ACR 107

Management Advisory Services Review

04-06 February 2019
Question 1
Management accounting includes:
A. implementing strategies
B. developing budgets
C. preparing special studies and forecasts
D. All of these answers are correct.
Answer 1
Question 2
Which of the following is NOT one of the
questions management accountants might
attempt to help answer in the formulation of
strategy?
A. Who are our most important customers?
B. What substitute products exist in the
marketplace?
C. Does the strategy comply with IFRS/GAAP?
D. Will adequate cash be available to implement
the strategy?
Answer 2
Question 3
The balanced scorecard perspective that focuses
on using a firm’s intellectual capital to adapt to
customer needs through product or service
innovations is the:
A. learning and growth perspective
B. internal business perspective
C. customer value perspective
D. financial perspective
Answer 3
Question 4
Which of the following statements regarding fixed
costs is incorrect?
A. Expressing fixed costs on a per unit basis usually is
the best approach for decision making.
B. Fixed costs expressed on a per unit basis will react
inversely with changes in activity.
C. Assumptions by accountants regarding the
behavior of fixed costs rest heavily on the concept of
the relevant range.
D. Fixed costs frequently represent long-term
investments in property, plant, and equipment.
Answer 4
Question 5
The term differential cost refers to:
A. a difference in cost which results from selecting
one alternative instead of another.
B. the benefit forgone by selecting one alternative
instead of another.
C. a cost which does not entail any peso outlay but
which is relevant to the decision-making
process.
D. a cost which continues to be incurred even
though there is no activity.
Answer 5
Question 6
What happens to total costs if the activity level
increases 10%?
a. They remain the same.
b. They increase by less than 10%.
c. They decrease by less than 10%.
d. They increase 10%.
Answer 6
Question 7
What type of information does the high-low
method usually produce?
a. A reasonable estimate of variable and
fixed costs
b. A very precise estimate of the behavior
of the costs
c. A very conservative estimate of costs
for analysis purposes
d. An exact calculation of variable and
fixed costs to be incurred
Answer 7
Question 8
Which cost is most likely to be committed?
a. Repairs and maintenance.
b. Sum-of-the-years'-digits depreciation on the
factory building.
c. Fee for a consultant on the company's long-
range planning.
d. Advertising.
Answer 8
Question 9
Joseph Davis worked 44 hours last week for
Breakgood Manufacturing. Of the 44 hours 4 hours
were considered overtime, and also Davis was idle
for 5 of the 44 hours due to an equipment
malfunction. Davis makes P20 per hour and is paid
P30 an hour (time and a half) for overtime. Davis’
total compensation for that week would be ___, and
assuming Breakgood charges overtime premium and
idle time to indirect labor, the amount of this
compensation credited to indirect labor would be__.
a. P840; P40 c. P920; P40
b. 840; P140 d. P920; P140
Answer 9
Question 10
Glenwood has an average unit cost of P45 at
20,000 units and P25 at 60,000 units. What is
the total fixed cost?
a. P400,000
b. P600,000
c. P900,000
d. An amount that cannot be determined without
more information.
Answer 10
Question 11
Which concept answers the following question: ‘If
budgeted revenues are above breakeven and
decline, how far can they fall before the
breakeven point is reached?’
a. Contribution margin
b. Relevant range of operations
c. Operating leverage
d. Margin of safety
Answer 11
Question 12
E Company operates a marginal costing system.
For the forthcoming year, variable costs are
budgeted to be 60% of sales value and fixed
costs are budgeted to be 10% of sales.
If E Company increases its selling prices by 10%,
but if fixed costs, variable costs per unit and
sales volume remain unchanged, the effect on E
Company’s contribution would be
a. A decrease of 2% c. an increase of 25%
b. an increase of 10% d. an increase of 66.67%
Answer 12
Question 13
The most likely strategy to reduce the breakeven
point would be to
A. Increase both the fixed costs and the
contribution margin.
B. Decrease both the fixed costs and the
contribution margin.
C. Decrease the fixed costs and increase the
contribution margin.
D. Increase the fixed costs and decrease the
contribution margin.
Answer 13
Question 14
Which of the following is a true statement about sales mix?
A. Profits may decline with an increase in total peso of
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 of
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 of sales if the total sales in units remains constant.
D. Profits will remain constant with a decrease in total
peso of sales if the sales mix also remains constant.
Answer 14
Question 15
Cost-volume-profit analysis is a key factor in many
decisions, including choice of product lines, pricing
of products, marketing strategy, and utilization of
productive facilities. A calculation used in CVP
analysis is the break-even point. Once the break-
even point has been reached operating income will
increase by the
A. Sales price per unit for each additional unit sold.
B. Contribution margin per unit for each additional
unit sold.
C. Fixed cost per unit for each additional unit sold.
D. Gross margin per unit for each additional unit sold.
Answer 15
“Perseverance is not
a long race; it is
many short races
one after another.”
~ Walter Elliot
Question 16
A retail company determines its selling price by
marking up variable costs 60%. In addition, the
company uses frequent selling price markdowns
to stimulate sales. If the markdowns average
10%, what is the company’s contribution margin
ratio?
A. 27.5% B. 30.6% C. 37.5% D. 41.7%
Answer 16
Question 17
During 2018 RPS Corporation supplied hospitals with
a comprehensive diagnostic kit for P120. At a
volume of 80,000 kits, RPS has fixed cost of
P1,000,000 and a profit before income taxes of
P200,000. Due to an adverse legal decision, RPS’s
2018 liability insurance increased by P1,200,000
over 2017. Assuming the volume and other costs are
unchanged, what should be the 2018 price be if RPS
is to make the same P200,000 profit before income
taxes?
A. P135. B. P150. C. P120. D. P240.
Answer 17
Question 18
Planners have determined that sales will increase
by 25% next year, and that the profit margin will
remain at 15% of sales. Which of the following
statements is correct?
A. Profit will grow by 25%.
B. The profit margin will grow by 15%.
C. Profit will grow proportionately faster than
sales.
D. Ten percent of the increase in sales will
become net income.
Answer 18
Question 19
A company has sales of P500,000, variable costs
of P300,000, and pretax profit of P150,000. If
the company increased the sales price per unit
by 10%, reduced fixed costs by 20%, and left
variable cost per unit unchanged, what would be
the new breakeven point in sales pesos?
A. P88,000 C. P110,000
B. P100,000 D. P125,000
Answer 19
Question 20
Wheels Corp. employs 45 sales personnel to market
its sedan cars. The average car sells for P690,000
and a 6% commission is paid to the sales person. It
is considering changing the scheme to a commission
arrangement that would pay each person a package
of P30,000 plus a commission of 2% of the sales
made by the person. The amount of total monthly
car sales at which Wheels Corp. would be indifferent
(answer may be rounded off) as to which plan to
select is
A. P45,000,000 C. P33,750,000
B. P36,500,000 D. P22,500,000
Answer 20
Question 21
Bell Company has a 25% margin of safety. Its
before-tax return on sales is 6%, and its tax rate
is 40%. Assuming that current sales are
P120,000, what is Bell’s total fixed costs.
A. P36,000 C. P84,000
B. P21,600 D. P60,000
Answer 21
Question 22
The sales mix for Dial Enterprise is as follows:
• Product A: 12 units @ P5.25 sales price; P4.85
variable cost per unit.
• Product B: 10 units @ P7.50 sales price; P6.95
variable cost per unit.
• Product C: 6 units @ P12.25 sales price; P10.35
variable cost per unit.
Dial Enterprise's fixed costs are P75,950.
What are the composite break-even point?
A. 98,000 C. 3,500
B. 2,000 D. 4,000
Answer 22
Question 23
Which of the following is not a valid way to adapt
standard cost systems to today's manufacturing
environment?
A. Devote more resources to the tracking of direct
labor cost.
B. Use more non-traditional cost drivers such as
number of setups or number of engineering change
orders.
C. Update standards more frequently to adjust for
the elimination of non-value-added costs.
D. Use additional nonfinancial measures for
performance evaluation and control.
Answer 23
Question 24
Standards that represent levels of operation that
can be attained with reasonable effort are called:
A. Theoretical standards
B. Ideal standards
C. Variable standards
D. Normal standards
Answer 24
Question 25
Variable overhead is applied on the basis of
standard direct labor hours. If, for a given
period, the direct labor efficiency variance is
unfavourable, the variable overhead efficiency
variance will be
a. Favorable
b. Unfavorable
c. Zero
d. The same amount as the labor efficiency
variance
Answer 25
Question 26
The VHO Corporation, which uses a standard costing system, reported
the following cost variance for the most recent month:
• Raw materials price variance U
• Raw materials quantity variance U
• Direct labor rate variance F
• Direct labor efficiency variance U
• Variable overhead spending variance U
• Variable overhead efficiency variance U
• Fixed overhead spending variance U
• Fixed overhead volume (denominator) variance U
What can be concluded from VHO’s variances?
a. Production was below budgeted volume.
b. There was efficient use of raw materials.
c. The company paid a wage rate higher than the standard.
d. Variable overhead usage was inefficient.
Answer 26
Question 27
Hankies Unlimited has a signature scarf for ladies that is very popular.
Certain production and marketing data are indicated below:
• Cost per yard of cloth P36.00
• Allowance for rejected scarf 5% of production
• Yards of cloth needed per scarf 0.475 yard
• Airfreight from supplier P0.60/yard
• Motor freight to customers P0.90 /scarf
• Purchase discounts from supplier 3%
• Sales discount to customers 2%
The allowance for rejected scarf is not part of the 0.475 yard of cloth
per scarf. Rejects have no market value. Materials are used at the
start of production.
Calculate the standard cost of cloth per scarf that Hankies Unlimited
should use in its cost sheets.
A. P16.87 B. P17.76 C. P18.21 D. P17.30
Answer 27
Question 28
Pane Company's direct labor costs for April are as
follows:
• Standard direct labor hours 42,000
• Actual direct labor hours 41,200
• Total direct labor payroll P247,200
• Direct labor efficiency variance – favorable
P3,840
What is Pane's direct labor rate variance?
A. P44,496 U C. P49,440 F
B. P49,440 U D. P50,400 F
Answer 28
Question 29
The manufacturing overhead variances were
determined as follows:
Variable overhead spending variance P 3,500 F
Variable overhead efficiency variance P 4,000 U
Fixed overhead spending variance P 5,000 F
Fixed overhead volume variance P 6,500 U
What is the overhead controllable variance?
a. P500 U c. P4,500 F
b. P1,500 U d. P5,500 U
Answer 29
Question 30
If the operating asset turnover ratio increased by
30 percent and the margin increased by 20
percent, the divisional ROI
a. would increase by 56 percent.
b. would decrease by 60 percent.
c. would increase by 20 percent.
d. cannot be determined.
Answer 30

A
“A gem cannot be
polished without
friction.”
Question 31
Elegance Bath Products, Inc. (EBP) makes a variety of ceramic
sinks and tubs. EBP has just developed a line of sinks and tubs
made from a mixture of glass and ceramic. The sinks sell for
P150 each and have variable costs of P80. The tubs sell for
P600 and have variable cost of P450. The glass and ceramic
sinks and tubs require the use of specialized molding
equipment. The specialized molding equipment has 4,050
hours of capacity per year. A sink uses an average of 2 hours
of specialized molding equipment time; a tub uses an average
of 5 hours of specialized molding equipment time.
Assume that EBP can sell as many as 1,000 sinks and 500 tubs
per year. How many tubs should EBP produce?
a. 1,000 b. 500 c. 410 d. 675
Answer 31

C
Question 32
Autry Company manufactures veterinary products. One joint
process involves refining a chemical (dactylyte) into two
chemical, dac and tyl. One batch of 5,000 gallons of dactylyte
can be converted to 2,000 gallons of dac and 3,000 gallons of
tyl at a total joint processing cost of P12,000. At the split off
point, dac can be sold for P3 per gallon and tyl can be sold for
P4 per gallon. Autry has just learned of a new process to
convert dac into prodac. The new process costs P4,000 and
yields 1,700 gallons of prodac for every 2,000 gallons of dac.
Prodac sells for P5 per gallon. Should Autry process dac
further?
a. No, income will be P1,500 lower
b. No, income will be P5,000 lower
c. Yes, income will be P1,500 higher
d. Yes, income will be P5,000 higher
Answer 33

A
Question 34
Helton Company has the following information for the current year:
Beginning fixed manufacturing overhead in inventory P95,000
Fixed manufacturing overhead in production 375,000
Ending fixed manufacturing overhead in inventory 25,000
Beginning variable manufacturing overhead in inventory P10,000
Variable manufacturing overhead in production 50,000
Ending variable manufacturing overhead in inventory 15,000
What is the difference between operating incomes under absorption
costing and variable costing?
a. P70,000 b. P50,000 c. P40,000 d. P5,000
Answer 34

A
Question 35
Grant's Kitchens is approached by Ms. Tammy Wang, a new customer, to
fulfill a large one-time-only special order for a product similar to one
offered to regular customers. The following per unit data apply for sales to
regular customers:
Direct materials P 455
Direct labor 300
Variable manufacturing support 45
Fixed manufacturing support 100
Total manufacturing costs 900
Markup (60%) 540
Targeted selling price P1440
Grant's Kitchens has excess capacity. Ms. Wang wants the cabinets in cherry
rather than oak, so direct material costs will increase by P30 per unit. For
Grant's Kitchens, what is the minimum acceptable price of this one-time-
only special order?
a. P830 b. P930 c. P 785 d. 1,440
Answer 35

C
Question 36
Springfield Corporation, whose tax rate is 40%, has two sources
of funds: long-term debt with a market value of P8,000,000
and an interest rate of 8%, and equity capital with a market
value of P12,000,000 and a cost of equity of 12%. Springfield
has two operating divisions, the Blue division and the Gold
division, with the following financial measures for the current
year:
Total Assets Current Liabilities Optg Income
Blue Div. P9,500,000 P2,800,000 P1,055,000
Gold Div. P11,000,000 P2,200,000 P1,200,000
What is Economic Value Added (EVA) for the Blue Division?
a. (P233,400 ) c. P188,600
b. P21,960 d. P433,960
Answer 36

B
Question 37
The UNIQUE feature of an ABC system is the
emphasis on:
A. costing individual jobs
B. department indirect-cost rates
C. multiple-cost pools
D. individual activities
Answer 37

D
Question 38
Shipping costs at Columbia Mining Company are
a mixture of variable and fixed components. The
company shipped 8,000 tons of coal for
P400,000 in shipping costs in February and
10,000 tons for P499,000 in March. Assuming
that this activity is within the relevant range,
expected shipping costs for 11,000 tons would
be:
A. P544,500 C. P422,222
B. P548,500 D. P554,000
Answer 38
Question 39
Kaizen costing refers to:
A. radical cost reductions during the design
phase of a product.
B. radical cost reductions during the
manufacturing phase of a product.
C. small, continual cost reductions during the
design phase of a product.
D. small, continual cost reductions during the
manufacturing phase of a product.
Answer 39

D
Question 40
The budgeting technique that is most likely to
motivate managers is
A. Top-down budgeting
B. Zero-based budgeting
C. Program budgeting and review technique
D. Bottom-up budgeting
Answer 40

D
Question 41
The major appeal of zero-based budgeting is that is
a. Solves the problem of measuring program
effectiveness
b. Relates performance to resource inputs by an
integrated planning and resource-allocation
process
c. Reduces significantly the time required to review a
budget
d. Deals with some of the problems of the incremental
approach to budgeting
Answer 41

D
Question 42
The major appeal of zero-based budgeting is that is
A. Solves the problem of measuring program
effectiveness
B. Relates performance to resource inputs by an
integrated planning and resource-allocation
process
C. Reduces significantly the time required to review a
budget
D. Deals with some of the problems of the incremental
approach to budgeting
Answer 42

D
Question 43
Coomber Industries manufactures a single product
using standard costing. Variable production costs
are P13 and fixed production costs are P125,000.
Coomber uses a normal activity of 12,500 units to
set its standard costs. Coomber began the year with
1,000 units in inventory, produced 11,000 units, and
sold 11,500 units. The standard cost of goods sold
under absorption costing would be
A. P115,000 C. P253,000
B. P149,500 D. P264,500
Answer 43

D
Question 44
Mien Co. is budgeting sales of 53,000 units of product
Nous for October 2019. The manufacture of one unit
of Nous requires four kilos of chemical Loire. During
October 2016, Mien plans to reduce the inventory of
Loire by 50,000 kilos and increase the finished
goods inventory of Nous by 6,000 units. There is no
Nous work in process inventory. How many kilos of
Loire is Mien budgeting to purchase in October
2016?
A. 138,000 B. 162,000 C. 186,000 D. 238,000
Answer 44

C
Question 45
If a division is set up as an autonomous profit
center, then goods should not be transferred
A. in at a cost-based transfer price.
B. out at a cost-based transfer price.
C. in or out at cost-based transfer price.
D. to other divisions in the same company.
Answer 45

B
Question 46
JIT is a philosophy concerned with
A. when to do something.
B. how to do something.
C. where to do something.
D. how much of something should be done.
Answer 46

A
Question 47
If a cost object such as a product or customer has
a negative green margin, then:
A. its red margin will be positive.
B. its red margin may be either positive or
negative.
C. its red margin will be negative.
D. its red margin will be zero.
Answer 47

C
Question 48
Uchimura Corporation has two divisions: the AFE
Division and the GBI Division. The corporation's
net operating income is P42,000. The AFE
Division's divisional segment margin is P15,700
and the GBI Division's divisional segment
margin is P175,400. What is the amount of the
common fixed expense not traceable to the
individual divisions?
A. P149,100 C. P217,400
B. P57,700 D. P191,100
Answer 48

A
Question 49
The presence of idle capacity in the selling
division may increase
A. the incremental costs of production in the
selling division.
B. the market price for the good.
C. the price that a buying division is willing to pay
on an internal transfer.
D. a negotiated transfer price.
Answer 49

A
Question 50
Which of the following methods of allocating the
costs of service departments provides the
broadest recognition of departments served?
a. Reciprocal allocation.
b. Step-down allocation.
c. Direct allocation.
d. Arbitrary allocation.
Answer 50

A
“Diamonds are nothing
more than chunks of coal
that stuck to their jobs.”
– Malcom Stevenson
Forbes