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Quality Costs
$% The followin& 'ctivities 're t(pic'l in pro)"ction *'n'&e*ent+
$% ,'rr'nt( wor
-% .'/or 'n) overhe') inc"rre) for rewor of )efective pro)"cts fo"n) /( 'n inspector
0% !"'lit( tr'inin& pro&r'*
1% The costs of ' cons"*er co*pl'int )ep'rt*ent
2% In-process inspection costs
3% Reinspection of rewore) pro)"cts
4% Downti*e 'ttri/"te) to 5"'lit( pro/le*s
6% Pro)"ct rec'lls
7% .ower s'les )"e to poor pro)"ct perfor*'nce
$8% !"'lit( '")its
To wh't cl'ssific'tion of 5"'lit( costs )o the fore&oin& )escri/e) costs /elon&9
Prevention Appr'is'l Intern'l :'il"re E;tern'l :'il"re
A% 0<4<$8 0<2 - $<1<6<7
=% 0<$8 2 -<3<4 $<1<6<7
C% $8 0 -<2<3 $<1<4<6<7
D% 0<$8 2 $<-<$8 1<4<6<7
!"estions - thr" 1 're /'se) on the followin& infor*'tion%
At the /e&innin& of the (e'r< >osh"' Corpor'tion initi'te) ' 5"'lit( i*prove*ent pro&r'*% The
pro&r'* w's s"ccessf"l in re)"cin& scr'p 'n) rewor costs% To help 'ssess the i*p'ct of the
5"'lit( i*prove*ent pro&r'*< the followin& )'t' w's collecte) for the c"rrent 'n) prece)in& (e'r%
Prece)in& Ye'r C"rrent Ye'r
S'les P$<888<888 P $<888<888
Recr"itin& $<888 $<288
P'c'&in& inspections -<288 1<888
Downti*e -8<888 $2<888
Reinspection 18<888 -2<888
Pro)"ct inspection 2<888 $8<888
Pro)"ct li'/ilit( 02<888 -4<288
-% As ' res"lt of 5"'lit( i*prove*ents< profits h've incre'se) /(
A% P0-<288 C% P4<288
=% P-8<288 D% P2<88
0% If 5"'lit( costs h') /een re)"ce) to -%2 percent of s'les in the c"rrent (e'r< profits wo"l) h've
incre'se) /(
A% P$44<888 C% P3$<888
=% P26<888 D% P-2<888
1% :or the c"rrent (e'r< the respective percent'&es /'se) on s'les of the )ifferent 5"'lit( costs<
respectivel(< 're+
Prevention Appr'is'l Intern'l :'il"re E;tern'l f'il"re
A% 8%$2? $%18? -%28? $%28?
=% 8%$2? $%18? 1%88? -%42?
C% 8%32? $%88? $%28? 1%-2?
D% 8%32? $%88? -%28? $%28?
Productivity Measures
!"estions 2 @ 3 're /'se) on the followin& infor*'tion%
Infor*'tion '/o"t Rose Co*p'n( is 's follows+
-88$ -88-
O"tp"t A"nitsB 68<888 61<888
Sellin& price per "nit P-2 P-2
Inp"t 5"'ntities+
M'teri'ls Apo"n)sB 1<888 1<888
.'/or Aho"rsB 0<-88 0<-28
Inp"t prices+
M'teri'ls Aper po"n)B P2%88 P2%28
.'/or Aper ho"rB P4%88 P4%28
2% ,h't 're the *'teri'ls pro)"ctivit(< 'n) l'/or pro)"ctivit( r'tio for -88$9
A% =% C% D%
M'teri'ls -8%88 $88%88 -2%88 -8%88
.'/or -2%88 72%12 -1%88 -1%88
3% =( how *"ch )i) profits ch'n&e 's ' res"lt of ch'n&es in pro)"ctivit( rel'te) to *'teri'ls< 'n)
l'/or< respectivel(9
A% =% C% D%
M'teri'ls PA$<$88B P$<$88 PA3-2B P3-2
.'/or P A6-2B P 6-2 P 3-2 P3-2
M'( 7< -881 P'&e $ of -0
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Activity-Based Costing
4% Desi&nin& 'n) ch'n&in& 're 'ctivities th't 're cl'ssifie) 's+
A% Cnit-level C% Pro)"ct-level
=% ='tch-level D% :'cilit(-level
6% Dow 're the followin& 'ctivities cl'ssifie) "sin& A=C s(ste*9
$% Sec"rit(
-% Pro)"ct inspections
0% Ins"r'nce on the pl'nt
1% M'teri'ls h'n)lin&
2% Mo)ific'tions *')e /( en&ineerin& to the pro)"ct )esi&n of sever'l pro)"cts
3% M'chine-rel'te) overhe')
4% Set-"ps
6% Provi)in& sp'ce 'n) "tilities
7% Movin& of inventor(
Cnit .evel ='tch .evel Pro)"ct .evel :'cilit( .evel
A% 1<3<6 -<1<4 $<0 $8
=% -<3 1<2 $<4 0<$8
C% 3 -<1<4<$8 2 $<0<6
D% - $<3<4 $8 0<1<2<6
7% Prote; Co*p'n( *'es two pro)"cts< E 'n) F% E is /ein& intro)"ce) this perio)< where's F
h's /een in pro)"ction for - (e'rs% :or the perio) '/o"t to /e&in< $<888 "nits of e'ch pro)"ct
're to /e *'n"f'ct"re)% The onl( relev'nt overhe') ite* is the cost of en&ineerin& ch'n&e
or)ers% E 'n) F 're e;pecte) to re5"ire ei&ht 'n) two ch'n&e or)ers< respectivel(% E 'n) F
're e;pecte) to re5"ire - 'n) 0 *'chine ho"rs< respectivel(% The cost of ' ch'n&e or)eris
P388%
If Prote; 'pplies en&ineerin& ch'n&e or)er cost on the /'sis of *'chine ho"rs< the overhe')
cost per "nit to /e 'ssi&ne) to E 'n) F< respectivel(< 're
A% P-%18 'n) P0%38< respectivel( C% P1%68 'n) P0%38< respectivel(
=% P0%38 'n) P-%18< respectivel( D% P0%38 'n) P1%68< respectivel(
$8% Fet' Co% is prep'rin& its profit pl'n% As p'rt of its 'n'l(sis of the profit'/ilit( of in)ivi)"'l
pro)"cts< the controller esti*'tes the '*o"nt of overhe') th't sho"l) /e 'lloc'te) to the
in)ivi)"'l pro)"ct lines fro* the infor*'tion &iven 's follows+
,'ll *irrors Speci'l win)ows
Cnits pro)"ce) -2 -2
M'teri'l *oves per pro)"ct line 2 $2
Direct l'/or ho"rs per "nit -88 -88
=")&ete) *'teri'ls h'n)lin& costs P28<888
Cn)er e'ch of the s(ste*s of costin&< how *"ch *'teri'ls h'n)lin& costs sho"l) /e 'lloc'te)
to one "nit of w'll *irrors9
A% =% C% D%
='se) on )irect l'/or ho"rs P$<888 P 288 P-<888 P2<888
Cn)er 'ctivit(-/'se) costin& P 288 P$<888 P$<288 P-<288
Life-Cycle Costing
$$% Rich'r)s< Inc% )evelope) the followin& /")&ete) life-c(cle inco*e st'te*ent for two propose)
pro)"cts% E'ch pro)"ctGs life c(cle is e;pecte) to /e two (e'rs%
Pro)"ct E Pro)"ct Y Tot'l
S'les P-88<888 P-88<888 P188<888
Cost of &oo)s sol) A $-8<888B A$08<888B A -28<888B
Gross Profit P 68<888 P 48<888 P$28<888
Perio) e;penses+
Rese'rch @ )evelop*ent A 48<888B
M'retin& A 28<888B
.ife-c(cle inco*e P 08<888
A $8? ret"rn on s'les is re5"ire) for new pro)"cts% =ec'"se the propose) pro)"cts )i) not
h've ' $8? ret"rn on s'les< the pro)"cts were &oin& to /e )roppe)%
Rel'tive to Pro)"ct Y< Pro)"ct E re5"ires *ore rese'rch 'n) )evelop*ent costs /"t fewer
reso"rces to *'ret the pro)"ct% Si;t( percent of the rese'rch 'n) )evelop*ent costs 're
tr'ce'/le to Pro)"ct E 'n) 08 percent of the *'retin& costs 're tr'ce'/le to Pro)"ct E%
If rese'rch 'n) )evelop*ent costs 'n) *'retin& costs 're tr'ce) to e'ch pro)"ct< life-c(cle
inco*e for Pro)"ct Y wo"l) /e
A% P02<888 C% P$-<888
=% P-8<888 D% P4<888
Cost Behavior
$-% The followin& cost f"nctions were )evelope) for *'n"f'ct"rin& overhe') costs+
M'n"f'ct"rin& Overhe') Costs Cost :"nction
Electricit( P$88 H P-8 per )irect l'/or ho"r
M'inten'nce P-88 H P08 per )irect l'/or ho"r
S"pervisorsG s'l'ries P$8<888 per *onth
In)irect *'teri'ls P$3 per )irect l'/or ho"r
M'( 7< -881 P'&e - of -0
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If >"l( pro)"ction is e;pecte) to /e $<888 "nits re5"irin& $<288 )irect l'/or ho"rs< esti*'te)
*'n"f'ct"rin& overhe') costs wo"l) /e
A% P$87<088 C% P43<088
=% P77<888 D% P$8<033
Cost-Volume-Profit Analysis
$0% The Ship Co*p'n( is pl'nnin& to pro)"ce two pro)"cts< Alt 'n) T")e% Ship is pl'nnin& to sell
$88<888 "nits of Alt 't P1 ' "nit 'n) -88<888 "nits of T")e 't P0 ' "nit% V'ri'/le costs 're
48? of s'les for Alt 'n) 68? of s'les for T")e% In or)er to re'li#e ' tot'l profit of P$38<888<
wh't *"st the tot'l fi;e) costs /e9
A% P68<888 C% P-18<888
=% P78<888 D% P388<888
$1% Glow Co% w'nts to sell ' pro)"ct 't ' &ross *'r&in of -8?% The cost of the pro)"ct is P-%88%
The sellin& price sho"l) /e
A% P$%38 C% P-%18
=% P-%$8 D% P-%28
$2% The followin& rel'tes to Glori' Corpor'tion< which pro)"ce) 'n) sol) 28<888 "nits )"rin& '
recent 'cco"ntin& perio)+
S'les P628<888
:i;e) *'n"f'ct"rin& costs -$8<888
V'ri'/le *'n"f'ct"rin& costs $18<888
:i;e) sellin& 'n) ')*inistr'tive e;pense 088<888
V'ri'/le sellin& 'n) ')*inistr'tive e;pense 12<888
Inco*e t'; r'te 18?
:or the ne;t 'cco"ntin& perio)< if pro)"ction 'n) s'les 're e;pecte) to /e 18<888 "nits< the
co*p'n( sho"l) 'nticip'te ' contri/"tion *'r&in per "nit of
A% P$%88 C% P0%$8
=% P$0%08 D% P4%08
$3% M'))en< Co*p'n( h's proIecte) its inco*e /efore t';es for ne;t (e'r 's shown /elow%
M'))en is s"/Iect to ' 18? inco*e t'; r'te%
S'les A$38<888 "nitsB P6<888<888
Cost of s'les
V'ri'/le costs P -<888<888
:i;e) costs 0<888<888 2<888<888
Inco*e /efore t';es P 0<888<888
M'))enGs net 'ssets 're P03<888<888% The peso s'les th't *"st /e 'chieve) for M'))en to
e'rn ' $8 percent 'fter t'; ret"rn on 'ssets wo"l) /e
A% P6<688<888 C% P$-<888<888
=% P$3<888<888 D% P3<668<888
$4% The followin& )'t' rel'te to Do*er Co*p'n( which sells ' sin&le pro)"ct+
Cnit sellin& price P -8%88
P"rch'se cost per "nit $$%88
S'les co**ission< $8? of sellin& price -%88
Monthl( fi;e) costs P68<888
The fir*Gs s'lespersons wo"l) lie to ch'n&e their co*pens'tion fro* ' $8 percent
co**ission to ' 2 percent co**ission pl"s P-8<888 per *onth in s'l'r(% The( now receive
onl( co**ission%
The ch'n&e in co*pens'tion pl'n sho"l) ch'n&e the *onthl( /re'even point /(
A% $<84$ Incre'se C% $<206 Incre'se
=% $<84$ Decre'se D% $<206 Decre'se
$6% =r"nei Corp% is )evelopin& ' new pro)"ct< s"r&e protectors for hi&h-volt'&e electric'l flows%
The cost infor*'tion for the pro)"ct 're+ Direct *'teri'ls< P0%-2 per "nitJ Direct l'/or< P1%88
per "nitJ Distri/"tion< P8%42 per "nit% The co*p'n( will 'lso /e '/sor/in& P$-8<888 of
'))ition'l fi;e) costs 'ssoci'te) with this new pro)"ct% A corpor'te fi;e) ch'r&e of P-8<888
c"rrentl( '/sor/e) /( other pro)"cts will /e 'lloc'te) to this new pro)"ct%
Dow *'n( s"r&e protectors Aro"n)e) to the ne'rest h"n)re)B *"st =r"nei sell 't ' sellin&
price of P$1 per "nit to incre'se 'fter-t'; inco*e /( P08<8889 Aeffective inco*e t'; r'te is
18?B
A% $8<488 C% -8<888
=% $-<$88 D% -6<088
$7% A *'n"f'ct"rer pro)"ces ' pro)"ct th't sells for P$8 per "nit% V'ri'/le costs per "nit 're P3
'n) tot'l fi;e) costs 're P$-<888% At this sellin& price< the co*p'n( e'rns ' profit e5"'l to
$8? of tot'l peso s'les% =( re)"cin& its sellin& price to P7 per "nit< the *'n"f'ct"rer c'n
incre'se its "nit s'les vol"*e /( -2?% Ass"*e th't there 're no t';es 'n) th't tot'l fi;e)
costs 'n) v'ri'/le costs per "nit re*'in "nch'n&e)% If the sellin& price were re)"ce) to P7
per "nit< the profit wo"l) /e
A% P0<888 C% P2<888
=% P1<888 D% P3<888
M'( 7< -881 P'&e 0 of -0
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-8% .'st (e'r< the *'r&in'l contri/"tion r'te of .'*es' Co*p'n( w's 08?% This (e'r< fi;e) costs
're e;pecte) to /e P$-8<888< the s'*e 's l'st (e'r< 'n) s'les 're forec'ste) 't P228<888 '
$8? incre'se over l'st (e'r% :or the co*p'n( to incre'se inco*e /( P$2<888 in the co*in&
(e'r< the *'r&in'l contri/"tion *'r&in r'te *"st /e
A% -8? C% 18?
=% 08? D% 48?
-$% ,ilson Co% prep're) the followin& preli*in'r( forec'st concernin& pro)"ct G for ne;t (e'r
'ss"*in& no e;pen)it"re for ')vertisin&+
Sellin& price per "nit P $8
Cnits s'les $88<888
V'ri'/le costs P388<888
:i;e) costs P088<888
='se) on ' *'ret st")( in Dece*/er of this (e'r< ,ilson esti*'te) th't it co"l) incre'se the
"nit sellin& price /( $2? 'n) incre'se the "nit s'les vol"*e /( $8? if P$88<888 were spent
on ')vertisin&% Ass"*in& th't ,ilson incorpor'tes these ch'n&es in its forec'st< wh't sho"l)
/e the oper'tin& inco*e fro* pro)"ct G9
A% P$42<888 C% P-82<888
=% P$78<888 D% P032<888
--% Shoes< Cnli*ite) oper'tes ' ch'in of shoe stores 'ro"n) the co"ntr(% The stores c'rr( *'n(
st(les of shoes th't 're 'll sol) 't the s'*e price% To enco"r'&e s'les personnel to /e
'&&ressive in their s'les efforts< the co*p'n( p'(s ' s"/st'nti'l s'les co**ission on e'ch
p'ir of shoes sol)% S'les personnel 'lso receive ' s*'ll /'sic s'l'r(%
The followin& cost 'n) reven"e )'t' rel'te to Store -$ 'n) 're t(pic'l of the co*p'n(Gs *'n(
s'les o"tlets+
Sellin& price P 688
V'ri'/le e;penses+
Invoice costs P038
S'les co**ission $18
288
:i;e) e;penses per (e'r+
Rent P$<388<888
A)vertisin& 0<888<888
S'l'ries $<188<888
Tot'l P3<888<888
The co*p'n( is consi)erin& p'(in& the store *'n'&er ' P38 co**ission on e'ch p'ir of
shoes sol) in e;cess of /re'-even point% If this ch'n&e were *')e< wh't will /e the storeGs
/efore t'; profit or loss 'ss"*in& -0<288 p'irs of shoes 're sol) in ' (e'r9
A% PA038<888B C% P618<888
=% P-<708<888 D% P$<008<888
-0% =E@D Co% is consi)erin& )roppin& ' pro)"ct% V'ri'/le costs 're K3%88 per "nit% :i;e)
overhe') costs< e;cl"sive of )epreci'tion< h've /een 'lloc'te) 't ' r'te of K0%28 per "nit 'n)
will contin"e whether or not pro)"ction ce'ses% Depreci'tion on the e5"ip*ent is P-8<888 '
(e'r% If pro)"ction is stoppe)< the e5"ip*ent c'n /e sol) for P$6<888< if pro)"ction contin"es<
however< it will /e "seless 't the en) of $ (e'r 'n) will h've no s'lv'&e v'l"e% The sellin&
price is P$8 ' "nit% I&norin& t';es< the *ini*"* "nits to /e sol) in the c"rrent (e'r to /re'
even on ' c'sh flow /'sis is
A% 1<288 "nits C% $<688 "nits
=% 2<888 "nits D% 03<888 "nits
!"estions -1 thro"&h -6 're /'se) on the St'te*ent of Inco*e of D'v'o< Inc% which represents
the oper'tin& res"lts for the c"rrent fisc'l (e'r en)in& Dece*/er 0$% D'v'o h') s'les of $<688
tons of pro)"ct )"rin& the c"rrent (e'r% The *'n"f'ct"rin& c'p'cit( of D'v'oGs f'cilities is 0<888
tons of pro)"ct% Consi)er e'ch 5"estionGs sit"'tion sep'r'tel(%
S'les P788<888
V'ri'/le costs
M'n"f'ct"rin& P0$2<888
Sellin& costs $68<888
Tot'l v'ri'/le costs 172<888
Contri/"tion *'r&in P182<888
:i;e) costs
M'n"f'ct"rin& P 78<888
Sellin& $$-<288
A)*inistr'tion 12<888
Tot'l fi;e) costs -14<288
Net inco*e /efore inco*e t';es P$24<288
Inco*e t';es A18?B A30<888B
Net inco*e 'fter inco*e t';es P 71<288
-1% The /re'even vol"*e in tons of pro)"ct for the (e'r is
A% 1-8 C% $<$88
=% 172 D% 228
M'( 7< -881 P'&e 1 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
-2% If the s'les vol"*e is esti*'te) to /e -<$88 tons in the ne;t (e'r< 'n) if the prices 'n) costs
st'( 't the s'*e levels 'n) '*o"nts ne;t (e'r< the 'fter-t'; net inco*e th't D'v'o c'n e;pect
for the ne;t (e'r is
A% P$02<888 C% P$$8<-2
=% P-60<288 D% P$61<288
-3% D'v'o h's ' potenti'l forei&n c"sto*er th't h's offere) to /"( $<288 tons 't P128 per ton%
Ass"*e th't 'll of D'v'oGs costs wo"l) /e 't the s'*e levels 'n) r'tes 's l'st (e'r% ,h't net
inco*e 'fter t';es wo"l) D'v'o *'e if it too this or)er 'n) reIecte) so*e /"siness fro*
re&"l'r c"sto*ers so 's not to e;cee) c'p'cit(9
A% P-74<288 C% P-2-<888
=% P-$$<288 D% P-23<288
-4% ,itho"t preI")ice to (o"r 'nswers to previo"s 5"estions< 'n) 'ss"*e th't D'v'o pl'ns to
*'ret its pro)"ct in 'n new territor(% D'v'o esti*'tes th't 'n ')vertisin& 'n) pro*otion
pro&r'* costin& P3$<288 'nn"'ll( wo"l) nee) to /e "n)ert'en for the ne;t two or three
(e'rs% In '))ition < ' P-2 per ton s'les co**ission over 'n) '/ove the c"rrent co**ission to
the s'les force in the new territor( wo"l) /e re5"ire)% Dow *'n( tons wo"l) h've to /e sol)
in the new territor( to *'int'in D'v'oGs c"rrent 'fter-t'; inco*e of P71<2889
A% 084%2 C% $<872
=% -40%00 D% $<212
-6% ,itho"t preI")ice to prece)in& 5"estions< 'ss"*e th't D'v'o esti*'tes th't the per ton sellin&
price will )ecline $8? ne;t (e'r% V'ri'/le costs will incre'se P18 per ton 'n) the fi;e) costs
will not ch'n&e% ,h't s'les vol"*e in pesos will /e re5"ire) to e'rn 'n 'fter-t'; net inco*e of
P71<288 ne;t (e'r9
A% P$<$18<888 C% P6-2<888
=% P$<288<888 D% P$<028<888
Standard Costing & Variance Analysis
-7% D'hl Co*p'n(< ' clothin& *'n"f'ct"rer< "ses ' st'n)'r) costin& s(ste*% E'ch "nit of finishe)
pro)"ct cont'ins - ('r)s of cloth% Dowever< there is "n'voi)'/le w'ste of -8? c'lc"l'te) on
inp"t 5"'ntities< when the cloth is c"t for 'sse*/l(% The cost of the cloth is P0 per ('r)% The
st'n)'r) )irect *'teri'l cost for cloth per "nit of finishe) pro)"ct is+
A% P1%68 C% P4%88
=% P3%88 D% P4%28
08% The followin& infor*'tion rel'tes to Ore Co*p'n(Gs -880 *'n"f'ct"rin& 'ctivities+
St'n)'r) )irect l'/or ho"rs per "nit -
N"*/er of "nits pro)"ce) 2<888
St'n)'r) v'ri'/le overhe') per st'n)'r) )irect l'/or ho"rs P0
Act"'l v'ri'/le overhe') P-6<888
Cnf'vor'/le overhe') efficienc( v'ri'nce P $<288
The n"*/er of 'ct"'l )irect l'/or ho"rs 're
A% $8<288 C% $8<888
=% $$<888 D% $-<188
!"estions 0$ @ 0- 're /'se) on the followin& infor*'tion%
R'in/ow Co*p'n( "ses ' st'n)'r) cost s(ste*% Infor*'tion '/o"t its )irect l'/or costs for
Pro)"ct ."; for the *onth of >'n"'r( follows+
St'n)'r) ho"rs 'llowe) for 'ct"'l pro)"ction $<288
Act"'l ho"rl( r'te p'i) P3$%88
St'n)'r) ho"rl( r'te P38%88
.'/or efficienc( v'ri'nce< :'vor'/le P3<888
0$% Dow *'n( )irect l'/or ho"rs were 'ct"'ll( wore) )"rin& the *onth of >'n"'r(9
A% $<188 C% $<18-
=% $<176 D% $<388
0-% Dow *"ch w's the )irect l'/or r'te v'ri'nce9
A% P$<188 : C% P$<188 C
=% P$<388 : D% P$<388 C
00% STA Co*p'n( "ses ' st'n)'r) cost s(ste*% The followin& infor*'tion pert'ins to )irect l'/or
costs for the *onth of >"ne+
St'n)'r) )irect l'/or r'te per ho"r P$8%88
Act"'l )irect l'/or r'te per ho"r P 7%88
.'/or r'te v'ri'nce P$-<888 f'vor'/le
Act"'l o"tp"t -<888 "nits
St'n)'r) ho"rs 'llowe) for 'ct"'l pro)"ction $8<888 ho"rs
Dow *'n( 'ct"'l l'/or ho"rs were wore) )"rin& M'rch for STA Co*p'n(9
A% $8<888 C% 6<888
=% $-<888 D% $8<288
M'( 7< -881 P'&e 2 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
01% If 'nn"'l overhe') costs 're e;pecte) to /e P$<888<888 'n) -88<888 tot'l l'/or ho"rs 're
'nticip'te) A68? )irect< -8? in)irectB< the overhe') r'te /'se) on )irect l'/or ho"rs is
A% P3%-2 C% P-2%88
=% P2%88 D% P1%88
02% A=C h') ' P-6<888 f'vor'/le vol"*e v'ri'nce< ' P-2<888 "nf'vor'/le v'ri'/le overhe')
spen)in& v'ri'nce< 'n) P$-<888 tot'l over'pplie) overhe')% The fi;e) overhe') /")&et
v'ri'nce w's
A% P7<888 f'vor'/le C% P7<888 "nf'vor'/le
=% P-3<888 f'vor'/le D% P-3<888 "nf'vor'/le
03% Given for the v'ri'/le f'ctor( overhe') of E Pro)"cts Inc%+ P07<288 'ct"'l inp"t 't /")&ete)
r'te< P1$<288 fle;i/le /")&et /'se) on st'n)'r) inp"t 'llowe) for 'ct"'l o"tp"t< P-<288
f'vor'/le fle;i/le /")&et v'ri'nce% Co*p"te the spen)in& v'ri'nce+
A% P288 C C% P288 :
=% P-<888 : D% P-<888 C
04% ='con h') ' P-6<888 "nf'vor'/le vol"*e v'ri'nce< ' P2<888 "nf'vor'/le fi;e) overhe')
/")&et v'ri'nce< 'n) P--<888 tot'l "n)er'pplie) overhe')% The v'ri'/le overhe') spen)in&
v'ri'nce w's
A% P$$<888 f'vor'/le C% P$$<888 "nf'vor'/le
=% P$<888 f'vor'/le D% P-0<888 "nf'vor'/le
06% Ac*e h') ' P--<888 f'vor'/le fi;e) overhe') /")&et v'ri'nce< ' P$2<888 "nf'vor'/le
v'ri'/le overhe') spen)in& v'ri'nce< 'n) P-<888 tot'l over'pplie) overhe')% The vol"*e
v'ri'nce w's
A% P$0<888 over'pplie) C% P2<888 over'pplie)
=% P$0<888 "n)er'pplie) D% P2<888 "n)er'pplie)
07% Al)orp h') ' P$8<888 "nf'vor'/le fi;e) overhe') /")&et v'ri'nce< ' P3<888 "nf'vor'/le
v'ri'/le overhe') spen)in& v'ri'nce< 'n) ' P-<888 f'vor'/le vol"*e v'ri'nce% The tot'l
overhe') w's
A% P$1<888 over'pplie) C% P$6<888 over'pplie)
=% P$1<888 "n)er'pplie) D% P$6<888 "n)er'pplie)
18% :i)elit( Co*p'n( "ses ' fle;i/le /")&et s(ste* 'n) prep're) the followin& infor*'tion for the
(e'r+ :i)elit( oper'te) 't 68 percent of c'p'cit( )"rin& the (e'r< /"t 'pplie) f'ctor( overhe')
/'se) on the 78 percent c'p'cit( level% Ass"*in& th't 'ct"'l f'ctor( overhe') w's e5"'l to
the /")&ete) '*o"nt of overhe')< how *"ch w's the overhe') vol"*e v'ri'nce for the (e'r9
Percent of C'p'cit( 68 Percent 78 Percent
Direct l'/or ho"rs -1<888 -4<888
V'ri'/le f'ctor( overhe') P21<888 P38<428
:i;e) f'ctor( overhe') P6$<888 P6$<888
Tot'l f'ctor( overhe') r'te pre D.D P2%3-2 P2%-2
A% P7<888 C C% P7<888 :
=% P$2<428 C D% P$2<428 :
1$% Csin& the infor*'tion presente) /elow< c'lc"l'te the tot'l overhe') spen)in& v'ri'nce%
=")&ete) fi;e) overhe') P$8<888
St'n)'r) v'ri'/le overhe') A- D.D 't P- per D.DB P1 per "nit
Act"'l fi;e) overhe') P$8<088
Act"'l v'ri'/le overhe') P$7<288
=")&ete) vol"*e A2<888 "nits ; - D.DB $8<888 D.D
Act"'l )irect l'/or ho"rs AD.DB 7<288
Cnits pro)"ce) 1<288
A% P288 C C% P$<888 C
=% P688 C D% P$<088 C
42. STA Companys standard fixed overhead cost is P3 per direct labor hour based
on budeted fixed costs of P3!!"!!!. The standard allo#s 2 direct labor hours
per unit. $urin 2!!%" STA produced &&"!!! units of product" incurred
P3%&"!!! of fixed overhead costs" and recorded %!'"!!! actual hours of direct
labor. (hat are the fixed overhead variances)
A% =% C% D%
:i;e) OD spen)in& A/")&etB v'ri'nce P$2<888 C P00<888 C P$2<888 C P00<888 C
:i;e) OD Vol"*e v'ri'nce P08<888 : P08<888 : P$6<888 : P$6<888 :
!"estions 10 'n) 11 're /'se) on the followin& infor*'tion%
R'ff Co%Gs *onthl( nor*'l vol"*e is 28<888 "nits A$88<888 )irect l'/or ho"rs%B R'ff Co%Gs st'n)'r)
cost s(ste* cont'ins the followin& overhe') costs+
V'ri'/le P3 per "nit
:i;e) 6 per "nit
M'( 7< -881 P'&e 3 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
The followin& infor*'tion pert'ins to the *onth of M'rch
Cnits 'ct"'ll( pro)"ce) 06<888
Act"'l )irect l'/or ho"rs wore) 68<888
Act"'l overhe') inc"rre)+
V'ri'/le P-28<888
:i;e) 061<888
10% :or M'rch< the "nf'vor'/le v'ri'/le overhe') spen)in& v'ri'nce w's
A% P3<888 C% P$-<888
=% P$8<888 D% P--<888
11% :or M'rch< the fi;e) overhe') vol"*e v'ri'nce w's
A% P73<888 C C% P68<888 C
=% P73<888 : D% P68<888 :
12% S*ile Corpor'tion "ses ' st'n)'r) cost s(ste*% Infor*'tion for the *onth of April is 's
follows+
Act"'l *'n"f'ct"rin& overhe') costs AP$0<888 is fi;e)B P18<888
Direct l'/or+
Act"'l ho"rs wore) $-<888 ho"rs
St'n)'r) ho"rs 'llowe) $8<888 ho"rs
Aver'&e 'ct"'l l'/or cost per ho"r P7
The f'ctor( overhe') r'te is /'se) on ' nor*'l vol"*e of $-<888 )irect l'/or ho"rs
St'n)'r) cost )'t' 't $-<888 )irect l'/or ho"rs w's+
V'ri'/le f'ctor( overhe') P-1<888
:i;e) f'ctor( overhe') $-<888
Tot'l f'ctor( overhe') P03<888
,h't 're the followin& overhe') v'ri'nces9
A% =% C% D%
V'ri'/le OD Spen)in& P0<888 C P0<888 C P4<888 C P4<888 C
V'ri'/le OD Efficienc( P-<888 C P1<888 C P-<888 C P1<888 C
:i;e) OD Spen)in& P1<888 C P$<888 C P$<888 C P1<888 C
!"estions 13 thr" 16 're /'se) on the followin& infor*'tion%
E)ne( Co*p'n( e*plo(s st'n)'r) '/sorption s(ste* for pro)"ct costin&% The st'n)'r) cost of its
pro)"ct is 's follows+
R'w *'teri'ls P$1%28
Direct l'/or A- D.D ; P6B $3%88
M'n"f'ct"rin& overhe') A- D.D ; P$$B --%88
The *'n"f'ct"rin& overhe') r'te is /'se) "pon ' nor*'l 'ctivit( level of 388<888 )irect l'/or
ho"rs% E)ne( pl'nne) to pro)"ce -2<888 "nits e'ch *onth )"rin& the (e'r% The /")&ete) 'nn"'l
*'n"f'ct"rin& overhe') is
V'ri'/le P0<388<888
:i;e) 0<888<888
D"rin& Nove*/er< E)ne( pro)"ce) -3<888 "nits% E)ne( "se) 20<288 )irect l'/or ho"rs in
Nove*/er 't ' cost of P100<028% Act"'l *'n"f'ct"rin& overhe') for the *onth w's P-38<888
fi;e) 'n) 0$2<888 v'ri'/le% The tot'l *'n"f'ct"rin& overhe') 'pplie) )"rin& Nove*/er w's
P24-<888%
13% The v'ri'/le *'n"f'ct"rin& overhe') v'ri'nces for Nove*/er 're
A% =% C% D%
Spen)in& P7<888 C P3<888 : P1<888 C P 7<888 :
Efficienc( P0<888 C P7<888 C P$<888 : P$-<888 C
14% The fi;e) *'n"f'ct"rin& overhe') v'ri'nces for Nove*/er 're
A% =% C% D%
Spen)in& P$8<888 : P$8<888 C P3<888 : P 1<888 C
Vol"*e P$8<888 f P$8<888 : P0<888 C P--<888 :
16% The tot'l v'ri'nce rel'te) to efficienc( of the *'n"f'ct"rin& oper'tion for Nove*/er is+
A% P7<888 C C% P-$<888 C
=% P$-<888 C D% P$-<888 C
!"estions 17 thr" 20 're /'se) on the followin& infor*'tion%
The followin& )'t' 're 'ct"'l res"lts for Ro')tre co*p'n( for Octo/er+
Act"'l o"tp"t 7<888 c'ses
Act"'l v'ri'/le overhe') P182<888
Act"'l fi;e) overhe') P$--<888
Act"'l *'chine ti*e 18<288 *'chine ho"rs
St'n)'r) cost 'n) /")&et infor*'tion for Ro')tre Co*p'n( follows+
St'n)'r) v'ri'/le overhe') r'te P7%88 per MD
St'n)'r) 5"'ntit( of *'chine ho"rs 1 ho"rs per c'se
=")&ete) fi;e) overhe') P$<118<888 per (e'r
=")&ete) o"tp"t $8<888 c'ses per *onth
M'( 7< -881 P'&e 4 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
17% The v'ri'/le overhe') spen)in& v'ri'nce for the *onth of Octo/er is
A% P18<288 C C% P12<888 C
=% P6$<888 C D% P6$<888 :
28% The overhe') efficienc( v'ri'nce is
A% P1<288 C C% P1<288 :
=% P18<288 C D% P18<288 :
2$% The '*o"nt of fi;e) overhe') controll'/le v'ri'nce is
A% P-<888 C C% P1-<288 C
=% P-<888 : D% P1-<288 :
2-% The '*o"nt of fi;e) overhe') vol"*e v'ri'nce is
A% P$-<888 : C% P-$<888 :
=% P$-<888 C D% P-$<888 C
20% The '*o"nt v'ri'/le overhe') vol"*e v'ri'nce is
A% Fero C% P$-<888 :
=% P7<888 C D% P-<-28 C
Absortion Costing & Variable Costing
21% ,hich of the followin& st'te*ents is tr"e for ' fir* th't "ses v'ri'/le A)irectB costin&9
A% The cost of ' "nit of pro)"ct ch'n&es /ec'"se of ch'n&es in the n"*/er of "nits
*'n"f'ct"re)%
=% Profits fl"ct"'te with s'les
C% An i)le f'cilit( v'ri'tion is c'lc"l'te)
D% Pro)"ct costs incl")e L)irectM Av'ri'/leB ')*inistr'tive costs%
22% At its present level of oper'tions< ' s*'ll *'n"f'ct"rin& fir* h's tot'l v'ri'/le costs e5"'l to
42? of s'les 'n) tot'l fi;e) costs e5"'l to $2? of s'les% ='se) on v'ri'/le costin&< if s'les
ch'n&e /( P$%88< inco*e will ch'n&e /(
A% P8%-2 C% P8%42
=% P8%$- D% P8%$8
!elevant Costing
23% An i*port'nt concept in )ecision *'in& is )escri/e) 's the contri/"tion to inco*e th't is
for&one /( not "sin& ' li*ite) reso"rces in its /est 'ltern'tive "se% This concept is c'lle)
A% M'r&in'l cost C% Potenti'l cost
=% Opport"nit( costs D% Relev'nt cost
24% If reven"es 're P-$8<888 "n)er 'ltern'tive A 'n) P-$3<888 "n)er 'ltern'tive =< 'n) costs 're
P$78<888 for A 'n) P-81<888 for =< then "sin& the /'sic 'ppro'ch in incre*ent'l 'n'l(sis<
incre*ent'l reven"es< costs< 'n) net inco*e< in co*p'rin& = to A 're respectivel(
A% P3<888< PA$1<888B< PA6<888B C% P3<888< P$1<888< P6<88
=% PA3<888B< P$1<888< P6<888 D% PA3<888B< PA$1<888B< PA6<888B
26% :or the (e'r en)e) April 08< -880< .e/' Co*p'n( inc"rre) )irect costs of P688<888 /'se) on
' p'rtic"l'r co"rse of 'ction% D') ' )ifferent co"rse of 'ction /een t'en< )irect costs wo"l)
h've /een P328<888% In '))ition< .e/'Gs fi;e) costs )"rin& the fisc'l (e'r were P$$8<888%
The incre*ent'l A)ecre*ent'lB costs w's+
A% P18<888 C% PA18<888B
=% P$28<888 D% PA$28<888B
&*. (allace Company produces %&"!!! pounds of Product A and 3!"!!! pound of
Product + each #ee, by incurrin a common variable costs of P4!!"!!!.
These t#o products can be sold as is or processed further. -urther processin
of either product does not delay the production of subse.uent batches of the
/oint product. $ata atherin there t#o products are as follo#s0
Pro)"ct A Pro)"ct =
Sellin& price per po"n) witho"t f"rther Processin& P $-%88 P 7%88
Sellin& price per po"n) with f"rther Processin& P $2%88 P $$%88
Tot'l sep'r'te weel( v'ri'/le costs of :"rther processin& P28<888 P12<888
To *';i*i#e ,'ll'ce Co*p'n(Gs *'n"f'ct"rin& contri/"tion *'r&in< the tot'l sep'r'te
v'ri'/le costs of f"rther processin& th't sho"l) /e inc"rre) e'ch wee 're
A% P12<888 C% P72<888
=% P28<888 D% P8
38% =l"e @ Co*p'n( sells ' pro)"ct for P-8 with v'ri'/le cost of P6 per "nit% =l"e co"l) 'ccept '
speci'l or)er for $<888 "nits 't P$1% If =l"e 'ccepte) the or)er< how *'n( "nits co"l) it lose
't the re&"l'r price /efore the )ecision /eco*e "nwise9
A% $<888 "nits C% P288 "nits
M'( 7< -881 P'&e 6 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
=% P-88 "nits D% 8 "nits
3$% Ge'r( M'n"f'ct"rin& h's 'sse*/le) the followin& )'t' pert'inin& to two pop"l'r pro)"cts%
=len)er Electric *i;er
Direct *'teri'ls P 3 P $$
Direct l'/or 1 7
:'ctor( overhe') N P$3 per ho"r $3 0-
Cost if p"rch'se) fro* 'n o"tsi)e s"pplier -8 06
Ann"'l )e*'n) A"nitsB -8<888 -6<888
P'st e;perience h's shown th't the fi;e) *'n"f'ct"rin& overhe') co*ponent incl")e) in the
cost per *'chine ho"r 'ver'&es P$8% Ge'r( h's ' polic( of fillin& 'll s'les or)ers< even if it
*e'ns p"rch'sin& "nits fro* o"tsi)e s"ppliers%
If 28<888 *'chine ho"rs 're 'v'il'/le< 'n) Ge'r( M'n"f'ct"rin& )esires to follow 'n opti*'l
str'te&(< it sho"l)
A% pro)"ce -2<888 electric *i;ers< 'n) p"rch'se 'll other "nits 's nee)e)
=% pro)"ce -8<888 /len)ers 'n) $2<888 electric *i;ers< 'n) p"rch'se 'll other "nits 's
nee)e)
C% pro)"ce -8<888 /len)ers 'n) p"rch'se 'll other "nits 's nee)e)
D% p"rch'se 'll "nits 's nee)e)
3-% The Din&is Corpor'tion *'n"f'ct"res two pro)"cts+ E 'n) Y% Contri/"tion *'r&in per "nit is
)eter*ine) 's follows+
Pro)"ct E Pro)"ct Y
Reven"e P $08 P68
V'ri'/le costs 48 06
Contri/"tion *'r&in P 38 P1-
Tot'l )e*'n) for E is $3<888 "nits 'n) for Y is 6<888 "nits% M'chine ho"rs is ' sc'rce
reso"rce% 1-<888 *'chine ho"rs 're 'v'il'/le )"rin& the (e'r% Pro)"ct E re5"ires 3 *'chine
ho"rs per "nit while pro)"ct Y re5"ires 0 *'chine ho"rs per "nit%
Dow *'n( "nits of E 'n) Y sho"l) Din&is Corpor'tion pro)"ce9
A% =% C% D%
Pro)"ct E $3<888 6<888 4<888 0<888
Pro)"ct Y - 8 - 1<888 - 8 - 6<888
30% ,'&ner sells pro)"ct A 't ' price of P-$ per "nit% ,'&nerGs cost per "nit /'se) on the f"ll
c'p'cit( of -88<888 "nits is 's follows+
Direct *'teri'ls P 1
Direct l'/or 2
Overhe') A-O0 of which is fi;e)B 3
P$2
A speci'l or)er offerin& to /"( -8<888 "nits w's receive) fro* ' forei&n )istri/"tor% The onl(
sellin& costs th't wo"l) /e inc"rre) on this or)er wo"l) /e P0 per "nit for shippin&% ,'&ner
h's s"fficient e;istin& c'p'cit( to *'n"f'ct"re the '))ition'l "nits
To 'chieve 'n incre'se in oper'tin& inco*e of P18<888% ,'&ner sho"l) ch'r&e ' sellin& price
of
A% P$1 C% P$3
=% P$2 D% P$6
31% Y'r)le( Co% h's consi)er'/le e;cess *'n"f'ct"rin& c'p'cit(% A speci'l Io/ or)erGs cost sheet
incl")es the followin& 'pplie) *'n"f'ct"rin& overhe') costs+
V'ri'/le costs P23<-28
:i;e) costs 12<888
The fi;e) costs incl")e ' nor*'l P3<688 'lloc'tion for in-ho"se )esi&n costs< 'ltho"&h no in-
ho"se )esi&n will /e )one% Inste')< the speci'l Io/ will re5"ire the "se of e;tern'l )esi&ners
costin& P$0<428% ,h't is the *ini*"* 'ccept'/le price of the Io/9
A% P30<828 C% P$8$<-28
=% P48<888 D% P$86<-88
32% MC In)"stries *'n"f'ct"res ' pro)"ct with the followin& costs per "nit 't the e;pecte)
pro)"ction of 08<888 "nits+
Direct *'teri'ls P 1
Direct l'/or $-
V'ri'/le *'n"f'ct"rin& overhe') 3
:i;e) *'n"f'ct"rin& overhe') 6
The co*p'n( h's the c'p'cit( to pro)"ce 18<888 "nits% The pro)"ct re&"l'rl( sells for P18% A
wholes'ler h's offere) to p'( P0- ' "nit for -<888 "nits%
If the fir* is 't c'p'cit( 'n) the speci'l or)er is 'ccepte)< the effect on oper'tin& inco*e
wo"l) /e
A% ' P-8<888 incre'se C% ' P1<888 incre'se
=% ' P$3<888 )ecre'se D% P8
33% G't' Co% pl'ns to )iscontin"e ' )ep'rt*ent with ' P16<888 contri/"tion to overhe')< 'n)
'lloc'te) overhe') of P73<888< of which P1-<888 c'nnot /e eli*in'te)% ,h't wo"l) /e the
effect of this )iscontin"'nce on G't'Gs pret'; profit9
A% incre'se of P16<888 C% incre'se of P3<888
M'( 7< -881 P'&e 7 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
=% )ecre'se of P16<888 D% incre'se of P3<888
34% Pili Co*p'n( pl'ns to )iscontin"e ' se&*ent with ' P0-<888 se&*ent *'r&in% Co**on
e;penses 'lloc'te) to the se&*ent '*o"nte) to P12<888< of which P-8<888 c'nnot /e
eli*in'te) if the se&*ent were close)% The effect of closin& )own the se&*ent on Pili
Co*p'n(Gs /efore t'; profit wo"l) /e
A% P$-<888 )ecre'se C% P$-<888 incre'se
=% P 4<888 )ecre'se D% P 4<888 incre'se
36% Division = e'rns ' contri/"tion *'r&in of P-88<888 'n) h's ' )ivision'l *'r&in of P48<888% If
Division = is close)< 'll of the )irect )ivision'l e;penses 'n) P$$8<888 of co**on e;penses
c'n /e eli*in'te)% These f'cts in)ic'te th't closin& the )ivision will c'"se the fir*Gs oper'tin&
inco*e to
A% incre'se /( P78<888 C% incre'se /( P18<888
=% )ecre'se /( P78<888 D% )ecre'se /( P18<888
37% Consi)er the followin& portion of ' se&*ente) inco*e st'te*ent for the (e'r I"st en)e)%
Ass"*e th't the fi;e) e;penses of Division E incl")e P08<888 of )irect e;penses 'n) th't the
)iscontin"'nce of the )ep'rt*ent will not 'ffect the s'les of the other )ep'rt*ents nor re)"ce
the co**on e;penses+
Net s'les P$88<888
V'ri'/le *'n"f'ct"rin& costs 38<888
Gross profit P 18<888
:i;e) e;penses A)irect 'n) 'lloc'te)B 28<888
.oss fro* oper'tions P A$8<888B
,h't wo"l) /e the effect on the fir*Gs oper'tin& inco*e if Division E were )iscontin"e)9
A% incre'se of P$8<888 C% )ecre'se of P$88<888
=% )ecre'se of P18<888 D% )ecre'se of P$8<888
48% Con)ense) *onthl( oper'tin& inco*e )'t' for Cos*o Inc% for Nove*/er -888 is presente)
/elow% A))ition'l infor*'tion re&'r)in& Cos*oGs oper'tion follows the st'te*ent%
Tot'l D'll Store Town Store
S'les P-88<888 P68<888 P$-8<888
.ess V'ri'/le costs $$3<888 0-<888 61<888
Contri/"tion *'r&in P 61<888 P16<888 P 03<888
.ess )irect fi;e) e;pense 38<888 -8<888 18<888
Store se&*ent *'r&in P -1<888 P-6<888 P A 1<888B
.ess co**on fi;e) e;penses $8<888 1<888 3<888
Oper'tin& inco*e P $1<888 P-1<888 P A$8<888B
One-fo"rth of e'ch storeGs )irect fi;e) e;penses wo"l) contin"e thro"&h Dece*/er 0$< -88$<
if either store were close)% M'n'&e*ent esti*'tes th't closin& the Town Store wo"l) res"lt in
' ten percent )ecre'se in D'll Store% D'll Store wo"l) not 'ffect Town Store s'les% The
oper'tin& res"lts for Nove*/er -888 're represent'tive of 'll *onths%
A )ecision of Cos*o< Inc% to close the Town Store wo"l) res"lt in ' *onthl( incre'se
A)ecre'seB in Cos*oGs oper'tin& inco*e )"rin& -88$ of
A% P1<888 C% AP688B
=% AP$8<688B D% AP3<888B
4$% Pel"so Co*p'n(< ' *'n"f'ct"rer of snow*o/iles< is oper'tin& 't 48 percent of pl'nt c'p'cit(%
Pel"soGs pl'nt *'n'&er is consi)erin& *'in& the he')li&hts now /ein& p"rch'se) for P$<$88
e'ch< ' price th't is not e;pecte) to ch'n&e in the ne'r f"t"re% The Pel"so pl'nt h's the
e5"ip*ent 'n) l'/or force re5"ire) to *'n"f'ct"re the he')li&hts% The )esi&n en&ineer
esti*'tes th't e'ch he')li&ht re5"ires P188 of )irect *'teri'ls 'n) P088 of )irect l'/or%
Pel"soGs pl'nt overhe') r'te is -88 percent of )irect l'/or costs< 'n) 18 percent of the
overhe') is fi;e) cost% A )ecision /( Pel"so Co*p'n( to *'n"f'ct"re the he')li&hts will
res"lt in ' &'in AlossB for e'ch he')li&ht of
A% PA-88B C% P18
=% P$38 D% P-68
!"estions 4- thr" 41 're /'se) on the followin& infor*'tion+
.el'n) M'n"f'ct"rin& "ses $8 "nits of P'rt N"*/er P>04 e'ch *onth in the pro)"ction of r')'r
e5"ip*ent% The "nit cost to *'n"f'ct"re one "nit of P>04 is presente) /elow%
Direct *'teri'ls P$<888
M'teri'ls h'n)lin& A-8? of )irect *'teri'l costB -88
Direct l'/or 6<888
M'n"f'ct"rin& overhe') A$28? of )irect l'/orB $-<888
M'teri'l h'n)lin& represents the )irect v'ri'/le costs of the Receivin& )ep'rt*ent th't 're 'pplie)
to )irect *'teri'ls 'n) p"rch'se) co*ponents on the /'sis of their cost% This is ' sep'r'te ch'r&e
in '))ition to *'n"f'ct"rin& overhe')% .el'n)Gs 'nn"'l *'n"f'ct"rin& overhe') /")&et is one-
thir) v'ri'/le 'n) two-thir)s fi;e)% Scott S"ppl(< one of .el'n)Gs reli'/le ven)ors< h's offere) to
s"ppl( P'rt No% P>$04 't ' "nit price of P$2<888%
4-% If .el'n) p"rch'ses the P>04 "nits fro* Scott< the c'p'cit( .el'n) "se) to *'n"f'ct"re these
p'rts wo"l) /e i)le% Sho"l) .el'n) )eci)e to p"rch'se the p'rts fro* Scott< the "nit cost of
P>04 wo"l)
A% incre'se /( P1<688 C% )ecre'se /( P0<-88
M'( 7< -881 P'&e $8 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
=% )ecre'se /( P3<-88 D% incre'se /( P$<688 40% Ass"*e .el'n) M'n"f'ct"rin& is '/le to rent 'll i)le c'p'cit( for P-2<888 per *onth% If .el'n)
)eci)e) to p"rch'se the $8 "nits fro* Scott S"ppl(< .el'n)Gs *onthl( cost for P>04 wo"l)
A% incre'se P16<888 C% )ecre'se P4<888
=% incre'se P-0<888 D% )ecre'se P24<888
41% Ass"*e th't .el'n) )oes not wish to co**it to ' rent'l '&ree*ent /"t co"l) "se i)le c'p'cit(
to *'n"f'ct"re 'nother pro)"ct th't wo"l) contri/"te P2-<888 per *onth% If .el'n) elects to
*'n"f'ct"re P>04 in or)er to *'int'in 5"'lit( control< .el'n)Gs opport"nit( cost is
A% P$6<888 C% P1<888
=% AP-8<888B D% AP16<888B
!esonsibility Accounting & "ransfer Pricing
42% A *'n'&e*ent )ecision *'( /e /enefici'l for ' &iven profit center< /"t not for the entire
co*p'n(% :ro* the over'll co*p'n( viewpoint< this )ecision wo"l) le') to
A% &o'l con&r"ence C% s"/opti*i#'tion
=% centr'li#'tion D% *';i*i#'tion
43% Co*p'n( . h') its oper'tin& 'sset t"rnover incre'se) /( 28? 'n) the oper'tin& inco*e
*'r&in incre'se) /( 28?% Co*p'n( C h') its oper'tin& 'sset t"rnover incre'se) /( 08? 'n)
the oper'tin& inco*e *'r&in )ecre'se) /( 08?% ,h't ch'n&es 're e;pecte) for ROI of
Co*p'n( . 'n) Co*p'n( C< respectivel(9
A% =% C% D%
Co*p'n( . 28? incre'se $-2? incre'se --2? incre'se $-2? incre'se
Co*p'n( C 7? )ecre'se 7? )ecre'se no ch'n&e no ch'n&e
44% The *'n'&er of the !"een Division of P"so( Co*p'n( e;pects the followin& res"lts in -881
Apesos in *illionsB+
S'les P17%38
V'ri'/le costs A38?B -7%43
Contri/"tion *'r&in P$7%61
:i;e) costs $-%88
Profit P 4%61
Invest*ent+
Pl'nt e5"ip*ent P$7%2$
,orin& c'pit'l $1%66
P01%07
ROI P4%61OP01%07 --%68?
M'( 7< -881 P'&e $$ of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
The )ivision h's ' t'r&et ROI of 08 percent< 'n) the *'n'&er h's 'se) (o" to )eter*ine how
*"ch s'les vol"*e the )ivision wo"l) nee) to re'ch th't% De st'tes th't the s'les *i; is
rel'tivel( const'nt so v'ri'/le costs sho"l) /e close to 38 percent of s'les< fi;e) cost 'n)
pl'nt 'n) e5"ip*ent sho"l) re*'in const'nt< 'n) worin& c'pit'l Ac'sh< receiv'/les< 'n)
inventoriesB sho"l) v'r( closel( with s'les in the percent'&e reflecte) '/ove% The peso s'les
th't the )ivision nee)s in or)er to re'ch the 08 percent ROI t'r&et is
A% P$7<6-7<80- C% P24<278<0--
=% P11<040<64$ D% P27<2$8<888
46% Ace Division of C'r)< Inc% e;pects the followin& res"lt for -881+
Cnit s'les 48<888
Cnit sellin& price P $8
Cnit v'ri'/le cost P 1
Tot'l fi;e) costs P 088<888
Tot'l invest*ent P 288<888
The *ini*"* re5"ire) ROI is $2 percent< 'n) )ivisions 're ev'l"'te) on resi)"'l inco*e% A
forei&n c"sto*er h's 'ppro'che) Do"stonGs *'n'&er with 'n offer to /"( $8<888 "nits 't P4
e'ch% Do"ston Division h's c'p'cit( of 42<888 "nits 'n) the forei&n c"sto*er will not 'ccept
fewer th'n $8<888 "nits% Acceptin& the or)er wo"l) incre'se fi;e) costs /( P$8<888 'n)
invest*ent /( P18<888%
At the price of P4 offere) /( forei&n c"sto*er< wh't is the *';i*"* n"*/er of "nits in re&"l'r
s'les th't Do"ston co"l) s'crifice 'n) still *'int'in its e;pecte) resi)"'l inco*e9
A% -<000 C% -<334
=% 0<000 D% 0<334
1*. -amily Company has t#o division" 2a and Pa. 3nformation for each division
is as follo#s0
M' P'
Net e'rnin&s for )ivision P-8<888 P32<888
Asset /'se for )ivision P28<888 P088<888
T'r&et r'te of ret"rn $2? $6?
Oper'tin& inco*e *'r&in $8? -8?
,ei&hte) 'ver'&e cost of c'pit'l $-? $-?
,h't is the Econo*ic V'l"e A))e) for M' 'n) P'< respectivel(9
A% P-8<888< P03<888 C% P$-<288< P$$<888
=% P$1<888< P-7<888 D% P-8<888< P-7<888
68% An 'ppropri'te tr'nsfer price /etween two )ivisions of the St'r Corpor'tion c'n /e )eter*ine)
fro* the followin& )'t'+
:'/ric'tion Division
M'ret price of s"/'sse*/l( P28
V'ri'/le cost of s"/'sse*/l( P-8
E;cess c'p'cit( Ain "nitsB $<888
Asse*/lin& Division
N"*/er of "nits nee)e) 788
,h't is the n't"r'l /'r&'inin& r'n&e for the two )ivisions9
A% =etween P-8 'n) P28 C% An( '*o"nt less th'n P28
=% =etween P28 'n) P48 D% P28 is the onl( 'ccept'/le price
6$% P'cific Co*p'n( h's three pl'nts+ one loc'te) in M'l'(si'< one in In)i' 'n) 'nother pl'nt
loc'te) in the Philippines% =oth pl'nts *'n"f'ct"res ' co*ponent "se) in ' finishe) pro)"ct
*'n"f'ct"re) in the Philippine pl'nt% C"rrentl(< /oth pl'nts 're oper'tin& 't 48 percent
c'p'cit(% In M'l'(si' the inco*e t'; r'te is 1-? while in In)i' the t'; r'te 02?J in the
Philippines< the corpor'te inco*e t'; r'te is 18?%
The *'ret price of the co*ponent< in peso e5"iv'lent< is P$88 'n) the forei&n pl'ntGs costs to
*'n"f'ct"re the co*ponent 're 's follows+
Direct *'teri'ls P$8
Direct l'/or -8
V'ri'/le overhe') 2
:i;e) overhe') -2
,hich tr'nsfer price wo"l) /e in the /est interest of the over'll corpor'tion9
A% =% C% D%
M'l'(si' P02 P 02 P$88 P$88
In)i' P02 P$88 P$88 P 02
6-% The En&ine Division provi)es *otors for the A"to Division of ' co*p'n(% The st'n)'r) "nit
costs for En&ine Division 're 's follows+
Direct *'teri'ls $8<888
Direct l'/or -8<888
V'ri'/le Overhe') 2<888
:i;e) Overhe') -<288
M'ret price P12<288
,h't is the /est tr'nsfer price to 'voi) tr'nsfer price pro/le*s9
A% P12<288 C% P02<888
=% P08<888 D% P04<288
M'( 7< -881 P'&e $- of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
60% To 'voi) w'ste 'n) *';i*i#e efficienc( when tr'nsferrin& pro)"cts '*on& )ivisions in '
co*petitive econo*(< ' l'r&e )iversifie) corpor'tion sho"l) /'se tr'nsfer prices on+
A% :"ll cost C% v'ri'/le costs
=% repl'ce*ent cost D% *'ret price
Product Pricing #ecision
61% G'r)en Corp% h') the followin& infor*'tion+
Reven"es P288<888
Cost of &oo)s sol)+
Direct *'teri'ls P$88<888
Direct l'/or 42<888
Overhe') $-2<888 088<888
Gross profit P-88<888
Sellin& 'n) ')*in e;penses 42<888
Oper'tin& inco*e P$-2<888
,h't 're the *'r "p /'se) on+
A% =% C% D%
Cost of &oo)s sol) 33%4? $33%4? 33%4? $33%4?
Pri*e costs $62%4? 1-%7? 1-%7? $62%4?
Direct *'teri'ls 188%8? 288%8? 188%8? 288%8?
Master Budget
62% The *etho) of /")&etin& which '))s one *onthGs /")&et to the en) of the pl'n when the
c"rrent *onthGs /")&et is )roppe) fro* the pl'n refers to
A% .on&-ter* /")&et C% Incre*ent'l /")&et
=% Oper'tions /")&et D% Contin"o"s /")&et
63% >''rt' Corpor'tion pl'ns to sell -88<888 "nits of ='ti pro)"cts in Octo/er 'n) 'nticip'tes '
&rowth in s'les of 2 percent per *onth% The t'r&et en)in& inventor( in "nits of the pro)"ct is
68? of the ne;t *onthGs esti*'te) s'les% There 're $28<888 "nits in inventor( 's of the en) of
Septe*/er% The pro)"ction re5"ire*ent in "nits of ='ti for the 5"'rter en)in& Dece*/er 0$
wo"l) /e
A% 348<238 C% 332<4-8
=% 37$<2-2 D% 342<7-2
!"estions 64 @ 66 concern P'r')ise Co*p'n(< which /")&ets on 'nn"'l /'sis for its fisc'l (e'r%
The followin& /e&innin& 'n) en)in& inventor( levels Ain "nitsB 're pl'nne) for the fisc'l (e'r of >"l(
$< -888 thro"&h >"ne 08< -88$%
>"l( $< -888 >"ne 08< -88$
R'w *'teri'lQ 18<888 28<888
,or-in-process $8<888 $8<888
:inishe) &oo)s 68<888 28<888
QTwo A-B "nits of r'w *'teri'l 're nee)e) to pro)"ce e'ch "nit of finishe) pro)"ct%
64% If P'r')ise Co*p'n( pl'ns to sell 168<888 "nits )"rin& the -88--88$ fisc'l (e'r< the n"*/er of
"nits it wo"l) h've to *'n"f'ct"re )"rin& the (e'r wo"l) /e
A% 118<888 C% 2$8<888
=% 168<888 D% 128<888
66% If 288<888 finishe) "nits were to /e *'n"f'ct"re) )"rin& the -888--88$ fisc'l (e'r /(
P'r')ise Co*p'n(< the "nits of r'w *'teri'l nee)e) to /e p"rch'se) wo"l) /e
A% $<888<888 "nits C% $<8-8<888 "nits
=% $<8$8<888 "nits D% 778<888 "nits
67% The Pent'&on Co% e;pects s'les of P1<188<888 in >"ne< P2<088<888 in >"l(< 'n) P3<$88<888 in
A"&"st% On 'ver'&e< 08? of its s'les 're c'sh< 28? of cre)it s'les 're collecte) in one
*onth< 'n) 12? 're collecte) in the secon) *onth% The re*'in)er 're written off to /') )e/t
in the thir) *onth 'fter s'le% ,h't 're the e;pecte) c'sh inflow for A"&"st 'n) e;pecte)
receiv'/le /'l'nce on A"&"st 0$9
A% =% C% D%
C'sh Inflow P2<828<888 P1<861<888 P$<608<888 P2<84$<888
A"& 0$ AR ='l'nce P4<$18<888 P3<870<288 P4<-0-<888 P3<-47<888
78% Dol('r< Inc% prep're) the followin& s'les /")&et+
Month C'sh S'les Cre)it S'les
:e/r"'r( P 68<888 P018<888
M'rch $88<888 188<888
April 78<888 048<888
M'( $-8<888 138<888
>"ne $$8<888 068<888
M'( 7< -881 P'&e $0 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
Collection p'ttern is+ 18? percent in the *onth of s'le< 12? in the *onth followin& the s'le<
'n) $8? two *onths followin& the s'le% The re*'inin& 2? is e;pecte) to /e "ncollecti/le%
The co*p'n(Gs tot'l /")&ete) collection fro* April to >"ne '*o"nts to
A% P$<878<888 C% P$<136<288
=% P$<0-2<288 D% P$<074<288
7$% =et' Co% h's the followin& s'les forec'sts for the selecte) three-*onth perio) in -881
April P$-8<888
M'( 48<888
>"ne 68<888
Sevent( percent of s'les 're collecte) in the *onth of the s'le< 'n) the re*'in)er 're
collecte) in the followin& *onth%
Acco"nts receiv'/le /'l'nce AApril $< -881B P$88<888
C'sh /'l'nce AApril $< -881B 28<888
Mini*"* c'sh /'l'nce is P28<888% C'sh c'n /e /orrowe) in P$8<888 incre*ents fro* the
loc'l /'n A'ss"*e no interest ch'r&esB%
,h't is the c'sh /'l'nce 't the en) of April< 'ss"*in& th't c'sh is receive) onl( fro*
c"sto*ers 'n) th't P-88<888 o"t )"rin& April9
A% P01<888 C% P21<888
=% P28<888 D% P22<888
Caital Budgeting
7-% ,hich of the followin& wo"l) )ecre'se the net present v'l"e of ' proIect9
A% A )ecre'se in the inco*e t'; r'te
=% A )ecre'se in the initi'l invest*ent
C% An incre'se in the "sef"l life of the proIect
D% An incre'se in the )isco"nt r'te
70% A we'ness of the intern'l r'te of ret"rn *etho) for screenin& invest*ent proIects is th't it+
A% )oes not consi)er the ti*e v'l"e of *one(
=% i*plicitl( 'ss"*es th't the co*p'n( is '/le to reinvest c'sh flows fro* the proIect 't the
co*p'n(Gs )isco"nt r'te
C% i*plicitl( 'ss"*es th't the co*p'n( is '/le to reinvest c'sh flows fro* the proIect 't the
intern'l r'te of ret"rn
D% f'ils to consi)er the ti*in& of c'sh flows
71% Sensitivit( 'n'l(sis< if "se) with c'pit'l proIects<
A% Is "se) e;tensivel( when c'sh flows 're nown with cert'int(
=% Me's"res the ch'n&e in the )isco"nte) c'sh flows when "sin& the )isco"nte) p'(/'c
*etho) r'ther th'n the net present v'l"e *etho)%
C% Is ' Lwh't-ifM techni5"e th't 'ss how ' &iven o"tco*e will ch'n&e if the ori&in'l esti*'tes
of the c'pit'l /")&etin& *o)el 're ch'n&e)%
D% Is ' techni5"e "se) to r'n c'pit'l e;pen)it"re re5"ests%
72% If Sol Co*p'n( e;pects to &et ' one-(e'r lo'n to help cover the initi'l fin'ncin& of c'pit'l
proIect< the 'n'l(sis of the proIect sho"l)
A% offset the lo'n '&'inst 'n( invest*ent in inventor( or receiv'/le re5"ire) /( the proIect
=% show the lo'n 's 'n incre'se in the invest*ent
C% show the lo'n 's ' c'sh o"tflow in the secon) (e'r of the proIectGs life
D% i&nore the lo'n
73% Ro('l In)"stries is repl'cin& ' &rin)er p"rch'se) 2 (e'rs '&o for P$2<888 with ' new one
costin& P-2<888 c'sh% The ori&in'l &rin)er is /ein& )epreci'te) on ' str'i&ht-line /'sis over
$2 (e'rs to ' #ero s'lv'&e v'l"e% Ro('l will sell this ol) e5"ip*ent for P3<888 c'sh% The new
e5"ip*ent will /e )epreci'te) on ' str'i&ht-line /'sis over $8 (e'rs to ' #ero s'lv'&e v'l"e%
Ass"*in& ' 18? *'r&in'l t'; r'te< Ro('lGs net c'sh invest*ent 't the ti*e of p"rch'se is the
ol) &rin)er is sol) 'n) the new one p"rch'se) is
A% P$7<888 C% P$4<188
=% P$2<888 D% P-2<888
74% :low In)"stries is 'n'l(#in& ' c'pit'l invest*ent propos'l for new *'chiner( to pro)"ce ' new
pro)"ct over the ne;t $8 (e'rs% At the en) of the $8 (e'rs< the *'chiner( *"st /e )ispose) of
with ' net #ero /oo v'l"e /"t with ' scr'p s'lv'&e v'l"e of P-8<888% It will re5"ire so*e
P08<8888 to re*ove the *'chiner(% The 'pplic'/le t'; r'te is 02?% The 'ppropri'te Len) of
lifeM c'sh flow /'se) on the fore&oin& infor*'tion is
A% inflow of P08<888 C% o"tflow of P$8<888
=% o"tflow of P3<288 D% o"tflow of P$4<888
76% S'r'h Co*p'n( is pl'nnin& to p"rch'se ' new *'chine for P388<888% Depreci'tion for t';
p"rposes will /e P$88<888 'nn"'ll( for si; (e'rs% The new *'chine is e;pecte) to pro)"ce
c'sh flow fro* oper'tions< net of inco*e t';es< of P$28<888 ' (e'r in e'ch of the ne;t si;
(e'rs% The 'cco"ntin& A/oo v'l"eB r'te of ret"rn on the initi'l invest*ent is e;pecte) to /e
A% 6%0? C% $3%4?
=% $-%8? D% -2%8?
M'( 7< -881 P'&e $1 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
77% ='rf is consi)erin& ' $8-(e'r c'pit'l invest*ent proIect with forec'ste) reven"es of P18<888
per (e'r 'n) forec'ste) c'sh oper'tin& e;penses of P-7<888 per (e'r% The initi'l cost of the
e5"ip*ent of the proIect is P-0<888 'n) ='rfiel) e;pects to sell the e5"ip*ent for P7<888 't
the en) of the tenth (e'r% The e5"ip*ent will /e )epreci'te) over 4 (e'rs% The proIect
re5"ires ' worin& c'pit'l invest*ent of P4<888 't its inception 'n) 'nother P2<888 't the en)
of (e'r 2% Csin& ' 18? *'r&in'l t'; r'te< the e;pecte) net c'sh flow fro* the proIect in the
tenth (e'r is
A% P0-<888 C% P-8<888
=% P-1<888 D% P$$<888
$88%=r'n) is consi)erin&< 'n invest*ent in ' new cheese-c"ttin& *'chine to repl'ce its e;istin&
cheese c"tter% Infor*'tion on the e;istin& *'chine 'n) the repl'ce*ent *'chine follow+
Cost of the new *'chine P18<888
Net 'nn"'l s'vin&s in oper'tin& costs 7<888
S'lv'&e v'l"e now of the ol) *'chine 3<888
S'lv'&e v'l"e of the ol) *'chine in 6 (e'rs 8
S'lv'&e v'l"e of the new *'chine in 6 (e'rs 2<888
Esti*'te) life of the new *'chine 6 (e'rs
,h't is the e;pecte) p'(/'c perio) for the new *'chine9
A% 1%11 (e'rs C% 6%28 (e'rs
=% -%34 (e'rs D% 0%46 (e'rs
$8$%C'"se Co*p'n( is pl'nnin& to invest in ' *'chine with ' "sef"l life of five (e'rs 'n) no
s'lv'&e v'l"e% The *'chine is e;pecte) to pro)"ce c'sh flow fro* oper'tions< net of inco*e
t';es< of P-8<888 in e'ch of the five (e'rs% C'"seGs e;pecte) r'te of ret"rn is $8?%
Infor*'tion on present v'l"e 'n) f"t"re '*o"nt f'ctors is 's follows+
$ - 0 1 2
Present v'l"e of P$ 't $8? %787 %6-3 %42$ %360 %3-$
Present v'l"e of 'n 'nn"it( of
P$ 't $8? %787 $%403 -%164 0%$48 0%47$
:"t"re '*o"nt of P$ 't $8? $%$88 $%-$8 $%00 $%131 $%3$$
:"t"re '*o"nt of 'n 'nn"it(
of P$ 't $8? $%888 -%$88 0%0$8 1%31$ 3%$82
Dow *"ch will the *'chine cost9
A% P0-<--8 C% P42<6-8
=% P3-<$88 D% P$--<$88
$8-%>'net Co*p'n( h's ' p'(/'c &o'l of 0 (e'rs on new e5"ip*ent 'c5"isitions% A new sorter is
/ein& ev'l"'te) th't costs P128<888 'n) h's ' 2-(e'r life% Str'i&ht-line )epreci'tion will /e
"se)J no s'lv'&e v'l"e is 'nticip'te)% >'net is s"/Iect to ' 18? inco*e t'; r'te% To *eet the
co*p'n(Gs p'(/'c &o'l< the sorter *"st &ener'te re)"ctions in 'nn"'l c'sh oper'tin& costs
of
A% P38<888 C% P$28<888
=% P$88<888 D% P$78<888
$80%Moor*'n Pro)"cts Co*p'n( is consi)erin& ' new pro)"ct th't will sell for P$88 'n) h've '
v'ri'/le cost of P38% E;pecte) vol"*e is -8<888 "nits% New e5"ip*ent costin& P$<288 'n)
h'vin& ' five-(e'r "sef"l life 'n) no s'lv'&e v'l"e is nee)e)< 'n) will /e )epreci'te) "sin& the
str'i&ht-line *etho)% The *'chine h's c'sh oper'tin& costs of P-8<888 per (e'r% The fir* is
in the 18 percent t'; /r'cet 'n) h's cost of c'pit'l of $- percent% The present v'l"e of $<
en) of five perio)s is 8%23410J present v'l"e of 'nn"it( of $ for 2 perio)s is 0%38146%
Dow *'n( "nits per (e'r the fir* *"st sell for the invest*ent to e'rn $- percent intern'l r'te
of ret"rn9
A% $-<606 C% 6<--2
=% $8<180 D% 4<3-2
$81%Di&hpoint< Inc%< is consi)erin& investin& in '"to*'te) e5"ip*ent with ' ten-(e'r "sef"l life%
M'n'&ers 't Di&hpoint h've esti*'te) the c'sh flows 'ssoci'te) with the t'n&i/le costs 'n)
/enefits of '"to*'tion< /"t h've /een "n'/le to esti*'te the c'sh flows 'ssoci'te) with the
int'n&i/le /enefits% Csin& the co*p'n(Gs $8? )isco"nt r'te< the net present v'l"e of the c'sh
flows 'ssoci'te) with I"st the t'n&i/le costs 'n) /enefits is ' ne&'tive P$61<028% Dow l'r&e
wo"l) the 'nn"'l net c'sh inflows fro* the int'n&i/le /enefits h've to /e to *'e this '
fin'nci'll( 'ccept'/le invest*ent9
A% P$6<102 C% P02<888
=% P08<888 D% P04<-03
!"estions $82 thr" $84 're /'se) on the followin& infor*'tion%
A fir* *"st choose /etween le'sin& ' new 'sset of p"rch'sin& it with f"n)s fro* ' ter* lo'n%
Cn)er the p"rch'se option< the fir* will p'( five e5"'l princip'l p'(*ents of P$<888 e'ch 'n) 3?
interest on the "np'i) /'l'nce% Princip'l 'n) interest 're )"e 't the en) of e'ch (e'r for five
(e'rs% Altern'tivel(< the fir* c'n le'se the 'sset for five (e'rs 't 'n 'nn"'l rent'l cost of P$<188
with p'(*ents )"e 't the /e&innin& of e'ch (e'r% The corpor'te t'; r'te is 02? 'n) the
'ppropri'te 'fter t'; cost of c'pit'l is $-?%
M'( 7< -881 P'&e $2 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
$82%,hich of the followin& is closest to the PV of the 'fter-t'; interest p'(*ent9
A% P038 C% P318
=% P120 D% P4-3
$83%,hich of the followin& is closes to the present v'l"e of cost if le'sin& the 'sset9
A% P0<371 C% P0<617
=% P0<447 D% P0<77-
$84%,hich of the followin& is closest to the PV of cost of p"rch'sin& the new 'sset with ' ter*
lo'n9
A% P0<444 C% P1<826
=% P0<72- D% P1<$20
!"estions $86 thro"&h $$8 're /'se) on the followin& infor*'tion+
.o&o Co% is pl'nnin& to /"( ' coin-oper'te) *'chine costin& P18<888% :or /oo 'n) t'; p"rposes<
this *'chine will /e )epreci'te) P6<888 e'ch (e'r for five (e'rs% .o&o esti*'tes th't this *'chine
will (iel) 'n 'nn"'l c'sh inflow< net of )epreci'tion 'n) inco*e t';es< of P$-<888% .o&oGs )esire)
r'te of ret"rn on its invest*ents is $-?% At the followin& )isco"nt r'tes< the NPVs of the
invest*ent in this *'chine 're+
Disco"nt r'te NPV
$-? HP0<-26
$1? H $<$74
$3? - 486
$6? - -<141
$86%.o&oGs 'cco"ntin& r'te of ret"rn on its initi'l invest*ent in this *'chine is e;pecte) to /e
A% 08? C% $-?
=% $2? D% $8?
$87%.o&oGs e;pecte) p'(/'c perio) for its invest*ent in this *'chine is
A% -%8 (e'rs C% 0%0 (e'rs
=% 0%8 (e'rs D% 2%8 (e'rs
$$8%.o&oGs e;pecte) IRR on its invest*ent in this *'chine is
A% 0%0? C% $-%8?
=% $8%8? D% $2%0?
$$$%.'wton Co% is e;p'n)in& its *'n"f'ct"rin& pl'nt< which re5"ires 'n invest*ent of P1<888<888
in new e5"ip*ent 'n) pl'nt *o)ific'tions% .'wtonGs s'les 're e;pecte) to incre'se /(
P0<888<888 per (e'r 's ' res"lt of the e;p'nsion% C'sh invest*ent in c"rrent 'ssets
'ver'&es 08? of s'lesJ 'cco"nts p'('/le 'n) other c"rrent li'/ilities 're $8? s'les% ,h't is
the esti*'te) tot'l invest*ent for this e;p'nsion9
A% P0<188<888 C% P1<388<888
=% P1<088<888 D% P1<888<888
$$-%P'r Co% is reviewin& the followin& )'t' rel'tin& to 'n ener&( s'vin& invest*ent propos'l+
Invest*ent P28<888
Resi)"'l v'l"e 't the en) of 2 (e'rs $8<888
Present v'l"e of 'n 'nn"it( of $ 't $-? for 2 (e'rs 0%38
Present v'l"e of $ )"e in 2 (e'rs 't $-? 8%24
,h't wo"l) /e the 'nn"'l s'vin&s nee)e) to *'e the invest*ent re'li#e ' $-? (iel)9
A% P6<$67 C% P$-<083
=% P$$<$$$ D% P$0<667
$$0%InvestorGs Inc% "ses ' $-? h"r)le r'te for 'll c'pit'l e;pen)it"res 'n) h's )one the followin&
'n'l(sis for fo"r proIects for the "pco*in& (e'r%
ProIect $ ProIect - ProIect 0 ProIect 1
Initi'l c'sh o"tl'( P-88<888 P-76<888 P-16<888 P-4-<888
Ann"'l net c'sh inflows
Ye'r $ P 32<888 P$88<888 P 68<888 P 72<888
Ye'r - 48<888 $02<888 72<888 $-2<888
Ye'r 0 68<888 78<888 78<888 78<888
Ye'r 1 18<888 32<888 68<888 38<888
Net present v'l"e A 0<476B 1<-43 $1<831 $1<33-
Profit'/ilit( in)e; 76? $8$? $83? $82?
Intern'l r'te of ret"rn $$? $0? $1? $2?
,hich proIectAsB sho"l) Investors< Inc% select )"rin& the "pco*in& (e'r "n)er e'ch /")&ete)
'*o"nt of f"n)s9
No =")&et Restriction P388<888 Av'il'/le :"n)s P088<888Av'il'/le :"n)s
A% ProIects -< 0 @ 1 ProIects 0 @ 1 ProIect 0
=% ProIects $< - @ 0 ProIects -< 0 @ 1 ProIects 0 @ 1
C% ProIects $< 0 @ 1 ProIects - @ 0 ProIect -
D% ProIects 0 @ 1 ProIects - @ 1 ProIects - @ 1
M'( 7< -881 P'&e $3 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
!"estions $$1 thr" $$4 're /'se) on the followin& infor*'tion%
In or)er to incre'se pro)"ction c'p'cit(< G"nnin& In)"stries is consi)erin& repl'cin& 'n e;istin&
pro)"ction *'chine with ' new technolo&ic'll( i*prove) *'chine effective >'n"'r( $< -88-% The
followin& infor*'tion is /ein& consi)ere) /( G"nnin& In)"stries+
The new *'chine wo"l) /e p"rch'se) for P$38<888 in c'sh% Shippin& inst'll'tion< 'n) testin&
wo"l) cost 'n '))ition'l P08<888%
The new *'chine is e;pecte) to incre'se 'nn"'l s'les /( -8<888 "nits 't ' s'les price of P18
per "nit% Incre*ent'l oper'tin& costs incl")e P08 per "nit in v'ri'/le costs 'n) tot'l fi;e)
costs of P18<888 per (e'r%
The invest*ent in the new *'chine will re5"ire 'n i**e)i'te incre'se in worin& c'pit'l of
P02<888% This c'sh o"tflow will /e recovere) 't the en) or (e'r 2%
G"nnin& "ses str'i&ht-line )epreci'tion for fin'nci'l reportin& 'n) t'; reportin& p"rposes%
The new *'chine h's 'n esti*'te) "sef"l life of 2 (e'rs 'n) #ero s'lv'&e v'l"e
G"nnin& is s"/Iect to ' 18? corpor'te inco*e t'; r'te%
G"nnin& "ses the net present v'l"e *etho) to 'n'l(#e invest*ents 'n) will e*plo( the followin&
f'ctors 'n) r'tes+
Perio) PV of $ 't $8? PV of 'n or)in'r( 'nn"it( of $ 't $8?
$ %787 %787
- %6-3 $%403
0 %42$ -%164
1 %360 0%$48
2 %3-$ 0%47$
$$1%G"nnin& In)"striesG net c'sh o"tflow in ' c'pit'l /")&etin& )ecision is
A% P$78<888 C% P-81<2-2
=% P$72<888 D% P--2<888
$$2%G"nnin& In)"striesG )isco"nte) 'nn"'l )epreci'tion t'; shiel) for the (e'r -88- is
A% P$0<6$4 C% P-8<4-2
=% P$3<43- D% P--<688
$$3%The 'c5"isition of the new pro)"ction *'chine /( G"nnin& will contri/"te ' )isco"nte) net-of-
t'; contri/"tion *'r&in of
A% P-1-<3-1 C% P030<703
=% P080<-68 D% P121<7-8
$$4%The over'll )isco"nte) c'sh flow i*p'ct of G"nnin&Gs worin& c'pit'l invest*ent for the new
pro)"ction *'chine wo"l) /e
A% PA4<727B C% PA$0<-32B
=% PA$8<868B D% PA02<888B
$inancial Statement Analysis
$$6% S'les Ain *illionsB for ' three (e'r perio) 're+ Ye'r $ P1< Ye'r - P1%3< 'n) Ye'r 0 P2%8% Csin&
Ye'r $ 's the /'se (e'r the percent'&e incre'se in s'les in Ye'rs - 'n) 0 're< respectivel(
A% $$2? 'n) $-2? C% $$2? 'n) $08?
=% $$2? 'n) $87? D% 64? 'n) 68?
$$7% A co*p'n( h's tot'l s'les of P088<888 with ' &ross profit r'tio of 02?% Inventor( 't the
/e&innin& of the perio) w's P28<888 'n) 't the en) of the perio) w's P48<888% Net inco*e is
P18<888% Inventor( t"rnover is
A% 2 ti*es C% $%42 ti*es
=% 0%-2 ti*es D% 8%34 ti*es
$-8%The ti*es interest e'rne) r'tio of McDo&&'n Co*p'n( is 1%2ti*es% The interest e;pense for
the (e'r w's P-8<888 'n) the co*p'n(Gs t'; r'te is 18?% The co*p'n(Gs net inco*e is+
A% P--<888 C% P1-<888
=% P21<888 D% P33<888
$-$%If the North Division of Alli'nce Pro)"cts Co*p'n( h') 'n oper'tin& 'sset t"rnover of 1%- 'n)
'n oper'tin& inco*e *'r&in of 8%$8< the ret"rn on invest*ent wo"l) /e
A% -0%6? C% 1-%8?
=% 1-8%8? D% 1%-?
$--%Selecte) )'t' fro* Sheri)'n Corpor'tionGs (e'r-en) fin'nci'l st'te*ents 're presente) /elow%
The )ifference /etween 'ver'&e 'n) en)in& inventor( is i**'teri'l%
C"rrent r'tio -%8
!"ic r'tio $%2
C"rrent li'/ilities P$-8<888
Inventor( t"rnover A/'se) on cost of s'lesB 6 ti*es
Gross profit *'r&in 18?
Sheri)'nGs net s'les for the (e'r were
A% P688<888 C% P$<-88<888
=% P168<888 D% P34-<888
M'( 7< -881 P'&e $4 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
$-0%>')e Corpor'tion h's ' pr'ctic'l pro)"ction c'p'cit( of ' *illion "nits% The c"rrent (e'rGs
*'ster /")&et w's /'se) on the pro)"ction 'n) s'les of 488<888 "nits )"rin& the c"rrent
(e'r% Act"'l pro)"ction for the c"rrent (e'r w's 4-8<888 "nits< while 'ct"'l s'les '*o"nte) to
onl( 388<888 "nits% The "nits 're sol) for P-8 e'ch 'n) the contri/"tion *'r&in r'tio is 08?%
The peso '*o"nt th't /est 5"'lifies the M'retin& Dep'rt*entGs f'il"re to 'chieve /")&ete)
perfor*'nce for the c"rrent (e'r is+
A% P4-8<888 "nf'vor'/le C% P-<188<888 "nf'vor'/le
=% P388<888 "nf'vor'/le D% P-<888<888 "nf'vor'/le
$-1%The &ross profit of Re' Co*p'n( for e'ch of the (e'rs en)e) 's in)ic'te) follow+
-88$ -888
S'les P47-<888 P688<888
Cost of &oo)s sol) 130<888 168<888
Gross profit P0-6<888 P0-8<888
Ass"*in& th't -88$ sellin& price w's $8? lower< wh't wo"l) /e the )ecre'se in &ross profit
)"e to ch'n&e in the sellin& price9
A% P6<888 C% P47<-88
=% P4-<888 D% P66<888
$-2%G'rfiel) Co*p'n(< which sells ' sin&le pro)"ct< provi)e) the followin& )'t' fro* its inco*e
st'te*ents for the (e'rs -88$ 'n) -888+
-88$ -888
S'les A$28<888 "nits in -88$J $68<888 "nits in -888B P428<888 P4-8<888
Cost of &oo)s sol) 2-2<888 242<888
Gross profit P--2<888 P$12<888
In 'n 'n'l(sis of v'ri'tion in &ross profit /etween the two (e'rs< wh't wo"l) /e the effects of
ch'n&es in s'les price 'n) s'les vol"*e< respectivel(9
A% P$28<888 :J P$-8<888 C C% P$68<888 :J P$28<888 C
=% P$28<888 CJ P$-8<888 : D% P$68<888 CJ P$28<888 :
%or&ing Caital Management
$-3%Ge'r Inc%< h's ' tot'l 'nn"'l c'sh re5"ire*ent of P7<842<888 which 're to /e p'i) "nifor*l(%
Ge'r h's the opport"nit( to invest the *one( of -1? per 'nn"*% The co*p'n( spen)s< on
the 'ver'&e< P18 for ever( c'sh conversion to *'ret'/le sec"rities%
,h't is the opti*'l c'sh conversion si#e9
A% P38<888 C% P22<888
=% P12<888 D% P4-<288
$-4%.(*'n Co*p'n( h's the opport"nit( to incre'se 'nn"'l s'les P$88<888 /( sellin& to ' new
risier &ro"p of c"sto*ers% The "ncollecti/le e;pense is e;pecte) to /e $2? 'n) collection
costs will /e 2?% The co*p'n(Gs *'n"f'ct"rin& 'n) sellin& e;penses 're 48? of s'les< 'n)
its effective t'; r'te is 18?% If .(*'n sho"l) 'ccept this opport"nit(< the co*p'n(Gs 'fter t';
profits wo"l) incre'se /(
A% P3<888 C% P$8<-88
=% P$8<888 D% P$1<188
$-6%The followin& infor*'tion re&'r)in& ' ch'n&e in cre)it polic( w's 'sse*/le) /( the ,illis
Co*p'n(% The co*p'n( h's ' re5"ire) r'te of ret"rn of $8? 'n) ' v'ri'/le cost r'tio of 38?%
Ol) Cre)it Polic( New Cre)it Polic(
S'les P0<388<888 P0<738<888
Aver'&e Collection perio) 08 )'(s 03 )'(s
The pret'; cost of c'rr(in& the '))ition'l invest*ent in receiv'/le< "sin& 038-)'( (e'r wo"l)
/e
A% P2<438 C% P6<$38
=% P7<388 D% P738
$-7%The s'les )irector of .lo() Co*p'n( s"&&este) th't cert'in cre)it ter*s /e *o)ifie)% De
esti*'tes the followin& effects+
S'les will incre'se /( 't le'st -8?
Acco"nts receiv'/le t"rnover will /e re)"ce) to 6 ti*es fro* the present t"rnover of $8
ti*es
=') )e/ts< now 't $? of s'les will incre'se to $%2?
S'les /efore the propose) ch'n&es is 't P788<888% V'ri'/le cost r'tio is 22? 'n) the )esire)
r'te of ret"rn is -8?% :i;e) e;penses '*o"nt to P$28<888%
Sho"l) the co*p'n( 'llow revision of its cre)it ter*s9
A% Yes< /ec'"se inco*e will incre'se /( P31<688
=% Yes< /ec'"se losses will /e re)"ce) /( P40<688
C% No< /ec'"se inco*e will /e re)"ce) /( P$0<888
D% No< /ec'"se losses will /e incre'se) /( P-6<888
$08%A spin)le *'n"f'ct"rer "ses '/o"t -88 c'ses of r'w woo) per *onth% It p'(s ' /roer P28%88
to loc'te ' s"pplier 'n) h'n)le the or)erin& 'n) )eliver( 'rr'n&e*ents% Stor'&e 'n) h'n)lin&
costs 're P8%8- per c'se per *onth% If e'ch c'se costs P8%46 the *ost econo*ic'l or)er
5"'ntit( Aro"n)e) to the ne;t whole n"*/erB is
M'( 7< -881 P'&e $6 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
A% 661 c'ses C% $<$00 c'ses
=% 3-2 c'ses D% $<888 c'ses
$0$%E;pecte) 'nn"'l "s'&e of ' p'rtic"l'r r'w *'teri'l is -<888<888 "nits 'n) the st'n)'r) or)er
si#e is $8<888 "nits% The invoice cost of e'ch "nit is P288< 'n) the cost to pl'ce one p"rch'se
or)er is P68% The esti*'te) 'nn"'l or)er costs is
A% P$3<888 C% P0-<888
=% P$88<888 D% P28<888
$0-%The D'n)( Co*p'n( h's the followin& infor*'tion 'v'il'/le concernin& one of its inventor(
ite*s+
Cost of pl'cin& 'n or)er P 0-%88
Cnit of c'rr(in& cost per (e'r P 1%88
Ann"'l "nit )e*'n) 2<3-2
S'fet( stoc $88
Aver'&e )'il( )e*'n) -2
Nor*'l le') ti*e in )'(s $8
The reor)er point for the inventor( ite* is
A% -28 C% 028
=% 388 D% 088
$00%The G Corpor'tion p"rch'ses 38<888 he')/'n)s per (e'r% The 'ver'&e p"rch'se le') ti*e is
-8 worin& )'(s% M';i*"* le') ti*e is -4 worin& )'(s% The corpor'tion wors -18 )'(s
per (e'r% The 'ppropri'te s'fet( stoc level 'n) the reor)er point for the co*p'n( 're+
A% =% C% D%
S'fet( Stoc $<428 $<428 $<$34 $<$34
Reor)er Point 3<428 2<-28 3<428 2<-28
$01%=(e Co*p'n( /orrows fro* ' /'n ' cert'in lo'n 't ' st'te) )isco"nt r'te of $- percent per
'nn"*% The /'n re5"ires $8 percent of lo'n 's co*pens'tin& /'l'nce in its new checin&
'cco"nt% The lo'n is p'('/le 't the en) of 3 *onths% The effective interest r'te of this lo'n is
A% -6%-$ percent C% -4%-4 percent
=% $1%-7 percent D% $2%06 percent
$02%The M'n"n"/' Co*p'n( w's recentl( 5"ote) ter*s on ' co**erci'l /'n lo'n of 4? interest
with -8? co*pens'tin& /'l'nce% The ter* of the lo'n is one (e'r% The effective cost of
/orrowin& Aro"n)e) to the ne'rest h"n)re)thB for e'ch interest 'rr'n&e*ents 're+
A% =% C% D%
Disco"nte) interest 7%27? 6%42? 4%20? 4%20?
P'('/le "pon *'t"rit( 6%42? 7%27? 6%42? 7%27?
M'( 7< -881 P'&e $7 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
Cost of Caital & !is&
$03%:or -880< =ee Co*p'n( incre'se) e'rnin&s /efore interest 'n) t';es /( $4?% D"rin& the
s'*e perio)< net inco*e 'fter t'; incre'se) /( 1-?% The )e&ree of fin'nci'l lever'&e th't
e;iste) )"rin& -880 is
A% $%48 C% -%14
=% 1%-8 D% 2%78
$04%M'rs Co*p'n( pl'ns to iss"e so*e P$88 preferre) stoc with 'n $$ percent )ivi)en)% The
stoc is sellin& on the *'ret for P74< 'n) M'rs *"st p'( flot'tion costs of 2 percent of the
*'ret price% The co*p'n( is "n)er the 18 percent corpor'te t'; r'te%
The cost of preferre) stoc for M'rs Co*p'n( is
A% 4%$3 percent C% $$%01 percent
=% 3%68 percent D% $$%71 percent
$06%A=C Corp% stocGs /et' is %28% If the *'ret ret"rn is $3?< 'n) the ris-free r'te is 3?< wh't is
the re5"ire) r'te of ret"rn on A=C stoc9
A% $$? C% $0?
=% $-? D% $1?
$07%The followin& )'t' 're rel'te) to ,EY stoc+
Re5"ire) ret"rn on ,EY co**on $2 percent
=et' coefficient $%2
Ris-free r'te 7%8 percent
The re5"ire) *'ret ret"rn is
A% $0%8 percent C% $6%8 percent
=% -2%8 percent D% $3%8 percent
$18%The T'"r"s Co*p'n(Gs l'st )ivi)en) w's P0%88J its &rowth r'te is 3 percent 'n) the stoc now
sells for P03% New stoc c'n /e sol) to net the fir* P0-%18 per sh're%
,h't is the T'"r"s Co*p'n(Gs cost of ret'ine) e'rnin&s9
A% $1%60 percent C% $2%6$ percent
=% $2%-3 percent D% 7%37 percent
$1$%The .eon'r) Co*p'n(Gs l'st )ivi)en) w's P0%88J its &rowth r'te is 3 percent 'n) the stoc
now sells for P03% New stoc c'n /e sol) to net the fir* P0-%18 per sh're%
A% $1%60 percent C% $2%6$ percent
=% $2%-3 percent D% 7%37 percent
$1-%,illi'*s Co% is intereste) in *e's"rin& its over'll cost of c'pit'l 'n) h's &'there) the
followin& )'t'% Cn)er the ter*s )escri/e) /elow< the co*p'n( c'n sell "nli*ite) '*o"nts of
'll instr"*ents%
,illi'*s c'n r'ise c'sh /( sellin& P$<888< 6?< -8-(e'r /on)s with 'nn"'l interest
p'(*ents% In sellin& the iss"e< 'n 'ver'&e pre*i"* of P08 per /on) wo"l) /e receive)<
'n) the fir* *"st p'( flot'tion costs of P08 per /on)% The 'fter-t'; cost of f"n)s is
esti*'te) to /e 1%6?%
,illi'*s c'n sell 6? preferre) stoc 't P$82 per sh're% The cost of iss"in& 'n) sellin&
the preferre) stoc is e;pecte) to /e P2 per sh're%
,illi'*sG co**on stoc is c"rrentl( sellin& for P$88 per sh're% The fir* e;pects to p'(
c'sh )ivi)en)s of P4 per sh're ne;t (e'r< 'n) the )ivi)en)s 're e;pecte) to re*'in
const'nt% The stoc will h've to /e "n)erprice) /( P0 per sh're< 'n) flot'tion costs 're
e;pecte) to '*o"nt to P2 per sh're%
,illi'*s e;pects to h've 'v'il'/le P$88<888 of ret'ine) e'rnin&s in the co*in& (e'rJ
once these ret'ine) e'rnin&s 're e;h'"ste)< the fir* will "se new co**on stoc 's the
for* of co**on stoc e5"it( fin'ncin&%
,illi'*sG preferre) c'pit'l str"ct"re is
.on&-ter* )e/t 08?
Preferre) stoc -8?
Co**on stoc 28?
,h't 're the correspon)in& wei&hte)-'ver'&e cost of c'pit'l "n)er e'ch fin'ncin& nee)s9
A% =% C% D%
P-88<888 3%2? 3%6? 1%2? 4%0?
P$<888<888 3%6? 1%6? 3%2? 7%$?
!"estions $10 @ $11 're /'se) on the followin& infor*'tion%
The e'rnin&s< )ivi)en)s< 'n) stoc price of .'rr( Technics< Inc% 're e;pecte) to &row 't 4 percent
per (e'r 'fter this (e'r% .'rr(Gs co**on stoc sells for P-0 per sh're< its l'st )ivi)en) w's P-%88
'n) the co*p'n( p'( P-%$1 't the en) of the c"rrent (e'r% .'rr( sho"l) p'( P-%28 flot'tion cost%
$10% If the fir*Gs /et' is $%42< the ris-free r'te is 6 percent< 'n) the 'ver'&e ret"rn on the *'ret is
$- percent< wh't will /e the fir*Gs cost of e5"it( "sin& the CAPM 'ppro'ch9
A% $3%82 percent C% $2%88 percent
=% $1%-4 percent D% $1%88 percent
M'( 7< -881 P'&e -8 of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
$11%Csin& the )ivi)en) &rowth *o)el< wh't is the e;pecte) cost of ret'ine) e'rnin&s for .'rr(
Technics< Inc%9
A% $8%11 percent C% $3%08 percent
=% 7%08 percent D% $4%11 percent
Quantitative Methods
$12%Rein'< Inc% h's ' t'r&et tot'l l'/or cost of P0<388 for the first fo"r /'tches of ' pro)"ct% .'/or
is p'i) P$8 'n ho"r% If Soft e;pects 'n 68? le'rnin& c"rve< how *'n( ho"rs sho"l) the first
/'tch t'e9
A% 038 ho"rs C% $18%30 ho"rs
=% 24%3 ho"rs D% -08%1 ho"rs
$13%A co*p'n( is )esi&nin& ' new re&ion'l )istri/"tion w'reho"se% To *ini*i#e )el'(s in lo')in&
'n) "nlo')in& tr"cs< 'n ')e5"'te n"*/er of lo')in& )ocs *"st /e /"ilt% The *ost relev'nt
techni5"e to 'ssist in )eter*inin& the proper n"*/er )ocs is
A% Cost-vol"*e-profit 'n'l(sis C% PERTOCPM 'n'l(sis
=% .ine'r pro&r'**in& D% !"e"in& theor(
$14%:ollowin& is ' t'/le for two sep'r'te pro)"ct lines< E 'n) Y+
Pro/'/ilit( E Profit Y Profit
-8? P2<888 P 288
48? 0<888 1<888
$8? 3<888 6<888
The pro)"ct line to o/t'in *';i*"* "tilit( for ' ris-'verse )ecision *'er is
A% E /ec'"se it h's the hi&hest e;pecte) profit%
=% Y /ec'"se it h's the hi&hest )ispersion
C% Y /ec'"se it h's the hi&hest e;pecte) profit
D% E /ec'"se it h's the lowest )ispersion
$16%Do"&h Distri/"tors h's )eci)e) to incre'se its )'il( *"ffin p"rch'ses /( $88 /o;es% A /o; of
*"ffins costs P- 'n) sells for P0 thro"&h re&"l'r stores% An( /o;es not sol) thro"&h re&"l'r
stores 're sol) thro"&h Do"&hGs thrift store for P$% Do"&h 'ssi&ns the followin& pro/'/ilities to
sellin& '))ition'l /o;es+
A))ition'l s'les Pro/'/ilit(
38 %3
$88 %1
,h't is the e;pecte) v'l"e of Do"&hGs )ecision to /"( $88 '))ition'l /o;es of *"ffins9
A% P-6 C% P2-
=% P18 D% P36
$17%A /ever'&e st'n) c'n sell either soft )rins or coffee on 'n( &iven )'(% If the st'n) sells soft
)rins 'n) the we'ther is hot< it will *'e P-<288J if the we'ther is col)< the profit will /e
P$<888% If the st'n) sells coffee 'n) the we'ther is hot< it will *'e P$<788J if the we'ther is
col)< the profit will /e P-<888% The pro/'/ilit( of col) we'ther on ' &iven )'( 't this ti*e is
38?%
The e;pecte) p'(off for either sellin& coffee or soft )rins 'n) the e;pecte) p'(off if the
ven)or h's perfect infor*'tion 're
A% =% C% D%
Coffee P$<038 P$<738 P-<-88 P0<788
Soft )rins P$<388 P$<388 P$<788 P$<788
Perfect Infor*'tion% P0<888 P-<-88 P$<038 P$<738
$28%A constr"ction contr'ctor h's /een invite) to s"/*it ' /i) on ' l'r&e 'n) co*plic'te)
constr"ction proIect% The prep'r'tion of the /i) propos'l will cost '/o"t P-8<888%
M'n'&e*ent feels th't if the co*p'n( /i)s low eno"&h to res"lt in ' net profit of P28<888<
there wo"l) /e ' 38? ch'nce of &ettin& the Io/% If the co*p'n( /i)s hi&h eno"&h to res"lt in '
P$88<888 net profit< the ch'nce of &ettin& the contr'ct wo"l) /e onl( -8?% ,h't sho"l) the
co*p'n( )o9
A% =i) onl( hi&h eno"&h to 'llow for P28<888 profit /ec'"se the e;pecte) v'l"e of the p'(off
is P--<888%
=% =i) hi&h eno"&h to 'llow for ' P$88<888 profit /ec'"se the e;pecte) v'l"e of the p'(off is
P1<888
C% =i) hi&h eno"&h to 'llow for ' P$88<888 profit /ec'"se the e;pecte) v'l"e of the p'(off is
P-8<888%
D% M'e no /i)%
$2$%Critic'l P'th Metho) ACPMB is ' techni5"e for 'n'l(#in&< pl'nnin&< 'n) sche)"lin& l'r&e<
co*ple; proIects /( )eter*inin& the critic'l p'th fro* ' sin&le ti*e esti*'te for e'ch event in
' proIect% The critic'l p'th+
A% Is the shortest p'th fro* the first event to the l'st event for ' proIect%
=% Is 'n 'ctivit( within the p'th th't re5"ires the *ost n"*/er of ti*e%
C% Is the e'rliest ti*e to co*plete the proIect%
D% Is the *';i*"* '*o"nt of ti*e 'n 'ctivit( *'( /e )el'(e) witho"t )el'(in& the tot'l
proIect /e(on) its t'r&et ti*e%
M'( 7< -881 P'&e -$ of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
$2-%Cl'r' ="il)in& Corpor'tion "ses the critic'l p'th *etho) to *onitor constr"ction Io/s% The
co*p'n( is c"rrentl( - wees /ehin) sche)"le on >o/ $6$< which is s"/Iect to ' P$8<288-per-
wee co*pletion pen'lt(% P'th A-=-C-:-G-D-I h's nor*'l co*pletion ti*e of -8 wees< 'n)
critic'l p'th A-D-E-:-G-D-I h's ' nor*'l co*pletion ti*e of -- wees% The followin& 'ctivities
c'n /e cr'she)+
Activities Cost to Cr'sh $ ,ee Cost to Cr'sh - ,ees
=C P 6<888 P$2<888
DE $8<888 $7<388
E: 6<688 $7<288
Cl'r' )esires to re)"ce the nor*'l co*pletion ti*e of >o/ $6$ 'n)< 't the s'*e ti*e< report
the hi&hest possi/le inco*e for the (e'r% Cl'r' sho"l) cr'sh
A% =C $ wee 'n) E: $ wee C% E: - wees
=% =C - wees D% DE $ wee 'n) E: $wee
'nformation Systems
$20%A *'Ior ')v'nt'&e of o/t'inin& ' p'c'&e of 'pplic'tions pro&r'*s fro* ' softw're ven)or is
A% the lielihoo) of re)"cin& the ti*e sp'n fro* pl'nnin& to i*ple*ent'tion
=% the '/ilit( to *ore e'sil( s'tisf( the "ni5"e nee)s of "sers
C% &re'ter oper'tin& efficienc( fro* the co*p"ter
D% the 'ss"r'nce the pro&r'*s will /e written in ' hi&h-level l'n&"'&e
Ans(er )ey
$% = $$% D -$% C 0$% A 1$% =
-% = $-% A --% = 0-% = 1-% A
0% = $0% A -0% A 00% = 10% =
1% = $1% D -1% = 01% A 11% A
2% A $2% = -2% A 02% A 12% =
3% = $3% C -3% C 03% C 13% =
4% C $4% A -4% A 04% A 14% =
6% C $6% D -6% D 06% D 16% C
7% A $7% A -7% D 07% = 17% A
$8% A -8% = 08% A 18% A 28% =
2$% A 3$% A 4$% C 6$% = 7$% C
2-% = 3-% A 4-% A 6-% A 7-% D
20% A 30% C 40% = 60% D 70% C
21% = 31% = 41% C 61% A 71% C
22% A 32% = 42% C 62% D 72% D
23% = 33% C 43% = 63% C 73% C
24% A 34% = 44% C 64% D 74% =
26% = 36% C 46% A 66% = 76% A
27% A 37% D 47% = 67% D 77% =
38% C 48% = 68% A 78% C $88% D
$8$% C $$$% C $-$% C $0$% A $1$% C
$8-% D $$-% C $--% A $0-% C $1-% A
$80% A $$0% A $-0% = $00% A $10% C
$81% = $$1% D $-1% D $01% D $11% D
$82% = $$2% A $-2% A $02% A $12% C
$83% A $$3% D $-3% C $03% C $13% D
$84% C $$4% C $-4% A $04% D $14% D
$86% D $$6% A $-6% A $06% A $16% C
$87% C $$7% = $-7% A $07% A $17% =
$$8% D $-8% C $08% D $18% A $28% C
$2$% C $2-% D $20% A
M'( 7< -881 P'&e -- of -0
MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Pre-wee !"i##er
C*MP!+,+-S'V+.
$% G'sco Co% is ' ver( l'r&e co*p'n( with co**on stoc liste) on the Philippine Stoc
E;ch'n&e 'n) /on)s tr')e) over the co"nter% As of the c"rrent /'l'nce sheet< it h's three
/on) iss"es o"tst'n)in&+
P$28 *illion of $8 percent series -8$0
P28 *illion of 4 percent series -884
P42 *illion of 2 percent series -881
The vice presi)ent of fin'nce is pl'nnin& to sell P42 *illion of /on)s ne;t (e'r to repl'ce the
)e/t )"e to e;pire in -881% Present *'ret (iel)s on si*il'r =''-r'te) /on)s 're $-%$
percent% G'sco 'lso h's P78 *illion of 4%2 percent nonc'll'/le preferre) stoc o"tst'n)in&<
'n) it h's no intentions of sellin& 'n( preferre) stoc 't 'n( ti*e in the f"t"re% The preferre)
stoc is c"rrentl( price) 't P68 per sh're< 'n) its )ivi)en) per sh're is P4%68%
The co*p'n( h's h') ver( vol'tile e'rnin&s< /"t its )ivi)en)s per sh're h've h') ' ver(
st'/le &rowth r'te of 6 percent 'n) this will contin"e% The e;pecte) )ivi)en) is P$%78 per
sh're< 'n) the co**on stoc is sellin& for P18 per sh're% The co*p'n(Gs invest*ent /'ner
h's 5"ote) the followin& flot'tion costs to G'sco+ P-%28 per sh're for preferre) stoc 'n)
P-%-8 per sh're for co**on stoc%
On the ')vice of its invest*ent /'ner< G'sco h's ept its )e/t 't 28 percent of 'ssets 'n) its
e5"it( 't 28 percent% G'sco sees no nee) to sell either co**on or preferre) stoc in the
foresee'/le f"t"re 's it &ener'te) eno"&h intern'l f"n)s for its invest*ent nee)s when these
f"n)s 're co*/ine) with )e/t fin'ncin&% G'scoGs corpor'te t'; r'te is 18 percent%
Co*p"te the cost of c'pit'l for the followin&+
$% =on) A)e/tB
-% Preferre) stoc
0% Co**on e5"it( in the for* of ret'ine) e'rnin&s
1% New co**on stoc
2% ,ei&hte) 'ver'&e cost of c'pit'l
-% An)res Co*p'n( h's ' sin&le pro)"ct c'lle) P')% The co*p'n( nor*'ll( pro)"ces 'n) sells
38<888 P')s e'ch (e'r 't ' sellin& price of P0- per "nit% The co*p'n(Gs "nit costs 't this level
of 'ctivit( 're &iven /elow+
Direct *'teri'ls P$8%88
Direct .'/or 1%28
V'ri'/le *'n"f'ct"rin& overhe') -%08
:i;e) *'n"f'ct"rin& overhe') 2%88 AP088<888 tot'lB
V'ri'/le sellin& e;penses $%-8
:i;e) sellin& e;penses 0%28 AP-$8<888 tot'lB
A n"*/er of 5"estions rel'tin& to the pro)"ction 'n) s'les of P')s follow% E'ch 5"estion is
in)epen)ent%
$% Ass"*e th't An)res Co*p'n( h's s"fficient c'p'cit( to pro)"ce 78<888 P')s e'ch (e'r
witho"t 'n( incre'se in fi;e) *'n"f'ct"rin& overhe') costs% The co*p'n( co"l)
incre'sein s'les /( -2? '/ove the present 38<888 "nits e'ch (e'r if it were willin& to
incre'se the fi;e) sellin& e;penses /( P68<888% ,h't wo"l) /e the effect of the incre'se
in /oth s'les 'n) fi;e) e;penses on the co*p'n( profit9
-% Ass"*e '&'in th't An)res Co*p'n( h's s"fficient c'p'cit( to pro)"ce 78<888 P')s e'ch
(e'r% A c"sto*er in ' forei&n *'ret w'nts to p"rch'se -8<888 P')s% I*port )"ties on
the P')s wo"l) /e P$%48 per "nit< 'n) costs for per*its 'n) licenses wo"l) /e P7<888%
The onl( sellin& costs th't wo"l) /e 'ssoci'te) with the or)er wo"l) /e P0%-8 per "nit
shippin& costs% ,h't is the /re'even price on this or)er9
0% The co*p'n( h's $<888 P')s on h'n) th't h've so*e irre&"l'rities 'n) 're therefore
consi)ere) to /e Lsecon)sM% D"e to the irre&"l'rities< it will /e i*possi/le to sell these
"nits 't the nor*'l price thro"&h re&"l'r )istri/"tion ch'nnels% ,h't "nit costs fi&"re is
relev'nt for settin& ' *ini*"* sellin& price9
1% D"e to ' strie in its s"pplierGs pl'nt< An)res Co*p'n( is "n'/le to p"rch'se *ore
*'teri'l for the pro)"ction of P')s% The strie is e;pecte) to l'st for two *onths% An)res
Co*p'n( h's eno"&h *'teri'l on h'n) to contin"e to oper'te 't 08? of nor*'l levels for
the two-*onth perio)% As 'n 'ltern'tive< An)res co"l) close its pl'nt )own entirel( for the
two *onths% If the pl'nt were close)< fi;e) overhe') costs wo"l) contin"e 't 38? of their
nor*'l level )"rin& the two-*onth perio)J the fi;e) sellin& costs wo"l) /e re)"ce) /(
-8? while the pl'nt w's close)% ,h't wo"l) /e the peso ')v'nt'&e or )is')v'nt'&e of
closin& the pl'nt for the two-*onth perio)9
2% An o"tsi)e *'n"f'ct"rer h's offere) to pro)"ce P')s for An)res Co*p'n( 'n) to ship
the* )irectl( to An)resG c"sto*ers% If An)res 'ccepts this offer< the f'cilities th't it "ses to
pro)"ce P')s wo"l) /e i)leJ however< fi;e) overhe') costs wo"l) /e re)"ce) /( 42? to
their present v'l"e% Since the o"tsi)e *'n"f'ct"rer wo"l) p'( for 'll the costs of
shippin&< the v'ri'/le sellin& costs wo"l) /e onl( two-thir)s of their present '*o"nt% ,h't
the "nit cost fi&"re th't is relev'nt for co*p'rison to wh'tever 5"ote) price is receive)
fro* the o"tsi)e *'n"f'ct"rer9
M'( 7< -881 P'&e -0 of -0