MANAGEMENT ADVISORY SERVICES

The following information applies to questions 1 to 5:

A company produces a product with the following standard costs:
Materials 2 pieces @ P5 per piece
P10
Labor 4 hours @ P8 per hour
P32
Variable overhead 4 hours @ P4 per hour
P24
Fixed overhead* - 4 hours @ P4 per hour
P16
Total standard manufacturing cost per unit
P82
*based on a capacity level of 5,000 units
1. If a flexible budget for 4,500 units, 5,000 units, and 5,500 units is prepared for a certain month, the budgeted costs are
4,500 units
5,000 units
5,500 units
a.
P369,000
P410,000
P451,000
b.
P297,000
P330,000
P363,000
c.
P377,000
P410,000
P443,000
d.
P
0
P410,000
P
0
2. Assume chat X is the number of units to be produced and TBC is the total budgeted cost, the flexible budget formula that the
company may use to compute total budgeted cost for any value of X within the relevant angle is
a. TBC = 82x.
b. TBC = 66x.
c. TBC = 80,000
d. TBC = 66x + 80,000
3. Assume that during the month, the company actually produced 4,800 units and incurred actual total manufacturing costs of
P400,000, how much is the flexible budget for the actual production?
a. P400,000
b. P396,800
c. P393,600
d. P316,800
4. How much is the total standard cost that should have been incurred for the actual production of 4,800 units?
a. P396,800
b. P400,000
c. P393,600
d. P316,800
5. How much is the total standard cost variance?
a. P3,200 unfavorable
b. P6,400 unfavorable
c. P10,000 favorable
d. P83,200 unfavorable
6. Ethical challenges for management accountants include:
a. whether to accept gifts from suppliers, knowing it is an effort to indirectly influence decisions
b. whether to report unfavorable department information that may result in unfavorable consequences for a friend
c. whether to file a tax return this year
d. both a and b are correct
7. Which of the following does NOT affect the direct/indirect classification of a cost?
a. the level of budgeted profit for the next year
c. available technology to gather information about the cost
b. the materiality of the cost in question
d. the design of the operation
8. Rover company sells only two products, product A and product B.
Product A
Product B
Total
Selling price
P40
P50
Variable cost per unit
P24
P40
Total fixed costs
P840,000
Rover sells two units of Product A for each unit it sells of Product B. Rover faces a tax rate of 30%. Rover desires a net after tax
income of P73,500. The breakeven point in units would be.
a. 21,750 units of Product A and 43,500 units of Product B
b. 22,500 units of Product A and 45,000 units of Product B
c. 43,500 units of Product A and 21,750 units of Product B
d. 45,000 units of Product A and 22,500 units of Product B
9. Cost behavior refers to:
a. how costs react to a change in the level of activity
b. whether a cost is incurred in a manufacturing, merchandising, or service company
c. classifying costs as either inventoriable or period cost
d. whether a particular expense has been ethically incurred
10. Management accounting is considered successful when it:
a. helps creditors evaluate the companys performance
c. is accurate
b. helps managers improve their decisions
d. is relevant and reported annually
11. When 10,000 units are produces, fixed costs are P14 per unit. Therefore, when 20,000 units are produces fixed costs will:
a. increase to P23 per unit
c. decrease to P7 per unit
b. remain at P14 per unit
d. total P280,000
12. BLOF manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently BLOF
produces 40,000 valves and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior
of total manufacturing costs and unit manufacturing costs given this change?
a. Total manufacturing costs will increase and unit manufacturing costs will stay the same.
b. Total manufacturing costs will increase and unit manufacturing cost will decrease.
c. Total manufacturing costs will stay the same and unit manufacturing cost will stay the same.
d. Total manufacturing costs will stay the same and unit manufacturing cost will decrease.
13. Manufacturing accounting
a. focuses on estimating future revenues, costs and other measures to forecast activities and their result
b. provides information about the company as a whole
c. reports information that has occurred in the past that is verifiable and reliable
d. provides information that is generally available only on a quarterly or annual basis
14. In the cost classification system used by manufacturing firms, total manufacturing costs would be include all of the following
EXCEPT:
a. direct materials costs and conversion costs
b. direct materials cost, direct manufacturing labor costs and manufacturing overhead costs
c. indirect material costs, indirect manufacturing labor costs and manufacturing overhead costs.
d. prime costs and manufacturing overhead costs.
15. Which of the following items is Not an assumption of CVP analysis?
a. Total costs can be divided into a fixed component and a component that is variable with respect to the level of output
b. When graphed, total costs curve upward
c. The unit selling price is known and constant

d. All revenues and costs can be added and compared without taking into account the time value of money
16. Matulinging Kamay is a nonprofit organization that supplies electric fans during the summer for individuals in need. Fixed
costs are P200,000. The fans cost P20.00 each. The organization has budgeted appropriation of P480,000. How many people
can receive a fan during the summer?
a. 12,000 people
b. 14,000 people
c. 24,000 people
d. 34,000 people
17. Which of the following cost(s) are inventoried when using the variable costing?
a. direct manufacturing costs
c. fixed manufacturing costs
b. variable marketing costs
d. both a and b are correct
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 18 THROUGH 21:
Metro university is planning to hold a fundraising banquet at one of the local country clubs. It has two options for the
banquet:
OPTION 1: Quezon City Country Club
a. Fixed rental cost of P1,000
b. P12 per person for food
OPTION 2: Makati Country Club
a. Fixed rental cost of P3,000
b. A caterer who charges P8.00 per person for food
Metro Univeristy has budgeted P1,800 for administrative and marketing expenses. It plans to hire a band which will cost
another P800. Tickets are expected to be P30 per person. Local business supporters will donate any other items required for the
event.
18. Which option provides rhe least amount of risk?
a. Option one
c. Both options proved the same amount of risk
b. Option two
d. Neither option has risks
19. Which option has the lowest breakeven point?
a. Option one
c. Both options have the same breakeven point
b. Option two
d. The lowest breakeven point cannot be determined
20. Which option provides the greatest degree of operating leverage if 600 people attend?
a. Option one
c. Both options provide equal degrees of operating leverage
b. Option two
d. Operating leverage is indeterminable
21. How many persons should attend to make Metro University indifferent between Options One and Two?
a. 600
b. 200
c. 500
d. 255
22. Spikey Company currently sells banana cue. During a typical month, the stand reports a profit of P9,000 with sales of
P59,000, fixed costs of P21,000 and variable costs of P0.64 per banana cue.
Next year, the company plans to start selling kamote cue for P3 per unit. Kamote cue will have a variable cost of P0.72
and new equipment and personnel to produce kamote cue will increase monthly fixed costs by P8,808. Initial sales of kamote
cue should total 5,000 units. Most of the kamote cue sales are anticipated to come from current banana cue purchasers,
therefore, monthly sales of banana cue are expected to decline to P20,000.
After the first year of kamote cue sales, the company president believes that banana cue sales will increase to P33,750
a month and kamote cue sales will increase to 7,500 units a month.
The monthly breakeven sales during the first year of kamote cue sales, assuming a constant sales mix of 1 hotdog and 2 units of
kamote cue are:
a. 5,400 banana cue and 10,800 units of kamote cue
b. 16,200 banana cue and 21,600 units of kamote cue
a. 31,250 banana cue and 5,000 units of kamote cue
a. 21,875 banana cue and 3,863 units of kamote cue
23. Activity based costing (ABC) can eliminate cost distortions because ABC:
a. develops cost drivers that have a cause and effect relationship with the activities performed
b. establishes multiple cost pools
c. eliminates product variations
d. recognizes interactions between different departments in assigning support costs
24. When evaluating a make or buy decision, which of the following does not need to be considered?
a. alternatives uses of the production capacity
c. the quality of the suppliers product
b. the original cost of the production equipment
d. the reliability of the suppliers deliver schedule
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 25 AND 26:
Shirts Company produces two product lines: T-shirt and Sweatshirts. Product profitability is analyzed as follows
T-SHIRTS
SWEATSHIRT
Production and sales volume
60,00 units
35,000 units
Selling price
P16.00
P29.00
Direct material
P2.00
P5.00
Direct labor
P4.50
P7.20
Manufacturing overhead
P2.00
P3.00
Gross profit
P7.50
P13.80
Selling and administrative
P4.00
P7.00
Operating profit
P3.50
P6.80
Shirts Companys managers have decided to revise their current assignment of overhead costs to reflect the following
ABC cost information:
Activity
Activity cost
Activity cost driver
Supervision
P100,920
Direct labor hours (DLH)
Inspection
P124,000
Inspections
Activities demanded
T-shirts
Sweatshirts
0.75 DLH/unit
1.2 DLH/unit
45,000 DLHs
42,000 DLHs
60,000 inspections
17,500 inspections
25. Under the revised ABC system, total overhead costs allocated to sweatshirts will be:
a. P48,720
c. P224,920
b. P76,720
d. none of these answers are correct

26. Using an ABC system, next years estimate show manufacturing overhead costs will total P228,300 for 52,000 t-shirts. If all
other t-shirts costs and sale prices remain the same, the profitability that can be expected is
a. P5.41 per t-shirt
b. P4.39 per t-shirt
c. P1.11 per t-shirt
d. (P0.81) per t-shirt
27. If breakeven point is 100 units, each unit sells for P30, and fixed costs are P1,000, then on a graph the:
a. total revenue line and the total cost line will intersect at P3,000 of revenue
b. total cost line will be zero at zero units sold
c. revenue line will start at P1,000
d. all of these answers are correct
28. Put the following ABC implementation steps in order:
A
Compute the allocation rates
B
Compute the total cost of the products
C
Identify the products that are the cost objects
D
Select the cost allocation bases
a. DACB
b. DBCA
c. BADC
d. CDAB
29. Within the relevant range, if there is a change in the level of the cost driver, then
a. total fixed costs and total variable costs will change
b. total fixed costs and total variable costs will remain the same
c. total fixed costs will remain the same and total variable costs will change
d. total fixed costs will change and total variable costs will remain the same
30. Absorption costing:
a. expenses marketing costs as cost of goods sold
b. treats direct manufacturing costs as a period cost
c. include fixed manufacturing overhead as an inventoriable cost
d. is required for internal reports to managers
31. If the unit level of inventory increases during an accounting period, then:
a. less operating income will be reported under absorption costing than variable costing
b. more operating income will be reported under absorption costing than variable costing
c. operating income will be the same under absorption costing and variable costing
d. the exact effect on operating income cannot be determined
32. Price inelasticity means
a. the quantity of goods demanded increases when price increases.
b. the quantity of goods demanded decreases when price decreases
c. the quantity of goods demanded increases when price decreases
d. the quantity of goods demanded does not change much with price changes
33. One possible means of determining the difference between operating incomes for absorption costing and variable costing is
by:
a. subtracting sales of the previous period from sales of this period
b. subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending
inventory
c. multiplying the number of units produced by the budgeted fixed manufacturing cost rate
d. adding fixed manufacturing costs to the production-volume variance
34. Which of the following costs are never relevant in the decision making process?
a. fixed costs
b. historical costs
c. relevant costs
d. variable costs
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 35 AND 36:
Iking Corporation planned to be in operation for three years.
During the first year, 20X1, it had no sales but incurred P120,000 in variable manufacturing expenses and
P40,000 in fixed manufacturing expenses.
In 20X2, it sold half of the finished goods inventory from 20X1 for P100,000 but it had no manufacturing costs.
In 20X3, it sold the remainder of the inventory for P120,000, had no manufacturing expenses and went out of
business.
Marketing and administrative expenses were fixed and totaled P20,000 each year.
35. Under absorption costing, income for the years 20X1, 20X2, and 20X3 would be
20X1
20X2
20X3
a.
(P60,000)
P20,000
P40,000
b.
(P20,000)
0
P20,000
c.
0
P20,000
P40,000
.
d.
0
P40,000
P60,000
36. Under variable costing, income for the years 20X1, 20X2 and 20X3 would be
20X1
20X2
20X3
a.
(P60,000)
P20,000
P40,000
b.
(P20,000)
0
P20,000
c.
0
P20,000
P40,000
.
d.
0
P40,000
P60,000
37. Ajipe Company manufactures circuit boards for other firms. Management is attempting to search for ways to reduce
manufacturing labor costs and has received a proposal from a consulting company to rearrange the production floor next year.
Using the information below regarding current operations and the new proposal, which of the following decisions should
management accept?
Currently
Proposed
Required machine operators
5
4.5
Materials handling workers
1.25
1.25
Employee average pay
P8 per hour
P9 per hour
Hours worked per employee
2,100
2,000
a. do not change the production floor
b. rearrange the production floor
c. either, because it makes no difference to the employees
d. it doesnt matter because the costs incurred will remain the same

38. Bong manufacturing is approached by a European customer to fulfill a one time only special order for a product similar to
one offered to domestic customers. Bong manufacturing has excess capacity. The following per unit data apply for sales to
regular customers:
Variable costs:
Direct materials
P40
Direct labor
P20
Manufacturing support
P35
Marketing costs
P15
Fixed costs:
Manufacturing support
P45
Marketing costs
P15
Total costs
P170
Markup (50%)
P85
Targeted selling price
P255
What is the change in operating profits if the one time only special order for 1,000 units is accepted for P180 a unit in Welch?
a. P70,000 increase in operating profits
c. P10,000 decrease in operating profits
b. P10,000 increase in operating profits
d. P75,000 decrease in operating profits
39. A variance shows a deviation of actual results from standard or budgeted results. In deciding whether to investigate a
variance or not, management may consider the following factors, except
a. the amount of the variance and cost of investigation
b. whether the variance is favorable or unfavorable
c. the possibility that investigation will eliminate future occurrences of the variance
d. the trend of the variances over time
40. Tricolor Company has the following information for the current year:
Beginning fixed manufacturing overhead in inventory
P95,000
Fixed manufacturing overhead for production
P375,000
Ending fixed manufacturing overhead in inventory
P25,000
Beginning variable manufacturing overhead in inventory
P10,000
Variable manufacturing overhead in production
P50,000
Ending variable manufacturing overhead in inventory
P15,000
What is the difference between operating incomes under absorption costing and variable costing?
a. P70,000
b. P50,000
c. P40,000
d. P5,000
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 41 AND 42:
Tagumpay Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000
units are as follow:
Direct materials
P40,000
Direct labor
P10,000
Variable overhead costs
P30,000
Fixed overhead costs
P20,000
Total costs
P100,000
41. If Tagumpay Engine Company purchases 1,000 TE456 parts from the outside supplier per month, then its monthly operating
income will:
a. increase by P2,000
c. decrease by P3,000
b. increase by P80,000
d. decrease by P85,000
42. The maximum price that Tagumpay Engine Company should be willing to pay the outside supplier is:
a. P80 per TE456 part
b. P82 per TE456 part
c. P98 per TE456 part
d. P100 per TE456 part
43. Opportunity cost(s):
a. of a resource with excess capacity is zero
c. are recoreded as an expense in the accounting records
b. should be maximized by organizations
d. are most important to financial accountants
44. Maligaya Company is considering eliminating Model AE2 from its camera line because of losses over the past quarter. The
past three months of information for Model AE2 are summarized below:
Sales (1,000 units)
P300,000
Manufacturing costs:
Direct materials
P150,000
Direct labor (P15 per hour)
P60,000
Overhead
P100,000
Operating loss
(P10,000)
Overhead costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE2 that has no resale
value.
If Model AE2 is dropped from the product line, operating income will:
a. increase by P10,000
b. decrease by P20,000
c. increase by P30,000 d. decrease by P10,000
45. It is a sequence of economic avtivity in a nations economy that is typically characterized by four phases recession,
recovery, growth and decline that repeat themselves over time.
a. business cycle
b. operationg cycle
c. accounting cycle
d. life cycle