1. Bellue Inc. manufactures a variety of products. Variable costing net operating income was P96,300 last year and ending inventory decreased by 2,600 units. Fixed manufacturing overhead cost was P1 per unit. What was the absorption costing net operating income last year? a. P2,600 b. P93,700 c. P96,300 d. P98,900 2. Mulligan Corporation, which is subject to a 30% income tax rate, is considering a P150,000 asset that will result in the following f ollowing over its seven-year life: Total revenue: P1,190,000 Total operating expenses (excluding depreciation): P770,000 Total depreciation: P150,000 The accounting rate of return on the initial investment is: a. 16% b. 18%. c. 26%. d. 28% 3. Buchanan Company currently sells 4,000 units of product Q for P1 each. Capacity is 5,000 units. Variable costs are P0.40 and avoidable fixed costs are P400. A chain store has offered P0.80 per unit for 400 units of Q. If Buchanan accepts the order, the change in income will be a a. P60 decrease. b.
P80 decrease.
c.
P160 increase.
d.
P480 increase.
4. Arnstrong, Inc. uses a flexible budget. Armstrong produced 16,000 units in May incurring direct materials cost of P20,480. Its master budget for the year projected direct materials cost of P362,500, at a production volume of 290,000 units. A flexible budget for May should reflect direct materials cost of: a. P20,480. b. P20,000. c. P21,000. d. P19,750. 5.Pinecrest is considering a P600,000 investment in new equipment that is anticipated to produce the following net cash inflows: Year 1 2 3 4 5
Net Cash Inflows P120,000 250,000 110,000 80,000 160,000
If cash flows occur evenly throughout a year, the equipment's payback period is: a. b. c. d.
4 years, 2 months. b. 4 years, 3 months. c. 4 years, 4 months. d. 5 years.
6. Tyler Company currently sells 1,000 units of product M for P1 each. Variable costs are P0.40 and avoidable fixed costs are P400. A discount store has offered P0.80 per unit for 400 units
of product M. The managers believe that if they accept the special order, they will lose some sales at the regular price. Determine the number of units they could lose before the order became unprofitable. a. 267 units b.
500 units
c.
600 units
d.
Some other number.
Ross Corporation makes all sales on account. The June 30th balance sheet balance in its accounts receivable is P400,000, of which P240,000 pertain to sales that were made during June. Budgeted sales for July are P1,250,000. Ross collects 70% of sales in the month of sale; 20% in the following month; and the final 10% in the second month after the sale. 7. Refer to the information above. What are Ross's budgeted collections for July? a. P800,000. b. P939,000. c. P1,083,000. d. P915,000. 8. Portland is considering the acquisition of new machinery that will produce uniform benefits over the next eight years. The following information is available: Annual savings in cash operating costs: P350,000 Annual depreciation expense: P250,000 If the company is subject to a 30% tax rate, what denominator should be used to compute the machinery's payback period? a. P70,000. b. P170,000. c. P245,000. d. P320,000 9. Bear Valley produces three products: A, B, and C. One machine is used to produce the products. The contribution margins, sales demands, and time on the machine (in minutes) are as follows: time on Demand CM machine ---------------A 100 P25 10 B 80 18 5 C 150 30 10
There are 2400 minutes available on the machine during the week. How many units should be produced and sold to maximize the weekly contribution? A B C A B C a. 100 80 150 c. 90 0 150 b. 50 80 150 d. 100 80 100
On March 1, Hugh Corporation plans to borrow P550,000 from the Scotland State Bank by signing a 12%, 15-year note payable. The note calls for 180 monthly payments of P6,000, which includes both interest and principal components.
10. Refer to the information above. Hugh's budgeted interest expense for March is: a. P500. b. P2,444. c. P5,500. d. P6,000. 11. A piece of equipment costs P30,000, and is expected to generate P8,500 of annual cash revenues and P1,500 of annual cash expenses. The disposal value at the end of the estimated 10-year life is P3,000. Ignoring income taxes, the payback period is: a. 3.53 years. b. 3.86 years. c. 4.29 years. d. 6.98 years. 12. Elk Grove produces three products: A, B, and C. A machine is used to produce the products. The contribution margins, sales demands, and time on the machine (in minutes) are as follows:
A B C
Demand -----120 80 100
CM ---P20 36 50
time on machine -------5 10 15
There are 2400 minutes available on the machine during the week. How many units should be produced and sold to maximize the weekly contribution? A B C A B C a. 120 80 100 c. 120 30 100 b. 20 80 100 d. 120 80 66 13. Wakefield evaluates future projects by using the profitability index. The company is currently reviewing five similar projects and must choose one of the following: Initial Present Value Projec Investme of Cash t nt Inflows 1 P100,000 P 97,000 2 50,000 80,000 3 75,000 110,000 4 60,000 100,000 5 150,000 200,000 Which project should Wakefield select if the decision is based entirely on the profitability index? a. Project 1. b. Project 2. c. Project 3. d. Project 4. 14. DJH Company produces 1,000 units of Part X per month. The total manufacturing costs of the part are as follows:
Direct materials Direct labor Variable overhead Fixed overhead
P10,000 15,000 5,000 30,000
------Total manufacturing cost P60,000 ======= An outside supplier has offered to supply the part at P40 per unit. It is estimated that 20% of the fixed overhead assigned to Part X will no longer be incurred if the company purchases the part from the outside supplier. If DJH Company purchases 1,000 units of Part X from the outside supplier per month, then its monthly operating income will a. decrease by P20,000. b. decrease by P4,000. c. not change. d. increase by P20,000. 15. Wateredge Corporation has budgeted a total of P361,800 in costs and expenses for the upcoming quarter. Of this amount, P45,000 represents depreciation expense and P7,300 represents the expiration of prepayments. Wateredge's current payables balance is P265,000 at the beginning of the quarter. Budgeted payments on current payables for the quarter amount to P370,000. The company's estimated current payables balance at the end of the quarter is: a. P179,500. b. P204,500. c. P203,500. d. P310,000 16. St. Andrews ranks investments by using the profitability index (PI). The following data relate to Project X and Project Y: Project X Initial investment Present value of inflows
P400,00 0 600,000
Project Y P1,300,000 1,800,000
Which project would be more attractive as judged by its ranking, and why? a. Project X because the PI is 1.50. c. Project X because the PI is 0.67. b. Project Y because the PI is 1.38. d. Project Y because the PI is 0.72.
17. Colfax Company expects to incur the following co sts at the planned production level of 10,000 units: Direct materials Direct labor Variable overhead Fixed overhead
P100,000 120,000 60,000 30,000
The selling price is P50 per unit. The company currently operates at full capacity of 10,000 units. Capacity can be increased to 13,000 units by operating overtime. Variable costs increase by P14 per unit for overtime production. Fixed overhead costs remain unchanged when overtime operations occur. Colfax Company has received a special order from a wholesaler who has offered to buy 1,000 units at P45 each. What is the incremental cost associated with this special order? a. P14,000 b. P28,000 c. P42,000
d.
P45,000
BT & T Corporation manufactures telephones. Recently, the company produced a batch of 600 defective telephones at a cost of P9,000. BT & T can sell these telephones as scrap for P9 each. It can also rework the entire batch at a cost of P 6,500, after which the telephones could be sold for P20 per unit. 18. Refer to the information above. Which of the f ollowing statements is false regarding the defective units? a. BT & T will not recover its costs if it sells the defective units as scrap. b. BT & T will recover its costs if it reworks the defective units. c. BT & T will not recover its costs if it reworks the defective units. d. BT & T will recover more of its costs if it decides to rework the defective units. 19. Refer to the information above. If BT & T reworks the defective telephones, by how much will its operating income change? a. Increase by P500. c. Increase by P5,500. b. Decrease by P1,600. d. Decrease by P6,500. The Banderas Company, a merchandising firm, has budgeted its activity for December according to the following information: Sales at P550,000, all for cash. • Merchandise inventory on November 30 was P300,000. • Budgeted depreciation for December is P35,000. • The cash balance at December 1 was P25,000. • Selling and administrative expenses are budgeted at P60,000 for December and are • paid in cash. The planned merchandise inventory on December 31 is P270,000. • The invoice cost for merchandise purchases represents 75% of the sales price. All • purchases are paid for in cash.
20. The budgeted cash receipts for December are: a. P412,500 b. P137,500 c. P585,000 d. P550,000 21. The budgeted cash disbursements for December are: a. P382,500 b. P442,500 c. P472,500 d. P477,500 22. The budgeted net income for December is: a. P107,500 b. P137,500 c. P42,500 d. P77,500 Osawa Inc. manufactured 200,000 units of its only product in its first year of operations. Variable manufacturing costs were P30 per unit. Fixed manufacturing costs were P600,000 and selling and administrative costs totaled P400,000. Osawa sold 120,000 units at a selling price of P40 per unit. 23. Osawa's net operating income using absorption costing would be: a. P200,000 b. P440,000
c. P600,000 d. P840,000 24. In eight years, Larson Company plans to receive P11,000 cash from the sale of a machine that has a P16,000 book value. If the company is subject to a 30% income tax rate and has a 12% after-tax hurdle rate, the correct discounted net cash flow would be: a. P606. b. P1,414. c. P3,838. d. P5,050. 25. Colfax Company expects to incur the following co sts at the planned production level of 10,000 units: Direct materials P100,000 Direct labor 120,000 Variable overhead 60,000 Fixed overhead 30,000 The selling price is P50 per unit. The company currently operates at full capacity of 10,000 units. Capacity can be increased to 13,000 units by operating overtime. Variable costs increase by P14 per unit for overtime production. Fixed overhead costs remain unchanged when overtime operations occur. Colfax Company has received a special order from a wholesaler who has offered to buy 1,000 units at P45 each. What is the impact on Colfax's operating income if this special order is accepted? a. P17,000 increase b. P3,000 increase c. no change d. P5,000 decrease 26. Seidman Company manufactures and sells 30,000 units of product X per month. Each unit of product X sells for P16 and has a contribution margin of P7. If product X is discontinued, P85,000 in fixed monthly overhead costs would be eliminated and there would be no effect on the sales volume of Seidman Company's other products. If product X is discontinued, Seidman Company's monthly income before taxes should: a. Increase by P210,000. c. Decrease by P210,000. b. Increase by P125,000. d. Decrease by P125,000. 27. In 10 years, Hopkins Company plans to receive P9,000 cash from the sale of a machine that has a P5,000 book value. If the company is subject to a 30% income tax rate and has an 8% after-tax hurdle rate, the correct discounted net cash flow would be: a. P2,916.90 b. P3,611.40 c. P4,167.00 d. P4,722.60. e. some other amount. 28. GMH Company manufactures 100,000 units of Part X annually for use in one of its main products. The total manufacturing cost for 100,000 units of Part X is as follows:
Direct materials Direct labor Variable overhead Fixed overhead
P120,000 80,000 40,000 160,000
Total cost
------P400,000 ========
Selin Company has offered to sell GMH 100,000 units of Part X per year. If GMH accepts this offer, the facilities used to produce Part X can be used in the production of other components. This change would save GMH P10,000 in rent for the leased production facility used at present to support the production of other components. What is the amount of relevant costs for this make-or-buy decision? a. P200,000 b. P240,000 c. P250,000 d. P400,000 29. Aircraft Products, a manufacturer of aircraft landing gear, makes 1,000 u nits each year of a special valve used in assembling one of its products. The unit cos t of producing this valve includes variable costs of P70 and fixed costs of P60. The valves could be purchased from an outside supplier at P77 each. If the valve were purchased from the outside supplier, 40% of the total fixed costs incurred in producing this valve could be eliminated. Buying the valves from the outside supplier instead of making them would cause the company's operating income to: a. Increase by P26,000. c. Decrease by P9,000. b. Increase by P17,000. d. Decrease by P29,000. 30. A new machine is expected to produce a MACRS deduction in three years of P50,000. If the firm has a 12% after-tax hurdle rate and is subject to a 30% income tax rate, the correct discounted net cash flow to include in an acquisition analysis would be: a. P0. b. P10,680. c. P24,920. d. P46,280. 31. Last year, Tinklenberg Corporation's variable costing net operating income was P52,400 and its ending inventory decreased by 1,400 units. Fixed manufacturing overhead cost was P8 per unit. What was the absorption costing net operating income last year? a. P41,200 b. P11,200 c. P63,600 d. P52,400 32. GMH Company manufactures 100,000 units of Part X annually for use in one of its main products. The total manufacturing cost for 100,000 units of Part X is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total cost
P120,000 80,000 40,000 160,000 -------P400,000 ========
Sutton Company has offered to sell GMH 100,000 units of Part X per year. If GMH accepts this offer, the facilities used to produce Part X can be used in the production of other components. This change would save GMH P10,000 in rent for the leased production facility used at present to support the production of other components. What is the maximum price that GMH should be willing to pay Sutton for part X? a. P1.20 b. P2.00
c. d.
P2.40 P2.50
JCN Industries normally produces and sells 5,000 keyboards for personal computers each month. Variable manufacturing costs amount to P25 per unit, and fixed costs are P146,000 per month. The regular sales price of the keyboards is P86 per unit. JCN has been approached by a foreign company that wants to purchase an additional 1,000 keyboards per month at a reduced price. Filling this special order would not affect JCN 's regular sales volume or fixed manufacturing costs. 33. Refer to the information above. On the basis of the above information only, which of the following is not true? a. At the 5,000-unit level of production, JCN's average cost per unit is P54.20. b. At the 6,000-unit level of production, JCN's average cost per unit is P49.33. c. It would not be profitable for JCN to consider the special order at a price less than P49 per unit. d. Neither the fixed manufacturing costs of P146,000 nor the variable manufacturing costs of P25 per unit is relevant to this decision regarding the special order.
Muecke Inc. is working on its cash budget for April. The budgeted beginning cash balance is P40,000. Budgeted cash receipts total P150,000 and budgeted cash disbursements total P158,000. The desired ending cash balance is P50,000. 34. The excess (deficiency) of cash available over disbursements for April will be: a. P32,000 b. P190,000 c. P48,000 d. (P8,000) 35. To attain its desired ending cash balance f or April, the company needs to borrow: a. P18,000 b. P0 c. P50,000 d. P82,000 36. Refer to the information above. Assume that the price offered by the foreign company is P43 per unit. Accepting the special order will cause JCN's operating income to: a. Increase by P18,000. c. Decrease by P33,000. b. Decrease by P2,000. d. Decrease by P35,000. 37. A machine is expected to produce increases in cash operating costs of P200,000 for the next six years. If the firm has a 14% after-tax hurdle rate and is subject to a 30% income tax rate, the correct discounted net cash flow would be: a. P(233,340). b. P(544,460). c. P(777,800). d. P(1,011,140).
38. Barrie, Inc., produces three products: A, B, and C. Two machines are used to produce the products. The contribution margins, sales demands, and time on each machine (in minutes) is as follows: time time
A B C
Demand 100 80 100
CM P12 18 25
on M1 5 10 15
on M2 10 5 5
There are 2,400 minutes available on each machine during the week. How many units should be produced and sold to maximize the weekly contribution? A B C A B C a. 100 80 100 c. 100 40 100 b. 20 80 100 d. 100 80 73 39. A machine is expected to produce annual savings in cash operating costs of P400,000 for the next six years. If the firm has a 10% after-tax hurdle rate and is subject to a 30% income tax rate, the correct discounted net cash flow would be: a. P522,600. b. P947,520 c. P1,219,400. d. P1,742,000. 40. Barrie, Inc., produces three products: A, B, and C. Two machines are used to produce the products. The contribution margins, sales demands, and time on each machine (in minutes) is as follows: time time Demand CM on M1 on M2 A 100 P12 5 10 B 80 18 10 5 C 150 25 5 10 There are 2,400 minutes available on each machine during the week. How many units should be produced and sold to maximize the weekly contribution? A B C A B C a. 100 80 150 c. 90 0 150 b. 50 80 150 d. 100 80 100
