EASY

1. The day-to-day work of management teams will typically comprise all of the
following activities except:
a. decision making.
b. planning.
c. cost minimizing.
d. directing operational activities.
e. controlling.

2. Management accounting is an integral part of the management process. As

such, it provides essential information for the following objectives except
a. Maintaining the current level of resource utilization as well as internal
and external communication.
b. Measuring and evaluating performance.
c. Planning strategies and controlling current activities of the
organization.
d. Enhancing objectivity in decision-making.

3. You were newly appointed as controller of CZX Corporation. Among the

jobs your department would do include the following:
a. Cash receipts, cash disbursements, general accounting, taxation,
financial accounting analysis, and internal auditing.
b. Financial reporting, strategic planning, managerial accounting,
taxation, financial statement analysis, and internal accounting.
c. Financial accounting, managerial accounting, cost accounting,
inventory accounting, payroll accounting, tax accounting and sales
forecasting.
d. Tax accounting, managerial accounting, internal auditing, general
accounting.
4. Which of the following acts is not performed by an independent CPA
engaged to install an accounting system?
a. Formulation of the chart of accounts
b. Design of business and accounting forms
c. Supervision of application of system and procedures recommended
d. Preparation of an accounting manual.

5. DJH Company has sales of P360,000, variable costs of P216,000, and fixed
costs of P150,000. To earn a 10% return on sales, DJH must have sales of (A)
Answer: P500,000

6. U’rIlluminating Co.’s financial information follows

Sales (500,000 units @ P100) 50,000,000
Variable cost 40,000,000
Fixed costs 6,000,000
Interest expense 1,000,000
Income tax rate 30%
What is the company’s degree of operating leverage?
Answer: 2.5

7. For a company that does not have resource limitations in what sequence
would the budgets be prepared?
1. cash budget 4. production budgets
2. sales budget 5. purchase budgets
3. inventory budgets
a. sequence 2, 3, 4,1 and 5
b. sequence 2, 3, 4, 5 and 1
c. sequence 2, 4, 3, 5 and 1
d. sequence 4, 3, 2, 1 and 5
 8. Budgeted sales for the first six months of 2020 for Henry Corp. are listed
below:
Jan Feb Mar Apr May June
UNITS: 6,000 7,000 8,000 7,000 5,000 4,000
Henry Corp. has a policy of maintaining an inventory of finished goods equal
to 40 percent of the next month's budgeted sales. If Henry Corp. plans to
produce 6,000 units in June, what are budgeted sales for July? (A)
Answer: 9,000 units

9. Mien Co. is budgeting sales of 53,000 units of product Nous for October
2019. The manufacture of one unit of Nous requires 4 kilos of chemical Loire.
During October 2018, Mine 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 2019? (A)
Answer: 186,000

10. In preparing its cash budget for July, 2020, Art Company made the following
projections
Sales P1,500,000
Gross Profit 25%
Decrease in inventories P 70,000
Decrease in accounts payable for inventories 120,000
For July, 2020, what were the estimated cash disbursement for inventories?
Answer: P1,175,000
AVERAGE

1. Which of the following will decrease the break-even point?

Margin of Safety Operating Leverage
a. Increase Increase
b. Increase Decrease
c. Decrease Increase
d. Decrease Decrease

2. DSP Company earned P100,000 on sales of P1,000,000. It earned P130,000

on sales of P1,100,000. Total fixed costs are
Answer: P200,000

3. Lot company determines the selling price by marking up variable costs by

60%. If the company breaks even at P400,000, what is the amount of fixed
cost?
Answer: P150,000

4. Information about the Harmonious Company's two products includes:

Product X Product Y
Unit selling price P11.25 P11.25
Unit variable costs:
Manufacturing P5.25 P6.75
Selling .75 .75
Total P6.00 P7.50
Monthly fixed costs are as follows:
Manufacturing P82,500
Selling and administrative 45,000
Total P127,500
What is the total monthly sales volume in units required to break even when
the sales mix in units is 70 percent Product X and 30 percent Product Y?
ANSWER: 26,563 units
5. The margin of safety in the Flaherty Company is P24,000. If the company's
sales are P120,000 and its variable expenses are P80,000, its fixed expenses
must be: Answer: P32,000

6. Holt Company's variable expenses are 70% of sales. At a $300,000 sales level,
the degree of operating leverage is 10. If sales increase by $60,000, the
degree of operating leverage will be: Answer: 4

7. Which of the following is LEAST likely to be affected if unit sales for this
month are lower than budgeted?
a. Cash receipts for next month.
b. Inventory at the end of this month.
c. Production for next month.
d. Production for this month.
8. A company that maintains a raw material inventory, which is based on the
following month's production needs, will purchase less material than it uses
in a month where
a. sales exceed production.
b. production exceeds sales.
c. planned production exceeds the next month's planned production.
d. planned production is less than the next month's planned production.

9. Karmel, Inc. pays out sales commissions to its sales team in the month the
company receives cash for payment. These commissions equal 5% of total
(monthly) cash inflows as a result of sales. Karmel has budgeted sales of
P300,000 for August, P400,000 for September, and P200,000 for October.
Approximately, half of all sales are on credit, and the other half are all cash
sales. Experience indicates that 70% of the budgeted credit sales will be
collected in the month following the sale, 20% the month after that, and 10%
of the sales will be uncollectible. Based on this information, what should be
the total amount of sales commissions paid out by Karmel in the month of
October? €
Answer: P13,500
10. Pera Inc. prepared the following sales budget
Month Cash Sales Credit Sales
February P 80,000 P 340,000
March 100,000 400,000
April 90,000 370,000
May 120,000 460,000
June 110,000 380,000
Collections are 40% in the month of sale, 45% in the month following the
sale, and 10% two months following the sale. The remaining 5% is expected
to be uncollectible. The company’s total budgeted collection from April to
June amounts to
Answer: P1,468,500

DIFFICULT

1. Tonykinn Company is contemplating of marketing a new product. Fixed costs

will be P800,000 for production of 75,000 units or less and P1,200,000 if
production exceeds 75,000 units The variable cost ratio is 60% for the first
75,000. Contribution margin percentage will increase to 50% for units in
excess of 75,000. If the product is expected to sell for P25 per unit, how
many units must Tonykinn sell to breakeven?
ANSWER: 111,000
2. The Pilinut Company is a wholesaler distributor of candy. The company
serves grocery, convenience and drug stores in a large metropolitan area.
Small but steady growth in sales has been achieved by the company over the
past few years, while candy prices have been increasing. The company is
formulating its plans for the coming fiscal year. Presented below are the data
used to project the current year’s after-tax net income of P 110,400.

Average sales price per box P 4.00

Average variable costs per box:
Cost of candy P 2.00
Selling P 0.40
Total P 2.40
Annual fixed costs:
Selling P 160,000
Administrative 280,000
Total P 440,000
Expected annual sales volume (390,000 boxes) P 1,560,000
Tax rate 40%

Pilinut manufacturers have announced that they will increase prices of their
products by 15% in the coming year due to increases in materials and labor
costs. The Pilinut Company expects that all other costs will remain at the
same rates or levels as the current year. What should be the sales price per
box that the company must charge to cover the 15% increase in the cost of
candy and still maintain the same contribution margin ratio?
ANSWER: P4.50
3. Blue Ski Company recently expanded its manufacturing capacity to allow it
to produce up to 15,000 pairs of cross-country skis of either the
mountaineering model or the touring model. The sales department assures
management that it can sell between 9,000 and 13,000 pairs (units) of either
product this year. Because the models are very similar, Blue Ski will produce
only one of the two models. The information below was compiled by the
accounting department.
Mountaineering Touring
Selling price per unit P880.00 P800.00
Variable costs per unit P528.00 P528.00
Fixed costs will total P3,696,000 if the mountaineering model is produced but
will be only P3,168,000 if the touring model is produced. Blue Ski is subject
to a 40% income tax rate.
The total sales revenue at which Blue Ski Company would make the same
profit or loss regardless of the ski model it decided to produce is
Answer: P8,800,000

4. Card Bicycle Co. has prepared production and raw materials budgets for next
year. At the end of this year, the finished product inventory is expected to
include 2,000 bicycles, and raw material inventory is expected to include
3,000 bicycle tires. Each finished bicycle requires two tires. The marketing
department provided the following data from the sales budget for the first
quarter:
January February March
Expected bicycle sales (units) 12,000 16,000 18,000

The company inventory policy is to have finished product inventory equal to

20% of the following month's sales requirements, and raw material equal to
10% of the following month's production requirements. In the January
budget for raw materials, how many tires are expected to be purchased? E
Answer: 26,680
5. The following information has been gathered by the Budget Director of the
Kareetoon Company, another outfit managed by the Masipag Company. The
firm manufactures and sells only one product. The selling price during the
coming month is expected to be the prevailing price of P5 per unit. Expected
sales during the month is a total of 75,000 units of finished goods. Finished
goods expected to be on hand at the end of the month total 50,000 units.
Finished goods expected to be on hand at the beginning of the month total
42,000 units. Direct labor cost is P3.00 per hour. One-fourth an hour of direct
labor is required to manufacture each unit of finished product. Factory
overhead is applied to work-in-process on the basis of direct labor hours.
Variable factory expenses at the planned level of operations is expected to
amount to P33,200; fixed overhead is expected to amount to P99,600. The
raw materials expected to be on hand at the beginning of the month total
5,000 gallons. Only one kind of raw material is used to produce the finished
goods. One and one-half gallons of raw material are needed to manufacture
each unit of finished product. Raw materials are expected to cost P0.18 per
gallon during the coming month, its prevailing cost. Raw materials expected
to be on hand at the end of the month total 8,000 gallons. Variable
administrative and selling expenses is P1.00 per unit. In assisting the
company to formulate the budget, you determined the following budget
parameters. Budgeted contribution margin per unit is
ANSWER: P2.58

6. Wentworth Company manufactures three products (A, B, and C) from three

raw materials (X, Y, and Z). The following table indicates the number of
pounds of each material that is required to manufacture each type of
product:

Product Material X Material Y Material Z

A 2 3 2
B 2 1 2
C 3 2 2
 The company has a policy of maintaining an inventory of finished goods on
all three products equal to 25 percent of the next month's budgeted sales.
Listed below is the sales budget for the first quarter of 2019:

Month Product A Product B Product C

Jan. 10,000 11,000 12,000
Feb. 9,000 12,000 8,000
Mar. 11,000 10,000 10,000

Unit costs of materials X, Y, and Z are respectively P4, P3, and P5. The
Wentworth Company has a policy of maintaining its raw material
inventories at 50 percent of the next month's production needs.

The budgeted cost of all materials to be purchased in January would be

Answer: P771,750
Product A
January February
Required ending inventory 2,250 2,750
Projected sales 10,000 9,000
Total production needs 12,250 11,750
Less the beginning inventory (2,500) (2,250)
Budgeted production 9,750 9,500

Product B
January February
Required ending inventory 3,000 2,500
Projected sales 11,000 12,000
Total production needs 14,000 14,500
Less the beginning inventory (2,750) (3,000)
Budgeted production 11,250 11,500

Product C
January February
Required ending inventory 2,000 2,500
Projected sales 12,000 8,000
Total production needs 14,000 10,500
Less the beginning inventory (3,000) (2,000)
Budgeted production 11,000 8,500

Material X Purchases
 Product A Product B Product C
Jan. Feb. Jan. Feb. Jan. Feb.
Prod. 9,750 9,500 11,250 11,500 11,000 8,500
 lbs. x 2 x 2 x 2 x 2 x 3 x 3
Tot. 19,500 19,000 22,500 23,000 33,000 25,500

Required EI (19,000 + 23,000 + 25,500)  .50 = 33,750

Needed: (19,500 + 22,500 + 33,000) = 75,000
Total raw material X needed: 108,750
Less: BI (75,000  .50) (37,500)
Material X to be purchased in January (pounds): 71,250
Multiply by cost of Material X per lb.: x $4
Budgeted Cost of Material X for January: $285,000

Material Y Purchases
Product A Product B Product C
Jan. Feb. Jan. Feb. Jan. Feb.
Prod. 9,750 9,500 11,250 11,500 11,000 8,500
 lbs. x 3 x 3 x 1 x 1 x 2 x 2
Tot. 29,250 28,500 11,250 11,500 22,000 17,000

Required EI (28,500 + 11,500 + 17,000)  .50 = 28,500

Needed: (29,250 + 11,250 + 22,000) = 62,500
Total raw material Y needed: 91,000
Less BI (62,500  .50) (31,250)
Material Y to be purchased in January (pounds): 59,750
Multiply by cost of Material Y per lb.: x $3
Budgeted Cost of Material Y for January: $179,250

Material Z Purchases
Product A Product B Product C
Jan. Feb. Jan. Feb. Jan. Feb.
Prod. 9,750 9,500 11,250 11,500 11,000 8,500
x lbs. x 2 x 2 x 2 x 2 x 2 x 2
Tot. 19,500 19,000 22,500 23,000 22,000 17,000

Required EI (19,000 + 23,000 + 17,000)  .50 = 29,500

Needed: (19,500 + 22,500 + 22,000) = 64,000
Total raw material Z needed: 93,500
Less BI (64,000  .50) (32,000)
Material Z to be purchased in January (pounds): 61,500
Multiply by cost of Material Z per lb.: x 5
Budgeted Cost of Material Z for January: $307,500
The budgeted cost of all materials to be purchased in
 Jan. would be $285,000 + $179,250 + $307,500 = $771,750

7. Flour International is in the building construction business. In 2020, it is

expected that 40 percent of a month’s sales will be collected in cash, with
the balance being collected the following month. Of the purchases, 50
percent are paid the following month, 30 percent are paid in two months,
and the remaining 20 percent are paid during the month of purchase. The
sales force receives P2,000 a month base pay plus a 2 percent commission.
Labor expenses are expected to be P4,000 a month. Other operating
expenses are expected to run about P2,000 a month, including P500 for
depreciation. The ending cash balance for 2019 was P4,500.
Sales Purchases
2019—Actual
November P80,000 P70,000
December 90,000 80,000
2020—Budgeted
January 70,000 70,000
February 90,000 60,000
March 30,000 50,000
Required:
a. Prepare a cash budget and determine the projected ending cash
balances for the first three months of 2020.
b. Determine the months that the company would either borrow or
invest cash.
Answer: Ending cash balance P 2,600 P 300 $ (2,800)
Borrow—March; invest—January and February

ANSWER:
a. 2001 2002
Nov. Dec. Jan. Feb. Mar.
Sales $80,000 $90,000 $70,000 $90,000 $30,000
Purchases 70,000 80,000 70,000 60,000 50,000

Cash Receipts: Jan. Feb. Mar.

Beginning cash balance $ 4,500 $ 2,600 $ 300
From current month sales $28,000 $36,000 $12,000
From prior month sales 54,000 42,000 54,000
Total cash receipts $82,000 $78,000 $66,000
Total cash available $86,500 $80,600 $66,300
Cash Disbursements:
From Purchases:
Current month @ 20% $14,000 $12,000 $10,000
From 1 mo. prior purchases @ 50% 40,000 35,000 30,000
From 2 mo. prior purchases @ 30% 21,000 24,000 21,000
Total payments on purchases $75,000 $71,000 $61,000
Labor expense 4,000 4,000 4,000
Sales salaries 2,000 2,000 2,000
Commissions @ 2% of sales 1,400 1,800 600
Other expenses exclude depr. ($500) 1,500 1,500 1,500
Total cash disbursements $83,900 $80,300 $69,100
Ending cash balance $ 2,600 $ 300 $ (2,800 )

b. Borrow—March; invest—January and February

8. The Dandy Jeans Company produces two different types of jeans. One is
called the “Simple Life” and the other is called the “Fancy Life”. The
company sales budget estimates that 350,000 of the Simple Life Jeans and
200,000 of the Fancy Life will be sold during 2020. The Production Budget
requires 353,500 units of Simple Life jeans and 196,000 Fancy jeans be
manufactured The Simple Life jeans require 3 yards of denim material, a
zipper, and 25 yards of thread. The Fancy Life jeans require 4.5 yards of
denim material, a zipper, and 40 yards of thread. Each yard of denim
material costs P3.25, the zipper costs P.75 each, and the thread is P.01 per
yard. There is enough material to make 2,000 jeans of each type at the
beginning of the year. The desired amount of materials left in ending
inventory is to have enough to manufacture 3,500 jeans of each type.
Prepare a Direct Materials Purchases Budget. The Total Cost of Direct
Materials to be Purchased is
Answer: P6,931,813
 Dandy Jeans Company

Direct Materials Purchases Budget

For the Year ending December 31,200x

Denim Zippers Thread

Total (Each) (Yards)

(Yards)

Units Required:

Simple (353,500 Units *3 Yards) 1,060,500 353,500 8,837,500

Fancy (196,000 Units *4.5 Yards) 882,000 196,000 7,840,000

Desired Ending Inventory:

Simple ( 3,500 Units * 3 Yards) 10,500 3,500 87,500

Fancy ( 3,500 Units * 4.5 Yards) 15,750 3,500 140,000

Total 1,968,750 556,500

16,905,000

Less Beginning Inventory:

Simple (2,000 Units * 3 Yards) 6,000 2,000 50,000

Fancy (2,000 Units * 4.5 Yards) 9,000 2,000 80,000

Total Amount to be Purchased 1,953,750 552,500 16,775,000

Unit Price  $3.25  $.75  $.01

Total Direct Materials to be Purchased $6,349,688 $414,375 $ 167,750 $6,931,813

DIF: Difficult OBJ: 21(6)-04

NAT: AACSB Analytic | IMA-Budget Preparation

9. Prepare a cost of goods sold budget for Sleepy Time, Inc. They manufacture
comforters. Assume the estimated inventories on January 1, 2020, for
finished goods, work in process, and material were P39,000, P33,000 and
P27,000 respectively. Also assume the desired inventories on December 31,
2020, for finished goods, work in process, and materials were P42,000,
P35,000 and P21,000 respectively. Direct material purchases were
P575,000. Direct labor was P212,000 for the year. Factory overhead was
P156,000. The Budgeted Cost of Goods Sold is
Answer: P944,000

Sleepy Time, Inc.

Cost of Good Sold Budget

For the Year Ending December 31, 2008

Finished goods inventory, January 1, 2008 $ 39,000

Work in process inventory, January 1, 2008 $ 33,000

Direct materials inventory, January 1, 2008 $ 27,000

Direct materials purchases 575,000

Cost of direct materials available for sale $602,000

Less direct materials inventory December 31, 2008 21,000

Cost of direct materials placed in production $581,000

Direct labor 212,000

Factory overhead 156,000

Total manufacturing costs 949,000

Total work in process during the period $982,000

Less work in process inventory, December 31, 2008 35,000

Costs of good manufactured 947,000

Cost of finished goods available for sale 986,000

Less finished goods inventory, December 31, 2008 42,000

Costs of goods sold $944,000

10. Candyman Company is a wholesale distributor of candy. The company

services grocery, convenience, and drug stores in Metro Manila. Small but
steady growth in sales has been achieved by the company over the past few
years while candy prices have been increasing. The company is formulating
its plans for the coming fiscal year. Presented below are the data used to
project the current year’s after-tax net income of P110,400.

Average selling price P4.00 per box

Average variable costs
Cost of candy P2.00 per box
Selling expenses 0.40 per box
Total P2.40 per box
Annual fixed costs
Selling P160,000
Administrative 280,000
Total fixed costs P440,000
Expected annual sales volume (390,000 boxes) P1,560,000

Manufacturers of candy have announced that they will increase prices of

their products an average of 15% in the coming year due to increases in raw
material (sugar, cocoa, peanuts, etc.) and labor costs. Candyman Company
expects that all other costs will remain at the same rates or levels as the
current year. Candyman is subject to 40 percent tax rate.

If net income after taxes is to remain the same after the cost of candy
increases but no increase in the sales price is made, how many boxes of
candy must Candyman sell?

Answer: 480,000