Easy

1. In regression analysis, what does the variable "X" stand for in the model Y = a + bX + e?
a. The amount of the dependent variable, the cost to be estimated.
b. The regression error, which is the distance between the regression line and the data point.
c. The value for the independent variable, the cost driver for the cost to be estimated; there may be one or
more cost drivers.
d. The unit variable cost, also called the coefficient of the independent variable.

2. The closeness of the relationship between the cost and the activity is called
a. correlation c. spurious
b. regression analysis d. manufacturing overhead
3. If an asset costs P35,000 and is expected to have a P5,000 salvage value at the end of its ten-year life, and generates
annual net cash inflows of P5,000 each year, the cash payback period is
A. 8 years B.7 years C.6 years D. 5 years

4. The general rule in establishing transfer prices consistent with economic decision making is the
A. differential cost plus opportunity cost if goods are transferred internally.
B. actual cost plus opportunity cost if goods are transferred internally.
C. standard cost plus opportunity cost if goods are transferred internally.
D. all of the above.

5. A continuous budget
A. is a budget that is revised monthly or quarterly.
B. is a medium term plan that consists of more than 2 years’ projections.
C. is appropriate only for use of a not-for-profit entity.
D. works best for an entity that can reliably forecast events a year or more into the future.

6. Elite Company uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material
in inventory were purchased for P105,000, and two units of raw material are required to produce one unit of final
product. In November, the company produced 12,000 units of product. The standard allowed for material was P60,000,
and there was an unfavorable quantity variance of P2,500. The materials price variance for the units used in November
was
A. P 2,500 U C. P12,500 U
B. P11,000 U D. P 3,500 F

7. There are several capital budgeting decision models that do not use discounted cash flows. What is the name of the simple
technique that calculates the total time it will take to recover, using cash inflows from operations, the amount of cash
invested in a project?
A. Recovery period C. External rate of return
B. Payback model D. Accounting rate of return

8. Which of the following is likely to increase the required new financing (RNF) in a given year?
A. The company reduces its dividend payout ratio.
B. The company’s profit margin increases.
C. The company decides to reduce its reliance on accounts payable as a form of financing.
D. The company is operating well below full capacity.

9. It refers to management strategy of financing assets with borrowed capital; such an extensive use raise the entity risk
thereby impacting on the return on common stockholders’ equity to be above or below the rate of return on total assets.
A. Factoring C. Mortgage.
B. Leverage. D. Restructuring

10. Segment A generated sales revenues of P400,000 and variable operating expenses of P180,000. Its controllable fixed
expenses were P40,000. It was assigned 20% of P200,000 of fixed costs controlled by others. The common fixed
costs were P25,000. What was Segment A's controllable segment profit margin?
A. P220,000 C. P140,000
B. P180,000 D. P160,000

Average
1. A systematized approach known as zero-based budgeting:
A. Classifies the budget by the prior year’s activity and estimates the benefits arising from each activity.
B. Commence with either the current level of spending or projected whichever is lower.
C. Presents planned activities for a period of time but does not present a firm commitment.
D. Divides the activities of individual responsibility centers into a series of packages that are prioritized
2. TransEx Company operates a fleet of delivery trucks in Luzon. The company has determined that if a truck is driven
105,000 kilometers during a year, the average operating cost is P11.40 per kilometer. If a truck is driven only 70,000
kilometers during a year, the average operating cost increases to P13.40 per kilometer. Assuming that in a given year,
a truck were driven 80,000 kilometers, what total cost would you expect to be incurred?
A. P1,012,000 B.P1,407,000 C. P1,225,143 D. P1,072,000

3. Lapid Company uses process costing. All materials are added at the beginning of the process. The product is inspected
when it is 90 percent converted, and spoilage is identified only at that point. Normal spoilage is expected to be 5% of
good output.
The following are extracted from the production records of Lapid Company for May 2003:
Units put into process 21,000
Units transferred to finished goods 14,000
In-process, May 31, 75% complete 6,000
How many are considered abnormal lost units?
A. Zero C. 15
B. 300 D. 850

4. Sylvia Company has identified an activity cost pool to which it has allocated estimated overhead of P1,920,000 and
determined the expected use of cost drivers per that activity to by 160,000 inspections. Widgets require 40,000
inspections, Gadgets 30,000 inspections, and Targets, 90,000 inspections.
The overhead assigned to each product is
A. Widgets P40,000, Gadgets P30,000, Targets P90,000
B. Widgets P480,000, Gadgets P360,000, Targets P1,080,000
C. Widgets P360,000, Gadgets P480,000, Targets P1,080,000
D. Widgets P480,000, Gadgets P360,000, Targets P1,080,000

5. The primary objective of just-in-time processing is to

A. accumulate overhead in activity cost pools
B. eliminate or reduce all manufacturing inventories
C. identify relevant activity cost drivers
D. none of them

6. Total quality management directs management attention to the relationship between the internal production/service
process and the:
A. CEO of the competition C. activity analysis
B. ultimate customer D. control charts

7. Big Computers has the following personnel:

Seven assemblers: manufacture the mother boards
One owner: writes the paychecks
Two inspectors: inspect the final computers
Three fabricators: make the computer cases
One computer programmer: runs all of the bookkeeping for the accounting records
Two shipping clerks; ship computers to the warehouse
What would be the value-added labor ratio for this company?
A. 4/8 or 37.5 percent C. 5/8 or 62.5 percent
B. ½ or 50 percent D. ¾ or 75 percent

8. At the beginning of 2007, Sanchez Company installed a JIT purchasing and manufacturing system. The following
information has been gathered about one of the company's products:
Theoretical annual capacity 2,200
Actual production 2,000
Production hours available 1,000
On-time deliveries 900
Total deliveries 940
Number of defective units 30
The company's on-time delivery percentage is:
A. 90 percent C. 94 percent
B. 95.7 percent D. 104.4 percent

9. Cooke Company uses the equation P450,000 + P1.50 per direct labor hour to budget manufacturing overhead. Cooke has
budgeted 150,000 direct labor hours for the year. Actual results were 156,000 direct labor hours and P697,500 total
manufacturing overhead. The total overhead variance for the year is
A. P4,500 favorable. C. P4,500 unfavorable.
B. P18,000 favorable. D. P18,000 unfavorable.
10. In the Star Company, the predetermined overhead rate is 80% of direct labor cost. During the month, P210,000 of
factory labor costs are incurred, of which P180,000 is direct labor and P30,000 is indirect labor. Actual overhead
incurred was P200,000. The amount of overhead debited to Work in Process Inventory should be
A. P120,000 C. P168,000
B. P144,000 D. P160,000

Hard
1. Why do the NPV method and the IRR method sometimes produce different rankings of mutually exclusive investment
projects?
A. The NPV method does not assume reinvestment of cash flows while the IRR method assumes the cash flows will
be reinvested at the internal rate of return.
B. The NPV method assumes a reinvestment rate equal to the discount rate while the IRR method assumes a
reinvestment rate equal to the internal rate of return.
C. The IRR method does not assume reinvestment of the cash flows while the NPV assumes the reinvestment rate is
equal to the discount rate.
D. The NPV method assumes a reinvestment rate equal to the bank loan interest rate while the IRR method assumes a
reinvestment rate equal to the discount rate.

2. Shampoo Company is a chemical manufacturer that supplies industrial users. The company plans to introduce a new
chemical solution and needs to develop a standard product cost for this new solution.
The new chemical solution is made by combining a chemical compound (Nyclyn) and a solution (Salex), boiling the
mixture; adding a second compound (Protet), and bottling the resulting solution in 20-liter containers. The initial mix,
which is 20 liters in volume, consists of 24 kilograms of Nyclyn and 19.2 liters of Salex. A 20% reduction in volume
occurs during the boiling process. The solution is then cooled slightly before 10 kilograms of Protet are added; the
addition of Protet does not affect the total liquid volume.
The purchase prices of the raw materials used in the manufacture of this new chemical solution are as follows:
Nyclyn P15.00 per kilogram
Salex P21.00 per liter
Protet P28.00 per kilogram
The total standard materials cost of 20 liters of the product is:
A. P1,043.20 C. P 834.56
B. P1,304.00 D. P1,234.00
3. A summarized income statement for Leveraged Inc. is presented below.
Sales P1,000,000
Cost of Sales 600,000
Gross Profit P 400,000
Operating Expenses 250,000
Operating Income P 150,000
Interest Expense 30,000
Earnings Before Tax P 120,000
Income Tax 40,000
Net Income P 80,000
The degree of financial leverage is:
A. P 150,000 ÷ P 30,000 C. P1,000,000 ÷ P400,000
B. P 150,000 ÷ P120,000 D. P 150,000 ÷ P 80,000

4. The manager of the Mac Division of Power Company expects the following results in 2006 (pesos in millions):
Sales P49.60
Variable costs (60%) 29.76
Contribution margin P19.84
Fixed costs 12.00
Profit P 7.84
Investment:
Plant equipment P19.51
Working capital 14.88 P34.39
ROI P7.84/P34.39 22.80%
The division has a target ROI of 30 percent, and the manager has asked you to determine how much sales volume the
division would need to reach that. He states that the sales mix is relatively constant so variable costs and equipment
should be close to 60 percent of sales, fixed cost and plant and equipment should remain constant, and working capital
(cash, receivables, and inventories) should vary closely with sales in the percentage reflected above.
The peso sales that the division needs in order to reach the 30 percent ROI target is
A. P19,829,032 B. P44,373,871 C.P57,590,322 D.P59,510,000
5. The Leisure Company is considering the purchase of electronic pinball machines to place in amusement houses. The
machines would cost a total of P300,000, have an eight-year useful life, and have a total salvage value of P20,000.
Based on experience with other equipment, the company estimates that annual revenues and expenses associated with
the machines would be as follows:
Revenues form use P200,000
Less operating expenses
Commissions to amusement houses P100,000
Insurance 7,000
Depreciation 35,000
Maintenance 18,000 160,000
Net income P 40,000
Ignoring the effect of income taxes, the payback period for the pinball machines would be
A. 3.73 years B.3.23 years C.4.0 years D.7.5 years

6. By the end of December 31, 2005, Alay Foundation is considering the purchase of a copying machine for P80,000. The
expected annual cash savings are expected to be P32,000 in the next four years. At the end of the four years, the machine
will be discarded without any salvage value. All the cash savings are stated in number of pesos at December 31, 2006.
The company expected that the inflation rate is constantly 5 percent each year. Hence, the first year’s cash inflow was
adjusted for 5 percent inflation. For simplicity, all cash inflows are assumed to be at year-end.
The present value at 14 % of 1 for 4 periods is 2.91371. The present value of 1 at end of each period are:
Period 1 0.87719
Period 2 0.76947
Period 3 0.67497
Period 4 0.59208
Using the nominal rate of return of 14 percent, the net present value for this machine is
A. P12,239 C. P13,419
B. P19,670 D. P27,936

7. An example of a nonvolume-related overhead base would be:

A. Direct materials cost C. Direct Labor cost
B. Machine hours D. Number of setups

8. KMU Company uses a small casting in one of its finished products. The castings are purchased from a foundry located
in another Asian country. In total, KMU Company purchases 54,000 castings per year at a cost of P8 per casting.
The castings are used evenly throughout the year in the production process on a 360-day-per-year basis. The company
estimates that it costs P90 to place a single purchase order and about P3 to carry one casting in inventory for a year. The
high carrying costs result from the need to keep the castings in carefully controlled temperature and humidity conditions,
and from the high cot of insurance.
Delivery from the foundry generally takes 6 days, but it can take as much as 10 days. The days of delivery time and the
percentage of their occurrence are shown in the following tabulation:

Delivery Time (days) Percentage of Occurrence

6 75
7 10
8 5
9 5
10 5
100
What is the economic order quantity for the company.
A. 1,800 C. 2,545
B. 1273 D. 2,700
9. Dodge Company has a mixing department and a refining department. Its process-costing system in the mixing department
has two direct materials cost categories (material J and material P) and one conversion costs pool. The company uses
First-in, First out cost flow method. The following data pertain to the mixing department for November 2006
Units
Work in process, November 1: 50 percent completed
15,000
Work in process, November 30, 70 percent completed 25,000
Units started 60,000
Completed and transferred 50,000
Costs
Work-in-process, November 1 P218,000
Material J 720,000
Material P 750,000
Conversion Costs 300,000
Material J is introduced at the start of operations in the Mixing department, and Material P is added when the product
is three-fourths completed in the mixing department. Conversion costs are added uniformly during the process.
The respective equivalent units for Material J and Material P in the mixing department for November 2006, are
A. Both 50,000 units C. 75,000 units and 60,000 units
B. 60,000 units and 50,000 units D. 60,000 units and 75,000 units

10. At the end of 2006, Alban Company implemented a new labor process and redesigned its product with the expectation
that input usage efficiency would increase. Now, at the end of 2007, the president of the company wants an assessment
of the changes on the company's productivity. The data needed for the assessment are as follows:
2006 2007
Output 10,000 12,000
Output prices P10 P10
Change in profits P10,700
Profit-linked
measurements:
Materials P4,600
Labor 3,250
Power (250)
Net P7,600
How much is the price-recovery component?
A. P 3,100 C. P10,700
B. P( 1,350) D. P 7,600
Clincher
Marsh Company that had current operating assets of one million and net income of P200,000 had an opportunity to invest
in a project that requires an additional investment of P250,000 and increased net income by P40,000. The company's
required rate of return is 12%. After the investment, the company's residual income will amount to
A. 80,000 C. 90,000
B. 85,000 D. 95,000

Company Y is highly decentralized. Division X, which is operating at capacity, produces a component that it currently
sells in a perfectly competitive market for P13 per unit. At the current level of production, the fixed cost of producing
this component is P4 per unit and the variable cost is P7 per unit. Division Z would like to purchase this component
from Division X. What would be the price that Division X should charge Division Z?
A. P 7 C. P 11
B. P 13 D. P 9

Bruell Company is considering to replace its old equipment with a new one. The old equipment had a net book value of
P100,000, 4 remaining useful life with P25,000 depreciation each year. The old equipment can be sold at P80,000. The
new equipment costs P160,000, have a 4-year life. Cash savings on operating expenses before 40% taxes amount to P50,000
per year. What is the amount of investment in the new equipment?
A. P160,000 C. P 80,000
B. P 72,000 D. P 68,000