Unformatted text preview: 2011 NATIONAL CPA MOCK BOARD EXAMINATION
In partnership with the Professional Review & Training Center, Inc. and Isla Lipana & Co. MANAGEMENT ADVISORY SERVICE
INSTRUCTIONS: Select the best answer for each of the following questions. Mark
only one answer for each item on the answer sheet provided.
Answers with erasures may render your examination answer sheet INVALID.
PENCIL NO.2 only. GOODLUCK!
1. 2. Which of the following is not classifiable as a
management advisory service by CPA?
a. Systems design.
b. Project feasibility study.
c. Make or buy analysis.
d. Assistance in budget preparation. a.
d. the sequence of master file records is not
timeliness is a major issue
a single handling of the data is desired
economy of scale can be gained because of
high volumes of transactions The
advisory services is:
a. To conduct special studies, preparation of
and assistance in
b. To provide services or to fulfill some social
c. To improve the client’s use of its capabilities
and resources to achieve the objectives of
d. To earn the best rate of return on resources
entrusted to its
investment being taken into account and
with the firm’s social and legal
responsibilities. 8. 3. A cost system that first traces costs to activities
and then traces cost from activities to products
a. Job order cost system.
b. Process cost system.
c. Activity-based cost system.
d. Flexible cost system. 4. The payback method assumes that all cash
inflows are reinvested to yield a return equal to
b. the Discount Rate
c. The Time-Adjusted-Rate-of-Return
d. The Cost-of-Capital 10. Return on investment (ROI) is a term often used to
express income earned on capital invested in a
A company’s ROI would be
a. Sales increased by the same peso amount as
expenses and total assets increased.
b. Sales remained the same and expenses were
reduced by the same peso amount that total
c. Sales decreased by the same peso amount that
Sales and expenses increased
same percentage that total assets increased. 5. Why do the NPV method and the IRR method
sometimes produce different rankings of mutually
exclusive investment projects?
IRR method assumes the cash flows will
be reinvested at the internal rate of return.
b. The NPV method assumes a reinvestment rate
to the discount
IRR method assumes a reinvestment rate
equal to the internal rate of return.
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
rate equal to the discount rate. 6. The least risky strategy for converting from a
manual to a computerized accounts receivable
system would be a
a. Direct conversion c. Parallel conversion
b. Pilot Conversion
d. Data based conversion 7. The batch processing of business transactions can
be the appropriate mode when An integrated
that facilitates the creation, manipulation, and
querying of integrated files is called a(n)
b. Operating system
c. Assembly language
d. Database management system 9. Opportunity costs:
a. Are treated as period costs under variable
b. Have already been incurred as a result of past
c. Are benefits that could have been obtained by
following another course of action.
d. Do not vary among alternative courses of
action. 11. The ratio that measures a firm’s
generate earnings is
a. Times interest earned.
b. Sales to working capital.
c. Days’ sales in receivables.
d. Operating asset turnover. ability to 12. When a firm prepares financial reports by using
absorption costing, it may find that
a. Profits will always increase with increase in
b. Profits will always decrease with decreases in
c. Profit may decrease with increased sales even
if there is no change in selling price and costs.
d. Decreased output and constant sales result in
13. The Liberal Marketing Co., is expecting an increase
of fixed costs by P78,750 upon moving their
Likewise it is anticipating that the selling price per
unit and the variable expenses will not change. At
present, the sales volume necessary to breakeven
is P750,000 but with the expected increase in
fixed costs, the sales volume necessary to
breakeven would go up to P975,000.
on these projections, what Page 1 of 7 were the total fixed costs before the increase of
14. Bacolod Corporation had sales of P120,000 for the
month of May. It has a margin of safety ratio of
25 percent, and after-tax return on sales of 6
percent. The company assumes its sales constant
every month. If the tax rate is 40 percent, how
much is the annual fixed costs?
15. At 40,000 units of sales, Luna Corporation had an
operating loss of P3.00 per unit. When sales
70,000 units, the company had a profit of P1.20
per unit. The number of units to breakeven is
a. P 35,000
b. P 45,000
16. The manager
following data: of Seven
Products the 3. Drill press activity
4. Heat treatment activity
5. Quality control inspection activity
6. Issuance of purchase order activity
How are the foregoing activities classified?
1, 2, 5, 6
1, 2, 4
3, 5, 6
2, 4, 5
1, 3, 6
2, 3, 4
1, 5, 6
20. The Oilfield plant has two categories of overhead:
maintenance and inspection. Costs expected for
these categories for the coming year are
150,000 The plant currently applies overhead using direct
labor hours and expected capacity of 50,000
direct labor hours.The
been assembled for use in developing a bid
for a proposed job:
in 50% 40% 20% 30% 50% Fixed costs, P1,290,000 per month.
The breakeven sales for each month is
17. Drive Me, Inc. has a total of 2,000 rooms in its
nationwide chain of hotels. On the average, 70
percent of the rooms are occupied each day. The
occupied room per day at this occupancy level,
This P21 figure contains both
variable and fixed cost elements.
October, the occupancy dropped to only 45
percent. A total of P792,000 in operating cost
was incurred during the month.
that the occupancy rate
increases to 60 percent during November?
b. P 756,000
18. The following data relate to Gala Company which
sells a single product:
Unit selling price
Purchase cost per unit
Monthly fixed costs
The firm’s salespersons would like to change their
compensation from a 10 percent commission to a 5
percent commission plus P20,000 per month in
salary. They now receive only commissions.
At what sales volume would the two
compensation plans be indifferent?
19. Hello Company’s cost allocation and product
costing procedures follow activity-based costing
been identified and classified as being either
value- adding or non-value adding as to each
1. Raw materials storage activity
2. Design engineering activity Direct labor
Number of inspections
Direct labor hours P4,000
800 Total expected machine hours for all jobs during
the year is 25,000, and the total expected number
of inspections is 1,500.
appropriate activity drivers, the total cost of the
potential job would be
21. The cost to manufacture an unfinished unit is P40
(P30 variable and P10 fixed). The selling price per
unit is P50. The company has unused production
capacity and has determined that units could be
finished and sold for P65 with an increase in
variable costs of 40%. What is the additional
net income per unit to be gained by finishing the
unit? a. P 3
22. Jar Division of Handy, Inc. expects the following
result for 2004:
Unit selling price
Unit variable cost
Total fixed cost
Total fixed costs
Total investment P300,000
P500,000 The minimum required ROI is 15 percent,
A foreign customer has approached
Jar’s manager with an offer to buy 10,000 units
at P7 each. If Jar accepts the order, it would not
lose any of the
70,000 units at the regular price. Accepting
the order would increase fixed costs by P10,000
and investment by P40,000.
What is the minimum price that Jar could accept
expected residual income?
new product that will sell for P100 and have a
variable cost of P60. Expected volume is 20,000
units. New Page 2 of 7 equipment costing P1,500 and having a five-year
useful life and no salvage value is needed, and
will be depreciated using the straight-line method.
The machine has cash operating costs of P20,000
per year. The firm is in the 40 percent tax bracket
and has cost of capital of 12 percent. The
present value of 1, end of five periods is 0.56743;
present value of annuity of 1 for 5 periods is
3.60478. Suppose the 20,000 estimated volume
is sound, but the price is in doubt. What is the
selling price (rounded to nearest peso) needed
to earn a 12 percent internal rate of return?
24. Jap Company’s unit cost of manufacturing and c. It takes a worker 35 minutes to process one
10-liter batch of Bysap. Employees work on
eight-hour a day, including one hour per day
for rest breaks and cleanup. What is the standard labor time to produce one 10liter batch of Bysap?
a. 35 minutes
c. 48 minutes
b. 40 minutes
d. 45 minutes
27. ABC Electronics has the following standard costs
and other data:
47.00 selling a given item at an activity level of 10,000
units per month are: Factory overhead
Unit standard cost Manufacturing costs
The company desires to seek an order for 5,000
units from a foreign customer.
selling expenses will be reduced by 40%, but
the fixed costs for obtaining the order will be
P20,000. Domestic sales will not be affected by the
order. Units needed per year
Machine hours per unit
Unit cost if purchased The minimum break-even price per unit to be
considered on this special sale is
25. Below are a company’s monthly unit costs to
manufacture and market a particular product.
The company must decide to continue making the
product or buy it from an outside supplier. The
supplier has offered to make the product at the
same level of quality that the company can make
it. Fixed marketing costs would be unaffected,
but variable marketing costs would be reduced by
30% if the company were to accept the proposal.
What is the maximum amount per unit that the
decreasing its operating income?
26. Shyr Company is a chemical manufacturer that
supplies various products to industrial users. The
chemical solution called Bysap, for which it needs
to develop a standard product cost.
following labor information
the production of Bysap.
a. The product, which is bottled in 10-liter
Byclyn, salex, and protex.
b. The finished product is highly unstable, and
one 10-liter batch out of six is rejected at
final inspection.Rejected batches have no
commercial value and are thrown out. 40.00
P150.00 In past years, ABC has manufactured all of its
30,000 hours of otherwise idle machine time
components. Accordingly, some of the parts must
be purchased from outside suppliers. In producing
parts, factory overhead is applied at P10 per
standard machine hour. Fixed capacity costs that
will not be affected by any make-or-buy decision
represent 60% of the applied overhead.
The 30,000 hours available machine time are to
be scheduled so that ABC realizes maximum
potential cost savings.
production costs that should be considered in
the decision to schedule machine time are:
a. P54.00 for Beta and P147.00 for Zeta
b. P50.00 for Beta and P150.00 for Zeta
c. P14.00 for Beta and P127.00 for Zeta
d. P30.00 for Beta and P135.00 for Zeta
28. Zapatero, Inc. operates a chain of shoe stores
around the country.
The stores carry many
styles of shoes that are all sold at the same
To encourage sales personnel to be
aggressive in their sales efforts, the company
pays a substantial sales commission on each pair
of shoes sold.
personnel also receive a small basic salary.
The following cost and revenue data relate to Store
9 and are typical of the company’s many
Fixed expenses per year:
sales commissions entirely in its stores and
increasing fixed salaries by P2,142,000 annually.
If this change is made, what will be the number
of pairs of shoes to be sold by Store 9 to
be indifferent to commission basis?
29. Liquid Company manufactures fire hydrants
operations during the month of May: Page 3 of 7 Processing time
(average per batch)
(average per batch)
(average per batch)
(average per batch)
Units per batch
The manufacturing cycle efficiency (MCE) is
30. Using the information in No. 29, what
The throughput time is
a. 12.5 hours
c. 8.0 hours
d. 9.5 hours 33. Information on Divine’s direct material costs for
May is as follows: Actual quantity of direct
materials purchased and used
Actual cost of direct materials
Unfavorable direct materials
Standard quantity of direct
materials allowed for May
is the 31. Data
The vice president of
finance has decidedthat traditional standards are
inappropriate for performance measures in an
automated environment. Labor is insignificant in
terms of the total cost of production and tends to
more important than minimizing material cost,
and customer satisfaction is the number one
priority. As a result, production and delivery
performance measures have
considered typical of
the time involved to
complete and ship orders.
From order being placed
to start of production
From start of production
1.5 days 30,000 lbs.
P 3,000 29,000 lbs For the month of May, Divine’s direct
materials price variance was:
a. P2,800 favorable
c. P6,000 unfavorable
b. P2,800 unfavorable
d. P6,000 favorable
34. William Furniture Company uses about 200,000
yards of a particular fabric each year. The fabric
costs P2.50 per yard. The current policy is to
order the fabric four times a year. Incremental
ordering costs are about P200 per order, and
incremental carrying costs are about P0.75 per
yard, much of which represents the opportunity
cost of the funds tied up in inventory.
How much total annual costs are associated with
the current inventory policy?
35. The following direct labor information pertains to
the manufacture of Part XW:
Number of hours required to make a
Number of Direct workers
Number of total productive hours per
Weekly wages per worker
P1,000 Processing time
Move time 3.0 days
2.5 days The Delivery Cycle Time is
A. 22 days
C. 11 days
B. 14 days
D. 7 days
32. Alma 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
The new chemical solution is made by combining
chemical compound (nyclyn) and a solution
(salex), boiling the mixture; adding a second
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
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
Protet P15.00 per kilogram
P21.00 per liter
P28.00 per kilogram The total standard materials cost of 20 liters of
the product is
b. P 834.56
d. P1,234.00 Laborers’ fringe benefits treated as
direct labor costs 25% of
wages What is the standard direct labor cost per unit of
36. Burma, Inc. analyzes manufacturing overhead in
the production of its only one product, Odds. The
following set of information applies to the month of
Direct labor hours P4/DLH P16,400 P20/DLH P88,000 6
hours What are the fixed overhead spending and volume
variances for the month of April?
P4,000 F b
P4,000 U c
P8,000 F d
P8,000 U 37. Using the information in Number 36, what are the
variances for the month of April?
P 800U d
P 800F Page 4 of 7 38. Tamaraw Company is negotiating to purchase
equipment that would cost P200,000, with the
expectation that P40,000 per year could be saved
in after-tax cash costs if the equipment were
acquired. The equipment’s estimated useful life
10 years, with no salvage value, and would
be depreciated by
Tamaraw’s minimum desired rate of return is 12
percent. Present value of an annuity of 1 at 12
percent for 10 periods is 5.65. Present value of
1 due in 10 periods at 12 percent is 0.322. The present value of 1 for 5 periods at 12
percent is 3.60478. The present values of 1 at
12 percent at end of each period are:
End of: Period 1 – 0.8928, Period 2 - 0.79719,
Period 3 - 0.71178, Period 4 - 0.63552, Period 5
depreciation, what is the difference in net present
value provided by the machine at a discount rate
of 12 percent? The average accrual accounting rate of return
during the first year of asset’s use is
a. 20.0 percent
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