CPAR
CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
MANAGEMENT ADVISORY SERVICES APRIL 27 AND 30, 2022
Final Pre-board Examination
Instructions: Choose the BEST answer for each of the following items.
1. That type of accounting which deals with how accounting and other financial
data can be used for decision-making in controlling, monitoring, and
directing business activity is called
a. management accounting c. financial accounting
b. responsibility accounting d. general accounting
2. In financial accounting, certain rules and regulations must be followed on
how financial statements must be presented to readers. In managerial
accounting, no such restrictions generally apply because it is
a. an entirely different field that need not observe the broad guidelines
in financial accounting.
b. designed to provide management with non-financial information for
decision-making.
c. designed to provide accounting and other financial data to assist
management in making business decisions.
d. a discipline that does not require preparation of financial statements.
3. In comparing management and financial accounting, which of the following
more accurately describes management accounting information?
a. comparable, verifiable, monetary
b. budgeted, informative, adaptable
c. required, estimated, internal
d. historical, precise, useful
4. Which of the following is not an objective of management accounting?
a. maximization of profit and minimization of costs.
b. measuring the performance of managers of subunits.
c. providing information for planning and decision making.
d. providing assistance in directing and controlling operations.
5. Cost is the monetary measure of the amount of resources given up in
obtaining goods and services. Costs may be classified as unexpired or
expired.
Which of the following costs is not always considered to be expired
immediately upon being recognized?
a. salesmen’s commission
b. depreciation expense for factory equipment
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c. cost of goods sold
d. salary of the company president
6. It refers to anything (a product, product line, a business segment) for which
cost is computed.
a. Cost object c. Cost control
b. Cost driver d. Cost variance
7. An activity that adds costs to the product or service, but does not make such
product or service more valuable to customers is called
a. non-value-adding activity. c. costly activity.
b. value-adding activity. d. valuable activity.
8. Product costs or inventoriable costs
a. are charged to expense when products become part of the finished
goods inventory.
b. include only the prime costs of producing a product.
c. are treated as assets before the products are sold.
d. include only the conversion costs of producing the products.
ITEMS 9 to 15 ARE BASED ON THE FOLLOWING INFORMATION:
Data about Annabelle Company’s production and inventories for the month
of June are as follows:
Purchases – direct materials P143,440
Freight in 5,000
Purchase returns and allowances P 2,440
Direct labor 175,000
Actual factory overhead 120,000
Inventories: June 1 June 30
Finished goods P 68,000 P 56,000
Work in process 110,000 135,000
Direct materials 52,000 44,000
Annabelle Company applies factory overhead to production at 80% of
direct labor cost. Over– or underapplied overhead is closed to cost of
goods sold at year-end. The company’s accounting period is on the
calendar year basis.
9. Annabelle Company’s prime cost for June was
a. P154,000. c. P198,000.
b. P329,000. d. P315,000.
10. Annabelle Company’s conversion cost for June was
a. P315,000. c. P329,000.
b. P295,000. d. P444,000.
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11. For the month of June, Annabelle Company’s total manufacturing cost was
a. P469,000. c. P644,000.
b. P444,000. d. P449,000.
12. For June, Annabelle Company’s cost of goods transferred to the finished
goods inventory account was
a. P579,000 c. P469,000.
b. P461,000. d. P444,000.
13. Annabelle Company’s cost of goods sold for June was
a. P441,000. c. P456,000.
b. P481,000. d. P444,000.
14. The amount of over/underapplied overhead factory for the month of June
was
a. P140,000 overapplied. c. P20,000 overapplied.
b. P120,000 underapplied. d. P20,000 underapplied.
15. The cost of goods sold for the month of June should be increased (decreased) by
the amount of over/ under-applied factory overhead of
a. P20,000. c. (P120,000).
b. (P20,000). d. P0.
16. For decision-making purposes, relevant costs are
a. variable past costs.
b. all fixed and variable costs.
c. anticipated future costs that will differ among various alternatives.
d. costs incurred within the relevant range of production.
17. An income or benefit that is given up when one alternative is selected over
another is called
a. loss. c. relevant cost.
b. opportunity cost. d. differential cost.
18. When production (in units) decreases, the average cost per unit of product
increases. This increase in the average cost per unit is due to the
a. increase in variable cost per unit.
b. increase in fixed cost per unit.
c. increase in total variable costs.
d. increase in total fixed costs.
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19. The following data were collected from the records of the Receiving
Department of a company:
Number of Receiving and
Month Items Received Handling Costs
January 2,800 P17,500
February 2,000 12,500
March 1,190 7,450
April 5,200 32,500
May 4,410 27,600
June 4,016 25,100
The receiving and handling cost is most likely to be a
a. step cost. c. fixed cost.
b. variable cost. d. semi-variable cost.
ITEMS 20 to 22 ARE BASED ON THE FOLLOWING INFORMATION:
Meng Company is preparing a flexible budget for next year and requires a
breakdown of the factory maintenance cost into the fixed and variable
elements.
The maintenance costs and machine hours (the selected cost driver) for the
past six months are as follows:
Maintenance Costs Machine Hours
January P15,500 1,800
February 10,720 1,230
March 15,100 1,740
April 15,840 2,190
May 14,800 1,602
June 10,600 1,590
20. If Meng Company uses the high-low method of analysis, the estimated
variable rate of maintenance cost per machine hour is
a. P7.23. c. P5.46.
b. P8.73. d. P5.33.
21. The average annual fixed maintenance cost amounts to
a. P4,160. c. P49,920.
b. P8,320. d. P 5,120.
22. What is the average rate per hour at a level of 1,500 machine hours?
a. P5.33 c. P7.23
b. P8.11 d. P5.46
23. The coefficient of correlation that indicates the strongest linear association
between the dependent and independent variables is
a. – 0.08 c. – 0.80
b. 0.40 d. 0.04
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24. If the coefficient of correlation between two variables is –0.95, how might a
scatter diagram of these variables appear?
a. A least squares line that slopes up to the right.
b. A least squares line that slopes down to the right.
c. Random points
d. A least squares line that slopes down to the left.
25. Under absorption costing, fixed manufacturing overhead could be found in
all of the following except the
a. work-in-process account.
b. finished goods inventory account.
c. Cost of Goods Sold.
d. period costs.
26. Absorption costing differs from variable costing in all of the following except
a. treatment of fixed manufacturing overhead.
b. treatment of variable production costs.
c. acceptability for external reporting.
d. arrangement of the income statement.
27. A total variance is best defined as the difference between total
a. actual cost and total cost applied for the standard output of the
period.
b. standard cost and total cost applied to production.
c. actual cost and total standard cost of the actual input of the period.
d. actual cost and total cost applied for the actual output of the period.
28. Ronald Corp. incurred 2,300 direct labor hours to produce 600 units of
product. Each unit should take 4 direct labor hours. Ronald applies variable
overhead to production on a direct labor hour basis. The variable overhead
efficiency variance
a. will be unfavorable.
b. will be favorable.
c. will depend upon the capacity measure selected to assign overhead
to production.
d. is impossible to determine without additional information.
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Use the following information for questions 29–31.
Timothy Company has the following information available for October when
3,500 units were produced (round answers to the nearest peso).
Standards:
Material 3.5 pounds per unit @ P4.50 per pound
Labor 5.0 hours per unit @ P10.25 per hour
Actual:
Material purchased 12,300 pounds @ P4.25
Material used 11,750 pounds
17,300 direct labor hours @ P10.20 per hour
29. What is the labor rate variance?
a. P875 F c. P865 U
b. P865 F d. P875 U
30. What is the material quantity variance?
a. P2,250 F c. P225 F
b. P2,250 U d. P2,475 U
31. Assume that the company computes the material price variance on the basis
of material issued to production. What is the total material variance?
a. P2,850 U c. P5,188 F
b. P5,188 U d. P2,850 F
32. Actual fixed overhead is P33,300 (12,000 machine hours) and fixed overhead
was estimated at P34,000 when the predetermined rate of P3.00 per
machine hour was set. If 11,500 standard hours were allowed for actual
production, applied fixed overhead is
a. P33,300 c. P34,500
b. P34,000 d. P36,000
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Use the following information for questions 33–36.
Standard Company has developed standard overhead costs based on a capacity
of 180,000 machine hours as follows:
Standard costs per unit:
Variable portion 2 hours @ P3 = P 6
Fixed portion 2 hours @ P5 = 10
P16
During April, 85,000 units were scheduled for production, but only 80,000 units
were actually produced. The following data relate to April:
Actual machine hours used were 165,000.
Actual overhead incurred totaled P1,378,000 (P518,000 variable plus
P860,000 fixed).
All inventories are carried at standard cost.
33. The variable overhead spending variance for April was
a. P15,000 U. c. P38,000 F.
b. P23,000 U. d. P38,000 U.
34. The variable overhead efficiency variance for April was
a. P15,000 U. c. P38,000 F.
b. P23,000 U. d. P38,000 U.
35. The fixed overhead spending variance for April was
a. P40,000 U. c. P60,000 F.
b. P40,000 F. d. P60,000 U.
36. The fixed overhead volume variance for April was
a. P60,000 U. c. P100,000 F.
b. P60,000 F. d. P100,000 U.
37. The sum of the labor mix and labor yield variances equals
a. the labor efficiency variance.
b. the total labor variance.
c. the labor rate variance.
d. nothing because these two variances cannot be added since they use
different costs
38. Total quality management is inseparable from the concept of
a. ISO certification.
b. centralized organizational structure.
c. continuous improvement.
d. the product life cycle.
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39. A significant cost of quality that is not recorded in the accounting records is
the
a. failure cost for a customer complaint center.
b. cost of reworking products to bring them up to specification.
c. opportunity costs of forgone future sales.
d. appraisal cost for product equipment.
40. Coffin Company’s cost of compliance is P58,000. Appraisal cost is P21,000
and failure cost is P32,000. The company’s total quality cost is
a. P53,000. c. P90,000.
b. P79,000. d. P111,000.
41. E Co. has the following expected pattern of collections on credit sales: 70
percent collected in the month of sale, 15 percent in the month after the
month of sale, and 14 percent in the second month after the month of sale.
The remaining 1 percent is never collected. At the end of May, E Co. has the
following accounts receivable balances:
From April sales P21,000
From May sales 48,000
E’s expected sales for June are P150,000. What were total sales for April?
a. P150,000 c. P70,000
b. P72,414 d. P140,000
42. Budgeted sales for K Inc. for the first quarter of 2023 are shown below:
January 35,000
February 25,000
March 32,000
The company has a policy that requires the ending inventory in each period
to be 10 percent of the following period’s sales. Assuming that the company
follows this policy, what quantity of production should be scheduled for
February?
a. 24,300 units c. 25,000 units
b. 24,700 units d. 25,700 units
43. Production of Product X has been budgeted at 200,000 units for May. One
unit of X requires 2 kgs. of raw material. The projected beginning and ending
materials inventory for May are:
Beginning inventory 2,000 kgs.
Ending inventory 10,000 kgs.
How many kgs. of material should be purchased during May?
a. 192,000 c. 408,000
b. 208,000 d. 416,000
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44. The weighted average cost of capital that is used to evaluate a specific
project should be based on the
a. mix of capital components that was used to finance a project from
last year.
b. overall capital structure of the corporation.
c. cost of capital for other corporations with similar investments.
d. mix of capital components for all capital acquired in the most recent
fiscal year.
45. Tiger Inc. bought a piece of machinery with the following data:
Useful life 6 years
Yearly net cash inflow P45,000
Salvage value –0–
Internal rate of return 18%
Cost of capital 14%
Present Value factors, 6th year:
14% 0.456
18% 0.370
Present value factors, 6 periods:
14% 3.889
18% 3.498
The initial cost of the machinery was
a. P175,000 c. P20,520
b. P157,410 d. P16,650
46. An investment project is expected to yield P10,000 in annual revenues, has
P2,000 in fixed costs per year, and requires an initial investment of P5,000,
with an estimated useful life of 5 years. Given a cost of goods sold of 60
percent of sales, what is the payback period in years?
a. 2.50 c. 2.00
b. 5.00 d. 1.25
47. A project has an initial cost of P100,000 and generates a present value of
net cash inflows of P120,000. What is the project’s profitability index?
a. 0.20 c. 0.80
b. 1.20 d. 5.00
48. All other things being equal, as the time period for receiving an annuity
lengthens,
a. the related present value factors increase.
b. the related present value factors decrease.
c. the related present value factors remain constant.
d. it is impossible to tell what happens to present value factors from the
information given.
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49. In evaluating the performance of a profit center manager, he/she should be
evaluated on
a. all revenues and costs that can be traced directly to the unit.
b. all revenues and costs under his/her control.
c. the variable costs and the revenues of the unit.
d. the same costs and revenues on which the unit is evaluated.
50. Office Products Inc. manufactures and sells various high-tech office
automation products. Two divisions of Office Products Inc. are the Computer
Chip Division and the Computer Division. The Computer Chip Division
manufactures one product, a “super chip,” that can be used by both the
Computer Division and other external customers. The following information
is available on this month’s operations in the Computer Chip Division:
Selling price per chip P50
Variable costs per chip P20
Fixed production costs P60,000
Fixed SG&A costs P90,000
Monthly capacity 10,000 chips
External sales 6,000 chips
Internal sales 0 chips
Presently the Computer Division purchases no chips from the Computer
Chips Division, but instead pays P45 to an external supplier for the 4,000
chips it needs each month.
Assume that next month’s costs and levels of operations in the Computer
and Computer Chip Divisions are similar to this month. What is the
appropriate transfer price range for a possible transfer of the super chip from
one division to the other?
a. P45 to P50 c. P20 to P45
b. P20 to P50 d. P30 to P45
51. ABC Corp. is composed of three operating divisions. Overall, the ABC Corp.
has a return on investment of 20%. Division A has a return on investment
of 25%. If ABC Corp. evaluates its managers on the basis of return on
investment, how would the Division A manager and the ABC Corp. president
react to a new investment that has an estimated return on investment of
23%?
a. Division A manager – ACCEPT; ABC Corp. president – ACCEPT
b. Division A manager – ACCEPT; ABC Corp. president – REJECT
c. Division A manager – REJECT; ABC Corp. president – ACCEPT
d. Division A manager – REJECT; ABC Corp. president – REJECT
52. Presently, the Alligator Division of Animal Crackers Co. has a profit margin
of 30%. If total sales rise by P100,000, both the numerator and the
denominator of the profit margin will increase. The net result will be
a. an increase in the profit margin ratio to above 30%.
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b. a decrease in the profit margin ratio to below 30%.
c. no change in the profit margin ratio.
d. a change in the profit margin ratio that cannot be determined from
this information.
53. A division of Lucky Co. reported a return on investment of 20% for a recent
period. If the division's asset turnover was 5, its profit margin must have
been
a. 100% c. 25%
b. 4% d. 2%
54. Z Division of XYZ Corp. has the following information for 2022:
Assets available for use P1,800,000
Target rate of return 10%
Residual income P 270,000
What was Z Division's return on investment for 2022?
a. 15% c. 25%
b. 10% d. 20%
55. K Co. uses 10,000 units of a part in its production process. The costs to make
a part are: direct material, P12; direct labor, P25; variable overhead, P13;
and applied fixed overhead, P30. K Co. has received a quote of P55 from a
potential supplier for this part. If K Co. buys the part, 70 percent of the
applied fixed overhead would continue. K Co. would be better off by
a. P50,000 to manufacture the part.
b. P150,000 to buy the part.
c. P40,000 to buy the part.
d. P160,000 to manufacture the part.
Use the following information for questions 56 and 57.
R Corp. sells a product for P18 per unit, and the standard cost card for the
product shows the following costs:
Direct material P 1
Direct labor 2
Overhead (80% fixed) 7
Total P10
R received a special order for 1,000 units of the product. The only additional
cost to R would be foreign import taxes of P1 per unit.
56. If R is able to sell all of the current production domestically, what would be
the minimum sales price that R would consider for this special order?
a. P18.00 c. P5.40
b. P11.00 d. P19.00
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57. Assume that R has sufficient idle capacity to produce the 1,000 units. If R
wants to increase its operating profit by P5,600, what would it charge as a
per-unit selling price?
a. P18.00 c. P11.00
b. P10.00 d. P16.60
58. Handy Combs, Inc. makes and sells brushes and combs. It can sell all of
either product it can make. The following data are pertinent to each
respective product:
Brushes Combs
Units of output per machine hour 8 20
Selling price per unit P12.00 P4.00
Product cost per unit
Direct material P1.00 P1.20
Direct labor 2.00 0.10
Variable overhead 0.50 0.05
Total fixed overhead is P380,000.
The company has 40,000 machine hours available for production. What sales
mix will maximize profits?
a. 320,000 brushes and 0 combs
b. 0 brushes and 800,000 combs
c. 160,000 brushes and 600,000 combs
d. 252,630 brushes and 252,630 combs
59. Just-in-time (JIT) inventory systems
a. result in a greater number of suppliers for each production process.
b. focus on a “push” type of production system.
c. can only be used with automated production processes.
d. result in inventories being either greatly reduced or eliminated.
60. A firm estimates that its annual carrying cost for material X is P0.30 per kilo
If the firm requires 50,000 kilos per year, and ordering costs are P100 per
order, what is the EOQ (rounded to the nearest kilo)?
a. 5,774 kilos c. 1,732 kilos
b. 4,082 kilos d. 1,225 kilos
61. A company annually consumes 10,000 units of Part C. The carrying cost of
this part is P2per year and the ordering costs are P100. The company uses
an order quantity of 500 units. If the company operates 200 days per year,
and the lead time for ordering Part C is 5 days, what is the order point?
a. 250 units c. 500 units
b. 1,000 units d. 2,000 units
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Use the following information for questions 62 and 63.
The following information relates to financial projections of Big Co. for 2023:
Projected sales 60,000 units
Projected variable costs P2.00 per unit
Projected fixed costs P50,000 per year
Projected unit sales price P7.00
62. How many units would Big Co. need to sell in 2023 to earn a profit before
taxes of P10,000?
a. 25,714 c. 8,571
b. 10,000 d. 12,000
63. If Big Co. achieves its projections in 2023, what will be its degree of
operating leverage?
a. 6.00 c. 1.68
b. 1.20 d. 2.40
64. In a CVP graph, the area between the total cost line and the total fixed cost
line yields the
a. fixed costs per unit. c. profit.
b. total variable costs. d. contribution margin.
65. Which of the following statements about activity-based costing is NOT true?
a. Activity-based costing is useful for allocating marketing and
distribution costs.
b. Activity-based costing is more likely to result in major differences
from traditional costing systems if the firm manufactures only one
product rather than multiple products.
c. Activity-based costing seeks to distinguish batch-level, product-
sustaining, and facility-sustaining costs, especially when they are not
proportionate to one another.
d. Activity-based costing differs from traditional costing systems in that
products are not cross-subsidized.
66. If a group of consumers decide to boycott a particular product, the expected
result would be
a. an increase in the product price to make up lost revenue.
b. a decrease in the demand for the product.
c. that demand for the product would become completely inelastic.
d. an increase in product supply because of increased availability.
67. A target in the balanced scorecard framework is
a. a statement of what the strategy must achieve and what is critical to
its success.
b. a key action program required to achieve strategic objectives.
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c. the level of performance or rate of improvement needed in the
performance measure.
d. a diagram of the cause-and-effect relationships between strategic
objectives.
68. Which of the following formulas can often reconcile the difference between
absorption- and variable-costing net income?
a. Ending inventory units x predetermined variable-overhead rate per
unit.
b. Ending inventory units x predetermined fixed-overhead rate per unit.
c. Change in inventory units x predetermined fixed-overhead rate per
unit.
d. Change in inventory units x predetermined variable-overhead rate
per unit.
69. A supply curve illustrates the relationship between
a. price and consumer tastes. c. supply and demand
b. price and quantity demanded. d. price and quantity supplied
70. Newton Corporation is offered trade credit terms of 3/15,net 45. The firm
does not take advantage of the discount, and it pays the account after 67
days. Using a 365-day year, what is the nominal annual cost of not taking
discount?
a. 18.2% c. 21.71%
b. 23.48% d. 26.45%
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