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2011 NATIONAL CPA MOCK BOARD EXAMINATIONIn partnership with the Professional Review & Training Center, Inc. and IslaLipana &Co.M A N A G E M E N T A D V I S O R Y S E R V I C E SINSTRUCTIONS: Selectthe best answer for eachofthe followingquestions. Mark only one answer for each itemon...

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2011 NATIONAL CPA MOCK BOARD EXAMINATION In partnership with the Professional Review & Training Center, Inc. and Isla Lipana & Co.

MANAGEMENT ADVISORY SERVICES INST RUCTION S: Select the best answer for each of the following questi on s. Mark only one answer for each item on the answer sheet provided. AVOID ERASURES. Ans wers with erasures may render your examination answer sheet INVALID. Use PENCIL NO.2 only. GOODLUCK! 1.

2.

3.

Which of the following is not classifiable as a management advisor y service by CPA? a. Systems design. b. Project f easibility study. c. Make or buy anal ysis. d. A ssist anceinbudg etprep aration. The pr imar y purpose of management advis ory serv ices is: a. To conduct spe cial stud ies, preparation of recomm end ations, developme nt of p lan s and advice and pr og rams, and provi sion of assistance in their impl ementation. b. To p rovide s ervic es or to fulfill som e social nee d. c. To i mprove the client’s use of its capabilit ies and resources to achieve the obje ctiv es of the or ganization. d. To earn the best rate of return on resource s entrusted to it s care w ith saf ety o f i nvestm ent being taken into acco unt and consist ent w ith the f irm’s soci al and legal resp on sibilities. A cost system that first traces costs to activit ies and then traces cost from activities to pro ducts a. Job order c ost system. b. Pro cess cost system. c. Activity-basedcostsystem. d. Flexible cost syste m.

4.

The payback method assumes that all cash inflows are reinves ted to yield a return equal to a. Zer o b. the Discount Rate c. The T ime-Adjusted- Rate-of -Return d. The Cost-of -C apital

5.

Why do the NPV method and the IRR method somet imes produce differ ent rank ing s of mutua lly exclusive inv estment projec ts? NPV method does not assume a. The reinvestment of cash f lows while the IRR method assumes the cash flows will be reinvested at the intern al rate of retu rn . b. The NPV method assumes a r einves tm en t ra te equal to the discoun t rate while the IRR method assumes a r einvestm ent rate equ al to the in ter nal rate of retu rn . c. The IRR method does not assume reinvestment of the cash flo w s while the NPV assumes the reinvest ment rate is equ al to the disco unt rate. d. The NPV method assumes a r einves tm en t ra te equal to the bank loan inter est rate wh ile the IRR method assumes a reinvestment rate equal to the discount rate.

6.

The least risky strategy for converting from a manu al to a co mputerized accoun ts receivable system would be a a. D ir ect conversion c. Parallelconv ersion b. Pilot Conversion d. Data based conversion

7.

The batch pr ocessing of business tr ansact ions can be the appropriate mod e w hen

a. b. c. d.

8.

the sequence of master file records is not relevant timeliness is a major issue a sing le hand ling of the data is des ired economy of scale can be g ained because of high volumes of t ransact ions

An in tegr ated set of computer p rograms that facilitates the creat ion, manipula ti on, a nd query ing of integrated files is c alled a(n) a. Compil er b. Operating sys tem c. Assembly l anguage d. Dat ab asem anagement sy stem

9. Opp ortun ity c ost s: a. Are treated as per iod costs under variable costing . b. Have alread y bee n inc urred as a res ul t of past action. c. Are benefits that could have been obtained by following another course of ac tio n. d. Do not vary among alter native cour ses of action. 10. Return on investment (ROI) is a term oft en used to express income earned on capi tal inves ted in a busine ss un it . A c ompa ny’s ROI would be increase d i f a. Sale s incr eased by the same peso amoun t as expenses and t otal assets incr eased. b. Sa le s remain ed the same and expenses were reduced by the same peso amount that to tal asset increas ed. c. Sales decreased by the same peso amoun t that expenses i ncreased. d. S ales and expenses inc reased by the same percentage that tot al assets increased. 11. The rat io that measures a fir m’ s ability to generate ear ning s is a. Tim esinter estearned. b. Sale s to wor king c apita l. c. Da ys’ sales i n receiv ables. d. Operating asset turnover. 12. When a firm prepares f in anci al reports b y usi ng abs orption c osting , it may find that a. Profits will alw ays increas e wi th in cr ease in sales. b. Profits will al ways decrease w it h decreases in sales. c. Profit may decrease with i ncreased s ales even if there is no change in s elling price and costs. d. Decreased output and constant sales result in in creased pr ofit. 13. The Li beral Mar ke ting Co ., is expect ing an increa se of fixed costs by P78,750 upon mo ving t heir pla ce of bus in ess to the downtown area. L ikew ise it is ant icipating that the selling pr ice per unit and the var iable expenses will not change. At pr esen t, the sales volume necessary to breakeven is P 750,000 but w ith the exp ected inc rease in fixed costs, the sales vo lume necessary to breakeven would go up

to P975 ,000.

B ased on these pr ojections , wh at

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were the total fixed costs before the increase of P78,750? a. P341,250 c. P183,750 b. P262,500 d. P300,000 14. Bacolod Cor porati on had sales of P120,000 f or the month of May. It has a margin o f safety ratio of 25 percent, and af ter-tax return on s ales of 6 percent. The company assumes i ts sales constant every month. If the tax rate is 40 percent, how much is the annual fixed cos ts? a. P36,000 c. P432,000 b. P90,000 d. P360,000 15. At 40,000 units of sales, Lun a Cor poration ha d an op erating loss of P3.00 per unit. When s ales w ere 70,000 units, the company had a profit of P1.20 per un it. The number of units to breakeven i s a. P 35,000 c. P52,500 b. P 45,000 d. P57, 647 16. The manager following data:

Contribu tion marg in ratio S ales mix p esos

of

in

Seven

Store

review ed

F ruits

Meat

40%

50%

Cann ed Products 40%

20%

30%

50%

the

Fixed costs, P1,290 ,000 per month . The breakeven s ales for ea ch month is A. P1 ,677,000 C. P4,500,000 B. P 3,000,000 D . P6 ,000,000 17. Drive Me, Inc. has a tot al of 2,000 rooms in its na tionwid e chai n of hotels . On the average, 70 percent of the rooms are occup ied each day. The company’s oper ating costs are P21 per occup ie d room per day at this occupancy level, assuming a 30-day month. This P21 figure conta ins both vari ab le and fixed cost elements. D ur ing October, the occupancy dropp ed to only 45 percent. A t otal of P792,000 in oper at ing cost was incurred during the month. What would be the expected op er at ing costs, assuming that the occupancy rate increases to 60 percent during November ? a. P1,056,000 c. P846,000 b. P 756,000 d. P829,500 18. The following data r el ate to G al a C ompany which sells a single product: Unit selling p rice P 20.00 Purchase cost per unit 11.00 Sales comm ission, 10% of 2.00 selling pric e Mo nthly fixed costs P80,000 The firm’s sa lesper sons would like to change their compensation from a 10 p ercent commission to a 5 percent commission plus P20,000 per month in salary. They now recei ve only commissions. At what sales volume would the tw o c ompens at ion plans be indiffer ent? a. 12,500 c. 20,000 b. 22,222 d. 22,860 19. Hello Co mpany’s cost all ocatio n and product costing procedures fo llow ac tiv ity- based costing princi ples. The follow ing act ivities have been iden tified and c lassif ied as being either valueadd ing or non-value add ing as to each produc t. 1. Raw materials s tor age activity 2. Design eng ineering activity

3. Drill press ac tivity 4. Heat treatme nt ac tivity 5. Quality control inspecti on ac tivity 6. Issuance of purchase order ac ti vity How are the f oregoi ng a ctivities cl assified? V alue-a dding Non-valueadding a. 1, 2, 5, 6 3, 4 b. 1, 2, 4 3, 5, 6 c. 2, 4, 5 1, 3, 6 d. 2,3 ,4 1,5,6 20. The Oilfield plant has two c ategories of over hea d: ma int enanc e and inspection. Cost s expected for these catego ries for t he comi ng year are as follow s: Mainten ance Inspection

P100, 000 150,000

The plant c urren tly app lie s overhead using direct labor hours and expected capacity of 50,000 direct labor h ours. The f o llo wing da ta have been assembled for use in developing a bid for a proposed job: Direc t materials P1,000 Direct labor P4,000 Machine hours 500 Number of inspect ions 4 Direct labor hours 800 Tot al expected mac hine hours for all jobs duri ng the year is 25,000, and the total expected numb er of i nspecti ons is 1,500. Using ac tivity-based costing and the a ppro priate ac tivity drivers, the total cost of the potential job would be a. P2, 400 c. P7,400 b. P3, 600 d. P7,750 21. The cost to manu f acture an un finished unit is P40 (P30 variable and P10 fixed). The selling price per unit is P50. The company has unused pr oductio n capacity and has det ermined that units c ou ld be finishe d and sold for P65 with an inc rease in var iable costs of 40%. What is the add itional net income per unit to be gai ne d by fini shing t he unit? a. P3 c. P15 b. P10 d. P12 22. Jar Division of Handy, Inc. expects the following res ult for 2004: Unit sales 70,000 Unit selling pri ce P 10 Unit variable cost P 4 Total fixed cos t Total fixed costs P 300,000 Total investm ent P 500,000 required ROI is 15 per cent , The minimum and divisions are evaluated on re sidu al income. A foreign customer has approach ed Jar’s manager w ith an offer to buy 10,000 un its at P7 each. If Jar accepts the order, it would not lose any of the 70,000 unit s at the regu lar price. Accepting the order would incr ease fi xed costs b y P10,000 and investmen t by P40 ,000. What is the mini mum pri ce that Jar could a ccept for the order and still maintain its expected res idual in com e? a. P5. 00 c . P4 .75 b. P5.60 d. P9.00 23. Care Products Company is c onsi dering a new product that will sell for P100 and have a va riable cost of P60. Expected vo lume is 20 ,000 units. Ne w

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equ ipment cos ting P1,500 and h aving a five-year usef ul life and no salvage value is needed, and will be deprec iated u sing the straight -line method. The machi ne has cash oper ating costs of P20,000 per year. The f irm is in the 40 percent tax bracket and has cos t of capital of 12 percent. The present valu e of 1, end of five periods is 0 .56743; present valu e of annuity of 1 for 5 periods is 3 .60478. Suppose the 20 ,000 estimated volume is sound, but the price is in doubt. What is the selling price (ro unded to nearest peso) nee ded to earn a 12 percent in ter nal rate of return? BON US c. P70.00 a. P81.00 b. P85.00 d. P90 .00 24.

J ap Company’s unit cost o f m anuf act uring and selling a given item at an ac tivity level o f 10,000 un its per month are: Manuf acturing cost s Dir ect materials P39 Dir ect labor 6 Var iable overhead 8 Fixed overhead 9 Selling expenses Var iable 30 Fixed 11 The company desires to seek an order f or 5,000 un its from a foreign customer. T he variable selling expenses will be reduced by 40%, but the fixed costs for obtaining the order will be P20,000. Domestic sales will not be affecte d by the order. The m inimum break-even pric e per un it to be considere d on this special sale is a. P71 c. P69 b. P75 d. P84

25. Below are a company’s mont hly un it costs manu facture and market a particular produ ct.

to

Manu facturing Costs: Dir ec t materials P2 .00 Dir ec t labor 2.40 Variable ind irect 1.60 Fixed indir ect 1.00 Mar keting Costs: Variable 3.00 Fixed 1.50 The company must decide to continue making the product or buy it from an outside s upplier. The supplier has offered to make the product at the same level of quality that the c ompany can make it. Fixed marketing costs would be un affected, but vari ab le marketing costs would be reduced by 30% if the company were to accept the p ropo sal. What is the maximum amount per unit that the company can pay the supplier without decreasing its op erating income? a. P8.50 c. P7.75 b. P6.75 d. P6.90 26. Shyr Company is a chemical m anu factu rer that supplies var ious products to industr ial users. The plans to intr odu ce a new company chem ical sol utio n c alled Bysap, fo r which it nee ds to develop a standard produ ct cost. The follow ing labor information is avail able on the production of Bysap. a. The product, which is bott led i n 10- liter c ontainers, is primarily a mixtur e of Byclyn, s alex, and p ro tex. b. The f inished product is highly unstable, and one 10- liter batch out of six is rejected at final i nspection. Rejected batches have no c ommercial value and are thrown out.

c.

It takes a worker 35 minu tes to process one 10-liter batch of Bysap. Employees w ork on eigh t-hour a day, including one ho ur per day for rest breaks and cleanup.

What is the standard labor time to produ ce on e 10lite r batch of Bys ap? a. 35 mi nutes c. 48 minu tes b. 40 mi nutes d. 45 minutes 27. ABC Electronics has the following stand ard costs and other data: Par t Part Z eta Beta Direct materials P 4.00 P80 .00 10.00 47.00 Direct labor Factory overhead 40.00 20.00 Unit standard cost P54.00 P147.00 Units needed per year 6,000 8,000 Mac hine hours per unit 4 2 Unit cost if pu r chased P50 P150.00 In past years, ABC has manuf act ured all of its requ ired co mponents; however, t hi s year only 30,000 hours of ot herwise idle machin e time can be devoted to the produc tion of components. According ly, some of the parts must be purchased from outside s uppli ers. In produci ng parts, factory overhead is applied at P10 per standard machin e hour. Fixed c apacity costs that will not be affected by any make-or-buy decision represent 60% of the app lied over head . The 30, 000 hours available machine time are to be sc hedu led so that ABC rea lizes maximum potential cost savi ngs. The releva nt unit p roduc tion costs that should be consid er ed in the decision to sc hedu le machine time ar e: a. P54 .00 for Beta and P147.00 for Zeta b. P50.00 for B eta and P150.00 for Zeta c. P14.00 for Beta and P127.00 for Zeta d. P30.00forB etaand P135.00forZeta 28. Zapatero, Inc. operates a chain of shoe stores aro und the country. The stores carry many styl es of shoes that are all s old at the same price. To encourage s ales personn el to be agg ressi ve in th eir sales efforts , the company pays a substa ntial sal es commission on each pair of shoes sold. Sales per sonn el als o receive a small b asic salary. The following cost and revenu e data relate to S to re 9 and are typical of the c ompany’s many sal es out lets: S elling pric e P 800 V ariable expenses: Invoice costs P 360 Sales commission 140 P500 Fixed expenses per year: Rent P 1,600,000 Ad vertising 3 ,000, 000 Salaries 1,400,000 Total P 6,000,000 The company is consid er ing eliminati ng sales commissions entirely in its stores a nd increasing fixed salaries by P2,142,000 annu ally. If t his change is made, what will be the number of pairs of shoes to be s old by Store 9 to be indifferent to commissio n basi s? a. 25,300 c. 18,505 b. 15,300 d. 21,000 29. Liquid Company manuf actu res fir e h ydran ts in Oriental M ind oro. The following info rmation per tains to operations du ring the month of May:

Page 3 of 7

Pr ocess ing t ime (average per batch) 8.0 hours Inspectio n time (average per batch) 1.5 hours Waiting time (average per batch) 1.5 hours Move t ime (average per batch) 1.5 hours Units per batch 20 un its The manufacturing cycle efficiency (M CE) i s a. 72.7% c. 36.0% b. 64.0% d. 76.0% 30. Using the inf ormati on in No. 29, what throughput t ime? The throughput time is a. 12.5 hours c. 8.0 hours b. 4.5 hours d. 9.5 hours

33.

Actual quantity of d irect mat erials purchased and used Actual cost of d ir ect mat erials Un favorable dir ect m aterial s usage variance Standard quantity o f dir ec t mat erials all owed for May product ion is the

31. Data Corporatio n is a highly automated manu facturing f irm. The vic e president of fin ance has decidedt ha t traditional standards are inapp rop riate for performance measures in an au tomate d enviro nment. Labor i s insign ific ant in terms of the total cost of produ ct ion and tends to be fixed, material quality is considered more impor tant than minimizing mater ial cost, and customer satisf action is the number one prior ity. As a resu lt, production and delivery performance measures have been chosen to eva luate performance. The following information is considere d typic al of the time inv olved to complete and sh ip orders. Waiting Time : From order being placed to start of produc tion 8.0 days From start of pr oduction to complet ion 7.0 days Inspectio n time 1.5 days Pr ocess ing t ime 3.0 days Move t ime 2.5 day s The Delivery Cycle Time is A. 22days C. 11 days B. 14 days D . 7 days 32. Alma Company is a chem ic al manuf acturer that supplies industrial users. The company plans to int roduce a new chemic al solution and needs to develop a standard product cost for this new solution. The new chemical solutio n is made by combin ing a chem ical compound (nyc lyn) and a solution ( sal ex) , boiling the mixture; a dding a second compound (protet), and bottli ng the resulting solution in 20-li ter c ontaine rs. The init ial mix, which is 20 lite rs in volume, con sists of 24 kilogram s of nyclyn and 19 .2 lite rs of salex. A 20% r eductio n in vol ume occurs du ring the boiling process. The solu tion is then cooled sligh tly bef ore 10 kilogr ams of protet are added; the add ition of protet does not affect the total liquid volume. The purchase prices of the raw materials used in the manuf acture of this new chem ical solutio n are as follow s: Nyclyn S alex Protet

Infor mation on Divine’s direct ma terial costs f or May is as follo ws:

P15.00 per kil ogr am P21.00 per lit er P28.00 per kil ogr am

The total standard materials cost of 20 lite rs of the product is a. P1,043.20 c. P1,304.00 b. P 834 .56 d. P1,234.00

30,000 lbs. P84,000 P 3,000

29 ,000 lbs

For the month of May, Divine’s direct materials price variance w as: a. P2, 800 favorable c. P6,000 un f avor able b. P2, 800 unfav orable d. P6,000favor ab le 34. William Furnitur e Company uses about 200,000 yards of a p art ic ular f abr ic each y ear. The fab ric costs P2.50 per yard. Th e current policy is to order the fabric four ti mes a year. Inc remental orderi ng costs are about P200 per order, and incremen tal carrying costs are about P0.75 per yard, much o f which represents the oppo rtunity cost of the funds tied up in i nvent ory. How much to tal annual costs are associated w it h the current inven tory policy? a. P19,550 c. P38 ,300 b. P18,750 d. P62,500 35. The following direc t labor info rmat ion p ertains to the manu facture of Part XW: Number of hours requir ed to make a part 2.5 DL H Number of Di rect workers 75 Number of total productive hours pe r week 3000 Weekly wages per worker P1 ,000 L aborers’ fr inge benefits treated as 25% of direct labor co sts wages What is the standard dire ct labor cost per unit of Part X W? a. P62.500 c. P41.670 b. P78.125 d. P84.125 36. Bur ma, Inc. anal yzes ma nufactu ri ng ov erhead in the produc tion of its only on e product, Odds. The following set of inf ormation applies to the month of Apr il, 2004: Budgeted Actu al Units produced 40,000 38,000 Variable P4 /D LH P16,400 manufacturing o verhead Fixed manuf acturing P20 /D LH P88,000 o verhead Direct labor hours 6 4,200 minutes/unit hours What are the f ixed overhead spendi ng and volume var iances for the month of April ? Spend ing Volume

a P4,000 F P4,000 F

b P8,000 U P4,000 U

c P4,000 F P8,000 F

d P8, 000 U P8, 000 U

37. Using the informati on in Number 36, what are the var iable overhead sp...