May 09 Final Pre board MAS PDF

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PRTC Final Pre-board Exam in Management Advisory Services The Vega Division of Ace Company makes wheels which can either be sold to outside customers or transferred to the Walsh Division of Ace Company. Last month, the Walsh Division bought all 4, of its wheels from the Vega Division for P42 each. T...

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PRTC Final Pre-board Exam in Management Advisory Services 1. The Vega Division of Ace Company makes wheels which can either be sold to outside customers or transferred to the Walsh Division of Ace Company. Last month, the Walsh Division bought all 4,000 of its wheels from the Vega Division for P42 each. The following data are available from last month’s operation for the Vega Company: Capacity Selling price per wheel to outside customers Variable costs per wheel sold to outside customers

12,000 wheels P45 P30

If the Vega Division sells wheels to the Walsh Division, Vega can avoid P2 per wheel in sales commissions. An outside supplier has offered to supply wheels to the Walsh Division for P41 each. What is the maximum price per wheel that Walsh should be willing to pay Vega? a. P28 b. P41 c. P42 d. P45 2. A plant operating at capacity would suggest that: a. Every machine and person in the plant is working at the maximum possible rate b. Only some specific machines or processes are operating at the maximum rate possible c. Fixed costs will need to change to accommodate increased demand d. Managers should produce those products with the highest contribution margin in order to deal with the constrained resource 3. Consider the following production and cost data for two products, L and C: Product L Product C Contribution margin per unit P130 P120 Machine set-ups needed per unit 10 set-ups 8 set-ups The company can only perform 65,000 machine set-ups each period due to limited skilled labor and there is unlimited demand for each product. What is the largest possible contribution margin that can be realized each period? a. P845,000 b. P975,000 c. P910,000 d. P1,820,000 4. Division P of Turbo Corporation has the capacity for making 75,000 wheel sets per year and regularly sells 60,000 each year on the outside market. The regular sales price is P100 per wheel set, and the variable production cost per unit is P65. Division Q of Turbo Corporation currently buys 30,000 wheel sets (of the kind made by Division P) yearly from an outside supplier at a price of P90 per wheel set. If Division Q were to buy the 30,000 wheel sets it needs annually from Division P at P87 per wheel set, the change in annual net operating income for the company as a whole, compared to what it is currently, would be a. P600,000 b. P225,000 c. P750,000 d. P135,000 5. The following are the Wyeth Company’s unit costs of making and selling an item at a volume of 10,000 units per month (which represents the company’s capacity): Manufacturing: Direct materials P1.00 Direct labor 2.00 Variable overhead 0.50 Fixed overhead 0.90 Selling and administrative: Variable 1.50 Fixed 0.60 Present sales amount to 9,000 units per month. An order has been received from a customer in a foreign market for 1,000 units. The order would not affect current sales. Fixed costs, both manufacturing and selling and administrative, are constant within the relevant range between 8,000 and 10,000 units per month. The variable selling and administrative costs would have to be incurred for this special order as well as all other sales. Assume direct labor is a variable cost. Assume the company has 50 units left over from last year which have small defects and which will have to be sold at a reduced price as scrap. This would have no effect on the company’s other sales. What cost is relevant as a guide for setting a minimum price on these defective units? a. P6.50 b. P5.00 c. P1.50 d. P3.50 6. The Tolar Company has 400 obsolete desk calculators that are carried in inventory at a total cost of P26,800. If these calculators are upgraded at a total cost of P10,000, they can be sold for a total of

P30,000. As an alternative, the calculators can be sold in their present condition for P11,200. Assume that Tolar decides to upgrade the calculators. At what selling price per unit would the company be as well off as if it just sold the calculators in their present condition? a. P8 b. P30 c. P53 d. P67 7. The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a: a. Unit-level activity c. Product-level activity b. Batch-level activity d. Organization-sustaining activity 8. The selling price of product Z is set at P250 for each unit and sales for the coming period is expected to be 500 units. If the company requires a 15% return in the coming year on its investment of P250,000 in product Z, the target cost for each unit for the coming year is: a. P145 b. P155 c. P165 d. P175 9. DRP Limited has recently introduced an activity-based costing. It manufactures three products, details of which are set out below: Product D Product R Product P Budgeted annual production (units) 100,000 100,000 50,000 Batch size (units) 100 50 25 Machine set up per batch 3 4 6 Purchase orders per batch 2 1 1 Processing time per unit (minutes) 2 3 3 These cost pools have been identified. Their budgeted costs for the year ending June 30, 2009 are as follows: Machine set up costs P150,000 Purchasing of materials 70,000 Processing 80,000 The budgeted machine set-up cost per unit of product R is nearest to: a. P0.52 b. P0.62 c. P6.52 d. P26.09 10. An increase in the market price of a company’s common stock will immediately affect its: a. Dividend yield ratio c. Earnings per share of common stock b. Debt-to-equity ratio d. Dividend payout ratio 11. Perlman Company had 100,000 shares of common stock and 20,000 shares of preferred stock at the end of the year just completed. Preferred stockholders received dividends totaling P140,000. Common stockholders received dividends totaling P210,000. If the dividend payout ratio for the year was 70%, then the net income for the year was: a. P300,000 b. P287,000 c. P440,000 d. P147,000 12. Fulton Company’s price-earnings ratio is 8.0 and the market price of a share of common stock is P32. The company has 3,000 shares of preferred stock outstanding with each share receiving a dividend of P3 per share. The earnings per share of common stock is: a. P10 b. P7 c. P4 d. P3 13. Cameron Company had 50,000 shares of common stock issued and outstanding during the year just ended. The following information pertains to these shares: Price originally issued P40 Book value at end of current year P70 Market value, beginning of current year P85 Market value, end of current year P90 The total dividend on common stock for the year was P400,000. Cameron Company’s dividend yield ratio for the year was: a. 20.00% b. 11.43% c. 9.41% d. 8.89% 14. At the end of the year just completed, Orem Company’s current liabilities totaled P75,000, and its long-term liabilities totaled P225,000. Working capital at year-end was P100,000. If the company’s debt-to-equity ratio is 0.30 to 1, total long-term assets must equal: a. P1,000,000 b. P1,300,000 c. P1,125,000 d. P1,225,000 15. Ben Company has the following data for the year just ended: Cash Accounts receivable Inventory

? P28,000 P35,000

Current ratio Acid test ratio Ben Company’s current liabilities were: a. P43,750 b. P50,400

2.4 to 1 1.6 to 1 c. P35,000

d. P63,000

16. The expected rate of return for the stock of Corn Enterprises is 20% with a standard deviation of 15%. The expected rate of return for the stock of Must Associates is 10% with a standard deviation of 9%. The riskier stock is: a. Corn because its return is higher b. Corn because its standard deviation is higher c. Must because its standard deviation is higher d. Must because its coefficient of variation is higher 17. Maylar Corporation has sold P50 million of P1,000 par value, 12% coupon bonds. The bonds were sold at a discount and the corporation received P985 per bond. If the corporate tax rate is 40%, the after-tax cost of these bonds for the first year (rounded to the nearest hundredth percent) is a. 7.31% b. 4.87% c. 12.00% d. 7.09% 18. Depreciation expense reduces income taxes by an amount equal to: a. One minus the tax rate times the amount of depreciation b. The tax rate times the amount of depreciation c. The amount of the depreciation d. One minus the amount of depreciation 19. Which of the following would decrease the net present value of a project? a. A decrease in the income tax rate b. A decrease in the initial investment c. An increase in the useful life of the project d. An increase in the discount rate 20. Consider a machine which costs P115,000 now and which has a useful life of seven years. This machine will require a major overhaul at the end of the fourth year which will cost “X” pesos. If the tax rate is 40%, and if the after-tax cash outflow for this overhaul is P3,600, then the amount of “X” in pesos is: a. P6,000 b. P9,000 c. P2,160 d. P1,440 21. At the Bartholomew Company last year, all sales were for cash and all expenses were paid in cash. The tax rate was 30%. If the after-tax net cash inflow from these operations last year was P10,500, and if the total before-tax cash expenses were P35,000, then the total before-tax cash sales must have been: a. P65,000 b. P60,000 c. P45,000 d. P50,000 22. Superstrut is considering replacing an old press that cost P80,000 six years ago with a new one that would cost P245,000. The old press has a net book value of P15,000 and could be sold for P5,000. The increased production of the new press would require an investment in additional working capital of P6,000. The company’s tax rate is 40%. Superstrut’s net investment now in the project would be: a. P256,000 b. P242,000 c. P250,000 d. P245,000 23. Simmons Company is considering two investment projects, A and B. The following data are available: Project A Project B Investment in delivery trucks now P120,000 -Investment in working capital now -P100,000 Net annual operating cash inflows 18,000 16,000 Life of the project 7 years 7 years The delivery trucks will have a total salvage value of P10,000 at the end of seven years; these trucks are in the 5-year MACRS property class and will be depreciated by the optional straight-line method. At the end of seven years, the working capital will be released for use elsewhere. The income tax rate is 30% and Simmons’ after-tax cost of capital is 12%. The present value of the tax savings (for all years) due to the depreciation tax shield for Project A is closest to: a. P85,237 b. P25,776 c. P81,888 d. P24,566 24. The risk of loss because of fluctuations in the relative value of foreign currencies is called a. Expropriation risk c. Multinational beta b. Sovereign risk d. Exchange rate risk

25. A typical firm doing business nationally cannot expect to accelerate its cash inflow by a. Establishing multiple collection centers throughout the country b. Employing a lockbox arrangement c. Initiating controls to accelerate the deposit and collection of large checks d. Maintaining compensating balances rather than paying cash for bank services 26. When a company is evaluating whether the ratio of cash and marketable securities to total assets should be high or low, its decision will be based upon a. Financial leverage considerations b. Operating leverage considerations c. Risk-profitability trade-off considerations d. Flotation cost considerations 27. Foster Inc. is considering implementing a lock box collection system at a cost of P80,000 per year. Annual sales are P90 million and the lockbox system will reduce collection time by 3 days. If Foster can invest funds at 8%, should it use the lockbox system? Assume a 360-day year. a. Yes, producing savings of P140,000 per year. b. Yes, producing savings of P60,000 per year. c. No, producing a loss of P20,000 per year. d. No, producing a loss of P60,000 per year. 28. A firm sells on terms of 2/10 net 60. It sells 1,000 units per day at a unit price of P10. On 60% of sales, customers take the cash discount. On the remaining 40% of sales, customers pay, on average, in 70 days. What would be the impact on the balance of accounts receivable if the firm initiates a more aggressive collection policy and is able to reduce the average payment period to 60 days for those customers not taking the cash discount? (Assume sales levels are unaffected by the change in policy.) a. Decrease by P4,000 c. Decrease by P240,000 b. Decrease by P40,000 d. Decrease by P280,000 29. Jasper Inc. produces automobile headlight assemblies for sports-utility vehicle. Data concerning a particular metal fastener that is used in one of the company’s products appear below: Economic order quantity 600 units Average weekly usage 150 units Maximum weekly usage 175 units Lead time 2 weeks The safety stock would be: a. 350 units b. 175 units c. 50 units d. 75 units 30. Cantor Creations, which has 250 business days per year, manufactures desks for desktop workstations. The annual demand for the desks is estimated to be 5,000 units. The annual cost of carrying one unit in inventory is P10, and the cost to set up a production run is P1,000. Cantor has scheduled four equal production runs for the coming year, the first to begin immediately. Currently, there are no desks on hand. Assume that sales occur uniformly throughout the year and that production is instantaneous. If Cantor Creations were to schedule only two equal production runs of the desks for the coming year, the sum of carrying costs and set-up costs would increase (decrease) by: a. P4,250 b. (P2,000) c. P6,250 d. (P250) 31. An excerpt from the income statement of MJP Corporation and its related data are presented below: 2008 2009 Change Sales P2,400,000 P3,100,000 P700,000 Direct materials (450,000) (586,500) 136,500 Direct labor (192,000) (234,240) 42,240 Other expenses (400,000) (500,000) 100,000 Profit P1,358,000 P1,779,260 P421,260 Quantity Quantity sold 40,000 50,000 10,000 DM usage 90,000 lbs. 115,000 lbs. 25,000 lbs. DL hours 16,000 19,200 3,200 Rates USP P60 P62 P2

UDMC UDLC Other expenses What is the sales productivity-recovery factor? a. P600,000 F b. P40,000 F

5 per lb. 12 per hr. 10 per unit

5.10 per lb. 12.20 per hr. 10 per unit

c. Zero

0.10 0.20 0 d. P700,000 F

32. The Lacquers “R” Us Company manufactures lacquered jewelry boxes (J) and lacquered mirrors (M). These data are presented to you as financial consultant: 1. The J’s need 3 kilos of material and 3 hours of labor; the M’s need 1.5 kilos of material and 1 hour of labor. 2. Materials costs P4.00 a kilo and labor costs P20.00 an hour. 3. P20,000 in a fixed factory overhead is expected for the month’s population. 4. To be available is 400 kilos of material and 240 hours of labor. 5. Contribution margin ratio for J is 40% and 20% for M. The objective function for Lacquers “R” Us Company will be: a. Maximize: Contribution Margin = P0.4J +P0.2M b. Maximize: Contribution Margin = P48J + P6.5M – P20,000 c. Maximize: Contribution Margin = P48J + P6.5M d. Maximize: Contribution Margin = P28.8J + P5.2M 33. An executive information system (EIS) focuses on long-range objective and gives immediate information about an organization’s critical success factors. It can be used on computers of all sizes. It is normally used by executives at the highest organization levels. All of the following statements apply to EIS except a. It is likely to be one of the most widely used and the large part of the information subsystems in a business organization. b. It provides top executives with immediate and easy access to information in a highly interactive format. c. It provides information in a highly aggregated form. d. It helps executives monitor business combinations in general and assist in strategic planning to control and operate the entity. 34. An information system (IS) project manager is currently in the process of adding a system analyst to the IS staff. The new systems analyst will be involved with testing the new computerized system. At which state of the systems development life cycle will the analyst be primarily used? a. Cost-benefit analysis c. Flowcharting b. Requirements definition d. Implementation 35. As the price for a particular product changes, the quality of the product demanded changes according to the following schedule. Total Quality Demanded Price per Unit 100 P50 140 45 200 40 225 35 230 30 232 25 The price elasticity of demand for this product when the price decreases from P50 to P45 is a. 0.20 b. 10.00 c. 3.16 d. 3.80 36. If the price elasticity of demand for a normal good is estimated to be 2.5, a 4% reduction in its price causes a. Total revenue to fall by 4% c. Total revenue to fall by 12.5% b. Quantity demanded to rise by 10% d. Quantity demanded to decrease by 4% 37. Which of the following may provide a leading indicator of a future increase in gross domestic product? a. A reduction in the money supply b. A decrease in the issuance of building permits c. An increase in the timeliness of delivery by vendors d. An increase in the average hours worked per week of production workers...