NATIONAL FEDERATION OF JUNIOR PHILIPPINE INSTITUTE OF

ACCOUNTANTS -REGION III COUNCIL

2013 REGIONAL MOCK BOARD EXAMINATION

MANAGEMENT ADVISORY SERVICES

INSTRUCTIONS: Select the best answer for each of the following questions. Mark only one answer for
each item on the answer sheet provided. AVOID ERASURES. GOD BLESS!

1. Management accounting and financial accounting are similar in which of the following respects?
a. Both use the same unit of measurement.
b. Both rely heavily on the double-entry system.
c. Both produce almost all of their respective informational reports on a routing monthly
basis.
d. Both provide relevant and useful information to management.

2. Rafa Enterprises is contemplating a major investment in a new flexible manufacturing system

(FMS). The company’s minimum desired rate of return is 16 percent. The total investment is
P2.5 million with a 10 percent residual value at the end of its 8-year expected life. The company
uses straight-line depreciation. The FMS should produce P1.4 million of additional revenue
annually. Annual cash operating costs area expected to be P776,375.

What is the expected net present value of the proposed FMS? (Round-off factors to three
decimal places)
a. Positive net present value of P1,051,450
b. Negative net present value of P12,455
c. Positive net present value of P285,277
d. Negative net present value of P62,235

3. With the database approach to data management, we expect to have:

a. Increased data storage costs.
b. Improved data integrity.
c. Increased data redundancy.
d. Greater difficulty in performing file maintenance.

4. Dividend payout ÷ dividend yield =

a. Price-earnings ratio
b. Retention ratio
c. Plowback ratio
d. No meaningful amount

5. Which of the following statements about posting or updating is correct?

a. Real-time posting updates the appropriate master files immediately upon entry of the
transaction data in the system.
b. Batch posting updates the appropriate master files immediately upon entry of
transaction data into the system.
c. Batch posting has advantages in situations in which data must be current.

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 d. In a real-time posting, the transaction data are accumulated in a transaction file until
the end of the accounting period.

6. Roger Company expects to incur P4,000 per month of fixed overhead costs during the first
months of the year, and P10 per unit variable overhead costs. expected production for January,
February and March is 4,000, 5,000 and 3,000, respectively. Based on this information, the
predetermined overhead rate for the first three months of the year is
a. P11.00 per unit
b. P10.00 per unit
c. P0.80 per unit
d. P0.33 per unit

7. What is the advantage of having a “hot size” as a back-up control?

a. Power and space are available at the site to set up processing equipment on short
notice (e.g., after a disaster).
b. The site is located in another branch of the company in a neighboring county.
c. The system is configured in a manner similar to the normal day-to-day processing and is
available for immediate use.
d. All of the above are advantages of having a hot site.

8. The following financial ratios relate to Novak Company:

 Debt ratio: 40%
 Return on sales: 7.5%
 Assets turnover: 2 times
 Times interest earned: 4 times

What is Novak’s return on equity?

a. 6.25% c. 25.00%
b. 9.38% d. 37.50%

9. One of the overall goals of the Ciudad Restaurant is customer satisfaction. In the light of that
goal, match the internal process perspective with the appropriate objective.
a. Customer satisfaction means that the chefs engage in culinary continuing education.
b. Customer satisfaction means that customers receive their food within 10 minutes of
placing an order.
c. Customer satisfaction means that the customer appreciation program is successful.
d. Customer satisfaction means that the restaurant is profitable.

10. Federer Company operates two segments. Income statement for both segments are shown
below:
Segments Segment “Aussie Open” Segment “US Open”
Unit-level Variable Costs P500,000 P750,000
Contribution Margin (400,000) (550,000)
Facility-Level Fixed Costs (135,000) (120,000)
Income (Loss) (P35,000) P80,000

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 Management is considering discounting the operation of Segment “Aussie Open”. There would
be no effect on total facility-level fixed costs, or sales and expenses of segment “US Open”. By
how much will company-wide income change if segment “Aussie Open” is eliminated?
a. P35,000 increase
b. P35,000 decrease
c. P100,000 decrease
d. 135,000 decrease

11. A company is referred to as a diversified company or a conglomerate if it operates in

a. Many related industries.
b. Many unrelated industries.
c. Many and varied locations throughout the world.
d. One single major industry.

12. Complete the following table assuming the cost is a fixed cost.
Units of products sold 15 25
Total expected sold P7,500 “X”
Average per unit P 500 “Y”

The amounts in the cells labeled “X” and “Y” is, respectively
a. P12,500 and P500
b. P7,500 and P500
c. P12,500 and P625
d. P7,500 and P300

13. Assume the following facts about a firm that borrows by pledging its receivables:
Sales on credit P3,600,000
Average A/R Balance P60,000
Administrative fee charged on all new receivables 1.5%
Interest rate on outstanding loans 11.5%
Percent of receivables accepted 75%

What is the effective cost of financing stated as an annual rate?

a. 23.5% c. 13.5%
b. 13% d. 16.83%

14. Consider the following events that occurred at Andy Company during 2010:
 January 1: issued bonds for P100,000.
 January 20: used cash from the sale of bonds to purchase equipment for P80,000.
 October 1: sold used equipment for P15,000. This equipment had been acquired in
2003, and was sold at a P5,000 loss.
 December 31: paid interest of P8,000 on the bonds.

Based only on the facts above, what would be Andy’s net cash flow from investing activities for
2010?
a. P95,000 decrease
b. P65,000 decrease
c. P10,000 increase

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 d. P5,000 increase

15. Compute the June 2010 cost of capital (rounded to nearest percent) for an investment center
with the following information:

Pre-tax operating income for June 2010 P17,500,000

Assets at June 30, 2010 6,200,000
Current liabilities at June 30, 2010 4,000,000
Long-term liabilities at June 30, 2010 1,500,000
Income tax for June 30, 2010 5,000,000
EVA 12,040,000

a. 8 percent c. 10 percent
b. 21 percent d. 14 percent

16. The Soderling Company is in the process of preparing a purchases budget for the second quarter
of the 2010. Forecasts of sales for the second quarter follow:

April 14,900 units

May 13,500 units
June 16,200 units

The March sales were 12,500 units. Cost of goods sold is expected to be P8 per unit. Soderling
would like to have ending inventory each month equal to 15% of the following month’s
predicted sales.

What is the total cost of purchases in April?

a. P119,200
b. P117,600
c. P108,000
d. P104,560

17. Twin Co. produces and sells two products. Product A sells for P8 and has variable expenses of
P3. Product B sells for P18 and has variable expenses of P10. It predicts sales of 20,000 units of A
and 10,000 units of B. fixed expenses are P100,000 per month. Assume that Twin Co hits its
sales goal for February of P600,000, but falls short of its expected before-tax profit of P70,000.
What has happened?
a. Twin Co sold 40,000 units of product A and no product B.
b. Twin Co more of both products A and B than expected.
c. Twin Co sold more of product A and less of product B than expected.
d. Twin Co sold more of product B and less of product A than expected.

18. Murray Legal Services Company has fixed costs of P96,000 and variable costs of P120 per hour
of service rendered. Clients are charged an hourly rate of P220 per hour. According to company
budget, the company expects to provide clients with 1,200 hours of service.

What is the margin of safety as a percentage of budgeted hours?

a. 80% c. 20%

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 b. 40% d. 10%

19. RET Manufacturing produces two types of children’s products, Rubles and Twizzles. The
following is available related to each product:

Rubles Twizzles
Sales per unit P15 P24
Variable costs per unit 5 12

Rubles account for 60% of total product sales and Twizzles accounts for the rest. RET’s total
fixed costs are P30,024.

How many total number of products need to be sold in order for the company to break even?
a. 2,780 c. 5,560
b. 2,730 d. 2,176

Items 20 and 21 are based on the following information

Robin Company produces two automotive parts, carburetors and air filters. Both products are
made in the same manufacturing facilities but are produced under different processes. To accomplish an
accurate allocation of production costs, the company uses activity-based costing. The cost accountant
for the company provided information about the activities used to produce the company’s products. The
activities were organized into the following overhead cost categories. The most appropriate cost driver
for each category is also provided.

Category Estimated Cost Cost Driver Carburetors Air Filters

Unit-level P60,000 Labor hours 900 700
Batch-level P22,000 Set-ups 20 30
Product-level P45,000 Storage space 2,000 sq. ft. 4,000 sq. ft.
Facility-level P100,000 Machine hours 7,500 12,500

20. The amount of batch-level cost that should be allocated to the carburetor product line would be
a. P14,250
b. P13,200
c. P9,625
d. P8,800

21. If carburetors and air filters require the same amount of direct labor, what will be effect if labor
hours are used as the allocation base for product-level costs?
a. Air filters will be over costed.
b. Carburetors will be over costed.
c. Air filters and carburetors will be over costed.
d. Air filters and carburetors will be under costed.

22. Choose the best answer, given the following scenario. One way to tell whether your cost
accounting system is distorting product costs is if you discover that:
a. The most complex product you produce are overpriced and the simplest to produce are
underpriced.

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 b. The most complex products you produce are underpriced.
c. The most complex products you produce are overpriced as are the simplest to produce.
d. The most complex products you produce are underprice as are the simplest to produce.

23. Which of the following provides the catalyst for all operating budgets?
a. Firm’s ten-year plan
b. Production budget (units)
c. Capital expenditures budget
d. Unit sales forecast

24. Which of the following statements is true?

a. An advantage of the payback period is that it considers the time value of money.
b. The internal rate of return of a project will be equal to its unadjusted rate of return.
c. If an investment opportunity is acceptable based on its net present value, it will also be
acceptable based on its internal rate of return.
d. All methods of capital planning are based on cash flows only.

25. Levely Manufacturing Inc. had the following purchases budgeted for the last six months of 2010:
July P60,000
Augusts 45,000
September 52,000
October 60,000
November 80,000
December 85,000

Levely pays one-half of a month’s purchases in the month of purchase and the remainder in the
following month. What are expected total cash disbursements for the last quarter of 2010?
a. 112,500 c. 182,500
b. 225,000 d. 208,500

Item 26 is based on the following information:

Williams Company makes a white liquid substance that is used to correct errors made on printed
documents. Williams expects to use 4 ounces of a chemical known as Fatal per bottle of the correction
fluid. Fatal is expected to costs P0.40 per ounce. Actual materials cost amounted to P0.46 per ounce.
Williams expected to make and sell 1,000,000 bottles of correction fluid during the accounting period.
Actual production amounted to 900,000 bottles and 4,095,000 ounces.

26. The materials usage variance for Fatal is

a. P198,000 favorable
b. P198,000 unfavorable
c. P245,700 favorable
d. P245,700 unfavorable

27. Project L and S each have an initial cost of P10,000, followed by a series of positive cash inflows.
Projects L has total undiscounted cash inflows of P16,000, while S has total undiscounted
inflows of P15,000. Further, at a discount rate of 10 percent, the two projects have identical
NPVs. Which project’s NPV will be more sensitive to changes in the discount rate?
a. Project S

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 b. Project L
c. Both projects are equally sensitive to changes in the discount rate, since their NPVs are
equal at all required rates of return.
d. Neither project is sensitive to changes in the discount rate, since both have horizontal
NPV profiles.

28. The following information is for Serena Company:

Product A Revenue P8.00
Variable cost P2.00
Product B Revenue P4.00
Variable cost P1.00

Total fixed costs are P400,000. Actual sales are 300,000 units (sales mix is one unit of product A
and two units of product B). What is the degree of operating leverage?
a. 3 times c. 2 times
b. 2.5 times d. 1.5 times

Question No. 29 is based on the following:

The Mellow Machine Company is considering the addition of a computerized lathe to its
equipment inventory. The initial cost of the equipment if P600,000, and the lathe is expected to have a
useful life of five years and no salvage value. The cost savings and increased capacity attributable to the
machine are estimated to generate increases in the firm’s annual cash inflows (before considering
depreciation) of P180,000. The machine will be depreciated as follows for tax purposes:
Year Depreciation
1 P200,000
2 266,700
3 88,860
4 44,440

Mellow is currently in the 40 percent tax bracket. A 10 percent after-tax rate of return is desired.

The present value of 1, end of each year follows:

End of Year PV of 1
1 0.90909
2 0.82645
3 0.75132
4 0.68301
5 0.62092
Total 3.79079

29. The total present value of the depreciation tax shield is:
a. P499,347 c. P299,609
b. P199,739 d. P190,192

30. Roddick Company reports the following December 31, 2010 balance sheet data:
Current liabilities P280,000
Bonds payable, 16% 120,000
Preferred stock, P100 par 200,000

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 Common stock, P25 par value, 16,800 shares 420,000
Premium on common stock 240,000
Retained earnings (adjusted) 180,000
Total liabilities and Stockholders’ Equity P1,440,000

 Market price per share of common stock is P35.

 Income before tax for 2010 is P160,000.
 The tax rate is 40%.
 No additional contribution from stockholders was made during 2010.
 Common stockholders’ equity in the previous year was P860,000.

If 2010’s earnings per share is P3.50, then what should be the preferred dividend rate?
a. 18.6% c. 48.0%
b. 29.4% d. 50.6%

31. Gitarista Company manufactures 12,000 units of part used in its production of guitars. The
annual production activities related to this part are as follows:
Direct materials, P24,000
Direct labor, P60,000
Variable overhead, P54,000
Fixed overhead, P84,000

Musikero, Inc. has offered to sell 12,000 units of the same part of Gitarista for P22 per unit. If
Gitarista were to accept the offer, some of the facilities presently used to manufacture the part
could be rented to a third party at an annual rental of P18,000. Moreover, P4 per unit of the
fixed overhead applied to the part would be totally eliminated.

What should Gitarista’s decision be, and what is the total cost savings that would result?
a. Make, P60,000 c. Make, P78,000
b. Buy, P60,000 d. Buy, P78,000

32. Kim Laboratory is considering acquiring new equipment that management estimates will reduce
its cash operating expenses by P50,000 each year for the next five years. After five years, the
company believes the equipment the equipment will be technologically obsolete and will have
no salvage value. The equipment will cost P180,000 and the company will have to spend
P20,000 immediately to train its staff to use the new equipment.

What is the closest internal rate of return of this investment project?

a. 25% c. 8%
b. 12% d. 5%

33. Rommel Ocampo, a local craftsman, normally sells his handcrafted wooden birdhouses for P88
each. Rommel has the capacity to produce as many as 50 birdhouses a week. In a normal week,
Rommel makes 20 birdhouses with the following costs per unit:
Direct materials P 50.00
Direct labor P 200.00
Variable overhead P 40.00
Fixed overhead P 20.00

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 Rommel has received a special order from a local plant nursery for 25 birdhouses. The nursery
wishes to have the birdhouses engraved with their own logo, therefore, the order would require
the rental of a special engraving tool at a cost of P2,000. Rommel requires a minimum P5,000
profit on any special order.

The minimum price per birdhouse that Simon should charge the nursery is:
a. P370 c. P470
b. P450 d. P650

Item 34 is based on the following information:

Caroline Company planned to make 50,000 units of product. Caroline actually produced P51,000
units of product. The fixed cost predetermined overhead rate was P4.50 per unit. Actual fixed overhead
costs amounted to P210,000.

34. The fixed cost spending variance for Caroline Company is

a. P15,000 favorable
b. P15,000 unfavorable
c. P19,500 favorable
d. P19,500 unfavorable

35. Simple But Elegant sells food and other items in bulk to its customers. Simple is very selective in
the products it sells because of limited shelf space. It has been asked by a jar manufacture to
consider adding three of its best sellers. The following information is available regarding each of
the possible best seller items:

Dragon Horse Frog

Sales price per unit P3.50 P4.50 P7.00
Cost to purchase 1.25 2.00 3.00

Units per foot of shelf space 3 2 1

Assuming that there is unlimited demand for all items, if Simple has 15 feet of shelf available,
which of the following statements is true if they wish to maximize profits?
a. Simple should sell only Dragon.
b. Simple should sell only item Horse.
c. Simple should sell only item Frog.
d. Simple should sell an equal amount of each item.

36. Maria is going to sell ad-hoc disks for P40 a box; one box is considered to be one unit. The disks
cost Maria P10 a unit. She is planning to rent a booth at the upcoming Area Computer Show. She
has three options for attending the show:
Option 1: Paying a fixed fee of P3,000
Option 2: Paying a P1,000 fee plus 10% of her revenue made at the show, or
Option 3: Paying 25% of her revenue made at the convention.

What would be the difference point between option 1 and option 2?

a. 500 units c. 300 units

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 b. 400 units d. 200 units

37. The primary difference between a fixed (static) budget and a flexible is that a fixed budget
a. Cannot be changed after the period begins, whereas a flexible budget can be changed
after the period begins.
b. Is concerned only with future acquisitions of fixed assets whereas a flexible budget is
concerned with expenses that vary with sales.
c. Is a plan for a single level of production, whereas a flexible budget is several plans (one
for each of several production levels).
d. Includes only fixed costs, whereas a flexible budget includes only variable costs.

38. Ana Computer expects to pay a P2 dividend in the coming year. security analysts except Ana’s
dividends and earnings to grow at a rate of 9% for the indefinite future.

If the market’s required rate of return on Ana stock is 25%, what is the current stock price?
a. P4.00 c. P8.00
b. P7.50 d. P12.50

39. A favorable fixed overhead volume variance for a manufacturing company could indicate
a. The creation of excess inventory.
b. The actual overhead exceeded the budgeted overhead.
c. Sales exceeded production.
d. Variable overhead costs were less than fixed overhead.

40. Justine Corp. plans to replace a production machine that was acquired several years ago. The old
machine’s acquisition cost was P450,000, with salvage value of P50,000. The machine being
considered is worth P800,000 and the supplier is willing to accept the old machine at a trade-in
value of P60,000. Should the company decide not to acquire the new machine, it needs to repair
the old one at a cost of P200,000. Tax-wise, the trade-in transaction will not have any
implication but the cost to repair is tax-deductible. The effective corporate tax rate is 35% of net
income subject to tax.

For purposes of capital budgeting, the net investment in the new machine is
a. P540,000 c. P660,000
b. P610,000 d. P800,000

End of Examination
Thank you for participating in the 2013 Regional Mock CPA Board Examinations!

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