Student No.

: ________________________________________
MANAGEMENT ADVISORY SERVICES
Multiple Choice
Encircle the letter of the choice that best completes the statement or answers the
question. No erasures or Superimpositions Use Black or Blue ballpen
1. A kind of accounting concerned with providing information to management in
making decision about the operations of the business.
a. Cost Accounting
c. Management Accounting
b. Financial Accounting
d. Responsibility Accounting
2. Which of the following characteristics does relate Management Accounting?
a. Accounting reports may not include monetary information
b. It is subject to restriction imposed by GAAP
c. Reports are based on estimates and are seldom useful for anything
other than the purpose for which they are prepared
d. It provides data for external users within the business organization
Items 3 & 4 are based on the following information:
Makina Companys total overhead costs at various level of activity are
presented below:
Month
Machine Hours
Total Overhead Costs
April
140,000
P 198, 000
May
120,000
174,000
June
160,000
222,000
July
180,000
246,000
3. If the manager applies the high low point method, the estimated variable
cost per machine hour is:
a. P 0.80
c. P 1.20
b. P 1.03
d. P 1.70
4. Using also the high low point method, the estimated annual fixed cost for
maintenance expense is:
a. P 360,000
c. P 300,000
b. P 30,000
d. P 350,000
5. IYA Company is planning to sell 100,000 units of Product Z for a P12 a unit.
The fixed cost is P 280,000. In order to realize a profit of P200,000, what
would the variable cost be?
a. P 220,000
c. P 480,000
b. P300,000
d. P 720,000

Management Advisory Services

Page 2 of 12

6. Consider the equation X = Sales [ (Variable Cost / Sales) x (Sales)]. What is

X?
a. Net income
c. Fixed costs
b. Contribution margin
d. Variable cost
7. A linear cost function Y = a +bx ;a represents the?
a. Mixed cost behavior
c. Fixed cost behavior
b. Variable cost behavior
d. none of the above
8. Rea Corporation direct labor cost for the month of February 2014 were as
follows:
Standard Rate per hour
P 6.15
Standard Direct labor hours
21,000
Actual Direct labor hours
20,000
Direct labor Efficiency Variance Favorable P 6, 150
Total Payroll
P126,000
What was Reas Direct Labor rate variance?
a. P 3,000 unfavorable
b. P3,000 favorable

c. P3,100 favorable
d. P3,100 unfavorable

9. Jayson Companys direct labor costs for the month of December 2014 were as
follows:
Standard Rate per hour
P 6.50
Standard Direct labor hours
42,000
Actual Direct labor hours
40,000
Direct labor Efficiency Variance Favorable P 8,400
What was Jaysons direct labor payroll for the month of December 2014?
a. P 273,000
c. P251,600
b. P 244,000
d. P 260,000
10.Dianne has the following cost for 200,000 units of product for the year :
Materials
P200,000
Labor
100,000
Manufacturing overhead
200,000
Selling and Administrative Expense
150,000

All costs are variable except for P100,000 units of manufacturing overhead &
P150,000 of Selling and Administrative Expenses. The total costs to produce
and sell 210,000 units for the year are:
a. P 670,000
c. P 672,000
b. P540,000
d. P 500,000
11.The Contribution Margin decreases when sales volume remains the same and
a. Variable cost per unit decreases

Management Advisory Services

Page 3 of 12

b. Fixed cost decreases

c. Variable cost per unit increases
d. Fixed cost increases
12.The most important use of the cost volume profit program is to show?
a. The relationship among volume, costs, revenues over wide range of
activity
b. The break-even point
c. The cost/margin ratio at various levels of sales activity
d. The determination of cross-over point
13.Sunk costs
a. Are substitutes for opportunity costs
b. In and themselves are not relevant to decision making
c. Are relevant to decision making
d. None of the above
14.Dess Technology manufactures a particular computer component. Currently
the cost per unit are as follows:
Direct materials
P 100
Direct labor
500
Variable overhead
300
Fixed overhead
400
Total
1,300
Lou Inc. has contracted Dess with an offer to sell 10,000 units of the
component for P1,100 per unit. If Dess accepts the proposal P2,500,000 for
the fixed overhead will be eliminated. Should Dess make or buy the
component and why?
a. Make due to savings of P2,000,000
b. Buy due to savings of P 2,000,000
c. Buy due to savings of P 500,000
d. Make due to savings of P500,000

15.Raymart has an actual capacity of 2,800 units of output. Projected data for
the coming years of operation are as follows:
Sales ( 2,000 units at P760 each)
P1,520,000
Manufacturing cost variable
P500 per
unit
Manufacturing cost fixed
P 360,000
Marketing & Admin. Costs Variable (sales commission)
P 120
per unit
Marketing & Admin. Costs Fixed
P 40,000

Management Advisory Services

Page 4 of 12

Should the company accept aone time only special order for 600 units at a
selling price of P640 each?
a. Yes, due to incremental income of P48,000
b. Yes, due to incremental income of P48,000
c. No, due to resulting loss of P72,000
d. No, due to resulting loss of P60,000
16.Linda Inc. is along the highway leading to Cebu. Gina has a stall which
specializes in hand crafted fruit baskets that sell for P60 each. Daily fixed
costs are P15,000 and variable cost are P30 per basket. An average of 750
baskets are sold each day. Jane had a capacity of 800 basket per day. By
closing time yesterday a bus load of stopped by Ginas stall. Collectively they
offered Gina P1,500 per baskets. Gina should?
a.
b.
c.
d.

Rejected the offer since she could have lost P500

Rejected the offer since she could have lost P900
Accepted the offer since she could have P300 contribution margin
Accepted the offer since she could have P700 contribution margin

17.Describes how cost behaves or changes as the amount of cost driver changes
a. Cost behavior
c. Cost pool
b. Cost driver
d. Cost object
18.What type of direct material for price and usage will arise if the actual
numbers of pounds of materials is higher than standard pounds allowed but
actual exceeds standard costs
a
b
c
d
Usage
unfavorable favorable
favorable
unfavorable
Price
favorable
favorable
unfavorable unfavorable
19.Salary you could be earning by working rather than attending college are an
example of
a. Outlay costs
c. Opportunity costs
b. Misplaced costs
d. sunk costs
20.Neth Company has a sales of P400,000 with variable costs of P300,000 , fixed
costs of P120,000 and an operating loss of P20,000. By how much would Neth
sales need in order to achieve a target operating income of 10% of sales?
a. P400,000
c. P500,000
b. P462,000
d. P800,000
21.A company is considering the purchase of new production technology that
would require an initial investment of P500,000 and have an expected life of
5 years. At the end of its life, the equipment would have no salvage value. By
installing the new equipment, the firms annual labor and quality costs would

Management Advisory Services

Page 5 of 12

decline by P200,000. The tax rate is 30%. Compute the payback period for
this investment
a. 2 years
b. 2.5 years c. 2.94 years
d. 3 years
22.The management of a review school plans to install popcorn vending
machines in its premises. Annual sales of popcorn are estimated at P20,000
units at a price of P20 per unit. Variable cost is estimated at P12 per unit,
while incremental fixed cost excluding depreciation, at P80,000 per year.
The school will acquire four vending machines at P25,000 each, including
installation costs o P2,000 per machine. The machines are expected to have
service life of 5 years with no salvage value. Depreciation will be computed
on a straight line basis. The companys income tax rate is 30%. Determine
the increase in annual net income if popcorn were installed.
a. P80,000
b. P62,000 c. P42,000 d. P56,000
23.Using the problem in no. 22, determine the annual net cash inflows that will
be generated by the project.
a. P80,000
b. P62,000 c. P42,000 d. P56,000
24.The term that means all output and manufacturing costs (direct & indirect,
fixed & variable) which can contribute to the production of the product are
traced to output and inventories is
a. Job order costing
c. Process costing
b. Absorption costing
d. Direct costing
25.The basic assumptions made in absorption costing with respect to fixed costs
is that fixed cost is
a. A controllable costs
c. a product costs
b. An irrelevant costs
d. a period costs
26.Operating income computed using the absorption costing would generally
exceed operating income using variable costing if
a. Units sold exceed units produced c. Units sold are less than units
produced
b. Units sold equal units produced
d. The unit fixed cost is zero
27.A company has operating income of P100,000 using direct costing for a given
period. Beginning and ending inventories for that period were 20,000 units
and 40,000 units, respectively. If the fixed factory overhead application ratio
is P2 per unit, the operating income using absorption costing is
a. P140,000
b. P100,000 c. P60,000 d. Not determinable from
information given
28.Jeanne Corporation began its operation on January 1, 2014 and produces a
single product that sells for P9.00 per unit. India uses an actual (historical)
cost system. 100,000 units were produced and 90,000 units were sold in
2014. There was no WIP inventory at Dec. 31, 2014. Manufacturing costs and
Administrative expenses were as follows:

Page 6 of 12

Management Advisory Services

Fixed Costs

Variable Costs
Raw materials
P 1.75 per unit produced
Direct labor
P1.25 per unit produced
Factory overhead P100,000
P0.50 per unit produced
Selling and Admin. 70,000
P0.60 per unit sold
What would be Jeannes operating income for 2014 using absorption costing?
a. P181,000 b. P271,000 c. P281,000 d. P371,000
29.Bataan Co. is considering the acquisition of a new, more efficient press. The
cost of the press is P360,000 and the press has an estimated life of 6 years
with zero salvage value. Bataan uses straight line depreciation for both
financial and income tax reporting purposes and has a 40% corporate income
tax rate. In evaluating equipment acquisition of this type. Bataan uses a goal
of a 4-year payback period. To meet Bataans desired payback period, the
press must produce a minimum annual before tax operating cash savings of
a. P190,000
c. P110,000
b. P100,000
d. P120,000
30.Tierra Company prepared the following preliminary forecast concerning
product X for 2014 assuming no expenditure for advertising:
Selling price per unit
P10
Variable Costs
P600,000
Unit sales
100,000
Fixed costs P300,000
Based on a market study in December 2014, Tierra estimated that it could
increase the unit selling price by 15% and increase the unit sales volume by
10% IF P100,000 was spent in advertising. Assuming that Tierra incorporated
these changes in its 2012 forecast, what should be operating income from
Product X?
a. P175,000
b. P190,000

c. P205,000
d. 365,000

31.Cost that varies in total in direct proportion to changes in level of activity but
is constant on a per unit basis.
a. Fixed cost
c. Mixed cost
b. Variable cost
d. Opportunity cost
32.The relevance of a particular cost to a decision is determined by
a. Riskiness of the decision
c. amount of the cost
b. Number of decision variables
d. potential effect on the
decision
Items 33-35 are based on the following information
Mickey is a distributor of picture frames. For 2014, she plans to purchase frames
for P30 each and sell them for preparing the invoice and delivery documents,

Page 7 of 12

Management Advisory Services

organizing the delivery, and following up for collecting accounts receivable. The
P60 cost is incurred each time Mickey ships an order of picture frames regardless
of the number of frames in the order.
33.Suppose Mickey sells 40,000 picture frames in 1,000 shipments in 2014, what
is Mickeys operating income for 2014?
a. P300,000
c. P240,000
b. P420,000
d. P450,000
34.Suppose Mickey sells 40,000 picture frames in 800 shipments in 2014, what
is Mickeys operating income for 2014?
a. P246,000
c. P211,000
b. P325,000
d. P312,000
35.Suppose Mickey anticipates making 500 shipments in 2012. How many
picture frames must Mickey sell to breakeven in 2014?
a. 18,000
c. 14,000
b. 12,000
d.16,000
36.How may the following be used in calculating the Break-even Point?
Fixed Cost
CM per unit
a. Denominator
Numerator
b. Denominator
Not used
c. Numerator
Not used
d. Numerator
Denominator
Items 37-41 are based on the following information
A proposed investment is not expected to have any salvage value at the end
of its 5 year life. For present value purposes, cash flows are assumed to occur at the
end of each year. The company uses a 10% after tax target rate of return

Year

Purchase Cost
& Book Value

Annual net
after tax cash
flow

Annual net
income

0
1
2
3
4
5

P500,000
336,000
200,000
100,000
36,000
0

P0
240,000
216,000
192,000
168,000
144,000

P0
70,000
78,000
86,000
94,000
102,000

Present value
of P1 Received
@ end of each
month
0.89
0.80
0.71
0.64
0.57
0.51

37.The accounting rate of return based on the average investment is:

a. 84.9%
b. 40.8%
c. 34.4%
d. 12.0%
38.The Net Present Value is
a. P304,060
c. P (70,000)
b. P212,320
d. P712,320

Page 8 of 12

Management Advisory Services

39.The traditional payback period is
a. Over 5 years
c. 1.65 years
b. 2.23 years
d. 2.83 years
40.The profitability index is
a. 1.425
b. 1.4
c. 1.333

d. 1.25

41.Which statement about the internal rate of return of the investment is true
a. The IRR is exactly 12%
c. the IRR is under 12%
b. The IRR is over 12%
d. No information about the IRR can be
determined.
42.The Capital budgeting model that is ordinarily considered the best model for
long range decision making is the
a. Payback model
c. Unadjusted Rate of Return
model
b. Accounting Rate of Return Model
d. Discounted Cash Flows Model
43.If the fixed cost attendant to a product increases, while variable cost and
sales price remain constant, what will happen to (1) Contribution Margin and
(2) Break-Even Point.
Contribution Margin
Break-Even Point
a. Increase
Decrease
b. Decrease
Increase
c. Unchanged
Increase
d. Unchanged
Unchanged
44.A manager prepared the following table by which to analyze labor cost for the
month:
Actual Hours @ Actual Rate
P10,000
Actual Hours @ Standard Rate
8,820
Standard Hours @ Standard Rate
9,800
What variance was P1,180?
a. Labor Efficiency Variance
c. Volume Variance
b. Labor Rate Variance
d. Labor Spending Variance
45.Marissa Company is planning to sell 100,000 units of Product Y for P12/ unit.
The fixed cost is P280,000. In order to realize a profit of P200,000, what
would the variable cost be?
a. P480,000
c. P300,000
b. P720,000
d. P220,000
Items 46 & 47 are based on the following information:
Bruto Inc. produces only two products, Popeye and Olive. These accounts for
60% and 40% of the total sales in pesos of Bruto respectively. Variable costs (as
a percentage of sales) in pesos are 60% for Popeye and 85% for Olive. Total fixed
cost is P90,000. There are no other costs.
46.What is the Brutos break-even point in sales (in pesos)?

Page 9 of 12

Management Advisory Services

a. P150,000
b. P214,000

c. P300,000
d. P500,000

47.Assuming that the total fixed cost of Bruto increases by 30%. What amount of
sales in pesos would be necessary to generate net income of P9,000?
a. P680,000
c. P300,000
b. P330,000
d. P650,000
48.Tina Company sells a Product B at a selling price of P21 per unit. Tinas cost
per unit based on the full capacity of P200,000 units is as follows:
Direct materials
P4.00
Direct labor
P5.00
Overhead (fixed= 2/3)
P6.00
A special order offering to buy 20,000 units was received from a foreign
distributor. The only selling cost that would be incurred for this order would
be P3 per unit for shipping. Tina has sufficient existing capacity to
manufacture the additional units. In negotiating the price for the special
order. Tina should consider that the minimum selling price per unit should be:
a. P14
b. P15
c. P16
d. P18
49.Within the relevant range, the amount of variable cost per unit
a. Differs at each production level
b. Remains constant at each production level
c. Increases as production increases
d. Decreases as production increases

50.The term relevant cost applies to all of the following decision situations,
except the
a. Acceptance of special order
b. Determination of a product price
c. Manufacture or purchase of component part
d. Replacement of equipment
51.The rate or amount that sales may decline before losses are incurred is
called:
a. Residual income rate
c. Sensitive level of income
b. Variables sales ratio
d. Margin of safety
52.The following information relates to Snowball Corporation
Sales at the Break-even point
P 312,500
Total Fixed Expenses
P 250,000
Net Operating Income
P 150,000
What is Snowballs margin of safety?
a. P62,500
c. P 212,500
b. P100,00
d. P187,500

Management Advisory Services

Page 10 of 12

53.Information on Rex direct materials costs for January is as follows:

Actual quantity of direct material purchased & used
30,000 lbs
Actual cost of direct materials
P
84,000
Unfavorable direct materials usage variance
3,000
Standard quantity of direct materials allowed for May production
29,000 lbs
For the month of January, what was Rexs direct materials price variance?
a. P 2,800 favorable
c. P6,000 unfavorable
b. P 2,800 unfavorable
d. P 6,000 favorable
54.Information on Kennedy Companys direct material costs as follows:
Standard unit price
P 3.60
Actual quantity purchased
1,600
Standard quantity allowed for actual production
1,450
Materials purchase price variance unfavorable
P240
What was the actual purchase price per unit rounded to the nearest centavo?
a. P 3.06
b. P 3.11
c. P 3.45
d. P3.75

55.Lena Co. manufactures engines on a cost plus basis. The cost of a particular
engine the company manufactures is shown below:
Direct materials
P 400,000
Direct labor
300,000
Overhead: Salary
40,000
Fringe Benefit
30,000
Depreciation
24,000
Rent
22,000
Total
P 816,000
If the production of this engine were discontinued, the production capacity
would be idle and the supervisor will be laid off. Should there be a next
contractor for this engine, the company should bid at minimum price of:
a. P816,000
c. P730,000
b. P 770,000
d. P700,000

Management Advisory Services

Page 11 of 12

56.DSP Company earned P200,000 on sales of P 1,000,000. It earned P240,000

on sales of P 1,100,000. Contribution margin as a percentage of sales is?
a. 30% b. 40%
c. 70%
d. 90%
57.Mountain View Hospital has purchased a new lwb equipment for P134,650.
The equipment is expected to last for three years and to provide cash inflows
as follows:
Year 1
P 45,000
Year 2
60,000
Year 3
???
Assuming the equipment will yield exactly a 16% rate of return, what is the
expected cash inflow for year three?
a. P80,000 b. P 90,000 c. P120,000 d. P150,000
58.The Mix Company uses the high low method to estimate the cost function.
The information for 2014 is provided below:
Machine Hours
Labor Costs
Highest Observation Cost driver
300
7,500
Lowest Observation Cost driver
160
4,000
What is the total cost for 100 hours?
a. P2,500 b. P 3,000 c. P 6,250
d. P 7,000
59.Selected information concerning the operation oof Prima Donna Company for
the year ended December 31, 2014 is available as follows:
Units produced
10,000
Unit sold
9,000
Direct materials used
P 40,000
Direct labor incurred
20,000
Fixed factory overhead
25,000
Variable factory overhead
12,000
Fixed selling and admin. Exp
30,000
Variable selling and admin. Exp
4,500
There were no WIP inventories at the beginning and end of 2014. Which
costing method, absorption or variable, would show a higher operating income for
2014 and by what amount?
Costing method
Amount
a. Variable Costing
P 2,500
b. Absorption Costing
P 5,500
c. Variable Costing
P 5,500
d. Absorption Costing
P 2,500
60.Management Accounting
a. Is governed by generally accepted accounting principles
b. Draws from discipline other than accounting
c. Is geared primarily to the past rather than the future
d. All of the above.

Management Advisory Services

Page 12 of 12