MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Final Pre-board Examination PDF

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MANAGEMENT ADVISORY SERVICES CPA Review School of the Philippines Final Pre-board Examination Overview 3. The following are characteristics of financial accounting, except? Management advisory services A. Reporting of historical information 1. The primary purpose of management advisory services is t...

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MANAGEMENT ADVISORY SERVICES

CPA Review School of the Philippines

Overview Management advisory services 1. The primary purpose of management advisory services is to A. conduct special studies, preparation of recommendations, development of plans and programs, and provision of advice and assistance in their implementation. B. provide services or to fulfill some social need. C. improve the client's use of its capabilities and resources to achieve the objectives of the organization. D. earn the best rate of return on resources entrusted to its care with safety of investment being taken into account and consistent with the firm's social and legal responsibilities. 1. The following characterize management advisory services except A. involve decision for the future B. broader in scope and varied in nature C. utilize more junior staff than senior members of the firm D. relate to specific problems where expert help is required 2. Which of the following is not classifiable as a management advisory service by CPA? A. Systems design. C. Make or buy analysis. B. Project feasibility study. D. Assistance in budget preparation. 2. Which of the following statement is false? A. CPA’s provide management services to go around the ethical constraints as mandated by the Accountancy Act. B. Businesses hire management consultants to help define specific problems and develop solutions C. Included in the practice of consulting is the provision of confidential service in which the identity of the client is concealed D. CPA’s performing management services may be considered to be in the practice of management consulting Management accounting & financial accounting 1. Which of the following characteristics is inherent to management accounting? A. Reporting of historical information B. Compliance to generally accepted accounting principles C. Contribution approach income statement D. External users of financial report April 16, 2005

Final Pre-board Examination

3. The following are characteristics of financial accounting, except? A. Reporting of historical information B. Compliance to generally accepted accounting principles C. Contribution approach income statement D. External users of financial report 4

The following are inherent to either management accounting or financial accounting: 1. External report 2. Historical information 3. Contribution approach income statement 4. Generally accepted accounting principles 5. Prospective financial statements Which of the foregoing are related to management accounting and financial accounting respectively? A. B. C. D. Management Accounting 1, 2, 5 3, 5 2, 3 3 Financial Accounting 3, 4 1, 2, 4 1, 4, 5 1, 2, 4, 5

5. The costing method that is properly classified for both external and internal repotting purposes is External reporting Internal reporting Activity-based costing Yes Yes Variable costing Yes No Process costing No Yes Standard costing Yes No Quality Costs 6. The cost of statistical quality control in a product quality cost system is A. training cost C. appraisal cost B. internal failure cost D. prevention cost Activity-based Costing 7. The last step in activity-based costing is to A. identity the major activities that pertain to the manufacture of specific products B. allocate manufacturing overhead costs to activity cost pools C. Identify the cost drivers that accurately measure each activity’s contribution to the finished product Page 1 of 67

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CPA Review School of the Philippines

D. Assign manufacturing overhead costs for each activity cost pool to products

12. McMd's standard cost card indicates that it takes three hours of direct labor to produce one unit of product. A recently conducted time and motion study revealed that it should take one hour to produce the same unit. Labor cost is P150 per hour. McMd's value-added, and non value-added costs would be A. P150 and P0 C. P150 and P300 B. P0 and P150 D. P450 and P0

8. Designing and redesigning are activities that are classified as A. Facility level C. Unit level B. Batch level D. Product level 9. The examples of activities at the product level include A. scheduling, setting up, and moving C. heating, lighting, and security B. designing, changing, and advertising D. cutting, painting, and packaging 1. Examples of activities at the batch level of costs include A. scheduling, setting up, and moving C. heating, lighting, and security B. designing, changing, and advertising D. cutting, painting, and packaging 2. Scheduling, setting up, and moving are examples of activities that are classified as A. Batch level C. Unit level B. Product level D. Facility level 10. Examples of unit level activities are A. scheduling, setting up, and receiving B. designing, changing, and advertising

C. heating, lighting, and security D. cutting, painting, and packaging

3. An example of a nonvolume-related overhead base would be: A. Direct materials cost C. Direct Labor cost B. Machine hours D. Number of inspections 11. Classify the following as volume (unit) base or non-volume (activity) base: 1. Number of purchase orders issued 2. Direct labor hours 3. Number of machine hours 4. Number of set ups 5. Number of receiving reports issued 6. Direct material cost A. B. C. Volume (Unit) Base 1, 4, 5, 6 1, 4, 5 1, 2, 3, 4, 5 Non-volume (Activity) Base 2, 3 2, 3, 6 6

April 16, 2005

Final Pre-board Examination

13. Moon Company makes two products, Alpha and Beta. Alpha is being introduced this period, whereas Beta has been in production for 2 years. For the period about to begin, 1,000 units of each product are to be manufactured. The only relevant overhead item is the cost of engineering change orders. Alpha and Beta are expected to require eight and two change orders, respectively. Alpha and Beta are expected to require 2 and 3 machine hours, respectively. The cost of a change order is P600. If Moon is using direct tracing, the amount of overhead per unit that will be assigned to Alpha and Beta, respectively, are A. P2.40 and P3.60, respectively C. P4.80 and P1.20, respectively B. P3.60 and P2.40, respectively D. P1.20 and P4.80, respectively Just-in-Time Manufacturing System 14. Which of the following is not a typical characteristic of a just-in-time (JIT) production environment? A. Lot sizes equal to one C. Push-through system B. Insignificant set up times and costs D. Balanced and level workloads Cost Behavior Variable Costs 6. Total production costs for Jordan, Inc. are budgeted at P2,300,000 for 50,000 units of budgeted output and P2,800,000 for 60,000 units of budgeted output. Because of the need for additional facilities, budgeted fixed costs for 60,000 units are 25 percent more than budgeted fixed costs for 50,000 units. How much is Jordan’s budgeted variable cost per unit of output? A. P 7.50 C. P30.00 B. P16.00 D. P62.50

D. 2, 3, 6 1, 4, 5

15. Total production costs for Carera, Inc. are budgeted at P230,000 for 50,000 units of budgeted output and P280,000 for 60,000 units of budgeted output. Because of the need for additional facilities, budgeted fixed costs for 60,000 units are 25% more than budgeted fixed costs for P50,000 units. How much is Carera’s budgeted variable cost per unit of output? A. P1.60 C. P3.00 Page 2 of 67

MANAGEMENT ADVISORY SERVICES B. P1.67

CPA Review School of the Philippines D. P5.00

3. Total production costs for Laguna, Inc. are budgeted at P230,000 for 50,000 units of budgeted output and P280,000 for 60,000 units of budgeted output. Because of the need for additional facilities, budgeted fixed costs for 60,000 units are 25% more than budgeted fixed costs for 50,000 units. How much is Laguna’s total budgeted variable cost at 60,000 units? A. P96,000 C. P180,000 B. P100,200 D. P100,000 16. Mulvey Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost: C = P80,000 + P12M Where C = monthly manufacturing overhead cost M = machine hours The standard error of the estimate of the regression is P6,000. The standard time required to manufacture one six-unit case of Mulvey's angle product is 4 machine hours. Mulvey applies manufacturing overhead to production on the basis of machine hours and its normal annual production is 50,000 cases Mulvey's estimated variable manufacturing overhead cost for a month in which scheduled production is 5,000 cases would be A. P80,000 C. P240,000 B. P320,000 D. P360,000 1. Which of the following graphs illustrates the behavior of a total variable cost? (E) Graph 1 Graph 2

Total units produced

Total units produced

Graph 3

Graph 4

Total units produces

Total units produced

April 16, 2005

A. Graph 2 B. Graph 3

Final Pre-board Examination C. Graph 4 D. Graph 1

Fixed Costs 9. Parts Company wishes to determine the fixed portion of its maintenance expense (a semivariable expense), as measured against direct labor hours for the first three months of the year. The inspection costs are fixed; the adjustments necessitated by errors found during inspection account for the variable portion of the maintenance costs. Information for the first quarter is as follows: Direct Labor Hours Maintenance Costs January 34,000 P61,000 February 31,000 58,500 March 34,000 61,000 What is the fixed portion of Parts Company’s maintenance expense, rounded to the nearest pesos? A. P28,330 C. P37,200 B. P32,780 D. P40,800 5. Largo Company wishes to determine the fixed portion of its maintenance expense (a semivariable expense), as measured against direct labor hours for the first three months of the year. Information for the first quarter is as follows: Direct Labor Hours Maintenance Costs January 25,000 P210,000 February 30,000 240,000 March 27,000 222,000 What is the fixed portion of Largo Company’s maintenance expense? A. P60,000 C. P90,000 B. P30,000 D. P120,000 Total Costs 17. Molds Corporation has developed the following flexible budget formula for annual indirect labor costs: Total Cost = P300,000 + P5.00 per machine hour Operating budgets for the current month are based upon 18,000 machine hours of planned machine time. Indirect labor costs included in this planning budget are: A. P300,000 C. P 90,000 Page 3 of 67

MANAGEMENT ADVISORY SERVICES B. P390,000

CPA Review School of the Philippines D. P115,000

8. Arens Corporation has developed the following flexible budget formula for annual indirect labor costs: Total Cost = P480,000 + P5.00 per machine hour Operating budgets for the current month are based upon 20,000 machine hours of planned machine time. Indirect labor costs included in this planning budget are: A. P 48,333 C. P100,000 B. P580,000 D. P140,000 2. Boy & Millie Company uses an annual cost formula for overhead of P72,000 + P1.60 for each direct labor hour worked. For the upcoming month Karla plans to manufacture 96,000 units. Each unit requires five minutes of direct labor. Boy & Millie’s budgeted overhead for the month is A. P12,800 C. P 84,800 B. P18,800 D. P774,000 2. Saldua Company uses a monthly cost formula for overhead of P50,000 + P30.00 for each direct labor hour worked. For the coming year, Saldua plans to manufacture 200,000 units. Each unit requires five minutes of direct labor. Saldua’s total budgeted overhead for the coming year is A. P 550,000 C. P1,200,000 B. P1,100,000 D. P 650,000 6. The following cost functions were developed for manufacturing overhead costs: Manufacturing Overhead Costs Cost Function Electricity P100 + P20 per direct labor hour Maintenance P200 + P30 per direct labor hour Supervisors’ salaries P10,000 per month Indirect materials P16 per direct labor hour If July production is expected to be 1,000 units requiring 1,500 direct labor hours, estimated manufacturing overhead costs would be A. P109,300 C. P76,300 B. P99,000 D. P10,366 7. El Noche, Inc. has a total of 2,000 rooms in its nationwide chain of hotels. On the average, 70% of the rooms are occupied each day. The company’s operating costs are P21 per occupied room per day at this occupancy level, assuming a 30-day month. This P21 figure April 16, 2005

Final Pre-board Examination

contains both variable and fixed cost elements. During October, the occupancy dropped to only 45%. A total of P792,000 in operating cost was incurred during the month. What would be the expected operating costs, assuming that the occupancy rate increases to 60% during November? A. P1,056,000 C. P846,000 B. P756,000 D. P829,500 Cost-Volume-Profit Relationship Basic Concepts 2. With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume and can immediately see the effects of each change on the break-even point and profit. Such an analysis is called: (E) A. "What if" or sensitivity analysis C. computer aided analysis B. vary the data analysis D. data gathering Breakeven Analysis – Single Product Sales Amount 20. 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. P120,000 C. P225,000 B. P200,000 D. P450,000 Units Sold 18. At a sales volume level of 2,250 units, Luzon Company’s contribution margin is one and onehalf of the fixed costs of P36,000. Contribution margin is 30%. How many units must be sold by the company to breakeven? A. 1,250 C. 2,580 B. 1,500 D. 2,520 8. At 40,000 units of sales, Snail Company had an operating loss of P3.00 per unit. When sales were 70,000 units, the company had a profit of P1.20 per unit. The number of units to breakeven is A. 35,000 C. 52,500 B. 45,000 D. 57,647 9. Gala Company sold 100,000 units of its product at P20 per unit. Variable costs are P14 per unit, consisting of manufacturing costs of P11 and selling costs of P3. Fixed costs, which are Page 4 of 67

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CPA Review School of the Philippines

incurred uniformly throughout the year, amount to P792,000 (manufacturing costs of P500,000 and selling expenses of P292,000). There are no beginning inventories. If labor costs are 50% of variable costs and 20% of fixed costs, a 10% increase in wages and salaries would increase the number of units required to breakeven to A. 152,423 C. 175,617 B. 143,875 D. 129,938 10. 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 C. 83,572 units B. 101,740 units D. 86,250 units 22. Madel Company manufactures a single electronic product called Walastik. Walastik sells for P900 per unit. In 2000, the following variable costs were incurred to produce each Walastik device. Direct labor P180 Direct materials 240 Factory overhead 105 Selling costs 75 Total variable costs P600 Madel is subject to 40 percent income tax rate, and annual fixed cost are P6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last five years. April 16, 2005

Final Pre-board Examination

In 2001, a significant change in Madel’s production technology caused a 10% increase in annual fixed cost and a 20% unit cost increase in the direct labor component as a result of higher skilled direct labor. However, this change permitted the replacement of a costly imported component with a local component. The effect was to reduce unit material costs by 25%. There has been no change in the Walastik selling price. The annual sales units required for Madel to breakeven are: A. B. C. D. 2000 22,000 22,000 14,000 14,000 2001 20,840 22,407 22,407 20,840 Selling Price 8. The BEDANs is planning its annual Riverboat Extravaganza. The Extravaganza committee has assembled the following expected costs for the event: Dinner per person P 70 Programs and souvenir per person 30 Orchestra 15,000 Tickets and advertising 7,000 Riverboat rental 48,000 Floor show and strolling entertainment 10,000 The committee members would like to charge P300 per person for the evening’s activities. Assuming that only 250 persons are expected to attend the extravaganza, what ticket price must be charged to breakeven? A. P420 C. P350 B. P320 D. P390 Breakeven Analysis – Multiple Product 23. In calculating the break-even point for a multi-product company, which of the following assumptions are commonly made when variable costing is used? I. Sales volume equals production volume II. Variable costs are constant per unit III. A given sales mix is maintained for all volume changes A. I and II C. II and III B. I and III D. I, II, and III Unit Sales 3. Phipps Co. sells two products, Arks and Bins. Last year. Phipps sold 12,000 units of Arks and 28,000 units of Bins, Related data are: Page 5 of 67

MANAGEMENT ADVISORY SERVICES

CPA Review School of the Philippines

Product Unit Selling Price Unit Variable Cost Unit Contribution Margin Arks P120 P80 P40 Bins 80 60 20 Assuming that last year's fixed costs totaled P910,000, what was Phipps Co.'s break-even point in units? (E) A. 40,000 C. 35,000 B. 12,000 D. 28,000 Sales Amount 24. Bush Electronics, Inc. had the following sales results for 2004: TV sets CD player Peso sales component ratio 0.30 0.30 Contribution margin ratio 0.40 0.40 Bush Electronics, Inc. had fixed costs of P2,400,000. The break even sales in pesos for Bush Electronics, Inc. are: A. B. C. TV sets P1,800,000 P1,800,000 P1,500,000 CD player P1,800,000 P1,800,000 P1,500,000 Radios P3,600,000 P1,600,000 P2,000,000 4. The manager of Salvacion Store reviewed the following data: Fruits Meat Contribution margin ratio 40% 50% Sales mix in pesos 20% 30% Fixed costs, P1,290,000 per month. The breakeven sales for each month is A. P1,677,000 C. P4,500,000 B. P3,000,000 D. P6,000,000

Radios 0.40 0.60

D. P1,531,915 P1,531,915 P2,042,553

Canned Products 40% 50%

Breakeven Analysis – Cash Basis 16. BE&H Co. is considering dropping a product. Variable costs are $6.00 per unit. Fixed overhead costs, exclusive of depreciation, have been allocated at a rate of $3.50 per unit and will continue whether or not production ceases. Depreciation on the equipment is P20,000 a year. If production is stopped, the equipment can be sold for P18,000, if production continues, however, it will be useless at the end of 1 year and will have no salvage value. The selling price is P10 a unit. Ignoring taxes, the minimum units to be sold in the current year to break even on a cash flow basis is April 16, 2005

A. 4,500 units B. 5,000 units

Final Pre-board Examination C. 1,800 units D. 36,000 units

11. Ms Makiling started a canteen in 2002. For this purpose a space was rented for P4,000 per month. Two women were hired to work full time at the canteen and six college students were hired to work 30 hours per week delivering value meals. This level of employment has been consistent. An outside accountant was hired for tax and bookkeeping purposes, for which Ms. Makiling pays P3,000 per month. The necessary canteen equipment and delivery car were purchased with cash. Ms. Makiling has noticed that expenses for utilities and supplies have been rather constant. Ms. Makiling increased her business between 2002 and 2005. Profits have more than doubled since 2002. Ms. Makiling does not understand why profits have increased faster than volume. A projected income statement for the year ended December 31, 2005, prepared by the accountant...