:
a. P104,000
b. P80,000
c. P32,000
d. P8,000

52. A company had an income of P50,000 using direct costing for a given month.
Beginning and ending inventories for the month are 13,000 units and 18,000 units,
respectively. Ignoring income tax, if the fixed overhead application rate was P2 per
unit, what was the income using absorption costing?
a. P40,000 c. P60,000
b. P50,000 d. P70,000

53. Highland Corp. uses a standard cost system. The standard cost per unit of one of its
products are as follows:
Direct Materials P5.00
Direct labor 8.00
Factory overhead
Variable 4.00
Fixed (based on a normal capacity of 3.00
10,000 units)
Total 20.00

Beginning inventory 4,000 units

Production 9,000 units
Units sold (selling price P60) 10,000 units

Actual costs:
Direct materials P 53,000
Direct labor 75,000
Variable overhead 38,000
Fixed overhead 32,000
Variable selling and administrative 48,000
Fixed selling and administrative 60,000

Variances are closed to cost of sales monthly. How much are the net income under
absorption costing and variable costing methods?
Absorption Variable
a. P277,000 P274,000
b. 143,000 144,000
c. 144,000 142,000
d. 274,000 277,000

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54. The Chip Division of Supercomp Corp. produces a high-quality computer chip. Unit
production costs (based on capacity production of 100,000 units per year) follow:
Direct material P50
Direct labor 20
Overhead (20% variable) 10
Other information:
Sales price 100
SG&A costs (40% variable) 15
Assume that the Chip Division is producing and selling at capacity. What is the
minimum selling price that the division would consider on a "special order" of 1,000
chips on which no variable period costs would be incurred?
a. P100 c. P81
b. P72 d. P94

Use the following information for the next two questions.

Berol Company, which plans to sell 200,000 units of finished product in July and
anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory
in units of finished product is 80% of the next month's estimated sales. There are 150,000
finished units in inventory on June 30. Each unit of finished product requires 4 pounds of
direct materials at a cost of P1.20 per pound. There are 800,000 pounds of direct materials
in inventory on June 30.

55. Berol Company's production requirement in units of finished product for the 3-month
period ending September 30 is
a. 712,025 units. c. 638,000 units.
b. 630,500 units. d. 665,720 units.

56. Assume Berol Company plans to produce 600,000 units of finished product in the 3-
month period ending September 30, and to have direct materials inventory on hand
at the end of the 3-month period equal to 25% of the use in that period. The estimated
cost of direct materials purchases for the 3-month period ending September 30 is
a. P2,200,000. c. P2,640,000.
b. P2,400,000 d. P2,880,000.

Use the following information for the next three questions.

The company starts the month of October with following account balances.

Cash P26,000
Accounts receivable 80,000
Prepaid expenses 12,000
Merchandise inventory 30,000
Accounts payable 50,000
Accrued expenses 8,000

The company expected to have prepaid expenses of P20,000 and accrued expenses,
P12,000 by October 31.

The budgeted sales, all on credit, and purchases for the month are P400,000 and
P280,000, respectively. Operating expenses to be recognized during October are
P115,000. Sales are uniformly collected, 60% during the month of sales and the remainder
the following month. Accounts payable on purchase of merchandise is paid 50 percent at
month of purchase and the other half in the first month.

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57. The amount of cash from sales is

a. P240,000 c. P288,000
b. P320,000 d. P272,000

58. The accounts payable on purchase of goods to be paid during October is

a. P190,000 c. P218,000
b. P140,000 d. P162,000

59. Total cash disbursements for October are

a. P301,000 c. P325,000
b. P309,000 d. P305,000

60. The following information is available for the Gabriel Products Company for the month
of July:
Static Budget Actual
Units 5,000 5,100
Sales revenue P60,000 P58,650
Variable manufacturing costs P15,000 P16,320
Fixed manufacturing costs P18,000 P17,000
Variable marketing and administrative expenseP10,000 P10,500
Fixed marketing and administrative expense P12,000 P11,000
The total sales-volume variance for the month of July would be
a. P2,550 U c. P700 F
b. P1,350 U d. P100 F

61. Sales for Kallas Company, a retail store, were P300,000. Net operating income totaled
P50,000 and cost of goods sold was P132,000. If Kallas Company's contribution margin
equals P120,000, total variable selling and administrative expenses must equal:
a. P70,000. c. P118,000.
b. P180,000. d.P48,000.

62. A company manufactures a single product for its customers by contracting in advance
of production. Thus, the company produces only units that will be sold by the end of
each period. For the last period, the following data were available:
Sales P40,000
Direct materials 9,050
Direct labor 6,050
Rent (9/10 factory, 1/10 office) 3,000
Depreciation on factory equipment 2,000
Supervision (2/3 factory, 1/3 office) 1,500
Salespeople’s salaries 1,300
Insurance (2/3 factory, 1/3 office) 1,200
Office supplies 750
Advertising 700
Depreciation on office equipment 500
Interest on loan 300
The gross profit margin percentage (rounded) was
a. 34% c. 44%
b. 41% d. 46%

63. Brown & Sons recently reported sales of P100 million, and net income equal to1 P5
million. The company has P70 million in total assets. Over the next year, the company
is forecasting a 20 percent increase in sales. Since the company is at full capacity, its
assets must increase in proportion to sales. The company also estimates that if sales

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increase 20 percent, spontaneous liabilities will increase by P2 million. If the company’s

sales increase, its profit margin will remain at its current level. The company’s dividend
payout ratio is 40 percent. Based on the AFN formula, how much additional capital must
the company raise in order to support the 20 percent increase in sales?
a. P 2,000,000 c. P 8,400,000
b. P 6,000,000 d. P 9,600,000

64. A hospital records the number of floral deliveries its patients receive each day. For a
one-week period, the records show the following deliveries.
Day Number Deliveries
1 15
2 27
3 26
4 24
5 18
6 21
7 26
Using exponential smoothing with a smoothing constant of 0.4 to forecast the number
of deliveries, calculate the forecast of deliveries in the third day. Assume the forecast
for day 1 are 15 deliveries.
a. 19.8 c. 26.4
b. 22.2 d. 26.6

65. Division X makes a part that it sells to customers outside of the company. Data
concerning this part appear below:

Selling price to outside customers P75

Variable cost per unit P50
Total fixed costs P400,000
Capacity in units 25,000

Division Y of the same company would like to use the part manufactured by Division
X in one of its products. Division Y currently purchases a similar part made by an
outside company for P70 per unit and would substitute the part made by Division X.
Division Y requires 5,000 units of the part each period. Division X can already sell all
of the units it can produce on the outside market. What should be the lowest
acceptable transfer price from the perspective of Division X?
a. P75 c. P16
b. P66 d. P50

66. Vest Industries manufactures 40,000 components per year. The manufacturing cost
of the components was determined as follows:
Direct materials P 75,000
Direct labor 120,000
Variable manufacturing
45,000
overhead
Fixed manufacturing
60,000
overhead
Total P300,000
An outside supplier has offered to sell the component for P12.75. What is the effect
on income if Vest Industries purchases the component from the outside supplier?
a. P270,000 decrease
b. P270,000 increase
c. P30,000 decrease
d. P30,000 increase

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EXCEL PROFESSIONAL SERVICES, INC.

67. The following information is available for ABC Company.

Current ratio 3.5
Acid test ratio 3.0
Inventory turnover 8.0
Year-end current liabilities P600,000
Beginning inventory P500,000
How much is the cost of sales during the year?
a. P1,600,000 c. P2,400,000
b. P3,200,000 d. P6,400,000

68. The following information pertains to material X that is used by Sage Co.:
Annual usage in units 20,000
Working days per year 250
Safety stock in units 800
Normal lead time in working 30
days
Units of material X will be required evenly throughout the year. The order point is
a. 800 c. 2,400
b. 1,600 d. 3,200

69. Brown, Inc. has an outstanding issue of perpetual preferred stock with an annual
dividend of P7.50 per share. If the required return on this preferred stock is 6.5%, at
what price should the stock sell?
a. P104.27 c. P109.69
b. P106.95 d. P115.38

70. CC Company invested in a project which required an investment of P10,000 with a

salvage value of P1,000 at the end of its 3 year life. The annual net income after
income taxes are as follows:
Year 1 P3,000
2 4,800
3 7,200
What is the payback period?
a. 1.385 yrs. c. 1.513 yrs
b. 1.487 yrs. d. 1.897 yrs.

End of Examination
(Pleases ignore the extra answer options in the answer sheet after number 70)

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