No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

MANAGEMENT ADVISORY SERVICES

PREWEEK LECTURE
SOURCES: AICPA/RPCPA/CMA/Various Test Banks

INSTRUCTION: Select the best answer from the choices provided

Introduction to Management Accounting

1. Which of the following is/are false?

a. Managerial accounting is as concerned with providing information to stockholders as it is with
providing information to managers.
b. Managerial accounting focuses more on the segments of an organization rather than on the
organization as a whole.
c. Managerial accounting need not follow the Generally Accepted Accounting Principles (GAAP).
d. Managerial accounting is not mandatory, i.e., not required by any external law or regulation.

2. In which of the following aspects is managerial accounting similar to financial accounting?

a. users of reports
b. emphasis between the past and future
c. type of data provided to users
d. reliance on the accounting database

3. One certification available to management accountants is the Certificate in Management Accounting

(CMA). In the Philippines, the Philippine Association of Management Accountants (PAMA) conducts
the CMA Program, which has the following objectives, except:
a. to establish Management Accounting as a recognized profession in the field of business.
b. to encourage stricter and high quality educational standards in Management Accounting.
c. to provide objective means for measuring the Management Accountant's knowledge and
competence.
d. to supervise or coordinate the Management Accountant's preparation of reports to government
agencies.

4. Which of the following statements is false?

a. Management accounting is an integral part of the controller's function in an organization.
b. The Standards of Accountants include concepts related to competence, confidentiality,
integrity, and objectivity.
c. Modern cost accounting plays a role in planning new products, evaluating operational
processes, and controlling costs.
d. The CO0 (Chief Operating Officer) is primarily responsible for management accounting and
financial accounting.

5. Which of the following statements are true regarding financial and managerial accounting?
I. Both are mandatory.
II. Both rely on the same underlying financial data.
III. Both emphasize the segments of an organization, rather than just looking at the organization
as a whole.
IV. Both are geared to the future, rather than to the past.
a. I, II, III, and IV
b. Only II and III
c. Only II, III and IV
d. Only II

6. Which management position is responsible for raising capital?

a. Internal auditor
b. Treasurer
c. Controller
d. CFO

1|P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

7. Each of the following would be considered a staff function EXCEPT the:

a. vice-president of finance
b. vice-president of corporate planning
c. vice-president of research and development
d. vice-president of marketing

8. Which of the following statements is true regarding ethics in decision-making?

a. Since most business decisions are simply a matter of economics, ethical considerations should
be ignored.
b. Decision-making can have an ethical as well as an economic impact.
c. Managerial accountants do not face ethical issues.
d. Business managers will always agree on ethical choices.

9. Management accounting and cost accounting

a. are required for recordkeeping as are financial accounting and tax accounting.
b. provide cost information about products and services, as well as information for internal
decision making.
c. require an entirely separate group of accounts than financial accounting.
d. focus solely on the determination of costs to produce a product or provide a service.

10. Ako, si _____________, ng _______________________ ay taimtim na nanunumpa na (1) ko at

(2) ang Saligang Batas ng Pilipinas, na ako ay tunay na (3) at (4) rito; na (5) ko ang mga batas,
mga utos na legal, at mga atas na ipinahayag ng mga sadyang itinakdang may kapangyarihan ng
Republika ng Pilipinas; at kusa kong (6) ang pananagutang ito, na walang ano mang (7) o (8) umiwas.

Ano ang dapat nasa patlang 1 at 4?

a. ipagtatanggol; itataguyod
b. mananalig; susundin
c. susundin; itataguyod
d. itataguyod; tatalima

11. It describes how an organization matches its own capabilities with the opportunities in the
marketplace to accomplish its overall objectives.
a. Planning
b. Strategy
c. Learning and growth perspective
d. Customer perspective

12. Controller’s function includes

a. Investor relations
b. Preparation of cash flow statement
c. Risk management
d. Credit and collection

13. Which of the following statements is true when comparing managerial accounting to financial
accounting?
a. Managerial accounting places more emphasis on precision than financial accounting.
b. Both are highly dependent on timely information.
c. Both rely on the same accounting information system.
d. Managerial accounting is concerned with external decision makers.

14. The latest version of IMA Standards of Ethical Professional Practice for management accountants
comprises of competence, confidentiality, integrity and credibility. “Integrity requires management
accountant to: - adapted
a. Maintain an appropriate level of professional expertise by continually developing knowledge
and skills and perform duties in accordance with relevant laws, regulations, and technical
standards.
b. Keep information confidential unless disclosure is authorized or legally required.
c. Mitigate actual conflict of interest and refrain from engaging in any conduct that would
prejudice carrying out duties ethically
d. Communicate information fairly and objectively and disclose all relevant information expected
to influence an intended user’s understanding of the reports, analysis and recommendation

2|P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

Cost Concepts, Cost Behavior and Cost-Volume-Profit Relationships

1. The average variable cost curve always sloped parallel to the x-axis because
A. Total fixed costs always decrease.
B. Marginal costs are below average fixe costs.
C. Average variable costs are constant within the relevant range
D. Total fixed costs do not change as output increases.

2. Cost behavior analysis is a study of how a firm's costs

a. relate to competitors' costs.
b. relate to general price level changes.
c. respond to changes in activity levels within the company.
d. respond to changes in the gross national product.

3. Which of the following statements related to assumptions about estimating linear cost functions is
FALSE?
a. Variations in a single cost driver explain variations in total costs.
b. A cost object is anything for which a separate measurement of costs is desired.
c. A linear function approximates cost behavior within the relevant range of the cost driver.
d. A high correlation between two variables ensures that a cause-and-effect relationship
exists.

4. The total production cost for 20,000 units was P21,000 and the total production cost for making
50,000 units was P34,000. Once production exceeds 25,000 units, additional fixed costs of P4,000
were incurred. The total production cost for making 30,000 units is:
a. P9,000
b. P28,000
c. P24,000
d. P31,900

5. Whenever a cost cannot be linked to the product directly, the criteria to be selected in identifying the
cost driver is
a. Benefits received
b. Causal relation
c. Cause and effect
d. Reasonableness

6. Cost-volume-profit analysis allows management to determine the relative profitability of a product by

a. Highlighting potential bottlenecks in the production process.
b. Determining the contribution margin per unit and projected profits at various levels of
production.
c. Assigning costs to a product in a manner that maximizes the contribution margin.
d. Keeping fixed costs to an absolute minimum.

7. Advocates of cost-volume-profit analysis argue that:

a. Fixed costs are irrelevant for decision making.
b. Fixed costs are mandatory for CVP decision making.
c. Differentiation between the patterns of variable costs and fixed costs is critical.
d. Fixed costs are necessary to calculate inventory valuations.

8. A company increased the selling price for its product from P1.00 to P1.10 a unit when total fixed costs
increased from P400,000 to P480,000 and variable cost per unit remained unchanged. How would
these changes affect the breakeven point?
a. The breakeven point in units would be increased.
b. The breakeven point in units would be decreased.
c. The breakeven point in units would remain unchanged.
d. The effect cannot be determined from the information given.

9. A very high degree of operating leverage (DOL) indicates that a firm:

a. has high fixed costs
b. has high variable costs.
c. has a high net income
d. is operating close to its breakeven point.

10. A relatively low margin of safety ratio for a product is usually an indication that the product:
a. is losing money
b. has a high contribution margin
c. is riskier than higher margin of safety products
d. is less risky than higher margin of safety products

3|P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

11. Sustainable Corporation expects to sell 2,500 plants a month. Variable costs amounted to P5,000
while the total fixed costs amounted to P17,500. What sales price per plant does she need to achieve
to begin making a profit if she sells the estimated number of plants per month?
a. P2.00
b. P5.00
c. P7.00
d. P9.00

12. Eren Company has revenues of P1,000,000, variable costs of P600,000, and pretax profit of
P300,000. Had the company decreased the sales price per unit by 10%, reduced fixed costs by 20%,
and left variable cost per unit unchanged, what would the new breakeven point in pesos have been?
a. P176,000
b. P200,000
c. P160,000
d. P240,000

13. Anos Corporation produces a product that sells for P10 per unit. The variable cost per unit is P6 and
total fixed costs are P12,000. At this selling price, the company earns a profit equal to 10% of total
peso sales. By reducing its selling price to P9 per unit, the manufacturer can increase its unit sales
volume by 30%. Assume a 20% effective tax rate and that total fixed costs and variable cost per unit
remain unchanged. If the selling price were reduced to P9 per unit, the company’s profit after tax
would have been
a. P2,880
b. P3,600
c. P7,040
d. P8,800

14. Rimuru Co. provides two products, Gobta and Ranga. Gobta accounts for 60 percent of total
sales. The variable costs as a percentage of selling prices are 60% for Gobta and 85% for Ranga.
Total fixed costs are P225,000. The tax rate is 20%. If fixed costs will increase by 30 percent, what
amount of peso sales of Gobta, would be necessary to generate an after tax profit of P90,000?
a. P540,000
b. P810,000
c. P1,350,000
d. P1,135,000

Activity-Based Management

1. These activities are carried out regardless of which products are produced.
a. Batch level activities c. Product level activities
b. Facilities level activities d. Unit level activities

Use the following information for the next two items

The cost accountant of Gorjus, Inc. is considering using the ABC system in determining the cost of its
products. At present, the company uses the traditional costing system wherein factory overhead costs are
allocated based on direct labor hours. The cost accountant believes that the present system may be
providing misleading cost information, hence, the plan to change to the ABC system.

For the coming period, the company is planning to use 5,000 direct labor hours, and its total budgeted
factory overhead amounts to P90,000, broken down as follows:
Budgeted
Activity Cost Driver Budgeted Cost
Activity
Setup costs # of setups 40 20,000
Production monitoring # of batches 20 40,000
Quality control # of inspections 1,000 30,000
Total overhead costs 90,000

2. If the company will use the traditional full cost system, the cost per unit of product X for the coming
period will be
a. P36.
b. P50
c. P86.
d. P68.

3. If the company will use the ABC system, the cost per unit of product X for the coming year will be
a. P62
b. P86
c. P50
d. P12

4|P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

4. This refers to the series of consecutive steps that go into the creation of a finished product, from
initial design to its arrival at a customer’s door
a. Value chain
b. Supply chain
c. Business cycle
d. Reengineering

Product Costing

1. Which of the following must be known in order to institute a direct (variable) costing system?
a. A controllable and non-controllable component of all costs related to production
b. The variable and fixed components of all costs related to production
c. Standard production rates and times for all elements of production
d. Contribution margin and break-even point for all goods in production

2. Super variable costing treats which of the following costs as the only variable and product costs?
a. Direct labor
b. Direct materials
c. Straight-line depreciation of factory machine
d. Supervisory salary of an assembly line manager

3. During its first year of operations, a company produced 55,000 units and sold 50,000 units. The
following costs were incurred during the year:

Variable costs per unit

Direct materials P15.00
Direct labor 10.00
Manufacturing overhead 12.50
Selling and administrative 2.50
Total fixed cost
Manufacturing overhead P440,000
Selling and administrative 275,000

What is the difference between operating profit calculated on the absorption costing basis and on
the variable costing basis is that absorption costing operating profit?
a. P40,000 greater c. P65,000 greater
b. P44,000 greater d. P12,500 less

For the next item: In its first year of operations, Crusty Company had the following costs when it
produced 100,000 units and sold 80,000 units of its only product:

Manufacturing costs:
Fixed P180,000
Variable 160,000

Selling and administrative costs:

Fixed 90,000
Variable 40,000

4. How much higher would Crusty’s net income be if it used full absorption costing instead of variable
costing?
a. 94,000
b. 68,000
c. 36,000
d. 54,000

5. Direct costing and absorption costing will show the same incomes when there is no
a. Beginning and ending inventories c. Variable cost
b. Fixed costs d. Both A and B

5|P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

6. A company’s production facility has an ideal capacity of 25,000 units, which was used as the basis
for the normal capacity of 20,000 units. The company was able to produce 21,000 units during the
period. Fixed manufacturing costs were P400,000 while variable manufacturing costs were also
P400,000. What was the volume or capacity variance for the production?
a. P20,000 favorable c. P40,000 favorable
b. P20,000 adverse d. P24,000 favorable

Budgeting

1. Budgets must be congruent with what?

a. The organization’s internal environmental factors
b. The organization’s external environmental factors
c. The organization’s strategic plan and long-term strategic goals
d. The organization’s performance evaluation and incentive compensation factors

2. The correct sequence in a typical budgeting process shall be:

a. Materials budget, production budget, sales budget
b. Production budget, sales budget, materials budget
c. Sales budget, materials budget, production budget
d. Sales budget, production budget, materials budget

3. Which of the following specific budgets is the key driving force of the overall operational budget?
a. The capital projects budget c. The production budget
b. The pro forma income statement d. The sales budget

4. Karate Chop Company predicts sales of 40,000 units in Q1 at P 5.00 per unit. Karate Chop predicts that
unit sales will grow by 4% each quarter and that selling price will increase by 5% each quarter. Each
unit costs P 3.00 to produce in Q1. Costs are expected to grow by 3% each quarter. Using a quarterly
sales budget, sales revenue for the year will be closest to:
a. P 169,859 c. P 800,000
b. P 383,598 d. P 917,327

5. Wash Sy wishes to prepare a budget that will enable her to compare the amount actually spent to
service 20,000 clients with the amount that should have been spent to service 20,000 clients. Which
budgeting system would be the most appropriate system for Wash Sy to use?
a. A master budgeting system
b. A flexible budgeting system
c. A zero-based budgeting system
d. A continuous or rolling budgeting system

6. In relation to comprehensive budgeting, which of the following statements is incorrect?

a. Rolling budget is a budget that is revised on a regular (continuous) basis.
b. The budget committee do not prepare and develop budgets. They only approve it because the
preparation of budgets rests with individual managers.
c. The information on budgeted balance sheet does not contain information for the current budget
only but rather it has cumulative information like a usual balance sheet of a set of financial
statements.
d. None from the statements is incorrect.

6|P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

The following information pertains to Meow-meow Corporation

Month Sales Purchases

January $40,000 $30,000
February 55,000 25,000
March 46,000 31,000
April 52,000 29,000
May 68,000 35,000
June 80,000 33,000

Cash is collected from customers in the following manner:

 40% - month of sale (subject to 4% cash discount)

 60% - month following sale
 25% - two months after the month of sale
 15% - uncollectible

70% of purchases are paid for in cash in the month of purchase, and the balance is paid the following
month.

7. How much is the cash collections for the second quarter?

a. 214,650
b. 161,800
c. 183,930
d. 200,900

8. How much is the cash collections in May?

a. 61,318
b. 68,812
c. 84,520
d. 52,850

Natlan Incorporated is an independently owned major retail store chain in the Metro Manila. Rapid
expansion has created the need for careful planning of the cash requirements to ensure that the chain is
able to replenish stock adequately and meet payment schedules to creditors. Mavuika, the founder of the
company, has established a banking relationship that provides a P200,000 line of credit to Natlan Inc. The
bank requires that a minimum balance of P8,200 be kept in the checking account at the end of each month.
When the balance goes below P8,200 the bank automatically extends the line of credit in multiples of
P1,000 so that the checking account balance is at least P8,200 at month-end.

Natlan, attempts to borrow as little as possible and repays the loans quickly in multiples of P1,000 plus 2
percent monthly interest on the balance outstanding. Interest payments and any principal payments are
paid at the end of the month following the loan. The company currently has no outstanding loans

Mavuika showed the following draft cash budget schedules in the special meeting called by the board of
directors, they would like to ask for your opinion on how to complete the necessary data:

January February March

Cash balance, beginning P8,800 ? ?
Cash receipts 145,200 155,340 178,080
Cash disbursements (before loan and interests 154,400 149,640 170,160
payment)
Cash balance, ending ? ? ?

9. What is the adjusted cash balance at the end of January?

a. 8,200
b. (400)
c. 8,600
d. 9,000

10. What is the adjusted cash balance at the end of February?

a. 8,720
b. 9,300
c. 9,120
d. 14,300

7|P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

Standard Costing and Variance Analysis

1. The best characteristics of a standard cost system is

a. all significant unfavorable variances should be reviewed
b. all variances from standard, significant or not, should be investigated
c. standard can pinpoint responsibility and help motivation
d. standard cost involves cost control which is cost reduction

2. A difference between standard costs used for cost control and budgeted costs
a. Can exist because standard costs must be determined after the budget is prepared.
b. Can exist because standard costs represent what costs should have been while budgeted costs
represent expected actual costs.
c. Can exist because budgeted costs should be verified first by actual activities while standard
costs are based on projected costs.
d. Can exist because establishing budgeted costs involves employee participation and standard
costs do not

3. A primary purpose of using a standard cost system is

a. To make things easier for managers in the production facility.
b. To provide a distinct measure of cost control.
c. To minimize the cost per unit of production.
d. b and c are correct

4. Which one of the following statements is true concerning standard costs?

a. Standard costs are estimates of costs attainable only under the most ideal conditions, but rarely
practicable.
b. Standard costs are difficult to use with a process-costing system.
c. If properly used, standards can help motivate employees.
d. Unfavorable variances, material in amount, should be investigated, but large favorable
variances need not be investigated.

5. A company recorded the following journal entry when materials were issued to the factory:

Work in Process 8,500

Materials Purchase Price Variance 500
Materials Quantity Variance 200
Materials 8,800

Assuming that there was both a price variance and a quantity variance associated with these
materials, this entry indicates that the method used for materials price variances is to:
a. The standard quantity issued is less than the actual quantity used
b. The total standard costs exceed the total actual cost
c. The actual purchase price exceeds the standard price
d. The total variance is favorable

6. The flexible budget formula for total overhead for the Sardinamasarap Corporation is P 720,000 + P
16 per direct labor hour. The combined overhead rate is P 40 per direct labor hour. The following data
have been recorded for the year:

Actual total overhead P1,160,000

Total overhead spending variance P 32,000 unfavorable
Volume variance P48,000 (debit balance)

How many standard labor hours were spent by Sardinamasarap Corporation?

a. 25,500 hours
b. 24,500 hours
c. 28,000 hours
d. 32,000 hours

8|P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

7. Standard costs and budgetary control methods should be closely related. This relationship is especially
important for factory overhead. Better control over factory overhead can be achieved if a flexible
budget, rather than a fixed budget is used. The flexible budget for Kulang Corporation is summarized
below:

Percent of Normal Operating Capacity

80%* 90% 100% 110%
Variable overhead P21,000 P23,000 P25,000 P27,000
Fixed overhead 50,000 50,000 50,000 50,000
Total factory overhead P71,000 P73,000 P75,000 P77,000
* normal capacity

In accordance with the standards established, 100,000 units of product should be manufactured when
the company operates at its normal capacity. The standard labor time per unit of product is 15 minutes.
Actual production in 2015 was 90,000 units of product in 44,000 hours. What is the budgeted factory
overhead adjusted to standard hours?
a. P68,900
b. P75,000
c. P72,500
d. P63,500

Use the following information for the next items

Tencent, Inc. evaluates manufacturing overhead in its factory by using variance analysis. The following
information applies for the year 2024:

BUDGETED ACTUAL
Outputs produced 20,000 19,000
Variable OH P2/DLH 4,100
Fixed OH 24,000 22,000
Direct labor hours 0.1 DLH/unit 2,100

Determine the following:

8. Controllable variance
a. 2,100 unfavorable
b. 2,100 favorable
c. 1,700 favorable
d. 1,700 unfavorable

9. Using the three-way variance analysis, the spending variance is

a. 1,700 favorable
b. 1,700 unfavorable
c. 2,100 unfavorable
d. 2,100 favorable

10. Efficiency variance

a. 400 favorable
b. 400 unfavorable
c. 1,900 favorable
d. 1,000 unfavorable

9|P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

Use the following information for the next items

Candelaria Incorporated. manufactures perfumes of various types. Depending on the orders received, not
all perfumes require the same amount of color, dye, or scent materials. Standard ingredients for 500 liters
of perfumes are:

Input: Standard Mix Cost per Liter

Chemical A 100 L 1.00
Chemical B 420 L 0.20
Natural Oil 3L 2.00
Scents 2L 6.00
Totals 525 L 9.20
Standard output 500 L

Price variances are charged off at the time of purchase. During January, the company was busy
manufacturing special edition perfumes for Valentine’s Day. Actual production then was:

Input Cost per Liter In Liters

Chemical A 0.80 4,100
Chemical B 0.30 13,800
Natural Oil 2.50 2,200
Scents 5.50 60
Total 20,160
Actual output 18,500

11. The material purchase price variance

a. P850 favorable
b. P1,630 unfavorable
c. P1,630 favorable
d. P2,480 unfavorable

12. The material mix variance

a. P283 favorable
b. P283 unfavorable
c. P3,863 unfavorable
d. P3,863 favorable

13. The material yield variance is:

a. P283 favorable
b. P283 unfavorable
c. P3,863 unfavorable
d. P3,863 favorable

14. The material quantity variance is:

a. P283 unfavorable
b. P3,863 unfavorable
c. P4,146 favorable
d. P4,146 unfavorable

Differential Analysis

1. The term relevant cost normally applies to all of the following decision situations except the
a. Replacement of equipment.
b. Determination of product price.
c. Acceptance of special product order.
d. Manufacture or purchase of a component part.

2. The relevance of a particular cost to a decision is determined by

a. Amount of the cost
b. Potential effect on the decision.
c. Number of decision variables
d. Riskiness of the decision.

10 | P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

3. A purchasing agent has two potential firms to buy materials from for production. If both firms charge
the same price, the material cost is
a. a committed cost
b. an irrelevant cost
c. a sunk cost
d. an opportunity cost

4. When only differential manufacturing costs are taken into account for special-order pricing, an essential
assumption is that
a. Manufacturing fixed and variable costs are linear.
b. Acceptance of the order will not affect regular sales.
c. Selling and administrative fixed and variable costs are linear.
d. Acceptance of the order will not cause unit selling and administrative variable costs to
increase.

5. A product should be dropped if

a. It has negative incremental profit.
b. It has a negative contribution margin.
c. It is not essential to the company’s product line.
d. Dropping it will increase the total profit of the company.

6. A proprietor who just inherited a condominium unit is considering using it in a new business
venture. Projections for the business are: revenue of P100,000, fixed cost of P30,000, and variable
cost of P50,000. If the business is not started, the owner will work for a company for a wage of
P23,000. Also, there have been two offers to rent the condominium, one for P1,000 per month and
one for P1,500 per month. What are the expected annual net economic profits (losses) to the owner
if the new business is started?
a. (3,000)
b. (15,000)
c. (17,400)
d. (21,000)

7. Alice Company is currently operating at P15,000 profit. The sales manager has received a special order
for 5,000 units of product, which normally sells for P35 per unit. Costs associated with the product
are as follows:

Direct material P6
Direct labor 10
Variable overhead 3
Variable selling 2
Applied fixed overhead 4

The special order would allow the use of a slightly lower grade of direct material, thereby lowering
the price per unit to P4.50 and selling expenses would be decreased by P1. If Alice wants this special
order to increase the total net income for the firm to P40,000, what sales price must be quoted for
each of the 5,000 units?
a. P23.50
b. P24.50
c. P27.50
d. P34.00

8. Guinevere Corporation is operating at 90% capacity. The company manager is considering making
the product named, “Holy Crystal” which is now being purchased for P1,100 each, a price that is
projected to increase in the near future. The plant has the equipment and labor force required to
manufacture the product. The design engineer estimates that each component requires P400 of
direct materials and P300 of direct labor. The plant overhead is 200% of direct labor peso cost, and
40% of the overhead is fixed cost. A decision to manufacture “Holy Crystal” will result in a gain or
(loss) for each component of
a. (P200)
b. P160
c. P40
d. P280

11 | P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

9. Shibuyas Flea Market is along the highway leading to Shibuya Station. Akagami has a stall which
specializes in hand-crafted onion baskets that sell for P60 each. Daily fixed costs are P15,000 and
variable costs are P30 per basket. An average of 900 baskets are sold each day. Akagami has a
capacity of 1,000 baskets per day. By closing time, yesterday, a bus load of teachers who attended a
seminar at the Tokyo University stopped by Akagami’s stall. Collectively, they offered Akagami P1,500
for 80 baskets. Akagami should have
a. Rejected the offer since he could have lost P500.
b. Rejected the offer since he could have lost P900.
c. Accepted the offer since he could have P300 contribution margin.
d. Accepted the offer since he could have P700 contribution margin.

10. Chen Co. currently manufactures a subassembly for its main product. The costs per unit are as follows:

Direct materials P900

Direct labor 700
Variable overhead 660

Lafa Inc. has contacted Chen with an offer to sell 2,500 of the subassemblies for P2,700 each. Chen
will eliminate P850,000 of fixed overhead if it accepts the proposal. What are the relevant costs for
Chen?
a. P4,800,000
b. P6,500,000
c. P4,850,000
d. P8,000,000

11. Jiang Interiors provides design services to residential and commercial clients. The residential services
produce a contribution margin of P450,000 and have traceable fixed operating costs of P480,000.
Management is studying whether to drop the residential operation. If closed, the fixed operating costs
will fall by P370,000 and Jiang’s income will
a. decrease by P80,000
b. increase by P80,000
c. increase by P30,000
d. increase by P340,000

12. Hae-in Industries, Inc. has an opportunity to acquire a new equipment to replace one of its existing
equipment. The new equipment would cost P18,000,000 and has a five-year useful life, with a zero
terminal disposal price. Variable operating costs would be P20.0 million per year. The present
equipment has a book value of P10,000,000 and a remaining life of five years. Its disposal price now
is P1,000,000 but would be zero after five years. Variable operating costs would be P25,000,000 per
year. Considering the five years in total, but ignoring the time value of money and income taxes. Hae-
in should
a. Replace due to P7,000,000 advantage.
b. Replace due to P8,000,000 advantage.
c. Not replace due to P2,000,000 disadvantage.
d. Not replace due to P3,000,000 disadvantage.

13. A company operated at a profit of P50,000, last month. Due to ongoing lockdowns in local areas
brought by the pandemic, its sales reduced by 70%. The company owner is now considering whether
to close its stores temporarily in the coming month. Doing so will reduce fixed costs by 80%.
Restarting the operation is estimated to require a minimal amount of P2,500. Assuming the degree
of operating leverage of the company is maintained at 2 times and the contribution margin ratio is
30%, what is the shutdown point?
a. P125,000
b. P166,667
c. P58,333
d. P141,667

12 | P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
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Telephone : (043) 723 8412
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Other Management Concepts

1. A consumer has $20 that he wants to spend on two goods: pens priced at $2 each, and pencils
priced at $1 each. Which of the following correctly represents the budget constraints?
a. $20 = ($2/Quantity of pens) + ($1/Quantity of pencils) - adapted
b. $20 = ($2 x Quantity of pens) + ($1 x Quantity of pencils)
c. $20 = ($3/Quantity of pens) + Quantity of pencils
d. $20 = $3 x (Quantity of pens - Quantity of pencils)

2. High yield but high-risk bonds issued by heavily indebted or financially weak corporations that are
desperately in need of additional capital known as: - adapted
a. Callable bonds
b. Junk bonds
c. Convertible bonds
d. Guaranteed bonds

3. Rudy is a successful logistical services firm that currently has P5 million in cash. Rudy has decided to
use this cash to repurchase shares from its investors, and has already announced the stock repurchase
plan. Currently, Rudy is an all equity firm with 1.25 million shares outstanding. Rudy’s share is currently
trading at $20 per share. The market value of Rudy’s non-cash assets is closest to:
a. 20.0 million
b. 19.0 million
c. 25.0 million
d. 24.0 million

4. UnCOL Financial Inc. is evaluating four independent investment proposals. The expected returns
and standard deviations for each of these proposals are presented below:

Proposal Expected Returns Standard Deviation

A 8% 5%
B 7% 5%
C 10% 5.5%
D 11% 7.5%

Which one of the investment proposals has the least relative level of risk?
a. Investment I
b. Investment II
c. Investment III
d. Investment IV

Use the following information for the next items

Future Investment Incorporated has the following investment options:

Stock Standard Beta

deviation
Philippine National Bank 16% 0.80
Bank of the Philippine Islands 8% 1.20
Banco De Oro 10% 1.50

5. What stock would you recommend supposing the risk strategy implemented by Future Investment is
conservative and the risk assessed is isolated from the market situation?
a. PNB
b. BPI
c. BDO
d. A combination of the three

6. What stock would you recommend supposing the risk strategy implemented by Future Investment is
aggressive and the risk assessed is isolated from the market situation?
a. PNB
b. BPI
c. BDO
d. A combination of the three

13 | P a g e JBUGATAN/JSARIPADA
 No. 125 Brgy. San Sebastian
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Suppose that the market portfolio is equally likely to increase by 12% or decrease by 4%. Security
"Luffy" goes up on average by 14.50% when the market goes up and goes down by 5.5% when the
market goes down. Security "Naruto" goes down on average by 8% when the market goes up and goes
up by 8% when the market goes down. Security "Ichigo" goes up on average by 2% when the market
goes up and goes up by 2% when the market goes down.

7. The beta for security "Luffy" is closest to:

a. 0
b. 0.80
c. 1.00
d. 1.25

8. The standard deviation of a stock investment is best described as the

a. Variability of expected returns
b. Sensitivity to market movements
c. Trade-off between risk and return
d. Variation around the mean return

9. In considering cost of quality methodology, system troubleshooting are associated with

a. Prevention.
b. Appraisal.
c. Internal failure.
d. External failure.

10. The average labor cost per unit for the first batch produced by a new process is P120. The cumulative
average labor cost after the second batch is P72 per product. Using a batch size of 100 and assuming
the learning curve continues, the total labor cost of 400 units will be
a. P4,320
b. P17,280
c. P5,280
d. P28,800

11. Which of the statements best describes the concept of six-sigma quality?
a. 1 defect per billion.
b. 3.4 defects per million.
c. 3.4 defects per billion.
d. 1 defect per billion.

14 | P a g e JBUGATAN/JSARIPADA
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Capital budgeting

2. In capital budgeting, sensitivity analysis is used

a. to determine whether an investment is profitable.
b. To see how a decision would be affected by changes in variables.
c. To test the relationship of the IRR and NPV.
d. To evaluate mutually exclusive investments.

3. A capital budgeting tool management can use to summarize the difference in the future net cash
inflows from an intangible asset at two different points in time is referred to as
a. the accrual accounting rate-of-return method.
b. the net present value method.
c. sensitivity analysis
d. the payback method.

4. Hercules Inc. invested in a machine with a useful life of 6 years and no salvage value. The machine
was depreciated using the straight-line method. It was expected to produce annual cash inflow from
operations, net of income taxes, of P2,000. The present value of an ordinary annuity of P1 for six
periods at 10% is 4.355. The present value of P1 for six periods is 0.564. Assuming that Hercules
used a time adjusted rate of return of 10%, what was the amount of the original investment?
a. P5,640
b. P8,710
c. P9,000
d. P11,280

5. Tarzan Mfg. is planning to purchase a new machine which it will depreciate, for book purposes, on a
straight-line basis over a 10-year period with no salvage value and full year’s depreciation taken in
the year of acquisition. The new machine is expected to produce cash flow from operations net of
taxes, of P66,000 a year in each of the next 10 years. A 12% accounting (book value) rate of return
on the initial investment is expected. How much will the new machine cost?
a. P300,000
b. P550,000
c. P660,000
d. P782,000

6. All other things being equal, as cost of capital increases

a. more capital projects will probably be acceptable.
b. Fewer capital projects will probably be acceptable.
c. The number of capital projects that are acceptable will change but the direction of the change
is not determinable just by knowing the direction of the change in cost of capital.
d. The company will probably want to borrow money rather than issue stock.

7. A project costing P1,800,000 is expected to produce the following annual cash flows (after tax) and
salvage value:
Year Net cash inflow Salvage value
1 500,000 800,000
2 500,000 600,000
3 600,000 500,000
4 800,000 400,000
5 700,000 300,000
What is the bailout period for the project?
a. 3.25 yrs c. 2.5 yrs
b. 2.73 yrs d. 2.4 yrs

8. Capital rationing
a. Is not a problem for firms that have a high cost of capital.
b. Is the process of selecting the more desirable projects from all those available.
c. Is another term for Capital Budgeting
d. Is not necessary when interest rates are low.

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9. MALABANAN has been considering the purchase of an industrial dry-cleaning machine. The existing
machine is operable for three more years and will have a zero disposal price. If the machine is disposed
now, it may be sold for P120,000. The new machine will cost P400,000 and an additional cash
investment in working capital of P120,000 will be required.

The new machine will reduce the average amount of time required to wash clothing and will decrease
labor costs. The investment is expected to net P100,000 in additional cash inflows during the year of
acquisition and P300,000 each additional year of use. The new machine has a three-year life, and zero
disposal value. These cash flows will generally occur throughout the year and are recognized at the
end of each year. The working capital investment will not be recovered at the end of the asset's life.

(Ignore income taxes) What is the net present value of the investment, assuming the required rate of
return is 10%? Would the company want to purchase the new machine?
a. P(164,000); no c. P100,000; no
b. P(100,000); yes d. P164,000; yes

10. Applying sensitivity analysis to investment projects

a. Helps managers determine the estimates most critical to the decision.
b. Is not possible if the projects involve a change in the investment in working capital.
c. Is a waste of time if the projects are alternatives available for replacement decision.
d. Makes it unnecessary to rank the available investment opportunities.

11. The Zykast Corporation recently purchased a new machine for its factory operations at a cost of
P921,250. The investment is expected to generate P250,000 in annual cash flows for a period of six
years. The required rate of return is 14%. The old machine has a remaining life of six years. The new
machine is expected to have zero value at the end of the six-year period. The disposal value of the old
machine at the time of replacement is zero.

An excerpt from the present value table appears below:

n 14% 16% 18%
5 3.433 3.274 3.127
6 3.889 3.685 3.498
7 4.288 4.039 3.812

What is the internal rate of return?

A. 16% C. 18%
B. 15% D. 17%

Financial Statement Analysis

1. A useful tool in financial statement analysis is the common-size financial statement. What does this
tool enable the financial analyst to do?
a. Evaluate financial statements of companies within a given industry of approximately the same
value.
b. Determine which companies in the same industry are at approximately the same stage of
development.
c. Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over
time or between companies within a given industry without respect to relative size.
d. Ascertain the relative potential of companies of similar size in different industries.

2. All else being equal, which of the following will increase a company’s current ratio?
a. An increase in accounts receivable.
b. An increase in accounts payable.
c. An increase in net fixed assets.
d. Statements a and b are correct.

3. Which of these ratios are measures of a company’s asset utilization and liquidity?
1. Earnings per share 5. Return on assets
2. Current ratio 6. Inventory turnover
3. Return on sales 7. Receivables turnover
4. Debt-equity ratio 8. Price-earnings ratio

a. All eight ratios. c. 1, 3, 5, 6, 7, and 8 only.

b. 2, 3, 6, and 7 only. d. 2, 6, and 7 only

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4. Which of the following statements is false?

a. The calculation of the accounts receivable average collection period (ACP) would generally
produce a more realistic assessment of how a firm is managing its accounts receivable if the
analyst were to calculate the ACP for each month and average the results, than if the analyst
were to solely use the fiscal year-end accounts receivable value.
b. If an analyst were to compare the inventory turnover of one firm to that of another, the
comparison can be distorted if the two firms use different methods of valuing ending
inventory.
c. Assume that two firms are in the same industry and one reports a higher debt ratio than the
other. We can safely say that the firm that has the highest debt ratio is the riskier of the two
firms.
d. A firm that has a current ratio that is significantly above the industry norm will, as a direct
consequence, also have a significantly better return on assets than if its current ratio was
below the industry norm.

5. Assume that a particular firm has a total asset turnover ratio lower than the industry norm. In addition,
this firm’s current ratio and fixed asset turnover ratio also meet industry standards. Based on this
information, we can conclude that this firm must have excessive:
a. accounts receivable.
b. fixed assets.
c. debt.
d. inventory.

For the next item: Relevant Ratios for MNO, Inc. and Its Industry

MNO, Inc. 2021 Ratios Industry Average Ratios in 2021

Current ratio 1.2 1.4
Acid test ratio 0.89 0.94
Average collection period 30 days 25 days
Inventory turnover 18.1 20.3
Fixed assets turnover 4.1 4.8
Total asset turnover 2.78 2.8
Debt ratio 50% 60%
Times-interest-earned 5.5% 4.5%
Net profit margin 1.15% 1.5%
Return on equity 5.21% 7.32%

MNO, Inc. Income Statement (in thousands)

December 31, 2022

Sales (all credit) P200,000

Cost of goods sold 140,000
Gross profit on sales P 60,000
Operating expenses 56,000
Operating income 4,000
Interest expense 1,000
Earnings before tax 3,000
Income tax 1,050
Net income available to common stockholders P 1,950

MNO, Inc. Balance Sheet (in thousands)

December 31, 2022
Cash P 2,000
Accounts receivable 17,800
Inventories 8,700
Total current assets 28,500
Gross fixed assets 70,000
Accumulated depreciation 26,500 43,500
Total assets P72,000

Accounts payable P 18,000

Accruals 13,350
Total current liabilities 31,350
Long-term debt 8,250
Total liabilities 39,600

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 No. 125 Brgy. San Sebastian
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Common stock (par value and paid in capital) 2,000

Retained earnings 30,400
Total stockholders’ equity 32,400
Total liabilities and equity P72,000

6. Since 2021 MNO’s efficiency at using its assets has:

a. improved.
b. deteriorated.
c. remained the same.
d. been variable across components of the efficiency measures.

Working Capital Management

11. Compared to other firms in the industry, a company that maintains a cons ervative working capital
policy will tend to have a:
a. Greater percentage of short-term financing.
b. Higher total asset turnover.
c. Greater risk of needing to sell current assets to repay debt.
d. higher ratio of current assets to fixed assets

12. The Spades Company has an inventory conversion period of 75 days, a receivables conversion
period of 38 days, and a payable payment period of 30 days. What is the length of the firm’s cash
conversion cycle?
a. 83 days c. 67 days
b. 113 days d. 45 days

13. A speculative motive for holding excess cash is

a. To enable a company to meet the cash demands from the normal flow of business activity.
b. To enable a company to avail itself of a special inventory purchase before prices rise to
higher levels.
c. To enable a company to have cash to meet emergencies that may arise periodically.
d. To avoid having to use the various types of lending arrangements available to cover
projected cash deficits.

14. Transactions motive for holding excess cash is

a. To enable a company to meet the cash demands from the normal flow of business activity.
b. To enable a company to avail itself of a special inventory purchase before prices rise to
higher levels.
c. To enable a company to have cash to meet emergencies that may arise periodically.
d. To avoid having to use the various types of lending arrangements available to cover
projected cash deficits.

15. Bruce Company has P4,000,000 in current assets, P1,750,000 of which are considered permanent
current assets. In addition, the firm has P3,000,000 invested in fixed assets. Bruce Company wishes
to finance all fixed assets and ½ of permanent current long-term financing costing 15 percent. Short-
term financing currently costs 10 percent. Wales Company’s earnings before interest and taxes are
P1,100,000. Income tax rate is 40 percent. How much would Bruce Company’s earnings after taxes
under this financing plan?
a. P206,250 c. P112,500
b. P123,750 d. P 42,500

16. Gaston Company is considering using a lock box system that collects 150 checks per day averaging
P500 each and reduces mailing and processing times by 2.5 and 1.5 days respectively. Assuming an
annual interest rate of 7%, what are the expected annual savings?
a. P5,250
b. P13,125
c. P21,000
d. P300,000

17. Which of the following statements is most correct?

a. Other things held constant, the higher a firm’s days sales outstanding (DSO), the better its
credit department.
b. If a firm that sells on terms of net 30 changes its policy and begins offering all customers
terms of 2/10, net 30, and if no change in sales volume occurs, then the firm’s DSO will
probably increase.
c. If a firm sells on terms of 2/10, net 30, and its DSO is 30 days, then its aging schedule would
probably show some past due accounts.
d. Statements a and c are correct.

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 No. 125 Brgy. San Sebastian
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For the next two items: Sonata Company is considering changing its credit terms from 2/15, net 30 to 3/10,
net 30 in order to speed collections. At present, 40 percent of Sonata Company‘s customers take the 2
percent discount. Under the new term, discount customers are expected to rise to 50 percent. Regardless
of the credit terms, half of the customers who do not take the discount are expected to pay on time, whereas
the remainder will pay 10 days late. The change does not involve a relaxation of credit standards; therefore
bad debt losses are not expected to rise above their present 2 percent level. However, the more generous
cash discount terms are expected to increase sales from P2 million to P2.6 million per year. Sonata
Company’s variable cost ratio is 75 percent, the interest rate on funds invested in accounts receivable is 9
percent, and the firm’s income tax rate is 40 percent.

18. What are the days sales outstanding (DSO) before and after the change of credit policy?
a. 27.0 days and 22.5 days, respectively c. 22.5 days and 21.5 days, respectively
b. 22.5 days and 27.0 days, respectively d. 21.5 days and 22.5 days respectively

19. The incremental carrying cost on receivable is

a. P 843.75 c. P 643.75
b. P8,889.00 d. P6,667.00

20. The ordering costs associated with inventory management include:

a. Insurance, purchasing costs, shipping costs and spoilage.
b. Obsolescence, set up costs, quantity discounts lost and storage costs.
c. Purchasing costs, shipping costs, set up costs and quantity discounts lost.
d. Shipping costs, obsolescence, set up costs and capital invested.

21. Edwards Manufacturing Corporation uses the standard EOQ model. If the EOQ for Product A is 200
units and Edwards maintains a 50-unit safety stock for the item. What is the maximum inventory of
Product A?
a. 250 units
b. 150 units
c. 125 units
d. 100 units

22. A compensating balance

a. compensates a financial institution for services rendered by providing it with deposit of funds.
b. Is used to compensate for possible losses on a marketable securities portfolio.
c. Is a level of inventory held to compensate for variations in usage rate and lead time.
d. Is the amount of prepaid interest on a loan.

23. Batchoy and Co. buys on terms 2/10, net 30 but generally does not pay until 40 days after the invoice
date. Its purchases total P2,160,000 per year. Assuming 360 days a year, the amount of non-free
trade credit used by the company on the average each year is:
a. P180,000
b. P240,000
c. P60,000
d. P120,000

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Responsibility Accounting and Transfer Pricing

1. The budgetary unit of an organization which is led by a manager who has both the authority over and
responsibility for the unit's performance is known as a:
a. control center
b. budgetary area
c. responsibility center
d. managerial department

2. Which is the best example of a decentralized operation?

a. One owner who prepares plans and makes decisions for the entire company.
b. Each unit is responsible for their own operations and decision making.
c. In a major company, operating decisions are made by top management.
d. None of the above. All are examples of a centralized management.

3. In evaluating the profit center manager, the income from operations should be compared:
a. across profit centers
b. to historical performance or budget
c. to the competition's net income
d. to the total company earnings per share

4. Which one of the following is NOT a measure that management can use in evaluating and controlling
investment center performance?
a. Rate of return on investment
b. Negotiated price
c. Residual income
d. Income from operations

5. Which of the following is not a commonly used approach to setting transfer prices?
a. Market price approach
b. Revenue price approach
c. Negotiated price approach
d. Cost price approach

6. When is it appropriate to use the market price approach when two related companies are providing
services or products to each other?
a. The production for the selling company is falling under full capacity and it needs to increase
its sales.
b. The purchasing company is currently purchasing a product at a price from an outside supplier
as it would from its related company that is operating at full capacity.
c. The purchasing company is considered a cost center and is not concerned with maximizing
profits for the company.
d. The policy of the parent company is that when a product is sold by an outside supplier and by
a related party, purchases must be made within the company.

The Megatron Corporation reported the following information for its Optimus Division: Revenues – P1.0M,
Operating Costs – P600,000; Taxable income – P200,000, and Operating Assets – P500,000. Income is
defined as operating income.

7. What is the Division's return on investment?

a. 80%
b. 50%
c. 40%
d. 60%

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8. Shaun, Inc. is a highly automated manufacturing firm. The vice president of operations has decided
that traditional standards are inappropriate for performance measures in an automated environment.
Labor is insignificant in terms of the total cost of production and tends to be fixed. Material quality is
considered more important than minimizing material cost, and customer satisfaction is the number one
priority. As a result, delivery performance measures have been chosen to evaluate performance.

The following information is considered typical of the time involved to complete orders.
Wait time from order being placed to start of production 10.0 days
Wait time from start of production to completion 5.0 days
Inspection time 1.5 days
Process time 3.0 days
Move time 1.5 days
Queue time 1.0 day

What is the manufacturing cycle time and manufacturing cycle efficiency for this order?
a. 12 days and 25%
b. 22 days and 13.6%
c. 22 days and 25%
d. 17 days and 17.6%

For the next two items: Division One of Valkyrie Company is currently operating at 70% of capacity. It
produces a single product and sells all its production to outside customers for P70 per unit. Variable costs
is P30 per unit and fixed costs is P20 per unit at the current production level.
Division Two, which currently buys the same product from an outside supplier for P65 per unit, would like
to buy the product from Division One.
Division One will use one-half of its idle capacity if it decides to provide the requirements of Division Two.
9. What is the minimum price that Division One should charge Division Two for this product?
a. P30 c. P65
b. P50 d. P70

10. What is the maximum price that Division Two will be willing to pay for the product if it will be purchased
internally?
a. .P70 C. P50
b. P30 D. P65

Risks and Returns

1. Diversification cannot reduce this risk

a. Systematic risk
b. Unsystematic risk
c. Market risk
d. Both A and C

2. As the number of investment increases in a portfolio, the effect of the diversification

a. Increases
b. Decreases
c. Remain unchanged
d. Cannot be determined

3. Which of the following is true regarding standard deviation and beta?

a. Beta is a statistical measure of security’s volatility, which indicates the tendency of the returns to
rise or fall drastically in a short period of time
b. Standard Deviation is a statistical measure which compares volatility of an individual fund or stocks
to its index or benchmark
c. Beta is a measure of market risk
d. None of the statements is false

4. Which of the following items has an negative relationship with risk?

a. Correlation
b. Returns
c. Standard deviations
d. Covariance

5. Which of the following investment models accounts for the volatility, price of underlying assets, the
strike price of the option, the time of expiration of the option and the risk-free rate to enable sellers to
set rational prices for the options available for sale?
a. Black-Sholes Model
b. Monte Carlo Simulation
c. Binomial Option Pricing Model
d. Capital Asset Pricing Model

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6. This model is used to simulate the probability of different outcomes in a process that cannot easily be
predicted due to the intervention of random variables. This process focuses on constantly repeating
random samples to achieve certain results
a. Black-Sholes Model
b. Monte Carlo Simulation
c. Binomial Option Pricing Model
d. Capital Asset Pricing Model

7. Which of the following statements is correct?

a. Portfolio diversification reduces the variability of the returns on the individual stocks held in a
portfolio.
b. Portfolio A has but one security, while Portfolio B has 100 securities. Because of diversification,
we would expect Portfolio B to have lower risk.
c. If an investor buys enough stocks, he or she can, through diversification, eliminate all market risk.
d. Diversification can be achieved by purchasing stocks that are perfectly positively correlated.

8. A firm must select from among several methods of financing arrangements when meeting its capital
requirements. To acquire additional growth capital while attempting to maximize earnings per share, a
firm should normally:
a. Attempt to increase both debt and equity in equal proportions which preserves a stable capital
structure and maintains investor confidence
b. Select debt over equity initially even though increased debt is accompanied by interest costs and
a degree of risk.
c. Select equity over debt initially which minimizes risk and avoids interest cost
d. Discontinue dividends and use current cash flow, which avoids the cost and risk of increased debt
and the dilution of EPS through increased equity

9. You are considering investing in Ford Motor Company. Which of the following is an example of
diversifiable risk?
a. Risk resulting from the possibility of a stock market crash
b. Risk resulting from uncertainty regarding a possible strike against Ford
c. Risk resulting from an expected recession
d. Risk resulting from interest rates decreasing

10. This stock pricing model uses an iterative procedure, allowing for the specification of points in time
during the time span between valuation date and the option’s expiration date. This enable the user to
visualize the changes in asset price from period to period and evaluate the option based on decisions
made at different points in time.
a. Black-Sholes Model
b. Monte Carlo Simulation
c. Binomial Option Pricing Model
d. Capital Asset Pricing Model

Economics

1. The biggest advantage of capitalism is that

a. it forces involuntary exchanges.
b. it generates wealth with the help of government intervention.
c. it creates wealth by letting a person follow his or her self-interest
d. prices hinder in moving assets from high-value to low-value uses.

2. A decrease in demand is represented by

a. A shift inward of the entire demand curve.
b. A shift outward of the entire demand curve.
c. A movement along the demand curve in a northwesterly direction.
d. A movement along the demand curve in a southeasterly direction.

3. If the value of the Chinese Yuan in foreign currency markets changes from 1 RMB = 6 Pesos to 1 RMB
= 4 Pesos
a. Philippine imported products in China will become more expensive
b. The Philippine peso has depreciated against the Chinese Yuan
c. Chinese tourist in the Philippines will find their dollars will buy more Filipino products
d. Chinese exports to Philippines should decrease

4. In national income terms, aggregate demand is the

a. Total expenditures on capital goods by entrepreneurs during the period of full employment
b. Demand for money by the community in a period of full employment
c. Demand that is needed if a country’s economy is to operate at optimum level and the level of
investment is to be raised
d. Total expenditures on consumer goods and investment, including government and foreign
expenditures, during a given period

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5. Government budget deficit happens when the government taxes does not exceed transfer payments
and purchases. Which of the following actions would normally be done by the government to cover the
deficit?
a. Imposition of higher indirect taxes
b. Decrease personal income taxes to stimulate economic activity
c. Issue treasury bonds or other government debt instruments
d. Provide social amelioration fund to the citizen to boost productivity

6. X and Y are substitute products. If the price of product Y increases, the immediate impact on product
X is
a. Price will increase.
b. Quantity supplied will increase.
c. Quantity demanded will increase.
d. Price, quantity demanded and supply will increase.

7. As a business owner you have determined that the demand for your product is inelastic. Based upon
this assessment you understand that
a. Increasing the price of your product will increase total revenue.
b. Decreasing the price of your product will increase total revenue.
c. Increasing the price of your product will have no effect on total revenue.
d. Increasing the price of your product will increase competition.

8. The social surplus in a market is $50. If another economic agent enters the market such that the
marginal cost the incurs is $10 and the marginal benefit he receives from the trade is $5, then which
the following statements is true?
a. The social surplus will remain the same
b. The social surplus will increase by $5
c. The social surplus will decrease by $5
d. The social surplus will increase by $10

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Productivity Measures

Following a strategy of product differentiation, Liberty Company makes a high-end Appliance Mamajalin.
Liberty Company presents the following data for the years 2021 and 2022:

2021 2022
Units of Mamajalin produced and sold 20,000 21,000
Selling price P200 P220
Direct materials (square feet) 60,000 61,500
Direct materials costs per square foot P20 P22
Manufacturing capacity in units of Mamajalin 25,000 25,000
Total conversion costs P1,000,000 P1,100,000
Conversion costs per unit of capacity P40 P44
Selling and customer-service capacity (customers) 60 58
Total selling and customer-service costs P360,000 P362,500
Selling and customer-service capacity cost per customer P6,000 P6,250

Liberty Company produces no defective units but it wants to reduce direct materials usage per unit of
Mamajalin in 2022. Manufacturing conversion costs in each year depend on production capacity defined
interms of Mamajalin units that can be produced. Selling and customer-service costs depend on the
numberof customers that the customer and service functions are designed to support. Liberty Company
has 46 customers in 2021 and 50 customers in 2022. The industry market size for high-end appliances
increased5% from 2021 to 2022.

Operating Income
1. What is operating income for 2021?
a. P364,500
b. P1,804,500
c. P1,440,000
d. P200,000

2. What is operating income in 2022?

a. P1,440,000
b. P1,804,500
c. P364,500
d. P200,000

3. What is the change in operating income from 2021 to 2022?

a. P1,440,000
b. P1,804,500
c. P364,500
d. P200,000

Price-recovery components
4. What is the revenue effect of the price-recovery component?
a. P220,000 F
b. P420,000 F
c. P400,000 F
d. P200,000 F

5. What is the cost effect of the price-recovery component?

a. P179,000 F
b. P179,000 U
c. P241,000 U
d. P420,000 F

6. What is the net effect on operating income as a result of the price-recovery component?
a. P179,000 F
b. P179,000 U
c. P241,000 U
d. P420,000 F

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Gmail : [email protected]

Productivity Component
7. What is the net effect on operating income as a result of the productivity component?
a. P179,000 F
b. P45,500 F
c. P241,000 U
d. P420,000 F

Growth Component
8. What is the revenue effect of the growth component?
a. P220,000 F
b. P200,000F
c. P420,000 F
d. P400,000 F

9. What is the cost effect of the growth

component?
a. P140,000 F
b. P60,000 F
c. P200,000 F
d. P60,000 U

10. What is the net effect on operating income as a result of the growth
component?
a. P60,000 U
b. P60,000 F
c. P140,000 F
d. P200,000 F

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