CPAR

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

Saturday, July 2 i, 201 l)

1:00 Pm to 3:00 Pm

MANAGEMENT ADVISDTiY SERVICES

First Pre-board Exan'inatiorr

Set A
Choose the BEStr' answer fcir each of the following items' Mark only
one answer for each item on the Special Answer Sheet provided. Strictly no erasure
allowed. Use Pencil No. 1 onlY.

fnsffuctions,

1.

"Tales'"
Story Manufacturing incurs annual fixed costs of P250,000 in producing and selling
by
is
desired
P75,000
of
Estimated unlt sales for 2013 are 125,000. An after-tax inccme
the
is
management. The company projects iG incorne tax rate at 40 percent' What
it<' Irr'r(it
maximum amount that Story can expend for varianle costs per unit and still metlt
objective if the sales price per unit is estimaied 3-; P6?

a. P3.37
b. P3.s9

c"
d.

P3.00
P3.70

2.

The process of choosing among competing aiternatives is called

c. decision making
a.

3,

Which of the folio'*ing is a not a characteristic of management accounting?

Subjective information may be used
a. Internal
Historical orientation
b. Broad-based and multidisciplinary

controlling
b.planning_d.pedormanceevaluation
focus

c'

ti.

IT'EMS 4 AND 5 ARE tsASED ON THE FCLLOWING:

Castelg, Villasin and Barrera is a large, local accounting firm located in Cebu' Belle Castelo,
one of the Firm's founders, appreciates the success her firm has enjoyed and wants lrr rlivtl
something back to her community. She believes that an inexpensive accoutttin'| ;Ir','i':':'
clinic could provide basic accounting services for small businesses located in the province'
She wants to price the s.:;"u'ices et cost.

it has no experience to go on. Belle decided to operate the

clinic for two months before determining how rnuch to charge per hour on an ongoing

Since the clinic is brand new,

basis. As a temporary nteasure, the clinic adopted an hourly charge of P50, half the amount
charged by Castelo, Villasin and Barrera for professional services.

The accountrng seruirtes clinic opened on January 1. Durlng January, the clinic had 120
hours of prolessional service. During February, the activity was 150 hours. Costs for these
two level of aciivity usage are as follows:
120 hours

Professional hours
Salaries:
Senir.rr accountant
Office assistant
Internet and sofhruare subscriptions
Consulting by senior pai'tner
Depreciation (equiPment)
Supplies
Administration
Rent (offices)
Utilities

4.

The clinic's rnonthiy fix::d r:asLs arnount to:

a. P8,60]

b.

P9,025

P2,500

i,200
700
1,200

2,440
905
500

2,000
332

c. P
d.

425

P12,189

150 hours
P2,500

,,ta.rJ

8s0
1,500
2,440
1,100
500
2,000
365

CPAR

MANAGEMENTADVISOII\,

First Preboard Examinaiion

5.

July

27,20i3

..I .
'

Page z. vt i, pirgc;

Apple tsaby, the chief paraprofessional of the clinic, has estimated that the clinic wrll
average 140 professional hours per month. If the clinlc is to be opt:rated as a nonprofit
organazation, how much will ii. need to charge per Drofessicne,i hour?

a.
b.

P97.81
P87.06

c. P82.V7
d.

P22.6A

6.

Historical experience, engineering studies, and input from operating personnel are three
potential sources for quantitative standards. Aithough historical experience may provide an
initial Euideline for setting standards, it should be used with caution because
a. most companies have very poor records.
b. ideal standards are better than historical srandards.
c" they may not be achievable by operating personnel,
d. they may perpetuate operating inefficiencies.

7.

Which

of the following characteristics

distinguishes cumputer proCessing frurrr rlorrr,.rrl

processing?

a.

b.
c.

Compute' processing virtr"rall:r nilrninates the occui'tence of computational error

nnrmally associated wlth i,ranual prccessing.
Errors or frar.rd in computer prccessing will be detected soon after their occurrences.
The potential for sysfennatir error is ordinarily greater in manual processing than in

d. irt#i1Tffi13JT;,:H; are desisned so that trcnsaction

rrairs userur ror audit

purposes do not exist.

8.

What type of computer systern is characterized by data that are assembled frem more than
one lercaticr: ancl records that are updated inrmediately?
a. M icroco nr puter systern
c. Batch processing systern
b. Minicornputer system
d. Cnline real-time system

9. The

local video store's business increased by Llo/o after tlre movie theater raisert
from P300 to P400. Thus, relative to rnovie theater aclmisslons, viderls are
a
substitute goods
c" complementary goods
b. superior goods
d. public goods

;lr

;1,i,

r:.1

10.In national incorne terms, aggregate demand is the

a. demand fo,r money by a community in a period of full employrnent.

b. total xpenditilre on capital gaoe-ts by entrepi':nuurs during a reriod of full
employrnent.
c. dernancj that is needed if the country's econorny is to operate at optimum level and

d.

the levet of investment is to be raised.

total expendltures o;l consurner goods and invesi!'rient, incluClng eovernment and
foreiEn expenditures, during a given perioo"

11. Which of th,'.r fcrllowing staternents is correct?

MAS is confined only to such areas as ijnanciel accililntirig, auCiting, and tax services.

a.
b.

c.
d.

Because the MAS practitioner must be indep*r,dent, he rnrrst rrot allow thr r'trr.nl trr
participate in any phase of his engagement.
Althcugh MAS extends beyoncl the tradii:isnal accounting senrie*s, CPAs in the MS
practice are stiil bound by the rules of professional erhics ir: the practice of accounting
in genera!.
CPAs provide manaEement services to go around the ethlcal constraints as mandated
by the A.ccountanry Act.

12. Producer Company makes two prodr:cts, X and Z. X is being introduced this period, whereas
Z has been iri production for two years. Far the period atrotrt to hegin, 1,000 units of each
product are to be manufarlured. Assume that the only reie,rant overhea,l item is the cost of
engineerinq change orders; that X and Z arF expecJed tr: recuire eiqht and two change
orders; that X and Z are expected to require 3 anci 2 :no.:l ire itours, respect;velyj and that
the cost of a change order is P600" If Producer appiies enciine*rir,, change order costs on

MANAGEMENT ADVITiotT t
Page 3 of 8 pages

CPAR
First Preboard Exarnination

1013

July 27,

the basis of machine hours, the cross subsidrl per unit arising from this peanut buttercosting approach is

c.

a. P1.20
b. P2.40

13. How will

methods?

a favorabie

d.

ryclumr: variance aff',ect r;et income under each

Absorption
a. reduce
b. reduce
c. increase
d. increase

14. Consider the e,:uation X

a. net income
b. fixed ccsts

15, As projected

P3.60
P4.80

n;t income

of the

following

Variahle
no effect
increase
no effect
reduce

= Sales - [(Cvll5ales] x

(Sales)1" What Is X?

c.

C.

contribution margin
variable costs

increases the

a. degree of operating leverage declines. i"

b. margin of safety stays constant, d.

break-evert point gces down.

contribution margin ratio goes up.

ITEMS 16 TO 18 ARE BASED ON THE FCLLOWiI'IG:

The following information is available for X Cc. fo;' its first year of operations:
S,iiflO
Sales in
B,i:00
Productlon in
Manufacturing costs:
P3 Per unit
Direct
5 Per unit
Direct
1 Per unit
Variable

units
units
labor
material
overhead
Fixed overhead
Net incorne (absorption method)
Sales pric:e per unit

16. What would X Cr:. have repofted as

costinE?

a. P30,00C
h. (P7,s00)

17. What was the total amount

a, P30,000
b. P62,500

P1.00,000

P30,000
P40

its income before income taxes if it had used variable

c"

c.

P67,500

from the siven

i.3-l#,,Xir.rmined
si

SG&A exllense incur,"ed by X Co.?

c,

d.

P6,000

can't be determined from the given

information

18. Based on variable costing, what would X Co. show as the value of its endinS invrtt"' ;
P?7,400
a.
d. P24,A00
b. P

P120,000
64,500

c.

19.The most likely strategy to reduce tire break-even point would ne

a. increase both Lr e rlxed costs ana '-ite c.;nl-ibtrtiorr margin
b. decrease both the fixed costs and the contribution margin
c. decrearse the irxed costs and increase the contribution mai-gin
d. increa-se the lixed costs and decrease the contribution margin
20. Which of the fcrilowing is an advantage of using variaLrle costing?

a. \.lariable costing complies with Generally Accepted Accounting Principles.

b. Variable cosiing complies with the National Internal Revenue Code.
c. Variable costing is most relevant to long-run pricing strategies.

CPAR
First Preboard Examination

d.

July

MANAGEMEhIT ADVISOR Y bLnv IULo

Page 4 of I prqgn

27,2013

__-_--

Variable costing makes cost-volume-profit relationships more easily apparent.

21. Uniformly assigning the costs of resources tn cost objects when those resources are actualty
used in a non-uniform way is called
a. overcosiing.
e. peanut-butter costing.
b. undercosting.
d. depaftment costing.
22. The standard direct materials cost

to produce a unit of a product is four meters of materials

at P2.50 per meter. During June, 2009, 4,2AA nreters of materiais costing P10,080 were
purchased and used to produce tr,000 units of the product. \Iihat was th* materials price
variance for June, 2009?
a. P480 unfavorable
b, P 80 unfavorable

c.

d.

P400 favorabte
P420 favorable

23.Chubby Compeny's tcrtal costs of operati:rg five sales offices last year were P500,000, of
which P430,000 represented variabie costs, Chubby has eleterrnined that Lotai costs are
significantly influenced by the number of sales offices cpei"ateel" Last year's costs and
number of sales offices can be used as the bases for predicting annu;:l costs" What would
be the budgeted costs for the comlng year if Chubby were to opr;i'tsi* eiqht :;aies oifices?

a.
b.

c. P688,000

P800,00il

d.

P759,000

P 70,000

24. Using regression analysis, Nasty Connpany graphed the following reiationship of its cheapest
product line's sales with its customert income levels:

Sales
Pesos

\ \

Incorne levels increasing

If there is a strong statistical relationship bet.,oeen the sales and custonrers' income levels,
of the following numbers best represent:; the correlai:on ,:oefncient for this

which

relationship?
a. +0.93
b. - 9.00

d.

-ftQ?
+9.00

25.In connection with a standard cost systern being developecl bv Paopao Company, the
followinE information is being considered with regarci to stanclarri hours ailowed for output
of one unit of product:
HOURS

Average historical peformance for the past tnree !ears

Production level to satisfy average consumer demand over
a seasonal time span
Engineering estimates based on attainable perfoi-rnance
Engineering estimates based on icjea! oeformance

To measure controllable production irrefficiencies, what

in establishing standard hours allowed?
a. 3.00
b. 3.20

c.
d,

is;

3./tt
3.20
3.00
2"50

the hest basis for Paopao to use

2,5C

3.7t)

26. A company produces three prociucts; if one procluc; i-: ct.ii,-clt,::,J tnLrn
a. one product is
c. twc pioiiucts ai'e unrjercosted.
b. one or two products are undercosted. ci. no r:rodu;t- is r;ndercosted.

undercosted.

MANAGEMENT ADVISORY SERVICES

CPAR
First Preboard Examination

ialv 27,2A13

27. Spikey Corni;any iicduces two products: Pat and Chin. The projected income
coming yearl ssgitrented by product line, fc'llowl

Total
Chin
P2,500,000 P2,800,000
_ 500,000 600,000

Fat
Sales
Less variable expenses

Contributior margin
Less direcr fixed exPenses
Product margin
Less common fixed cost
Operating income

for the

P3*0,000
_1AA004
P200,000
28.000
P172.000

P2,000,000 P2,200,000

1,500,000

P-_59CI.99!

1.528.000

P 672,A00
100,000

P 572.000

The selling prices are F30 for Pat and P50 for Chin.

Spikey company can increase the sales of Pat with increased advertising. The extra
p245,000, and some of the potential purchasers rrf Chin
advertising wouta cost En edditional
sales of Chin
wourld switch to pat. .Ln total, sales of Pat vuould increase by 25,000 units, and
would dect'ease b), !i,C00 units. This strategy wculd
a. increase Spikeryt totai sales by P750,003.
b" decrease Spikey's total contribution margin by P300,000'
c. increas,e Spikev's total income by P55,000.
d, not affect Spikcy's total fixed costs.
28.

Which

of ttie

fc,llowing standard costing variances would be least controllable

production supervisor?
aterial usage

a.

b, overheaC

efficiencY

c. overhead volume
d. labor efficienry

29. Merriman Company provides the foliowing ABC costing

Activities
Account inquiry hours
Account billing lines
Account verifi cation accounts
Correspondence letters
Total costs

by a

lnformationt

Total Costs
P400,000
P280,000
P150,000

50,000

A"tirtty_"urt
driverc

10,C00 hours
4,000,000 lines

40,000 accounts
4,000 letters

P880.000

The above actlvities are used by Departments A and B as follows:

DepartmentA

Account inquiry hours

Account billing lines
Accounl verifi cation accounts
Correspondence letters

DePaftment B
4,000 hours
2,000
200,000 lines
400,000
10,000 accounts 8,000 accounts
1,600 letters
1,000

hours
lines
letters

How much of the tota! costs will be assigned to Department A?

P158,000
a. V224,00'J
P880,000
d.
b. P80,000

c.

30. Buchoy Company rnanufactures one product with a standard direct manufacturing labor c<.rst
of for-:r hours pfZ.OO per hour. During June, L,000 units were produced using 4,100
hours at P12.20 per hour. The unfavorable dii'ect labor efficiency variance was:
{:. P1,200
a. P820
d. PL,22.0
b. P400

.i

31. The determination of a cost as either direct or indirect depends upon the:
cost object chosen
a. accounting systern
d. cost tracing sYstem
b. allocation system

CPAR
First Preboard Examinatior.l

MANAGEMENT ADVISORY SERVICES

Pase LoJ g p$9!-__

July 27,2A13

ITEMS 32 TO 36 ARE BASED ON THE FOLLO\IJING:

Vhong, Inc. evaluates manufacturing overhead in its factory by using variance analysis. The
following information applies to the month of Jr.lly:
Number of units produced
Variable overhead costs
Fixed overhead costs
Direct labor hours
32. The controlleh,l,:: ,,rariance arn*unts ta

a. P2,500 unfavorabie
b. P1,000 unfavorable

ACTUA!.

1"9,000
P4,100
P22,000
2,100
i"

d,

BUDGETED
20,000
P2 Ber direC labor hnur
P20,000
0,1 hour per unit

P2,30C! unfavcrable

P2,000 unfavorabie

33. Using the three-rruav variance analysis, the spending variance amounts to
a. P100 favorairle
P2,000 unfavorcble
b. Pl,900 unfavorable
d. P2,100 unfavorable

c.

34. The efflciency, varianee amounts to

P400 unfavorable

a.
b. P1,900 unfavorable

35. The non-contr'*liabie variance is

a. P2,300 unfavorable
b. P400 unfavorable

36. The fixed nverhead efiiciency variance is:

a. F400 uniavorable
b. PP2,000 r.lnfavorable

c. P400 favorable
d.

P1,000 unfavorable

c.

d,

P2,000 unfavorable
P1,000 unfavorabie

c.

P40C fa'vorable

AA
(,i,
u

37. The primary purpose of management advisory se-"nrices is

a. io achiev* the objectives of the MAS firr,r.
b. to help the client maxirnize its resources"
c. to impro"ue the client's use of its capahilities and r*rCIurces to achierre the objectives of
such c!ient's organization.
d, to help the client identrfu its problems.
38. Which of the following statements is FAI_SE,)
a. FixeJ ;*sts have cost drivers over the shoft run.
b' There ilr a cause-and-effect relationship between the cost clrirrer and
activjty.
c. Over ihr: long run all costs have cost Criver-^,
d. Volurrre of production is a cost driver of direct nianrrfactt.rrinq r-cst:;.

the level of

39. Iking company uses a standard costing systern in connection with the manutadure or a
"one $i7e flts a{1" product matje of rubber" Each unit of finished procluct contains two feet of
direct material. However, a 20o/o direct material spoiiagr calrulated on input quantities
occurs during the manufacturing pi'ocess. The cust oi ti:r: cirett irrateriai is il3 per irrct. I he
standard direcr. rnaterials cost pei rlni'c of finished product is:
a.
c" pt.ZO

P7.50

b. P6.00

40.

d.

P4.80

A majr:r acccunting cnntributio;r to tl're rnanageriai

dec;sion-rni:F.ing process in evaluating

possible coutse$ of action is Lo
a. decide whicli actions the rnanagement shoult_i consider-.
b. determine the amount of money that should be spent on a oroject.
c. assign responsibility for the decision.
d. provide relevant revenue and cost data about eaeh course of acticn.

CPAR
First Preboard Examination

4I

July

MANAGEMENT AOVISORY SERVICES

Page 7 of 9f:gS:.

27,2Afi

--

INFORMATION:
Rocel Company is a manufacturer of electronic su/itches. One of their products, "Sensory

ITEMS

tO 43 ARE BASED ON THE FOLLOWING

Switch," is used as a component of most eleCrical appllances.

Sensory Switch has the following financial data per unit:

price

P180

Selling
Variabie costsr

Materials
Labor
Factory overhead

Shipping and
Fixed costs: Factory

fotal

?24
18
15

hanciling -- i

overhead

60

P36

Selling and administrative

JA

50
-P110

During the month, Rocel has receiv*d a special, one-time order for 1,500 units of Sensory
Switch.
41. Assuming that the company has excess r;apadi$ that is enough to produce this special order
without affecting sales to regular customers, and the company wants to improve its
profitability, the price that is acceptaL;i:: for this special, one-time order is in excess of

a. P180.
b. P110.

c"
d.

P60.
P50.

42. Assume that Rocel is operating at full capacity and that it does not want to incur,l lo5'l
this order, the minimum acceptable price is

a. P180.
b. P110.

c.

d.

fr';111

P60.
P50.

43. Assume that the excess capacity available for the special order is only 1,000 units, so thaL if
the order were accepted, Rocel would have to reduce sales to regular customers. What is
the minimum price for this special order?
F 60
a.

P1.80
b" P110

c.

d. ilicc

44. A linear cost function can represent:

a. mixed cost behaviors
b. fixed cost behaviors

c.

d.

variable cost behaviors

AII of these answers are correct.

THE FOLLOWING INFORMATION APPLIES TC QTJESTIONS 45 AND 46:

Mark's S-year-old Lancer requires repaii"s esi;mated at P3,000 to make it ', i ,

i
again, His friend, Mickey, suggested that her should buy a S-year-old used Honda Civic
instead for P3,000 cash. Mickey estirnated the following costs for the two cars:

cost
Repairs

Acquisition

Annual operating costs

(Gas, maintenance,

Lange,rH*o-ng8a-ffi

P600,000
P120,000

insurance) P

91,:100

45. The cost NOT relevant for this decision is the:

acquisitlon cost of the Lancer
b" acquisition cost of the Honda Civic
repairs to the Lancer

a.

c.
d.

P120,000

annual operating costs of the Honda Civic

P 84,000

MANAGEMENT ADVISORY SF RVICF S

Page q_ol 9.1',aou.

CPAR
First Preboard Examination

July

27,2413

46. What should Mark do? What are his savings in the first year?
a. Buy the Honda Civic; P391,200
b. Fix the Lancer; P220,720
Buy the Honda Civic; P7,200
d. Fix the Lancer; PZLL,Z0A

c.

47. For decision making, a listing of the relevant costs:

a. will help the decision maker concentrate on the pertinent data
b, will onty include future costs
c. wilt only include costs that differ among alternatives
d. All of these answers are correct.
48. DSP Company earned P100,000 on saies of P1,000,000.
P1,100,000. Contribution margin as a percentage of sales is

'

a. 30o/o.
b. 40o/o.

c.
d.

70o/o.
904/o.

49. lvlNo has a break-even point of 200,000 units and earns

250,000 units. Which of the following :s true?
a, Fixed costs are P100,000.
b. Total contribution margin at 200,000 units is P400,000'
c. Profit at sales of 300,000 units is P120,000.
d. Selling price per unit is P2,
50. What factor, related

It earned 130,000 on sales of

P100,000 profit

at sales of

to manufacturing costs, eauses the difference in net earnings computed

using absorption costing and net earnings computed using variable costing?
a. Absorption costing considers all costs in the determination of net earntrtrl'
variable costing considers fixed costs to be period costs.
b. Absorption costing allocates fixed overhead costs between cost of goods sold and
inventories, and variable costing considers all fixed costs to be period costs.
c. Absorption costing "inventories" all direct costs, but variable costing consider:; ditet:t
costs to be period costs.
C" Absorption costing "inventories" all fixed costs for the period in ending finished goods
inventory but variable costing expenses all fixed costs.

the ewd -