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PHILIPPINE CHRISTIAN UNIVERSITY

MASTER IN MANAGEMENT
SUBJECT: MANAGEMENT ACCOUNTING
PROF. MARIA TERESA R. ARMADA

NAME: ______________________________________ COURSE: _____________________


AGENCY/OFFICE ADDRESS: ______________________________________________________
CONTACT NUMBER: ___________________________________________________________

PART 1. Multiple Choice Test.


To test your working knowledge of management accounting terms
and principles please encircle the correct answer.

1. ABC Co. performed services for Client Kay in December and billed Kay P4,000 with
terms of net 30 days. ABC follows the accrual basis of accounting. In January ABC
received the P4,000 from Kay. In January ABC will debit Cash, since cash was received.
What account should ABC credit in the January entry?
a. Accounts Receivable

b. Service Revenue

c. Owner's Equity

2. ABC Co. follows the accrual basis of accounting and performs a service on account (on
credit) in December. The service was billed at the agreed upon amount of P3,500. ABC Co.
debited Accounts Receivable for P3,500 and credited Service Revenue for P3,500. The effect of
this entry on the balance sheet of ABC is to increase assets by P3,500 and to
a. Decrease Assets By P3,500

b. Increase Owner's (Stockholders') Equity By P3,500


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3. The following data (in thousands of dollars) have been taken from the accounting records of
Casey Corporation for the just completed year.
Administrative expense $ 300

Direct labor 400

Finished goods inventory, beginning 240

Finished goods inventory, ending 320

Manufacturing overhead 460

Purchases of raw material 240

Raw materials inventory, beginning 80


Raw materials inventory, ending 140

Sales 1,980

Selling expense 280

Work in process inventory, beginning 140

Work in process inventory, ending 100


The cost of the raw materials used in production during the year (in thousands of dollars) was:
A)$180.

B)$300.

C)$320.

D)$380.

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4. The following data (in thousands of dollars) have been taken from the accounting records
of Casey Corporation for the just completed year. (Note that this is the same data as that
provided for the question above.)
Administrative expense $ 300

Direct labor 400

Finished goods inventory, beginning 240

Finished goods inventory, ending 320

Manufacturing overhead 460

Purchases of raw material 240

Raw materials inventory, beginning 80

Raw materials inventory, ending 140

Sales 1,980

Selling expense 280

Work in process inventory, beginning 140

Work in process inventory, ending 100


The cost of goods manufactured (finished) for the year (in thousands of dollars) was:
a. $1,000.
b. $1,040.
c. $1,080.
d. $1,180.

5. The following data (in thousands of dollars) have been taken from the accounting records
of Casey Corporation for the just completed year. (Note that this is the same data as that
provided for the question above.)
Administrative expense $ 300

Direct labor 400

Finished goods inventory, 240


beginning

Finished goods inventory, 320


ending

Manufacturing overhead 460

Purchases of raw material 240

Raw materials inventory, 80


beginning

Raw materials inventory, ending 140

Sale 1,980

Selling expense 280

Work in process inventory, 140


beginning

Work in process inventory, 100


ending
The cost of goods sold for the year (in thousands of dollars) was:

$1,000.
A)
$1,160.
B)
$1,320.
C)
$1,400.
D)
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6. The following data (in thousands of dollars) have been taken from the accounting
records of Casey Corporation for the just completed year. (Note that this is the same data
as that provided for the question above.)
Administrative expense $ 300

Direct labor 400

Finished goods inventory, 240


beginning

Finished goods inventory, 320


ending

Manufacturing overhead 460

Purchases of raw material 240

Raw materials inventory, 80


beginning

Raw materials inventory, ending 140

Sales 1,980

Selling expense 280

Work in process inventory, 140


beginning

Work in process inventory, 100


ending
The net income for the year (in thousands of dollars) was:
10
$300.
A)

$400.
B)

$500.
C)

$980.
D)

1 7. Carrington Company produces a product that sells for $60. Variable manufacturing costs are $30
per unit. Fixed manufacturing costs are $10 per unit based on the current level of activity, and
fixed selling and administrative costs are $8 per unit. A selling commission of 10% of the selling
price is paid on each unit sold. The contribution margin per unit is:

A) $24.

B) $30.

C) $36.

D) $54.
2 8. A company has provided the following data:
Sales 6,000 units

Sales price $100 per unit

Variable cost $50 per unit

Fixed cost $150,000


If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%,
and all other factors remain the same, net income will:

A) decrease by $30,000.

B) increase by $30,000.

C) increase by $60,000.

D) increase by $210,000.

4 9. The following is Montague Corporation's contribution format income statement for last
month:
Sales $2,000,000

Less variable expenses 1,400,000

Contribution margin 600,000

Less fixed expenses 360,000

Net income $ 240,000


The company has no beginning or ending inventories. A total of 40,000 units were produced
and sold last month. What is the company's contribution margin ratio?

A) 30%

B) 70%

C) 150%

D) 250%

5 10. The following is Montague Corporation's contribution format income statement for last
month:
Sales $2,000,000

Less variable expenses 1,400,000

Contribution margin 600,000

Less fixed expenses 360,000

Net income $ 240,000


The company has no beginning or ending inventories. A total of 40,000 units were produced
and sold last month. (Note that this is the same data as provided in the previous question.)
What is the company's break-even in units?

A) 0 units

B) 24,000 units

C) 36,000 units

D) 40,000 units

9 11. The following is Montague Corporation's contribution format income statement for last month:
Sales $2,000,000

Less variable expenses 1,400,000

Contribution margin 600,000

Less fixed expenses 360,000

Net income $ 240,000


The company has no beginning or ending inventories. A total of 40,000 units were produced and
sold last month. (Note that this is the same data as provided in the previous question.) What is the
company's degree of operating leverage?

0.12
A)

0.4
B)

2.5
C)

3.3
D)

12. ABC Co. has current assets of P50,000 and total assets of P150,000. ABC has current
liabilities of P30,000 and total liabilities of P80,000. What is the amount of ABC's owner's
equity?
a. P20,000

b. P30,000

c. P70,000

d. P120,000
3 13. The Empire Corporation has 2,000 obsolete units of a product that are carried in inventory at a
manufacturing cost of $40,000. If the units are remachined for $10,000, they could be sold for
$18,000. Alternatively, the units could be sold for scrap for $2,000. Which alternative is more
desirable and what are the total relevant costs for that alternative?

A)remachine; $10,000.

B)remachine; $50,000.
C)scrap; $40,000.

D)scrap; $40,000.

14.
1145 should
A study has been conducted to determine if one of the departments of Lucy Company
be discontinued. The contribution margin in the department is $100,000 per year.
Fixed expenses charged to the department are $130,000 per year. It is estimated that
$80,000 of these fixed expenses could be eliminated if the department is discontinued.
These data indicate that if the department is discontinued, Lucy's overall net operating
income would:

decrease by $20,000 per year.


A)

increase by $20,000 per year.


B)

decrease by $50,000 per year.


C)

increase by $50,000 per year.


D)

6 15. Brown Company produces 2,000 parts per year, which are used in the assembly of one
of its products. The unit product cost of these parts is:
Variable manufacturing cost $24

Fixed manufacturing cost 18

Unit product cost $42


The part can be purchased from an outside supplier at $40 per unit. If the part is purchased
from the outside supplier, two thirds of the fixed manufacturing costs can be eliminated.
The annual impact on Brown's net operating income as a result of buying the part from the
outside supplier would be:

$4,000 increase.
A)

$4,000 decrease.
B)

$8,000 increase.
C)

$8,000 decrease.
D)

3 16. The preference rule for ranking projects by the profitability index is:
A) The higher the profitability index, the more desirable the project.

B) The lower the profitability index, the more desirable the project.

C) The higher the sunk cost, the more desirable the project.
D) The lower the sunk cost, the more desirable the project.

4 17. Which of the following statements are true?


The payback period is the length of time it takes for an investment to recoup its
A) own initial cost out of the cash receipts it generates.
Projects with shorter payback periods are always more profitable than projects
B) with longer payback periods.
The payback method of making capital budgeting decisions gives full
C) consideration to the time value of money.
If new equipment is replacing old equipment, any salvage received from sale of
D) the old equipment should not be considered in computing the payback period of
the new equipment.

18. Parker Company is considering the following investment proposals:


Investment Proposal
A B C D
Investment required $80,000 $100,000 $60,000 $75,000
Present value of future net cash flows 96,000 150,000 84,000 120,000
How should management rank the proposals in terms of preference using the profitability index?

D, B, C, A.
A)

B, D, C, A.
B)

B, D, A, C.
C)

A, C, B, D.
D)

19. The following data pertain to an investment that is being considered by the management of
Caillabotte Company:
Cost of the investment $37,910

Life of the project 5 years

Annual cost savings $ 10,000

Estimated salvage value $ 2,000

Discount rate 10%


The net present value of the proposed investment is:

($6,860).
A)

$-0-.
B)

$1,242.
C)

$6,710.
D)
20. Simmons Company has gathered the following data on a proposed investment project:
Investment required in equipment $400,000

Annual cash inflows $80,000

Salvage value $-0-

Life of the investment 10 years

Discount rate 10%


The net present value on this investment is closest to:

$(96,720).
A)

$80,000.
B)

$91,600.
C)

$491,600.
D)

*** NOTHING FOLLOWS***