Management Advisory Services Questions with Answers All Correct with 100% Guaranteed Succe, Exams of Nursing

Download Management Advisory Services Questions with Answers All Correct with 100% Guaranteed Succe and more Exams Nursing in PDF only on Docsity! Management Advisory Services Questions with Answers All Correct with 100% Guaranteed Success Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The main focus of managerial accounting is: a. the preparation of budgets. c. documenting cash flows. b. the preparation of financial statements. d. decision making. 2. The setting of objectives and the identification of methods to achieve those objectives is called a. performance evaluation c. decision making b. controlling d. planning 3. The primary objective of management accounting is to provide: a. management with information useful for planning and control of operations. b. banks and other creditors with information useful in making credit decisions. c. stockholders and potential investors with useful information for decision making. d. supervising government agencies with information about the company’s management affairs. 4. For internal uses, managers are more concerned with receiving information that is: a. relevant, flexible, and immediately available. b. completely objective and verifiable. c. relevant, completely accurate, and precise. d. completely accurate and precise. 5. Which ethical standard of conduct requires the managerial accountant have to communicate information fairly and objectively? a. objectivity c. integrity b. confidentiality d. competence 6. Which of the following duties is usually assigned to the controller? a. investing the organization’s funds b. independently evaluating the firm’s financial statements c. directing the granting of credit to clients d. tax planning 7. Important types of control systems and procedures for accounting information systems are feedback, feed forward, and preventive control systems. Which of the following accomplish them, respectively? a. Cash budgeting, cost accounting variances, and separation of duties. b. Inventory control, capital budgeting, and hiring qualified employees. c. Cost accounting variances, cash budgeting, and organizational independence. d. Cost accounting variances, separation of duties, and cash planning. 8. Advantages of a database system include all of the following, except: a. open access to all data by all users c. elimination of data redundancy b. single update for changes in data d. confidence that all data is current 9. A major disadvantage of distributed data processing is a. the increased time between job request and job completion. b. the potential for hardware and software incompatibility among users. c. that data processing professionals may not be properly involved. d. the disruption caused when the mainframe goes down. 10. The least risky strategy for converting from a manual to a computerized accounts receivable system would be a a. Pilot Conversion c. Data based conversion b. Direct conversion d. Parallel conversion 11. One of the first steps in the creation of a data base is to a. define common variables and fields used throughout the firm b. increase the secondary storage capacity. c. obtain software that will facilitate data retrieval. d. integrate the accounting system into the data base. 12. A fundamental purpose of a database management system is to a. store all data for an organization in multiple files. b. change the manner in which application programs access individual data elements c. reduce data redundancy d. use physical data organization concepts instead of logical data 13. A systems program a. is written in a high level language b. employs complex mathematics algorithms c. manipulates application programs d. is used in systems analysis and design activities 14. The type of data processing in which remote terminals provide direct access to the computer is a. batch processing c. remote processing b. on-line processing d. central processing 15. The most important purpose of a turnaround document is to a. provide an audit trail for the external auditor b. inform the bank of electronic funds deposits c. inform a customer of the outstanding amount payable d. serve as a source document 16. Which of the following controls most likely assure that an entity can reconstruct its financial records? a. Personnel who are independent of data input perform parallel simulations. b. Hardware controls are built into the computer by the computer manufacturer. c. Backup discs or tapes of files are stored away from originals. d. System flowcharts provide accurate descriptions of input and output operations. 17. The high-low method is criticized because it a. does not provide reasonable estimates. b. is a mathematical method. c. is not a graphical method. d. ignores much of the available data by concentrating on only the extreme points. 18. The relative composition of a company's fixed and variable costs is referred to as: a. the financial leverage c. operating leverage b. the margin of safety d. the degree of operating leverage 19. A very high degree of operating leverage (DOL) indicates that a firm: a. has a high net income. b. has high variable costs. c. has high fixed costs. d. is operating at a level close to its breakeven point. 20. Broadway Company sells three products: A, B and C. Product A's unit contribution margin is higher than Product B's which is higher than Products C's. Which one of the following events is most likely to increase the company's overall break-even point? a. The installation of new automated equipment and subsequent lay-off of factory workers. b. An increase in the overall market demand for Product B. c. greater contribution margin per hour of manufacturing capacity. d. lower total manufacturing costs for the manufacturing capacity. 40. The goal in deciding whether to add or drop products, services, or departments is to obtain the greatest a. decrease in direct fixed costs. b. increase in sales revenues. c. contribution possible to cover unavoidable costs. d. reduction in total costs. 41. Which of the following should not be considered in a decision of whether to drop a product line? a. Unavoidable costs c. Revenue that would be lost b. Avoidable costs d. Nonfinancial impacts of the decision 42. Which one of the following is a budgeting process that requires managers to prepare budgets from ground zero? a. Volume-based budgeting c. Flexible budgeting b. Activity-based budgeting d. Zero-base budgeting 43. Which of the following statements about zero-based budgeting is incorrect? a. All activities in the company are organized into break-up units called packages. b. The process is not time consuming since justification of costs can be done as a routine matter. c. Zero-based budgeting includes variable costs only. d. All costs have to be justified every budgeting period. 44. A static budget is not appropriate in evaluating a manager's effectiveness if a company has a. no variable costs. b. substantial variable costs. c. substantial fixed costs. d. planned activity levels that match actual activity levels. 45. Using the concept of ‘expected value” in sales forecasting means that the sales forecast to be used is a. the sum of the sales expected by individual managers b. developed using the indicator method c. based on expected selling prices of the products d. based on probabilities 46. Which of the following statements regarding activity-based costing (ABC) is true? a. Resources consume activities and activities cause costs. b. Resources consume activities and products consume costs. c. Activities consume resources and products consume activities. d. Costs consume activities and products cause costs. 47. Which of the following is a key feature of activity-based costing? a. Overhead costs are assigned on the basis of volume. b. Overhead costs are assigned on the basis of sales. c. Overhead costs are assigned on the basis of direct labor hours. d. Overhead costs are assigned on the basis of activities. 48. Examples of activities at the product level of costs include a. heating, lighting and security. c. designing, changing, and advertising. b. scheduling, setting up, and moving. d. cutting, painting, and packaging. 49. Examples of unit level activities are a. cutting, painting, and packaging. c. scheduling, setting up, and receiving. b. designing, changing, and advertising. d. heating, lighting, and security. 50. Financial risk refers to the: a. possibility that interest rates will increase b. risk of owning equity securities c. general business risk of the firm d. risk faced by equity holders when debt is used 51. The cost of capital at the retained earnings breakpoint is the: a. weighted average cost of capital c. marginal cost of capital b. none of the given choices d. cost of new stock 52. The capital asset pricing model (CAPM) states that the expected: a. rate of return on an investment depends on the risk-free rate and the market rate of return. b. rate of return on an investment is proportional to its beta. c. rate of return on an investment is dependent on the risk-free rate. d. risk premium on an investment is proportional to its beta. 53. In calculating the cost of common stock equity, the model that has the stronger theoretical foundation is the: a. constant growth model. c. variable growth model. b. Gordon model. d. capital asset pricing model. 54. In general, it is more expensive for a company to finance with equity than with debt because a. Equity capital is in greater demand than debt capital b. The interest on debt is a legal obligation c. Investors are exposed to greater risk with equity capital d. Long-term bonds have a maturity data and must, therefore, be repaid in the future 55. According to the Capital Asset Pricing Model (CAPM), the relevant risk of a security is its a. Company-specific risk c. Diversifiable risk b. Systematic risk d. Total risk 56. The common stock of Homer Company pays a constant annual dividend. Thus, the market price of Homer Company’s stock will a. increase when the market rate of return increases. b. decrease when the market rate of return increases. c. increase over time. d. decrease over time. 57. Competing investment projects where accepting one project eliminates the possibility of taking the remaining projects is referred to as: a. Independent projects c. Mutually-exclusive projects b. Common projects d. Mutually-inclusive projects 58. Problems associated with justifying investments in high-tech projects often include a. discount rates that are too low and time horizons that are too short b. discount rates that are too low and time horizons that are too long c. discount rates that are too high and time horizons that are too short d. discount rates that are too high and time horizons that are too long 59. Diliman Plumbers, Inc. is considering the purchase of a machine costing approximately P40,000. Using a discount rate of 20 percent, the present value of future cash inflows are calculated to be P40,000. To yield at least a 20 percent return, the actual cost of the machine should not exceed the P40,000 estimated by more than: a. P 8,000 c. P40,000 b. P 0 d. P80,000 60. The appropriate discount rate that the analysts use in computing the present value of future cash flows is comprised of which of the following? a. A risk factor reflecting the riskiness of the project. b. A pure rate of interest reflecting the productive capability of the capital asset. c. All of the given choices are components of the discount rate. d. An increase in the rate reflecting the inflation expected to occur over the life of the project. 61. When using the net present value method, the interest rate used to discount cash flows should not be thought of as the: a. Minimum required rate of return c. Discount rate b. Internal rate of return d. Hurdle rate 62. The calculation of the profitability index (PI) is most helpful for which type of decisions? a. Short-term c. Screening b. Preference d. Qualitative 63. Which of the following represents the biggest challenge in the decision to purchase new equipment? a. Estimating transportation costs of the new equipment. b. Estimating maintenance costs for the new equipment. c. Estimating cash flows for the future. d. Estimating employee training for the new project. 64. Which of the following is not a limitation of financial statement analysis? a. The use of estimates. c. The diversification of firms. b. The availability of information. d. The cost basis. 65. Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time a. that has been arranged from the lowest number to the highest number. b. that has been arranged from the highest number to the lowest number. c. to determine the amount and/or percentage increase or decrease that has taken place. d. to determine which items are in error. 66. The ratios that are used to determine a company’s short-term debt paying ability are a. times interest earned, acid-test ratio, current ratio, and inventory turnover. b. times interest earned, inventory turnover, current ratio, and receivables turnover. c. current ratio, acid-test ratio, receivables turnover, and inventory turnover. d. asset turnover, times interest earned, current ratio, and receivables turnover. 67. The two categories of ratios that should be utilized to assess a firm’s true liquidity are the a. current and quick ratios c. liquidity and profitability ratios b. liquidity and debt ratios d. liquidity and activity ratios 68. Which of the following ratios is most relevant to evaluating solvency? a. Debt ratio c. Return on assets b. Days’ purchases in accounts payable d. Dividend yield 69. Which ratio is most helpful in appraising the liquidity of current assets? a. acid-test ratio c. debt ratio b. current ratio d. accounts receivable turnover 70. The price/earnings ratio: a. is a gauge of future earning power as seen by investors b. measures the past earning ability of the firm c. relates to yield on dividends d. relates the price to dividends 71. A times interest earned ratio of 0.90 to 1 means that the: a. net income is less than the interest expense b. cash flow exceeds the net income c. firm will default on its interest payment d. cash flow is less than the net income a. No change in total revenue b. a decrease in total revenue c. An increase in total revenue d. A decrease in total revenue and the demand curve shifts to the left 92. Which one of the following would not be included in the calculation of the gross domestic product? a. A doctor’s fee c. Purchase of a new home b. An automotive worker’s wages d. Purchase of common stock 93. An upturn in economic activity is indicated by all of the following, except a. increased housing starts b. increase in personal travel c. reduction in the quantity of unemployment claims d. reduction in the amount of luxury purchases 94. Which of the following may provide a leading indicator of a future increase in gross domestic product? a. A decrease in the issuance of building permits b. An increase in the timeliness of delivery by vendors c. A reduction in the money supply d. An increase in the average hours worked per week of production workers 95. Government borrowing to finance large deficits increases the demand for lendable funds and a. puts upward pressure on interest rates b. exerts downward pressure on interest rates c. increases the supply of lendable funds d. has no impact on interests 96. A period of rising inflation a. enhances the positive relationship between the price level and the purchasing power of money b. increases the price level, which benefits those who are entitled to receive specific amounts of money c. increases the price level, which is negatively related to the purchasing power of money d. will not be affected by contracts that include the indexing of payments 97. Value engineering can result in a. changes in materials specifications c. product redesign b. modifications in process methods d. all of the above 98. Strategic planning is different from operational planning in that operational planning: a. deals with determining production levels for next quarter b. involves only long range goals c. operational and strategic planning are the same d. involves large sums of money 99. An approach to developing new ways to perform existing activities is called a. process value analysis c. re-engineering b. benchmarking d. caveat analysis 100. Target marketing analysis involves a. deciding on whether to offer a new product line b. analyzing the firm’s input markets c. understanding and segmenting the firm’s customer markets d. analyzing the firm’s market structure 101. Deakin Company is preparing a flexible budget for the coming year and the following maximum capacity estimates for Department OZ are available: Direct labor hours 60,000 Variable factory overhead P150,000 Fixed factory overhead P240,000 Assume that Deakin’s normal capacity is 80% of maximum capacity. What would be the total factory overhead rate, based on direct labors, in a flexible budget at normal capacity? a. P7.50 c. P6.00 b. P6.50 d. P8.13 The next item(s) is/are based on the following: In the Omara Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were P223,000. Of this amount, utilities were P48,000 (all variable) and depreciation was P60,000 (all fixed). The balance of the overhead cost consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were P130,000. Assume that all of the activity levels mentioned in this problem are within the relevant range. 102. The total fixed overhead cost for Omara is: a. P 60,000. c. P115,000. b. P 55,000. d. P130,000. The next item(s) is/are based on the following: A local church wants to rent a hall for P3,000 a day to hold a Bingo fundraiser. Every session of bingo requires a caller for P200. There are supplies that are needed that cost P3 per person playing bingo. On an average each bingo player spends P20 and 1,000 people attend each session. P10,000 in prizes are awarded each session. 103. The church is thinking of holding 2 Bingo sessions per day with 1,000 people attending each session. If they hold the 2 sessions, the average cost per session is? a. P14,700. c. P16,200. b. P15,200. d. P 9,600. 104. Green Corporation expects to sell 3,000 plants a month. Its operations manager estimated the following monthly costs: Variable costs P 7,500 Fixed costs 15,000 What sales price per plant does it need to begin making a profit if it sells the estimated number of plants per month? a. P2.50 c. P5.00 b. P7.51 d. P7.50 105. Salient Company is a convenience store that is currently open only Monday through Saturday. Salient Company considers opening every Sunday. The annual incremental fixed costs of Sunday openings are estimated at P52,000. Salient Company’s gross margin on sales is 20 percent. Salient estimates that 60 percent of its Sunday sales to customers would be made on other days if the store were not open during Sundays. How much additional weekly sales would be necessary for Salient Company to attain an increase of P2,400 in weekly operating profit by opening every Sunday? a. P272,000 c. P 42,500 b. P 30,000 d. P 17,000 106. At a sales volume level of 2,250 units, Baluarte Company’s contribution margin is one and one-half of the fixed costs of P36,000. Contribution margin is 30% How much peso sales should the Baluarte Company sell to earn 10 percent of sales? a. P180,000 c. P540,000 b. P270,000 d. P360,000 107. Each finished unit of Product EM contains 60 pounds of raw material. The manufacturing process must provide for a 20% waste allowance. The raw material can be purchased for P2.50 a pound under terms of 2/10, n/30. The company takes all cash discounts. The standard direct material cost for each unit of EM is: a. P183.75 c. P176.40 b. P180.00 d. P187.50 108. Flip, Inc. manufactures widgets. Management has determined that each widget has a standard materials cost of P3.50 when 2.5 ounces of raw material at a cost of P1.40 per ounce are used. The static budget for the month of December showed an estimated production of 4,000 widgets in December. During December, 4,300 widgets were actually produced. The actual cost for each widget was P3.60 when 2.25 ounces of raw material at a cost of P1.60 per ounce were purchased and used. What should be the total direct materials cost according to Flip's flexible budget for December? a. P14,000 c. P14,400 b. P15,480 d. P15,050 The next item(s) is/are based on the following Additives Products Ltd. bottles and sells hot pepper sauce. In 2010, the company had expected to sell 60,000 bottles but actually bottled and sold 70,000 bottles. The standard direct materials cost for each bottle is P.28 comprised of .80 ounces at a cost of P.35 per ounce. During 2010, 68,000 ounces of material were purchased out of which 55,000 ounces were used at a cost of P.32 per ounce. 109. The direct materials usage variance for 2010 was: a. P4,200 F c. P 350 F b. P 350 U d. P4,200 U 110. Blake Company has a standard price of P5.50 per pound for materials. July’s results showed an unfavorable material price variance of P44 and a favorable quantity variance of P209. If 1,066 pounds were used in production, what was the standard quantity allowed for materials? a. 1,066 c. 1,100 b. 1,104 d. 1,074 The next Item(s) is/are based on the following Carlos Segunda Corporation produces and sells leather handbags. In the current year, the company budgeted for the production and sale of 1,000 handbags; however, 900 handbags were actually produced and sold. Each bag has a standard requiring two yards of material at a cost of P4.00 per yard and 1 hour of assembly time at a cost of P9.50 per hour. Actual costs for the production of 900 bags were P7,215 for materials (1,850 yards purchased and used @ P3.90 per yard) and P10,125 for labor (1,125 hours @ P9.00 per hour). 111. Carlos’ direct labor efficiency variance is: a. P2,025.00 F c. P2,137.50 U b. P1,187.50 U d. P 562.50 F The next item(s) is/are based on the following Clean Harry Corp. uses two different types of labor to manufacture its product. The types of labor, Mixing and Finishing, have the following standards: If Bilibid's Manufacturing Company can purchase the component externally for P145,000 and only P4,000 of the fixed costs can be avoided, what is the correct “make or buy” decision? a. Make and save P20,000 c. Buy and save P8,000 b. Buy and save P20,000 d. Make and save P8,000 121. HILO Company manufactures electric carpentry tools. The production department had met all production requirements for the current month and has an opportunity to produce additional units of product with its excess capacity. Unit selling prices and unit costs for three different drill models are as follows: Home Model Deluxe Model Pro Model Selling price P58 P65 P80 Direct material 16 20 19 Direct labor (P10 per hour) 10 15 20 Variable overhead 8 12 16 Fixed overhead 16 5 15 Variable overhead is applied on the basis of direct-labor pesos, while fixed overhead is applied on the basis of machine hours. There is sufficient demand for the additional production of any model in the product line. If it has excess machine capacity but a limited amount of labor time, to which product or products should HILO Company devote its excess production? a. Equally c. Pro Model b. Home model d. Deluxe model 122. Caress Co. has projected its sales to be P600,000 in January, P750,000 in February, and P800,000 in March. Caress wants to have 50% of next month’s sales needs on hand at the end of each month. If Caress has an average gross profit of 40%, what are the February purchases? a. P428,000 c. P310,000 b. P465,000 d. P775,000 123. Coach Company budgeted purchases of P100,000. Cost of sales was P120,000 and the desired ending inventory was P42,000. The beginning inventory was a. P32,000 c. P42,000 b. P62,000 d. P20,000 The next item(s) is/are based on the following: Adelaida Sales’ actual sales and purchases for April and May are shown here along with forecasted sales and purchases for June through September. Sales Purchases April (Actual) P390,000 P200,000 May (Actual) 420,000 220,000 June (forecast) 390,000 210,000 July (forecast) 350,000 240,000 August (forecast) 420,000 320,000 September (forecast) 410,000 230,000 The company makes 10 percent of its sales for cash and 90 percent on credit. Of the credit sales, 30 percent are collected in the month after the sale and 70 percent are collected two months after. Adelaida Sales pays for 45 percent of its purchases in the month after purchase and 55 percent two months after. Labor expense equals 15 percent of the current month's sales. General overhead expense equals P10,000 per month. Interest payments of P35,000 are due in June and September. A cash dividend of P25,000 is scheduled to be paid in June. Tax payments of P30,000 are due in June and September. There is a scheduled purchase for cash of an equipment, P290,000 in September. Adelaida Sales’ ending cash balance in May is P25,000. The minimum desired cash balance is P20,000. The maximum desired cash balance is P50,000. Excess cash (above P50,000) is used to buy marketable securities. Marketable securities are sold before borrowing funds in case of a cash shortfall (less than P20,000). 124. The amount of loan to be obtained to maintain a balance of P50,000 cash as of September 30 will be: a. P 9.4 c. P 0.0 b. P109.4 d. P 59.4 125. The Equity Company projects the following for the upcoming year: Earnings before interest and taxes P40 million Interest expense P 5 million Preferred stock dividends P 4 million Common stock dividend payout ratio 20% Average number of common shares outstanding 2 million Effective corporate income tax rate 40% The expected dividend per share of common stock is a. P1.86 c. P1.70 b. P2.10 d. P1.00 126. Deep Sea Company expects next year’s after-tax income to be P7,500,000. The firm’s debt ratio is currently 40 percent. Deep Sea Company has P6,000,000 of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual dividend policy, what is the expected dividend payout ratio next year? a. 25.0% c. 52.0% b. 48.0% d. 75.0% 127. The board of directors of Moderate Company was unhappy with the current return on common equity. Though the return on sales (profit margin) was impressively good at 12.5 percent, the asset turnover was only 0.75. The present debt ratio is 0.40. Ms. Norma Flor, the vice-president of corporate planning, presented a proposal as follows: Profit margin should be raised to 15 percent. The new capital structure will be revised by raising debt component. The asset turnover will be maintained at 0.75. The proposed adjustment is estimated to raise return on equity by 50 percent. What debt ratio did Ms. Flor propose in order to raise the return on equity (ROE) to 150 percent of the present level? a. 0.52 c. 0.68 b. 0.61 d. 0.72 128. What is the rate of return for an investor who pays P1,054.47 for a three-year bond with a 7% coupon and sells the bond one year later for P1,037.19? a. 5.00% c. 5.33% b. 7.00% d. 6.46% 129. If a share of stock provided a 14.0% nominal rate of return over the previous year while the real rate of return was 6.0%, then the inflation rate was: a. 9.12% c. 1.89% b. 7.55% d. 8.00% 130. The earnings, dividends, and stock price of Sum Company are expected to grow at 7 percent per year after this year. Sum Company’s common stock sells for P23 per share, its last dividend was P2.00 and the company pay P2.14 at the end of the current year. Sum Company should pay P2.50 flotation cost. Using the dividend growth model, what is the expected cost of retained earnings for Sum Company? a. 9.30 percent c. 16.30 percent b. 17.44 percent d. 10.44 percent 131. If an asset costs P35,000 and is expected to have a P5,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of P5,000 each year, the cash payback period is a. 8 years c. 7 years b. 5 years d. 6 years 132. Consider a project that requires an initial cash outflow of P500,000 with a life of eight years and a salvage value of P20,000 upon its retirement. Annual cash inflow before tax amounts to P100,000 and a tax rate of 30 percent will be applicable. The required minimum rate of return for this type of investment is 8 percent. The present value of 1 and the annuity of 1, discounted at 8 percent for 8 periods are 0.54 and 5.747, respectively. Salvage value is ignored in computing depreciation. The net present value amounts to a. P 10,050 c. P 20,050 b. P 17,606 d. P 7,560 133. For P450,000, Maleen Corporation purchased a new machine with an estimated useful life of five years with no salvage value. The machine is expected to produce cash flow from operations, net of 40 percent income taxes, as follows: First year P160,000 Second year 140,000 Third year 180,000 Fourth year 120,000 Fifth year 100,000 Maleen will use the sum-of-the-years-digits’ method to depreciate the new machine as follows: First year P150,000 Second year 120,000 Third year 90,000 Fourth year 60,000 Fifth year 30,000 The present value of 1 for 5 periods at 12 percent is 3.60478. The present values of 1 at 12 percent at end of each period are: End of: Period 1 0.89280 Period 2 0.79719 Period 3 0.71178 Period 4 0.63552 Period 5 0.56743 Had Maleen used straight-line method of depreciation instead of declining method, what is the difference in net present value provided by the machine at a discount rate of 12 percent? a. Increase of P24,376 c. Decrease of P24,376 b. Decrease of P 9,750 d. Increase of P 9,750 The next item(s) is/are based on the following Paper Products Company is considering a new product that will sell for P100 and has a variable cost of P60. Expected volume is 20,000 units. New equipment costing P1,500,000 and having a five-year useful life and no salvage value is needed, and will be depreciated using the straight-line method. The machine has fixed cash operating costs of P200,000 per year. The firm is in the 40 percent tax bracket and has cost of capital of 12 percent. The present value of 1, end of five periods is 0.56743; present value of annuity of 1 for 5 periods is 3.60478. 134. How many units per year the firm must sell for the investment to earn 12 percent internal rate of return? a. 12,338 c. 9,838 b. 17,338 d. 28,897 Rework 1 Moving (three moves) 6 Waiting (for the second process) 18 Storage (before delivery to the customer) 24 143. The manufacturing cycle efficiency is: a. 44.7% c. 36.8% b. 32.9% d. 68.4% The next item(s) is/are based on the following: Joyful Company manufactures and sells food processors. A popular consumer magazine has recently evaluated food processors and has ranked Joyful’s processors as being of "poor quality". As a result, Joyful's management team has begun to analyze all costs associated with their food processors in more detail, and the following data has been compiled: Scrap costs P 80,000 Quality training 75,000 Warranty claims 100,000 Rework costs 50,000 Inspection of incoming materials 30,000 Product quality audits 60,000 144. What are HNW's total external failure costs? a. P100,000 c. P130,000 b. P160,000 d. P180,000 145. A learning curve of 80% assumes that production unit costs are reduced by 20% for each doubling of output. What is the cost of the sixteenth unit produced as an approximate percent of the first unit produced? a. 41 percent c. 30 percent b. 51 percent d. 64 percent 146. Havenot has estimated the first batch of product will take 40 hours to complete. A 90% learning curve is expected. If labor is paid P15 per hour, the target labor cost for four batches of product is a. P600 c. P2,160 b. P2,400 d. P1,944 147. A construction company has just completed a bridge over the Visayan area. This the first bridge the company ever built and it required 100 weeks to complete. Now having hired a bridge construction crew with some experience, the company would like to continue building bridges. Because of the investment in heavy machinery needed continuously by this crew, the company believes it would have to bring the average construction time to less than one year (52 weeks) per bridge to earn a sufficient return on investment. The average construction time will follow an 80% learning curve. To bring the average construction time (over all bridges constructed) below one year per bridge, the crew would have to build approximately. a. 2 additional bridges. c. 7 additional bridges. b. 3 additional bridges. d. 8 additional bridges. 148. Green Co. is considering the sale of banners in an exhibit fair. Green Co. could purchase these banners for P7.50 each. Unsold banners would be unreturnable and worthless after the exhibit. Green would have to rent a booth at the stadium for P4,000. Green estimates sales of 2,000 banners at P20.00 each. If Green’s prediction proves to be incorrect and only 1,500 banners were sold, the cost of this prediction error would be: a. P 6,250 c. P10,000 b. P 4,750 d. P 3,750 The next item is/are based on the following: KMU Company uses a small casting in one of its finished products. The castings are purchased from a foundry located in another Asian country. In total, KMU Company purchases 54,000 castings per year at a cost of P8 per casting. The castings are used evenly throughout the year in the production process on a 360-day-per-year basis. The company estimates that it costs P90 to place a single purchase order and about P3 to carry one casting in inventory for a year. The high carrying costs result from the need to keep the castings in carefully controlled temperature and humidity conditions, and from the high cot of insurance. Delivery from the foundry generally takes 6 days, but it can take as much as 10 days. The days of delivery time and the percentage of their occurrence are shown in the following tabulation: Delivery Time (days) Percentage of Occurrence 6 75 7 10 8 5 9 5 10 5 100 149. Assuming a 5% stock-out risk, what would be the total cost of ordering and carrying inventory for one year? a. 6,075 c. 6,750 b. 6,300 d. 5,850 The next item(s) is/are based on the following: Panay Equipment Company has produced a pilot run of 50 units of a recently developed cylinder used in its finished products. The company expects to produce and sell 800 units. The pilot run required 14.25 direct-labor hours for the 50 cylinders, averaging 0.285 direct-labor hours per cylinder. Panay has experienced a significant learning curve on the direct-labor hours needed to produce new cylinders. As cumulative output doubles, say from 25 to 50 units for example, the average labor time per unit declines by 20 percent. Past experience indicates that learning tends to stop by the time 800 parts are produced. Panay’s manufacturing costs for cylinders are as follows: Direct labor P120.00 per hour Variable overhead 100.00 per direct labor hour Fixed overhead 166.00 per direct labor hour Direct material 40.50 per unit Panay has received a quote of P75 per unit from the Leyte Machine Company for the additional 750 cylinders needed. Panay frequently subcontracts this type of work and has always been satisfied with the quality of the units produced by Leyte. Recently, Panay Equipment Company has been operating at considerably less than full capacity. 150. How many direct-labor hours are expected to be used for the production of 800 cylinders (including the pilot run)? a. 79.1 hours c. 67.6 hours b. 74.7 hours d. 93.4 hours Management Advisory Services Answer Section MULTIPLE CHOICE 1. ANS: D 2. ANS: D 3. ANS: A 4. ANS: A 5. ANS: A 6. ANS: D 7. ANS: C 8. ANS: A 9. ANS: C 10. ANS: D 11. ANS: A 12. ANS: C 13. ANS: C 14. ANS: C 15. ANS: D 16. ANS: C 17. ANS: D 18. ANS: C 19. ANS: D 20. ANS: B 21. ANS: C 22. ANS: B 23. ANS: B 24. ANS: C 25. ANS: A 26. ANS: A 27. ANS: D 28. ANS: B 29. ANS: D 30. ANS: A 31. ANS: A 32. ANS: D 33. ANS: D 34. ANS: B 35. ANS: B 36. ANS: C 37. ANS: B 38. ANS: A 39. ANS: C 40. ANS: C 41. ANS: A Required inputs of raw materials (in pounds) (60 ÷ 0.80) 75.00 Standard price per pound (2.5 x 0.98) x 2.45 Standard materials cost per unit 183.75 108. ANS: D The total standard cost allowed for materials can be easily calculated by multiplying the number of units actually produced by the per unit standard materials cost. 4,300 x 3.50 15,050 109. ANS: C MUV = (55,000 – 56,000) x 0.35 (350) F Standard Quantity = 70,000 x 0.8 56,000 110. ANS: B Actual quantity used 1,066 Add favorable quantity (209/5.5) 38 Standard quantity allowed 1,104 Alternative solution using the formula to compute materials usage variance: MUV = (AQ – SQ) x SP -209 = (1,066 – SQ)5.50 -209 = 5,863 – 5.5SQ SQ = 6,072 ÷ 5.5 SQ = 1,104 111. ANS: C Labor efficiency variance = (AH – SH) x VOH rate (1,125 – 900) x 9.50 2,137.50 U 112. ANS: B Std. Mix Labor Mix Labo r AH at AH Dif SR Variance M 4,50 0 5,000 (500) P10 P (5,000) F 3,000 2,500 500 5 2,500 7,50 0 7,500 - P (2,500)Fav 113. ANS: A Labor Yield Variance: Expected Yield 40,000 Actual Yield 36,000 Diference 4,000 Multiply by Standard labor cost per unit P1.5625* Yield Variance P6,250U *Standard cost ÷ Standard Yield = P6,250 ÷ 4,000 = P1.5625 Expected yield: Total hours/SH per batch x yield per batch 7,500/750 x 4,000 40,000 114. ANS: A Purchase cost (2,000 x P15) P30,000 Relevant cost to make: Variable cost (2,000 x P16) – 8,000 P24,000 Avoidable fixed cost (8,000 x 0.25) 2,000 26,000 Additional cost – Buy (Decrease in profit) P 4,000 Alternative computation for relevant cost to make: Total cost (2,000 x P16) P32,000 Less unavoidable fixed cost (8,000 x 0.75) 6,000 Relevant cost to make P26,000 115. ANS: B Total contribution margin from special sale (15,000 x P5.50) P82,500 Less Additional fixed costs 30,000 Profit from special sale P52,500 Less Decrease in contribution margin on regular Sale 2,000(P39 – P22.50) 33,000 Additional profit P19,500 Please refer to Solution for Number regarding details of contribution margin per unit. 116. ANS: B Plastic Meta l RC – make RC – Buy 11.00 15.50 13.00 17.50 Additional Cost-Buy 4.50 4.50 Hours required/unit ÷ 3 ÷ 4.5 Additional cost /hr. 1.50 1.0 Priority 1st 2nd Capacity (machine hours) 48,000 MH used - Plastic (7,000 x 3) 21,000 Available MH to Metal 27,000 MH used - Metal (6,000 x 4.50) (27,000) Purchase of Metal (11,000 – 6,000) 5,000 117. ANS: C Direct materials Direct labor 16,00 0 64,000 Variable overhead 8,00 0 Additional contribution margin 16,00 0 Total relevant cost to make 104,00 0 118. ANS: C Special price Relevant cost: Direct materials 4 32 Direct labor 12 Variable overhead 6 22 Unit contribution margin 10 Units ordered 2,000 Additional profit 20,000 119. ANS: C Avoidable fixed cost (benefit) 210,000 Lost contribution margin 240,00 0 Decrease in profit 30,000 120. ANS: D Direct materials 80,000 Direct labor 13,000 Variable overhead 40,000 Avoidable fixed overhead 4,000 Relevant cost – make 137,000 Purchase price 145,000 Advantage – Make 8,000 121. ANS: B Home Deluxe Pro Selling price 58 65 80 Direct materials (16) (20) (19) Direct labor (10) (15) (20) Variable overhead ( 8) (12) (16) Net Present Value 17,606 Before-tax cash flow 100,000 Less annual depreciation (500,000 ÷ 8) 62,500 Book income before tax 37,500 Less income tax (37,500 x 0.3) 11,250 Net book income 26,250 Add back depreciation 62,500 Annual after-tax cash inflow 88,750 Alternative computation for ATCF: (100,000 × .70) + (62,500 × .30) P88,750 The problem assumed that the salvage value is ignored in the computation of annual depreciation so that the annual cash flows will be greater. The problem did not include among the choices the assumption that salvage value will be deducted from the cost in computing the amount of annual depreciation. 133. ANS: B SYD SL DIFFEREN CE Present Value 1 150,000 90,00 0 60,000 53,568 2 120,000 90,00 0 30,000 23,916 3 90,000 90,00 0 - 0 4 60,000 90,00 0 (30,000) (19,066) 5 30,000 90,00 0 (60,000) (34,046) Total of present values of depreciation 24,372 Tax rate 40% Present value of net advantage 9,749 SYD method provides a higher present value on tax benefits because of less amount of tax during year 1 & 2. In year 4 and 5, the use of SYD requires higher taxes but their equivalent present values are lower already. 134. ANS: B ATCF: P1,500,000/3.60472 416,121 Net income: 416,121 – 300,000 116,121 Before-tax income: 116,121/0.60 193,535 Contribution margin: 193,535 + 500,000 693,535 Unit sales 693,535 ÷ (100 - 60) 17,338 135. ANS: C Present value of cash returns: (30,000 x 0.90909) x 5 periods 136,364 Net investment 99,300 Net present value 37,064 Note: Because the constant growth rate and the discount rate are both 10%, the present value for each period is constant. 136. ANS: C PV of annual cash receipts 1,200,000 x 2.58872 3,106,463 PV of salvage value 650,000 x 0.48225 313,462 PV of return of working capital 1,000,000 x 0.48225 482,250 Cost of new equipment and timbers (2,750,000) Working capital (1,000,000) PV of cost of construction of road 400,000 x .5787 ( 231,480) Negative net present value (79,303) 137. ANS: D Times interest earned: Earnings before interest ÷ Interest Income before tax (P48,000 + P46,000) P 94,000 Add Interest expense 35,000 Income before Interest expense P129,000 TIE: P129,000 ÷ P35,000 3.7 times 138. ANS: A Current liabilities P 100,000 Long-term debt 400,000 Deferred income tax 10,000 Total Liabilities 510,000 Stockholders’ Equity Preferred stock P 80,000 Common stock 100,000 Premium on common stock 180,000 Retained earnings 170,000 530,000 Total Assets P1,040,000 Debt Ratio: P510,000 ÷ P1,040,000 0.49 139. ANS: B Income to Common; (P240,000 – P20,000) P220,000 Average Common Equity: (P750,000 + P1,170,000) ÷ 2 P960,000 Return on Common Equity: (P220 ÷ P960) 23 percent 140. ANS: B EPS: (P1,200,000 – P300,000) ÷ 100,000 P9.00 P/E Ratio: 144 ÷ 9 16 141. ANS: D Cash Conversion Cycle = Ave. collection period + Inventory cycle days – Ave. Accounts Payable payment days Inventory cycle in days 60 days Average collection period 45 days Operating cycle 105 days Deduct Accounts payable payment days 30 days Cash conversion cycle 75 days 142. ANS: C Inasmuch that the loan of P400,000 is discounted, the net proceeds are now decreased further by the amount of interest for six months, (300,000 – 20,000) or P280,000. The annual effective interest should be calculated in detail and not similar to the alternative solution in the preceding question. Interest rate per 6 months 20,000/280,000 7.1429% Annualized rate: 2 x 7.1429 x 2 periods 14.29% 143. ANS: B MCE = Value-added time/Manufacturing cycle time 25*/76 = 32.9% *Processing time 144. ANS: A The warranty cost is the only external failure cost listed in the summary of costs. 145. ANS: A Units Cumulative Average Time Computation 1 500.00 2 425.00 (0.85 x 500.00) 4 361.25 (0.85 x 425.00) Cumulative Average Units Time Computation 1 1.00 2 0.80 (0.8 x 1.00) 4 0.64 (0.8 x 0.80) 8 0.51 (0.8 x 0.64) 16 0.41 (0.8 x 0.51) Percentage: 0.41 ÷1.00 41.0% 146. ANS: D Units Cumulative Average Time Computation 1 40.00 2 36.00 (0.9 x 40.00) 4 32.40 (0.9 x 36.00) Total number of hours used by 4 units: 4 x 32.4 129.6 Total labor cost used by 4 units: 129.6 x P15 P1,944 147. ANS: C No. of Bridges Cumulative Average Weeks Computation 148. ANS: D 1 100.00 2 80.00 (0.8 x 100.0) 4 64.00 (0.8 x 80.00) 8 51.20 (0.8 x 64.00) The cost of prediction error = unsold units x purchase price 500 x 7.50P3,750 149. ANS: C Ordering cost (unchanged) 2,700 Carrying cost Average inventory (1800/2) + 450 = 1,350 1,350 x 3 4,050 Total 6,750 150. ANS: D Batch (each 50 units) Cum Ave. Hrs 1 14.25 2 11.40 4 9.12 8 7.296 16 5.8368 Total Hours required 16 x 5.8368 = 93.4