MANAGEMENT ADVISORY SERVICES REVIEW MATERIALS, Exercises of Management Accounting

Download MANAGEMENT ADVISORY SERVICES REVIEW MATERIALS and more Exercises Management Accounting in PDF only on Docsity! MAS QUIZ 2 EASY ROUND 1. A basic tenet of direct costing is that period costs should be currently expensed. What is the rationale behind this procedure? a. Period costs are uncontrollable and should not be charged to a specific product. b. Period costs are generally immaterial in amount and the cost of assigning the amounts to specific products would outweigh the benefits. c. Allocation of period costs is arbitrary at best and could lead to erroneous decisions by management. d. Because period costs will occur whether or not production occurs, it is improper to allocate these costs to production and defer a current costs of doing business. 2. The principal difficulty with normal costing is that a. the unit cost information is not received on a timely basis b. it can result in fluctuating per-unit overhead costs c. estimated overhead and estimated activity are likely to differ from actual overhead and actual costs, resulting in underapplied or overapplied overhead d. there is no difficulty associated with using normal costing 3. A company manufactures a single product for its customers by contracting in advance of production. Therefore, the company only produces units that will be sold by the end of each period. During the last period, the following sales were made and costs incurred: Sales P40,000 Direct materials 9,050 Direct labor 6,000 Rent (9/10 factory, 1/10 office) 3,000 Depreciation on factory equipment 2,000 Supervision (2/3 factory, 1/3 office) 1,500 Salespeople’s salaries 1,300 Insurance (2/3 factory, 1/3 office) 1,200 Office supplies 750 Advertising 700 Depreciation on office equipment 500 Interest on loan 300 Based on the above data, the gross margin percentage for the last period a. The variable-costing income exceeded absorption-costing income by P4,000. b. The absorption-costing income exceeded variable-costing income by P8,000. c. The variable-costing income exceeded absorption-costing income by P6,000. d. Net income will not be different between the two methods. 4. Scrambled Brain Company has fixed costs of P90,000. At a sales volume of P300,000, return on sales is 10%; at a P500,000 volume, return on sales is 22%. What is the break-even volume? a. 120,000 b. 200,000 c. 225,000 d. 450,000 5. Gorilla, Co. provides two products, M and W. M accounts for 60 percent of total sales, variable cost as a percentage of selling price are 60% for M and 85% for W. Total fixed costs are P225,000. If fixed costs will increase by 30 percent, what amount of peso sales would be necessary to generate an operating profit of P48,000? a. 1,350,000 b. 486,425 c. 1,135,000 d. 910,000 6. If fixed costs increase while variable cost per unit remains constant, the contribution margin will be a. Lower b. Higher c. Unchanged d. Unpredictable 7. When a firm prepares financial reports by using absorption costing, it may find that a. profits will always increase with increase in sales. b. profits will always decrease with decreases in sales. c. profit may decrease with increased sales even if there is no change in selling price 14. If the investment turnover increased by 30% and ROS decreased by 20%, the ROI would a. Increase by 4% b. Increase by 6% c. Increase by 30% d. Decrease by 50% 15. The Auto Division of Fly Insurance employs three claims processors capable of processing 5,000 claims each. The division currently processes 12,000 claims. The manager has recently been approached by two sister divisions. Division A would like the auto division to process approximately 2,000 claims. Division B would like the auto division to process approximately 5,000 claims. The Auto Division would be compensated Division A or Division B for processing these claims. Assume that these are mutually exclusive alternatives. Claims processor salary cost is relevant for a. division A alternative only b. division B alternative only c. both Division A and Division B alternatives d. neither Division A nor Division B alternatives 16. The payback method assumes that all cash inflows are reinvested to yield a return equal to a. Zero b. The discount rate c. The time-adjusted-rate-of-return d. The cost of capital 17. Hilltop Company is planning to invest P80,000 in a three-year project. Hilltop’s expected rate of return is 10%. The present value of P1 at 10% for one year is .909, for years is .826, and for three years is .751. The cash flow, net of income taxes, will be P30,000 for the first year (present value of P27,270) and P36,000 for the second year (present value of P29,736). Assuming the rate of return is exactly 10%, what will the cash flow, net of income taxes, be for the third year? a. 17,268 b. 22,000 c. 22,994 d. 30,618 18.The Alabang Company has a daily average collection of checks of P250,000. It takes the company 4 days to convert the checks to cash. Assume a lockbox system could be employed which would reduce the cash conversion period to 3 days. The lockbox system would have a net cost of P25,000 per year, but any additional funds made available could be invested to net 8 percent per year. Should Alabang adopt the lockbox system? a. Yes; the system would free P250,000 in funds b. Yes; the benefits of the lock-box system exceed the costs. c. No; the benefit is only P10,000. d. No; the firm would lose P5,000 per year if the system were used. i19. The Assembling Department’s output during the period consists of 20,000 units completed and transferred out, and 5,000 units in ending work in process 60% complete as to materials and conversion costs. Beginning inventory is 1,000 units, 40% complete as to materials and conversion costs. The equivalent units of production are a. 22,600 b. 23,000 c. 24,000 d. 25,000 20. The Amor Company has 2,000 units in beginning work in process, 20% complete as to conversion costs, 23,000 units transferred out to finished goods, and 3,000 units in ending work in process one-third complete as to conversion costs. The beginning and ending inventory is fully complete as to materials costs. Equivalent units for materials and conversion costs are a. 22,000 and 24,000 b. 26,000 and 24,000 c. 24,000 and 26,000 d. 26,000 and 26,000 DIFFICULT ROUND 21. Glareless Company manufactures and sells sunglasses. Price and cost data are as follows: Selling price per pair of sunglasses P25.00 Variable costs per pair of sunglasses: Raw materials P11.00 Direct labor 5.00 Manufacturing overhead 2.50 Selling expenses 1.30 Total variable costs per unit P19.80 Annual fixed costs: Manufacturing overhead P192,000 Selling and administrative 276,000 Total fixed costs P468,000 Forecasted annual sales volume (120,000 pairs) P3,000,000 Income tax rate 40% GLARELESS Company estimates that its direct labor costs will increase 8 percent next year. How many units will Glareless have to sell next year to reach breakeven? a. 97,500 units b. 101,740 units c. 83,572 units d. 86,250 units 22. Candyman Company is a wholesale distributor of candy. The company services grocery, convenience, and drug stores in Metro Manila. Small but steady growth in c. 66,000 unfavorable d. 33,000 favorable 26. The cost to manufacture an unfinished unit is P40 (P30 variable and P10 fixed). The selling price per unit is P50. The company has unused production capacity and has determined that units could be finished and sold for P65 with an increase in variable costs of 40%. What is the additional net income per unit to be gained by finishing the unit? a. 3 b. 10 c. `15 d. 12 27. Brynles Manufacturing Company produces two products for which the following data have been tabulated. Fixed manufacturing cost is applied at a rate of P1.00 per machine hour. Per Unit XY-7 BD-4 Selling price P4.00 P3.00 Variable manufacturing cost P2.00 P1.50 Fixed manufacturing cost P0.75 P0.20 Variable selling cost P1.00 P1.00 The sales manager has had a P160,000 increase in the budget allotment for advertising and wants to apply the money to the most profitable product. The products are not substitutes for one another in the eyes of the company’s customers. The manager may devote the entire P160,000 to increased advertising for either XY-7 or BD-4. Suppose Brynles has only 100,000 machine hours that can be made available to produce additional units of XY-7 and BD-4. If the potential increase in sales units for either product resulting from advertising is far in excess of this production capacity, which product should be advertised and what is the estimated increase in contribution margin earned? a. Product XY-7 should be produced, yielding a contribution margin of P75,000. b. Product XY-7 should be produced, yielding a contribution margin of P133,333. c. Product BD-4 should be produced, yielding a contribution margin of P187,500. d. Product BD-4 should be produced, yielding a contribution margin of P250,000 28. An opportunity cost commonly associated with a special order is a. the contribution margin on lost sales b. the variable costs of the order c. additional fixed related to the increased output d. any of the above 29. If Sol Company expects to get a one-year loan to help cover the initial financing of capital project, the analysis of the project should a. offset the loan against any investment in inventory or receivable required by the project b. show the loan as an increase in the investment c. show the loan as a cash outflow in the second year of the project’s life d. ignore the loan 30. Claremont Company had is a manufacturer of its only one product line. It had sales of P400,000 for 2002 with a contribution margin ratio of 20 percent. Its margin of safety ratio was 10 percent. What are the company’s fixed costs? a. 72,000 b. 80,000 c. 288,000 d. 320,000 i