MANAGEMENT ADVISORY SERVICES

THEORY

1. (COSTS AND COST CONCEPTS)

If a firm's net income (loss) does not change as its volume changes, the firm('s)
A. must be in the service industry.
B. must have no fixed costs.
C. sales price must equal P0.
D. sales price must equal its variable costs.

2. (ACTIVITY BASED COSTING)

If activity-based costing is implemented in an organization without any other changes being
effected, total overhead costs will
A. be reduced because of the elimination of non-value-added activities.
B. be reduced because organizational costs will not be assigned to products or services.
C. be increased because of the need for additional people to gather information on cost
drivers and cost pools.
D. remain constant and simply be spread over products differently.

3. (ACTIVITY BASED COSTING)

In an activity-based costing system, cost reduction is accomplished by identifying and
eliminating
All cost drivers Non-value-adding activities
A. No No
B. Yes Yes
C. No Yes
D. Yes No

4. (CVP & BE ANALYSIS)

As projected net income increases the
A. degree of operating leverage declines.
B. margin of safety stays constant.
C. break-even point goes down.
D. contribution margin ratio goes up.

5. (STANDARD COSTING)
Variance analysis would be appropriate to measure performance in
A. profit centers
B. investment centers
C. cost centers
D. all of the above
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 2
6. (STANDARD COSTING)
In connection with a standard cost system being developed by Jupiter Co., the following
information is being considered with regard to standard hours allowed for output of one
unit of product:
Hours
Average historical performance for the past three years 1.85
Production level to satisfy average consumer
demand over a seasonal time span 1.60
Engineering estimates based on attainable performance 1.50
Engineering estimates based on ideal performance 1.25

To measure controllable production inefficiencies, what is the best basis for Jupiter to use
in establishing standard hours allowed?
A. 1.25
B. 1.50
C. 1.60
D. 1.85

7. (STANDARD COSTING)
Octavio Co. had an unfavorable materials usage variance of P900. What amounts of this
variance should be charged to each department?
Purchasing Warehousing Manufacturing
A. P0 P0 P900
B. P0 900 P0
C. P300 P300 P300
D. P900 P0 P0

8. (PRODUCT COSTING)
A basic tenet of variable costing is that period costs should be currently expensed. What is
the rationale behind this procedure?
A. Period costs are uncontrollable and should not be charged to a specific product.
B. Period costs are generally immaterial in amount and the cost of assigning the amounts
to specific products would outweigh the benefits.
C. Allocation of period costs is arbitrary at best and could lead to erroneous decision by
management.
D. Because period costs will occur whether production occurs, it is improper to
allocate these costs to production and defer a current cost of doing business.

9. (PRODUCT COSTING)
The following information regarding fixed production costs from a manufacturing firm is
available for the current year:
Fixed costs in the beginning inventory P16,000
Fixed costs incurred this period 100,000
Which of the following statements is not true?
a. The maximum amount of fixed production costs that this firm could deduct using
absorption costs in the current year is P116,000.
b. The maximum difference between this firm's the current year income based on
absorption costing and its income based on variable costing is P16,000.
c. Using variable costing, this firm will deduct no more than P16,000 for fixed
production costs.
d. If this firm produced substantially more units than it sold in the current year, variable
costing will probably yield a lower income than absorption costing.
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 3

10. (PRODUCT COSTING)

Absorption costing differs from variable costing in all of the following except
a. treatment of fixed manufacturing overhead.
b. treatment of variable production costs.
c. acceptability for external reporting.
d. arrangement of the income statement

11. (PRODUCT COSTING)

If a firm produces more units than it sells, absorption costing, relative to variable costing,
will result in
A. higher income and assets
B. higher income but lower assets
C. lower income but higher assets
D. lower income and assets

12. (PRODUCT COSTING)

How will a favorable volume variance affect net income under each of the following
methods?
Absorption Variable
A. reduce no effect
B. reduce increase
C. increase no effect
D. increase reduce

13. (PRODUCT COSTING)

Which of the following is an advantage of using variable costing?
A. Variable costing complies with Generally Accepted Accounting Principles.
B. Variable costing complies with the National Internal Revenue Code.
C. Variable costing is most relevant to long-run pricing strategies.
D. Variable costing makes cost-volume-profit relationships more easily
apparent.

14. (DIFFERENTIAL COSTS ANALYSIS)

Siomitos makes bite-size siomai. Which of the following could be a constraint at Siomitos?
A. The siomai steamer
B. The workers who mix the ingredients
C. The workers who prepare the siomai for steaming
D. Any of the above could be the constraint

15. (DIFFERENTIAL COSTS ANALYSIS)

The opportunity cost of making a component part in a factory with excess capacity for which
there is no alternative use is
A. the total manufacturing cost of the component.
B. the total variable cost of the component.
C. the fixed manufacturing cost of the component.
D. zero.
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 4

16. (DIFFERENTIAL COSTS ANALYSIS)

The process of choosing among competing alternatives is called
A. controlling
B. planning
C. decision making
D. performance evaluation

17. (CAPITAL BUDGETING)

All other factors equal, a large number is preferred to a smaller number for all capital project
evaluation measures except
A. net present value
B. payback period
C. internal rate of return
D. profitability index

18. (CAPITAL BUDGETING)

The return paid for the use of borrowed capital is referred to as
A. Cash dividends
B. Stock dividends
C. Interest
D. Principal payment

19. (CAPITAL BUDGETING)

The capital budgeting technique known as payback period uses
Depreciation expense Time value of money
A. Yes Yes
B. Yes No
C. No No
D. No Yes

20. (OPERATING & FINANCIAL BUDGETING)

Ideally, the number of units that should be produced in a just-in-time manufacturing system
is equal to
A. the maximum productive capacity for the current period.
B. actual customer demand for the current period.
C. budgeted customer demand for the current period.
D. budgeted customer demand for the following period

21. (OPERATING & FINANCIAL BUDGETING)

The preparation of an organization's budget
A. forces management to look ahead and try to see the future of the organization.
B. requires that the entire management team work together to make and carry out the
yearly plan.
C. makes performance review possible at all levels of management.
D. all of the above.
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 5
22. (WORKING CAPITAL MANAGEMENT & FS ANALYSIS)
Why would a firm generally choose to finance temporary assets with short-term debt?
A. Matching the maturities of assets and liabilities reduces risk.
B. Short-term interest rates have traditionally been more stable than long-term interest
rates.
C. A firm that borrows heavily long term is more apt to be unable to repay the debt than
a firm that borrows heavily short term.
D. Financing requirements remain constant.

Numbers 23, 24, 25, 26 and 27 (WORKING CAPITAL MANAGEMENT & FS ANALYSIS)

Jason Company is a manufacturer of industrial products and employs a calendar year for financial
reporting purposes. These questions present several of Jason’s transactions during the year.
Assume that total quick assets exceeded total current liabilities both before and after each
transaction described. Further assume that Jason has positive profits during the year and a credit
balance throughout the year in its retained earnings account.

23. Payment of a trade account payable of P64,500 would

A. Increase the current ratio but the quick ratio would not be affected.
B. Increase the quick ratio but the current ratio would not be affected.
C. Increase both the current and quick ratios.
D. Decrease both the current and quick ratios.

24. The purchase of raw materials for P85,000 on open account would
A. Increase the current ratio
B. Decrease the current ratio
C. Increase net working capital
D. Decrease net working capital

25. The collection of a current accounts receivable of P29,000 would

A. Increase the current ratio
B. Decrease the current ratio and the quick ratio
C. Increase the quick ratio
D. Not affect the current or quick ratios

26. Obsolete inventory of P125,000 was written off during the year. This transaction
A. Decreased the quick ratio
B. Increased the quick ratio
C. Increased net working capital
D. Decreased the current ratio

27. The issuance of new shares in a five-for-one split of common stock

A. Decreases the book value per share of common stock
B. Increases the book value per share of common stock
C. Increases total shareholders’ equity
D. Decreases total shareholders’ equity

28. (DECENTRALIZATION & PERFORMANCE EVALUATION)

Which of the following is necessary for any valid performance measurement?
A. It must be part of the financial accounting system in use.
B. It must be quantifiable.
C. Goal congruence must be promoted by its use.
D. It must be financial in nature.
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 6
29. (DECENTRALIZATION & PERFORMANCE EVALUATION)
A balanced scorecard
A. records the variances between budgeted and actual revenues and expenses.
B. can be used at multiple organizational levels by redefining the categories and
measurements.
C. is most concerned with organizational financial solvency and business processes.
D. all of the above.

30. (DECENTRALIZATION & PERFORMANCE EVALUATION)

Productivity is measured by the
A. total quantity of output generated from a limited amount of input during a time period.
B. quantity of good output generated from a specific amount of input during a
time period.
C. quantity of good output generated from the quantity of good input used during a time
period.
D. total quantity of input used to generate total quantity of output for a time period.

31. (DECENTRALIZATION & PERFORMANCE EVALUATION)

A small manufacturing company recently stated its sales goal for a period was P100,000. At
this level of activity, its budgeted expenses were P80,000. Its actual sales were P100,000,
but its actual expenses were P85,000. This company operated
A. effectively and efficiently
B. neither effectively nor efficiently.
C. effectively but not efficiently.
D. efficiently but not effectively.

32. (DECENTRALIZATION & PERFORMANCE EVALUATION)

The format for internal reports in a responsibility accounting system is prescribed by:
A. Generally Accepted Accounting Principles
B. The Financial Accounting Standards Board
C. The Philippine Institute of Certified Public Accountants
D. Management

33. (DECENTRALIZATION & PERFORMANCE EVALUATION)

In the balanced scorecard framework, a survey of employee satisfaction is a potential
measure in which of the four perspectives?
A. Financial
B. Customer
C. Internal business processes
D. Learning and growth

34. (DECENTRALIZATION & PERFORMANCE EVALUATION)

A company’s rate of return on investment (ROI) is equal to the
A. Percentage of profit on sales divided by the capital employed turnover rate.
B. Percentage of profit on sales multiplied by the capital employed turnover
rate.
C. Investment capital divided by the capital employed turnover rate.
D. Investment capital multiplied by the capital employed turnover rate.
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 7
35. (DECENTRALIZATION & PERFORMANCE EVALUATION)
The primary reason for adopting Total Quality Management (TQM) is to achieve
A. Greater customer satisfaction.
B. Reduced delivery time.
C. Reduced delivery charges.
D. Greater employee participation.

36. (DECENTRALIZATION & PERFORMANCE EVALUATION)

SPQR, Inc. has two divisions: the Handles Division which manufactures SPQR handles, and
the Assembly Division which assembles various parts to produce SPQRs, the main product
of SPQR, Inc.

The Handles Division currently has excess capacity of 1,500 units. It produces handles at
variable cost of P70. The handles can be sold in the outside market for P100.

The Assembly Division requires 1,400 handles for the SPQRs that it produces. It can buy
such handles from outside suppliers at P100 or it can just buy them from the Handles
Division.

What is the natural bargaining range for the two divisions regarding the transfer price of
handles?
A. Between P70 and P100
B. Between P100 and P170
C. Any amount less than P100
D. P70 is the only acceptable price.

37. (QUANTITATIVE METHODS)

In a PERT network, the critical path is the path that
A. has the most number of activities.
B. requires the longest time to complete.
C. requires the shortest time to complete.
D. has the most slack.

38. (BASIC MAS CONCEPTS)

A person who is qualified by education, experience, technical ability, and temperament to
advise or assist businessmen on a professional basis in identifying, defining, and solving
specific management problems involving the organization, planning, direction, control, and
operation of a firm is called a
A. Management Consultant
B. Certified Public Accountant
C. Accounting Technician
D. Management Accountant

39. (BASIC MAS CONCEPTS)

Consulting services differ fundamentally from CPA’s function of attesting to the assertions
of other parties. In a consulting service,
A. the practitioner expresses a conclusion about the reliability of a written assertion that is
the responsibility of the assertor.
B. the work is generally performed only for the use and benefit of the client.
C. the client develops findings, conclusions, and recommendations.
D. the nature and scope of work is determined solely by the consulting services practitioner.
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 8

40. (BASIC MAS CONCEPTS)

As a consultant the CPA/MAS practitioner should
A. conduct his engagement as if he is a member of the client’s organization.
B. exercise administrative control over the client’s staff to avoid unnecessary delays in
implementation.
C. encourage dependence of client on the consultant’s staff so as to pinpoint clear
responsibility in implementing systems.
D. not take responsibility for making decisions and policy judgments in MAS
engagements.

41. (BASIC MAS CONCEPTS)

Which of the following statements is correct?
A. MAS is confined only to such areas as financial accounting, auditing, and tax services.
B. Because the MAS practitioner must be independent, he must not allow the client to
participate in any phase of his engagement.
C. Although MAS extends beyond the traditional accounting services, CPAs in
the MS practice are still bound by the rules of professional ethics in the
practice of accounting in general.
D. CPAs provide management services to go around the ethical constraints as mandated
by the Accountancy Act.

42. (INFORMATION SYSTEMS)

The basic principles of accounting information system include all the following, except
A. flexible structure.
B. cost awareness.
C. implementation.
D. useful output.

43. (INFORMATION SYSTEMS)

Which of the following statements is false?
A. Management accounting is an integral part of the controller’s function in an organization.
B. The Standard of Ethical Conduct for Management Accountants include concepts related
to competence, confidentiality, integrity, and objectivity.
C. Modern cost accounting plays a role in planning new products, evaluating operational
procedures, and controlling costs.
D. The COO (Chief Operating Officer) is primarily responsible for management
accounting and financial accounting.

44. (INFORMATION SYSTEMS)

Management accounting is considered successful when it
A. helps managers improve their decisions
B. is in accordance with GAAP
C. is relevant
D. is accurate
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 9

45. (INFORMATION SYSTEMS)

Which of the following descriptions refers to management accounting information?
A. It is prepared for shareholders
B. It is reliable and verifiable
C. It is prepared in accordance with GAAP
D. It provides reasonable and timely estimates

46. (INFORMATION SYSTEMS)

Which of the following is a not a characteristic of management accounting?
A. Internal focus
B. Broad-based and multidisciplinary
C. Subjective information may be used
D. Historical orientation

47. (DECISION MAKING)

A major accounting contribution to the managerial decision-making process in evaluating
possible courses of action is to
A. decide which actions the management should consider.
B. determine the amount of money that should be spent on a project.
C. assign responsibility for the decision.
D. provide relevant revenue and cost data about each course of action.

48. (ECONOMICS)
Gross domestic product (GDP) is the
A. total amount of expenditures for consumer goods and investment for a period of time.
B. total purchases by consumers, businesses, government, and foreign entities
C. value of all final goods and services produced by the country by both domestic
and foreign-owned sources.
D. value of all goods and services produced by the country by domestic firms, excluding
those produced by foreign-owned companies.

49. (ECONOMICS)
As the economy becomes more and more depressed, a company's management decides to
slash spending on research and development. What is the likely effect of this action on net
income? Net income will be
A. higher this period and lower in future periods.
B. higher this period and higher in future periods.
C. lower this period and higher in future periods.
D. lower this period and lower in future periods.

50. (ECONOMICS)
Inflation can have positive and negative effects on an economy. Positive effects of inflation
include
A. loss in stability in the real value of money and other monetary items over time.
B. uncertainty about future inflation may discourage investment and saving.
C. shortages of goods if consumers begin hoarding in anticipation of price increases in the
future.
D. mitigation of economic recessions and debt relief by reducing the real level
of debt.
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 10

51. (ECONOMICS)
The local video store’s business increased by 12% after the movie theater raised its prices
from P300 to P400. Thus, relative to movie theater admissions, videos are
A. substitute goods
B. superior goods
C. complementary goods
D. public goods

52. (ECONOMICS)
In national income terms, aggregate demand is the
A. demand for money by a community in a period of full employm32` nt.
B. total expenditure on capital goods by entrepreneurs during a period of full employment.
C. demand that is needed if the country’s economy is to operate at optimum level and the
level of investment is to be raised.
D. total expenditures on consumer goods and investment, including government
and foreign expenditures, during a given period.

53. (ECONOMICS)
A city ordinance that freezes rent prices may cause
A. The demand curve for rental space to fall.
B. The supply curve for rental space to rise.
C. The quantity demanded of rental space exceed the quantity supplied.
D. The quantity supplied of rental space exceed the quantity demanded.

54. (ECONOMICS)
If a group of consumers decide to boycott a particular product, the expected result would
be
A. An increase in the product price to make up lost revenue.
B. A decrease in the demand for the product.
C. An increase in product supply because of increased availability.
D. That demand for the product would become completely inelastic.

55. (FEASIILITY STUDY)

It is a systematic gathering and analysis of data concerning a proposed project and the
formulation of conclusion therefrom for the purpose of determining whether or not the
project is viable, and if so, its degree of profitability.
A. Budgeting
B. Feasibility Study
C. Viable Costing
D. Profit Planning

56. (DECISION MAKING)

A significant cost of quality that is not recorded in the accounting records is the
A. failure cost for a customer complaint center.
B. cost of reworking products to bring them up to specification.
C. opportunity costs of forgone future sales.
D. appraisal cost for product equipment.
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 11
57. (ECONOMICS)
In macroeconomic terms, aggregate demand is the
A. Demand for money by the community in a period of full employment.
B. Total expenditure on capital goods by entrepreneurs during a period of full employment.
C. Demand that is needed if a country’s economy is to operate at optimum level and the
level of investment is to be raised.
D. Total expenditures on consumer goods and investment, including
government and foreign expenditures, during a given period.

57. (TRANSFER PRICING)

In a decentralized company in which divisions may buy goods from one another, the transfer
pricing system should be designed primarily to
A. increase the consolidated value of inventory.
B. allow division managers to buy from outsiders.
C. minimize the degree of autonomy of division managers.
D. aid in the appraisal and motivation of managerial performance.

58. (CAPITAL BUDGETING)

When a profitable corporation sells an asset at a loss, the after-tax cash flow on the sale
will
A. exceed the pre-tax cash flow on the sale.
B. be less than the pre-tax cash flow on the sale.
C. be the same as the pre-tax cash flow on the sale.
D. increase the corporation's overall tax liability.

59. (PERFORMANCE EVALUATION)

Jimmy Corporation has a sales goal of P500,000 for the coming year. Based on this level of
activity, Proficient budgets its total expenses at P450,000. Actual sales are P480,000 and
actual costs are P460,000. Proficient Corporation’s operations were
A. Both efficient and effective. .
B. Neither efficient nor effective.
C. Efficient but not effective
D. Effective but not efficient.

60. (CAPITAL BUDGETING)

The City of Malabon is about to replace an old fire truck with a new vehicle in an effort to
save maintenance and other operating costs. Which of the following items, all related to the
transaction, would not be considered in the decision?
A. Purchase price of the old vehicle.
B. Savings in operating costs as a result of the new vehicle.
C. Proceeds from disposal of the old vehicle.
D. Future depreciation on the new vehicle.

61. (RESPONSIBILITY ACCOUNTING)

A management decision may be beneficial for a given profit center, but not for the entire
company. From the overall company viewpoint, this decision would lead to
A. goal congruence
B. centralization
C. suboptimization
D. maximization
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 12

62. (FININANCING STRATEGY)

Which of the following is an advantage of equity financing in comparison to debt financing?
A. Issuance costs are greater than for debt.
B. Ownership is given up with respect to the issuance of common stock.
C. Dividends are not tax deductible by the corporation whereas interest is tax deductible.
D. The company has no firm obligation to pay dividends to common
shareholders.

63. (RORKING CAPITAL MANAGEMENT)

Mansho Co. is applying for a loan in which the bank requires a quick ratio of at least 1.
Mansho’s quick ratio is 0.8. Which of the following actions would increase Mansho’s quick
ratio?
A. Purchasing inventory through the issuance of a long-term note.
B. Implementing stronger procedures to collect accounts receivable at a faster rate.
C. Paying an existing account payable.
D. Selling obsolete inventory at a loss.

64. (QUANTITATIVE MAETHODS)

Which of the following is used to describe the practice of adding resources to shorten
selected activity time on the critical path of a project?
A. Making adjustments.
B. Project crashing.
C. Slack time.
D. Reengineering.

65. (COST & COST CONCEPTS)

The term cost driver refers to
A. any activity that can be used to predict cost changes.
B. the attempt to control expenditures at a reasonable level.
C. the person who gathers and transfers cost data to the management accountant.
D. any activity that causes costs to be incurred.

66. (ACTIVITY BASED COSTING)

Of the following, which is the best reason for using activity-based costing?
A. to keep better track of overhead costs
B. to more accurately assign overhead costs to cost pools so that these costs are better
controlled
C. to better assign overhead costs to products
D. to assign indirect service overhead costs to direct overhead cost pools

67. (MANAGERIAL ACCOUNTING)

Which of the following statements represents a similarity between financial and managerial
accounting?
A. Both are useful in providing information for external users.
B. Both are governed by GAAP.
C. Both rely heavily on published financial statements.
D. Both draw upon data from an organization’s accounting system.
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 13

68. (CAPITAL BUDGETING)

Leo Corporation will evaluate a potential investment in an advanced manufacturing system
by use of the net-present-value (NPV) method. Which of the following system benefits is
least likely to be omitted from the NPV analysis?
A. Savings in operating costs.
B. Greater flexibility in the production process.
C. Improved product quality.
D. Shorter manufacturing cycle time.

69. (THEORY OF CONSTRAINTS)

A company produces and sells bottled fruit juices. The processes involved in producing the
product are done in the following departments:
Department Capacity per week
Juice extraction 8,000 bottles
Mixing 5,000 bottles
Bottling 10,000 bottles

Demand for the company’s product is about 6,000 bottles per week.
If the company wants to improve its contribution margin and applies the Theory of
Constraints, improvement efforts should be focused on
A. juice extraction department.
B. mixing department.
C. bottling department.
D. sales department.

70. (STRATEGIC MANAGEMENT)

It describes how an organization matches its own capabilities with the opportunities in the
marketplace to accomplish its overall objectives.
A. Planning
B. Strategy
C. Learning and growth perspective
D. Customer perspective

71. (BASIC CONCEPTS)

Which of the following statement(s) is(are) true?
1. MAS relates to the future.
2. MAS covers a wider area than the usual audit and tax work.
3. Because of the broad scope covered by MAS, a wider variety of assignments are
usually encountered.
4. MAS engagements require highly qualified staff.
A. All the statements are true.
B. Only three statements are true.
C. Only two statements are true.
D. Only one statement is true.

72. (PERFORMANCE EVALUATION)

A company’s rate of return on investment (ROI) is equal to the
A. Percentage of profit on sales divided by the capital employed turnover rate.
B. Percentage of profit on sales multiplied by the capital employed turnover
rate.
C. Investment capital divided by the capital employed turnover rate.
D. Investment capital multiplied by the capital employed turnover rate.
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 14

73. (MANAGERIAL ACCOUNTING)

Management accounting and cost accounting
A. are required for recordkeeping as are financial accounting and tax accounting.
B. provide cost information about products and services, as well as information
for internal decision making.
C. require an entirely separate group of accounts than financial accounting.
D. focus solely on the determination of costs to produce a product or provide a service.

74. (ABC SYSTEM)

Which of the following is a sign that an ABC system may be useful?
A. There are small amounts of indirect costs.
B. Products make diverse demands on resources because of differences in
volume, process steps, batch size, or complexity.
C. Products a company is less suited to produce and sell show small profits.
D. Operations staff agrees with accountants about the costs of manufacturing and
marketing products and services.

75. (MANAGERIAL ACCOUNTING)

Which of the following is not an objective of managerial accounting?
A. Providing information for decision making and planning.
B. Maximizing profits and minimizing costs.
C. Assisting in directing and controlling operations.
D. Measuring the performance of managers and subunits.

76. (DECENTRALIZATION AND PERFORMANCE EVALUATION)

Which of the following terms refers to a performance measurement that is calculated as an
investment center’s after-tax operating income minus the product of its total assets
multiplied by the company’s weighted average cost of capital (WACC)?
A. Economic value added
B. Return on investment
C. Net realizable value
D. Profitability index

77. (WORKING CAPITAL MANAGEMENT)

An auto parts store must maintain inventory of a wide variety of parts to satisfy its diverse
customer base. As a result, the store’s inventory has a high risk of obsolescence. Which of
the following features would be most desirable to the store’s creditors during a financial
review of the auto parts store?
A. a high quick ratio
B. a high debt ratio
C. a high number of days sales outstanding in ending trade receivables
D. a low inventory turnover ratio.

78. (BREAK EVEN ANALYSIS)

Which of the following changes would cause a company’s break-even point in sales to
increase?
A. The company’s contribution margin rate increases.
B. The company’s variable cost per unit decreases.
C. The company’s total fixed costs increases.
D. The company’s selling price per unit increases.
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 15
79. (COSTS AND COST CONCEPTS)
Which of the following costs is deducted from revenues of a manufacturing company in
order to determine gross margin but not deducted from revenues to determine contribution
margin?
A. Fixed manufacturing
B. Variable manufacturing
C. Fixed selling and administrative
D. Variable selling and administrative

80. (TOTAL QUALITY MANAGEMENT)

In the cost of quality, liability claims are examples of
A. Prevention costs
B. Appraisal costs
C. Internal failure costs
D. External failure costs

81. (INVENTORY MANAGEMENT)

The economic order quantity for inventory is higher for an organization that has
A. lower annual unit sales.
B. higher fixed inventory ordering costs.
C. higher annual carrying costs as a percentage of inventory value.
D. a higher purchase price per unit of inventory.

82. (SUPPLY CHAIN MANAGEMENT)

Which of the following is not an important aspect of supply chain management?
A. Information technology
B. Accurate forecasts
C. Customer relations
D. Communications

83. (BUSINESS PROCESS REENGINEERING)

It is a tool to achieve large, quick gains in effectiveness or efficiency through redesigning
the execution of specific business functions. It is a method of examining processes to
identify and then eliminate, reduce, or replace functions and processes that add little
customer value to products or services. It is designed to bring radical changes to an
organization's operations.
A. Process Identification
B. Downsizing
C. Business Process Reengineering
D. Enterprise Resource Planning System

84. (KAIZEN COSTING)

Ongoing efforts to reduce costs, increase product quality, and/or improve production
process once manufacturing has begun is known as
A. cost management
B. kaizen costing
C. target costing
D. life-cycle costing
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 16
85. (PERFORMANCE EVALUATION)
Productivity is measured by the
A. total quantity of output generated from a limited amount of input during a time period.
B. quantity of good output generated from a specific amount of input during a
time period.
C. quantity of good output generated from the quantity of good input used during a time
period.
D. total quantity of input used to generate total quantity of output for a time period.

86. (TACTICAL PROFIT PLAN)

Which of the following best describes tactical profit plans?
A. Detailed, short term, broad responsibilities, qualitative.
B. Broad, short term, responsibilities at all levels, quantitative.
C. Detailed, short term, responsibilities at all levels, quantitative.
D. Broad, long term, broad responsibilities, qualitative.

87. (CASH MANAGEMENT)

A consultant recommends a company hold funds for the following two reasons:
Reason 1: Cash needs may fluctuate substantially throughout the year.
Reason 2: Opportunity for buying at a discount may appear during the year.
The cash balances used to address the reasons given above are correctly classified as

Reason 1 Reason 2
A. Speculative balances Speculative balances
B. Speculative balances Precautionary balances
C. Precautionary balances Speculative balances
D. Precautionary balances Precautionary balances

88. (CVP ANALYSIS)

The contribution income statement differs from the traditional income statement in which
of the following ways?
A. The traditional income statement separates costs into fixed and variable components.
B. The traditional income statement subtracts all variable costs from sales to obtain the
contribution margin.
C. Cost-volume-profit relationships can be analyzed more easily from the
contribution income statement.
D. The contribution income statement separates costs into product and period categories.

89. (QUANTITATIVE METHODS)

When using a graphical solution to a linear programming problem, the optimal solution will
lie in an area commonly known as the:
A. region of maximization.
B. feasible region.
C. objective region
D. constraint region.

90. (DECISION MAKING)

Costs that cannot be changed by any decision made now or in the future are:
A. fixed costs
B. indirect costs
C. avoidable costs
D. sunk costs
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 17
91. (DECISION TREE ANALYSIS)
Which of the following statements does not apply to decision tree analysis?
A. The sum of the probabilities of the events is less than one (1).
B. All of the events are mutually exclusive.
C. All of the events are included in the decision.
D. The branches emanate from a node from left to right.

92. (BALANCED SCORECARD)

Which of the following performance measures is nonfinancial?
A. Percentage of defective products.
B. Return on investment.
C. Gross profit margin.
D. Economic value-added.

93. (PRACTICE STANDARDS)

At Key Enterprises, the controller is responsible for directing the budgeting process. In this
role, the controller has significant influence with executive management as individual
department budgets are modified and approved. For the current year, the controller was
instrumental in the approval of a particular line manager’s budget without modification ,
even though significant reductions were made to the budgets submitted by other line
managers. As a token of appreciation, the line manager has given the controller a gift
certificate for a popular local restaurant. In considering whether or not to accept the
certificate, the controller should refer to which section of IMA’s Statement of Ethical
Professional Practice?
A. Competence
B. Confidentiality
C. Integrity
D. Credibility

94. (BALANCED SCORECARD)

Which of the following is one of the four perspectives of a balanced scorecard?
A. Just in time.
B. Innovation.
C. Benchmarking.
D. Activity-based costing.

95. (DECENTRALIZATION)
All of the following are benefits of decentralization EXCEPT that it:
A. creates greater responsiveness to local needs
B. decreases management and worker morale
C. leads to quicker decision making
D. sharpens the focus of managers

96. (LEARNING CURVES)

A learning curve is a function:
A. that measures the decline in labor-hours per unit due to workers becoming
better at a job
B. that increases at a greater rate as workers become more familiar with their tasks
C. where unit costs increase as productivity increases
D. that is linear
MANAGEMENT ADVISORY SERVICES - THEORIES
Page 18

97. (BUDGETING)
Budgeting provides all of the following EXCEPT:
A. a means to communicate the organization's short-term goals to its members
B. support for the management functions of planning and coordination
C. a means to anticipate problems
D. an ethical framework for decision making

98. (COST BEHAVIOR)

When cost relationships are linear, total variable prime costs will vary in proportion to
changes in
A. direct labor hours.
B. total material cost.
C. total overhead cost.
D. production volume.

99. (STANDARD COSTING)

Standard costs
A. are estimates of costs attainable only under the most ideal conditions.
B. are difficult to use with a process costing system.
C. can, if properly used, help motivate employees.
D. require that significant unfavorable variances be investigated, but do not require that
significant favorable variances be investigated.

100. (STANDARD COSTING)

Which of the following statements regarding standard cost systems is true?
A. Favorable variances are not necessarily good variances.
B. Managers will investigate all variances from standard.
C. The production supervisor is generally responsible for material price variances.
D. Standard costs cannot be used for planning purposes since costs normally change in the
future.

END