©) The Review School of Accountancy ‘Board Examination 08 February 2014 Monogement Services INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each item by shading the box corresponding to the letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use pencil no. 2 only. SetB Items 1 and 2 are based on the following information | Heart Company provided that following information regarding its biggest branch in suburb Manila: Operating assets, January 1 P 180,000 Operating assets, December 31 P 300,000 Operating liabilities, January 1 P 75,000 Operating liabilities, December 31 P 125,000 Sales P 500,000 Cost of capital 20% A+ Assuming that the branch’s profit margin is 12%, what is the ‘return on investment? a. 20.008 b. 25.008 c. 33.338 d. 40.008 Assuming a target residual income of P 24,000, how much should be the expenses of the branch for the year? a. P 476,000 b. P 452,000 c. P 428,000 a, Cannot be determined from the given information Variable costing treats a. All variable expenses as product costs b. All variable expenses as period costs c. All fixed expenses as product costs dj All fixed expenses as period costs The following data pertains to Brain Company: Total cost Sales (40,000 units) P'1,000,000 Raw materials 260,000 Direct labor 280,000 Factory overhead Variable 80,000 a Fixed 360,000 Selling and general expenses variable 120,000 3 Fixed 225,000 Assuming that Brain sells 80,000 units, what is the maximum that can be paid for an advertising campaign while still breaking even? a. P 135,000 b. P 535,000 ©. P 695,000 . a. P 1,015,000sisg] tSt Pre-Boara Examination (May 2014 Batch) ; 7 si reomary 2014 » 8:00 90 (0 10:00 AM Page 2 eet enti | ee If DOTC expects that an increase in the LRT/MRT fare will raise mass transportation revenues for the government, it must think that the demand for LRT/MRT is Elastic ~ Inelastic ec. Unit elastic d. Perfectly elastic items 6 and 7 are based on the folloi information Liver Corporation has the following sales budget for six months of 2014: duly PB 200,000 August 210,000 September 220,000 October 230,000 November 240,000 December 250,000 Historically, the cash collection on sales has been as follows: * 65% of sales collected in the month following the sale * 25% of sales collected in the second month following sale * 8% of sales collected in the third month following sale, and * 2% of sales is uncollectibie A -6. Determine the total cash collections in the fourth quarter in 2014, a. P 663,900 b. P 603,900 c. P 578,600 d. P 363,000 © -7- what is the projected year-end balance of accounts receivable assuming uncollectible balance is written off immediately? a. P 101,700 b. P 111,500 ce. P 342,600 d. P 352,200 Standard cost variances are not closed to ai Direct materials inventory b. Work-in-process inventory ‘ ¢. Finished goods inventory d. Cost of goods sold B 9% Spleen company with P 210,000 of fixed cost has the following data: Product X Product _¥ onit sales price P10 eS unit variable costs Pa P4 Assume that 3 units of X are sold for each unit of ¥. How much is the contribution margin of product X at its breakeven point? a. P 900,000 b. P 180,000 > c} PB 120,000 a. P 90,000 G@, 10-Determine the false statement about an accounting information system (ars). a. AIS fe often referred to as a transaction processing system b. AIS supports day-to-day operations by collecting and sorting -_ data about an organization’s transactions ©, AIS is best suited to solve problems where there is great uncertainty and ill-defined reporting problems AIS produces information made available to various levels of management for use in planning and controlling operationsave sere nen AuUU Page 3 EE Bn. h 2. Ba C14. D 15. Ih macroeconomics, the narrow definition of money supply “M” consists only of a. Current and demand deposits b. Currency, demand deposits, other checkable deposits, and travelers’ checks ¢. Currency, demand deposits, and small time deposits @. Currency, demand deposits, small time deposits and Money Market Mutual Fund balances Pancreas Company has 3,200 machine hours of infinite labor hours available for manufacturin the following characteristics: plant capacity and g two products with Product S Product 1 Selling price P 200 P 165 Cost: Direct materials P 80 P40 Direct labor* 40 35 variable overhead** 15 30 Fixed overhead** 10 20 Operating expenses (variable) 49 20 Total P 185 P 145 Net income : P 1s P 20 * applied on the basis of labor hours. ** applied on the basis of machine hours Assuming that there is no market limit, could be attained under the scenario? a. P 96,000 b. P 80,000 c. P 72,000 ad. P 64,000 what is ‘the maximum CM that Items 13 to on the following information Lungs Company incurred the following factory overhead costs for the second quarter of the year: tory Overhead April Pa, 200 May P 3,600 June P 4,860 Using high-low method, how much is the variable factory overhead costs if Lungs had 160 machine hours? a. P 4,400 wb. P 3,200 “c. P 2,800 d. P 1,200 Using high-low method, how much is the fixed factory overhead cost for the second quarter? a. P 1,200 b. P 2,400 £. P 3,600 4. P 4,800 Which of the following equations shall be used under least-squares method? a. 12,600 = 3 a + 69,300 b b. 1,926,000 = 3 a + 69,300 b ¢. 1,890,000 = 450 a + 69,300 b d. 4,926,000 = 450 a + 69,300 b’ b D MANAGEMENT SERVICES ESM) First Pre-Board Examination (May 2014 Batch) 8 February 2014 © 8:00 AM to 10:00 AM - Page 4 Items 16 to 19 are based he following information “Kidney Motors is trying to decide whether it should keep its existing car washing machine or purchase a new one that has technological advantages (which translate into cost savings) over the existing machine. Information on each machine follows: Qld machine New machine Original cost P 9,000 P 20,000 Accumulated depreciation 5,000 0 Annual cash operating costs 9,000 4,000 Current salvage value 2,000 Salvage value in 10 years 500. . 1,000 Remaining life 10 yrs. 10 yrs. 16..The P 4,000 of annual operating costs that are common to both the old and the new machine are an example of a(n) a, Sunk cost ) Irrelevant cost ¢. Opportunity cost d. Future avoidable cost 9,000 cost of the original machine represents a(n) Sunk cost Opportunity cost Future relevant cost Historical relevant cost -18.The P 20,000 cost of the new machine represents a(n} a. Sunk cost b. Opportunity cost ¢. Future relevant cost d. Future irrelevant cost 39. The estimated P 500 salvage value of the existing machine in 10 years represents a(n) a. Sunk cost b. Opportunity cost of selling the existing machine now ©. Opportunity cost of keeping the existing machine for 10 years d. Opportunity cost. of Keeping the existing machine and buying the new machine 120. Bladder Company manufactures and sells native bracelets to assorted prints. Data for the previous year were as follow: Selling price per piece P 8.00 variable cost per piece P 2.00 CH Number of bracelets to breakeven 25,000 Net post-tax income P 5,850 For the coming year, the company estimates that the selling price will be P 9.50 per piece, variable cost to manufacture will increase by 25%, and fixed costs will increase by 20%. Income tax rate of 35% remains constant. How many units are required to maintain the same income as last year? a. 26,000 units bL 27,000 units €. 28,333 units d. 29,666 units 21.Contribution margin ratio x (sales - breakeven sales} a. No meaningful amount b, Variable costs c. Fixed costs éd. ProfitsO GE IE age 5: £228 a0 bas Antormation 1g information is available for Ana Manuf: r Company when it produced 2,100 units in the month o: ne pany whe € Februar, Material 2 pounds per unit @ P 4.00 per K ound Labor 3 hours per’ unit: r Ps Variable overhead P 15 per hour ACTUAL Material 4,500 pounds purchased @ P 17,100 Labor 6,400 direct labor hours A .22.wnat is tne materials purchase price variance? @ P 900 favorable + P 900 unfavorable c. P 840 favorable d. P 840 unfavorable A 23-Assuming that raw materials inventory increased by $00 pounds in February, then what is the actual cost of materials used? (as P 15,200 ‘Bb. P 15,960 c. P 16,000 a. P 18,000 B .24.Assuming that raw materials inventory increased by 400 pounds in February, What is the materials usage variance? a. P 380 favorable P 400 favorable ¢. P 1,140 unfavorable P 1,200 unfavorable PD .25. How aid the company factory workers perform in February? a. P 100 efficient b. P 100 inefficient ¢, 100 hours efficient d) 100 hours inefficient A 726. Assuming that the February payroll amounted to P 76,800 and that the labor rate. variance is P 12,800 unfavorable, then what is the standard labor rate? a+ P10 per hour b. P 12 per hour c. P14 per hour d. Cannot be determined from the given information D 27. assuming that the overhead cost is applied on the basis of labor hours, what is the variable overhead efficiency variance? a. P 1,000 favorable b. P 1,000 unfavorabte c. P 1,500 favorable (@. P 1,500 unfavorable 0 28, Assuming that the actual factory overhead costs incurred amounted to P 150,000 and 35% of which is fixed, then what is the variable overhead controllable variance? a. P 1,500 favorable b. P 1,500 unfavorable + 2 3,000 favorable 4) P 3,000 unfavorable&. High-low and scatter diggram methods b- High-low and least squares regression methods e catter diagram and least squares regression methods High-low, scatter diagram and least squares regression methods: CG 60) coton Co. has 3 divisions: a, B, and c, Division A's income statement shows the following for the year ended December 31, 2014: Sales P 1,000,000 Cost of goods sold 800,000) Gross profit P 200,000 a yt Selling expenses P 100,000 ‘ roa Administrative expenses 220,000 + __ (350, 000) 4 Net loss E1150, 000) cor of Goods sold is 75 percent variable and 25 percent fixed. of the fixed costs, 60 percent are avoidable if the division is closed. rim geen? j28lting expenses relate to the divicion ond: won ee eliminated if Division A were eliminated. Of the administrative expenses, 90 percent are applied from corporate costs. If Division A were eliminated, what is the effect on Colen Company profie? @- P 150,000 increase : b. P 75,000 decrease v ©. P 185,000 decrease da. P 215,000 decrease ( 1. responsibility center th. investment center. “a. Shared service department b. Ticket sales outlet ©. Provincial branch d. Factory division at is mostly likely to be organized as an (Cy 132. The profit increases by 30% when sales go up by- 208. profit is P 6,000, a. P 4,000 b. P 8,000 P 3,000 P 10,000 If current then how much is the contribution margin? J 33. Monopolistic competition describes a+ Perfect competition that includes strong entry barriers Be Am Andustry in’ which there is one seller of many differentiated products mab An industry in which thor evare many sellers of homogeneous products | pars cr G- An industry in which there are many sellers of differentiated Products f) 34-Which of the following characteristics distinguishes Processing from manual processing? a- Most computer systems are designed so that transaction trails useful for audit purposes do not exist b. Errors or fraud in computer processing will be detected soon after their occurrences The potential for systematic error is ordinarily greater in manual processing than in computerized processing Computer processing virtually eliminates the occurrence of computational error normally associated with manual processing computer29. me minimum transfer price for @ sellin b ct stion (May 2014 Batch) 8 February 2014 + B:00 AM to 10:00 AM Page 7 g division with full capacity seySeommodate an internal transfer of produced units to the buying division is usually based on the 7 a. Buying division’s regular selling price b. Selling division's regdlar selling price g. Buying division’s variable cost per unit AG} Selling division’s variable cost per unit 36.Prostate Co. is preparing its cash Prostate pays 60% of purchases xemainder the next month. budget for- the month of may. in the month of purchase and the Operational information follows: Beginning inventory, May 1 P 20,000 Estimated May cost of goods sold 100,000 Estimated May ending inventory 35,000 April purchases 90,000 What are Prostate’s estimated cash payments for shoes in May? a. P 115,000 78. P 105,000 c. P 87,000 a. PB 70,000 37.Management accounting information, compared to those contained in the set of general-purpose financial statements, tend to be a. Historical b. Structured ic. Flexible d. Less detailed -38.The following costs have been estimated based on sales of 30,000 units: Total Annual Costs Percent That Is Variable Direct materials 300, 000 1008 Direct labor 250,000 100 Manufacturing overhead 250,000 50 Selling and 150,000 25 administrative What unit selling price will yield a contribution margin of 4087 a. P 59.38 b. P 43.75 eh P 39.38 d. P 33.25 () 39-Im computer information systems, the “system design” phase refers to D @} The process of monitoring, evaluating and modifying a system “as needed . b. The process of determining user problems and needs, surveying the present system and developing the requirements of the proposed system . c. The process of developing specifications for hardware, software, manpower, data resources and information products : required to develop a system d. The process of determining the technical, economic and operational viability of a system 40.Which of the following is normally associated with capacity variance? (a Direct materials. b. Direct labor ¢. Variable overhead costs d. Fixed overhead costsMANAGEMENT SERVICES ‘rst Pre-Board Examination (May 2014 Bat 8 February 2014 « 8:00 AM to 10:00 AM Page 8 Al.Ovary Company manufactures 4 sin A ¥ gle variabli Production costs are P 20 and fixed Production costs are Pp 750,000. Ovary wee gemormal activity of 100,000 units. Ovary began the year i no inventory, produced 120,000 units, and Deteiaine the sort a sold 75,000 units. oduct cost under absorption il | a Pg0.09 See Beaton: | ' | product. unit b. P 26.25 fe) P 27.50 d. P 30.00 « B 42. the shutdown pornt is sane as the be (3. Avoidable fixed costs b. Shutdown costs c. Variable costs d. Joint costs eakeven point in the absence of | TD) 43.The following information pert. s to data that have been gathered in the process of estimating a simpl e least squares regression: Mean value of the dependent variable 30 Mean value of the independent variable 10 Coefficient of the independent variable 3 Number of observations 12 What is the value for the least squares reqression model? a. 60 b. 20 c. 6 D 44. wnich one of the following variances is of least significance from a behavioral control perspective? a. Unfavorable materials quantity variance amounting to 208 of the quantity allowed for the output attained. b.) Unfavorable labor efficiency variance amounting to 10% more “than the budgeted hours for the output attained. c. Favorable materials price variance obtained by purchasing raw ' materials from a new vendor. d. Fixed factory overhead volume variance resulting from management's decision midway through the fiscal year to reduce its budgeted output by 208. | ad. 0 | 45. Spine Corporation presented the following information for its three - ‘divisions for the past month. Divisions A and B are manufacturing | divisions, whereas Division C is distribution. Production level of A Significantly below capacity «ws Sales price to Division C P50 per unit Division a’s variable cost P20 per unit Total fixed costs (Division A and B) P120,000 z Division C’s marketing cost 108 of sales price Division C's sales price Market Value What is the minimum transfer price from Division A to Division B7 a. P10 fo. 20 c. P30 ad. P50wey First Pre-Board Examination (May 2014 Batch) | 8 February 2014 ® 8:00 AM to 10:00 AM Page 9 items 46 to 50 are based on following information drop by Gennis Lee, AA Company’s general manager, was requested to Feat oe rettice Of the President to shed light on the cesene After asking specific information trom the fi i inance division, Mr. Lee was able to secure the following infoxmati ce of ing information f President’s perusal: ith ee Variable costs Direct materials P 12.00 Direct labor 6.00 : Factory overhead 4.00 Selling and administrative 2.00 Fixed costs Factory overhead P 120,000 Selling and administrative 60,000 For its first year wf operations (2013), A&A Company produced 12,000 units of the Forbes Wood and managed to sell 10,000 units of these for P 40.00 each. For 2014, the Marketing group has projected the following sales forecast Sales Probability 20,000 units 758 m 12,000 units 25% D As.wnich of the foltowing is incorrect “regarding the company’s cost function based on Y¥ = a + bx? a. The value of the slope is 24 b. The y-axis intercept amounted to P 180,000 ¢. The average unit cost based on 2013 production is P 39.00” ds The total costs based on 2013 sales amounted to P 468,000 BH 47. nssuming that a special order for 1,200 units was received from a C Bi 49. foreign customer, what should be the minimum selling price for this order? a. P 48,000 ‘bB. P 28,800 c. P 19,200 d. The order cannot be accepted due to lack of capacity “48. Assuming the unit sales price remains constant, what is the margin of safety in 2014? a. 12.5% b. P 1,250 c. 6,750 units d. 270,000 units + Compared to variable costing, the company’s 2013 profit under absorption costing would have been a, P 20,000 lower 4b) P 20,000 higher + ¢. P 30,000 lower d. P 30,000 higher * B SO. Assume that A&A contemplates on outsourcing Forbes Wood from an P 36 per unit. How many de supplier that has quoted a price of 2 cares S air Aca be indifferent between making & buying Forbes Wood? a. 12,000 units b. 15,000 units @. 18,000 units d. 540,000 units - END of EXAMINATION -MS First Preboard Exam solutions to selected items (May 2014 batch) Management Services (MS) 26 27 28 29 30. 31 32 33, 34 35. 36 37 38 39 40 41 42 43 44 45 46 a7 a8 49 50 fo co! on/en | lua 1. Profit = 12% (500,000) = P 60,000 Average assets = (180,000 + 300,000) Rol = 60,000 = 240,000 2. Required income = 20% (240,000) Operating income = 48,000-+24,000 = 72,000 Expenses = 500,000 - 72,000 4. BEP = fixed costs + unit CM 80,000 = (585,000 + ads exp.) + (25 - 16) 6. Collection pattern (%): 0 - 65 - 25-8 (200,000 x 8%) + (210,000 x 33%) + (220,000 x 98%) + (230,000 x 90%) + (240,000 x 65%) + (250,000 x 0%) 7. AR, December 31: (230,000 x 8%) + (240,000 x 33%) + (250,000 x 98%) . 9. Wd. ave. unit CM: 75% (2) + 25% (1) Over-all BEP (units): 210,000 + 1.75 Product X: 75% (120,000) = 90,000 units Break-even CM: 90,000 units (2) 12. Product S's CM per hour: 25 + 1 =P 25 Product T's CM per hour: 40 + 2 = P20 Maximum CM (Prod. $): P 25 x 3,200 hours 13. Hourly VC: (4,800 ~ 3,600) + (180 - 120) Variable FOH: 20 per hour (160 hours) 14, Monthly fixed cost = 3,600 - 120 (20) Quarterly fixed cost = 1,200 x 3 months 15. Sum of "x" values: 450 Sum of "y” values: 12,600 * ‘Sum of *xy” values: 1,926,000 Sum of *x2" values: 69,300 15. Equation 1; 12,600 = 3a + 450b Equation 2: 1,926,000 = 450 a + 69,300 b 20. Current fixed cost: 25,000 (8 - 2) (150,000 (1.2) + (5,850 + 0.65)] + (9.5 -2.5) 22, MPPV: 4,500 (3.8 ~ 4) 23. Actual cost (DM): 4,000 (3.8) 24. MQV: [4,100 ~ 2,100 (2)) 4 25. 6,400 hours ~ 2,100 (3 hours) 26, Actual rate: 76,800 + 6,400 = 12 per hr. LRV = 12,800 U = 6,400 (12 ~ SR) 27. (6,400 ~ 6,300) 15 per hour 28. AFOH (V): 65% (150,000) BASH (V): SH x VR = 6,300 x 15 per hour 30. Segment margin (Division A): 1,000,000 ~ {800,000 (75%) - 800,000 (25%) 60% ~ 100,000 ~ 250,000 (10%) 32. DOL = A profit + A sales = 30% + 20% = 1.5 DOL = CM + profit = 1.5 = CM + 6,000 36. May purchases: 100,000 + 35,000 ~ 20,000 [May: 115,000 (0.6)] + [Apr: 90,000 (0.4)} 38, Unit VC: (300,000 + 250,000 + 250,000 (0.5) + 150,000 (0.25)] + 30,000 = 23.75 Unit SP: 23.75 = (100% - 40%) 41. Full costing: 20 + (750,000 + 100,000) NORMAL production is the basis of unit FFOH VOLUME variance shall expiain the difference between actual and normal production. 43.¥=a+bx, > — 30=a+3(10) 45, Given an excess capacity, minimum transfer price shall be based on the unit VC (P 20). 46. Cost function: ¥ = 180,000 + 24 x Based on sales: Y = 180,000 + 24 (10,000 u) 47. Minimum selling price: 1,200 (P 24) 48. 2014 sales: 20,000 (75%) + 12,000 (25%) BEP: 180,000 + (40 - 24) = 11,250 Margin of safety (in units): 18,000 - 11,250 49. Unit FFOH: 120,000 + 12,000 = 10 A Income = (12,000 - 10,000) 10 = P 20,000 If production is greater than sales, ‘then absorption profit is greater than variable profit 50, Cost to make = cost to buy 180,000 + 24X=36X X= 180,000 + 12 MS Quiz 3 > first week of March ~ earliest! Coverage: MS - 07, 08, 09, D, E1 & £2 MS Quiz 4 > third week of March - earliest! Coverage: MS ~ 10, 11 & 12 (no theories) MS Quiz 5 > before April Coverage: ALL topics! (NOTE: theories only)