CPAR

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

MANAGEMENT ADVISORY SERVICES SEPTEMBER 30, 2022

Final Pre-board Examination – Batch 92 8:00 am to 11:00 am

Instructions: Choose the BEST answer for each of the following items.

1. Which if the following statements is true?

a. A fixed cost is constant per unit of product.
b. A supervisor’s salary would be considered direct labor if the supervisor
works directly in the factory.
c. The cost of goods manufactured is an expense in a manufacturing firm.
d. Part of a cost such as factory depreciation can end up on the balance
sheet as an asset if goods are uncompleted or unsold at the end of
the period.

2. Decentralization
a. frees top management from operating problems, thus allowing them
to concentrate on long-term strategy.
b. reduces risk of loss of control by top management.
c. discourages better communication.
d. assumes decision making must be consolidated so that activities
throughout the organization may be more effectively coordinated.

3. In a standard cost system, overhead is applied to production based on

a. the standard hours allowed to complete the planned production for
the period.
b. the denominator hours chosen for the period.
c. the standard hours allowed to complete the output for the period.
d. the actual hours required to complete the output for the period.

4. A corporation produces Products A and B for which P200,000 common costs

are incurred, composed of 60% variable and 40% fixed. These two products
can be sold as is or processed further. Further processing of either product
does not delay the production of subsequent batches of the joint products.
Below are some other information:

Product A Product B
Production in units 15,000 30,000
Unit selling price without further processing ₱24 ₱16
Unit selling price with further processing 30 22
Total separate variable costs
of further processing ₱105,000 ₱105,000

To maximize the corporation’s manufacturing contribution margin, the total

separate variable costs of further processing that should be incurred are:
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a. ₱225,000 c. ₱195,000
b. ₱ 90,000 d. ₱105,000

5. The fixed and variable elements of a mixed cost can be expressed in a cost
formula which can be used to predict costs at other levels of activity within
the relevant range. This formula can be expressed as:

Y = a + bx

where x is:
a. the vertical intercept c. the independent variable
b. the total mixed cost d. the slope of the line

6. In contrast to managerial accounting, financial accounting

a. emphasizes relevance and flexibility rather than precision.
b. places more emphasis on the future.
c. looks at the organization as a whole rather than emphasizing the
segments of an organization.
d. focuses on providing data for internal users.

7. Manufacturing cost is synonymous with all of the following terms, except:

a. production cost c. product cost
b. period cost d. inventoriable cost

8. A company formulates and sells three chemicals: C1, C2, and C3. It sells to
industrial users who use and buy these chemicals in the following ratio: three
(3) liters of C1 for one (i) liter of C3, and two (2) liters of C2 per one (1) liter
of C1. Data about the three chemicals are as follows:

Selling Price Variable Cost Ratio

C1 ₱100 70%
C2 180 75%
C3 450 80%

Fixed costs amounted to P1,800,000.

At the break-even point, the volume of C1 to be sold would be

a. 12,000 c. 24,000
b. 36,000 d. 4,000

9. Which of the following statements is false?

a. There will never be any factory overhead variance when activity-
based-costing is used.
b. One key assumption underlying activity-based accounting is that
activities are caused by products and services and that activities
consume resources.
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c. If direct labor is used as a base for overhead cost assignment and

direct labor does not cause the overhead cost, the result will be
distorted product costs.
d. The use of activity-based costing normally results in substantially
greater unit costs for low-volume products than is reported by
traditional product costing.

10. For budgeting and control purposes, the accountant of a company is in the
process of estimating the variable cost per hour and the fixed costs of
operating an automated equipment. Data for the past 12 months of
operation have been gathered as follows:

Number of observations 12
Sum of the hours 840
Sum of the costs ₱9,000
Sum of the hours multiplied by the costs ₱655,000
Sum of the hours squared 63,800

Using the least squares method in cost segregation, what was the variable
cost per hour?
a. ₱400 c. ₱25
b. ₱ 5 d. ₱90

11. Part A is a component that a company uses in the assembly of its product.
The cost to produce one Part A is as follows:

Direct materials ₱ 4,000

Materials handling (20% of direct materials) 800
Direct labor 32,000
Overhead 48,000
Total manufacturing cost ₱84,800

Materials handling, which is not included in manufacturing overhead,

represents the direct variable costs of the receiving department that are
applied to direct materials and purchased components on the basis of their
cost.

The company’s annual overhead budget is one-third variable and two-thirds

fixed. Another company offers to supply Part A at a unit price of ₱50,000.
Should the company buy, or manufacture Part A?
a. Buy, due to advantage of ₱2,800.
b. Buy, due to advantage of ₱34,800
c. Manufacture, due to advantage of ₱7,200
d. Manufacture, due to advantage of ₱18,800

12. Which of the following is necessary in order to calculate the payback period
of a project?
a. Net present value c. Annual cash flow
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b. Useful life d. Minimum desired rate of return

13. A flexible budget is:

a. not appropriate when costs and expenses are affected by fluctuations
in volume.
b. appropriate for control of direct materials and direct labor but not for
control of factory overhead.
c. appropriate for control of factory overhead but not for control of
direct materials and direct labor.
d. appropriate for any level of activity.

14. There are 400 units of materials in stock, and 500 units are due in from
orders that were placed previously. The company uses the material at the
rate of 60 units per day and finds that it takes an average of 10 days for an
order to be received. Since usage and lead time are known with certainty
and since the company has determined that an order must be placed now,
the desired safety stock quantity must be equal to:
a. 800 units c. 100 units
b. 300 units d. 600 units

ITEMS 15 TO 18 ARE BASED ON THE FOLLOWING:

The presidents of two corporations were discussing their business problems.

The conversation consisted of the following:

MR. STEADY: My problem is having too low a volume of sales. I have fixed
costs of ₱200,000 and variable costs of ₱2 per unit of product. With my
present volume of 20,000 units, the average cost of product is ₱12 per unit.
If I could sell 200,000 units, the average cost would be ₱3 per unit.

MR. CHANGEABLE: You are lucky – all you need is more volume. My
problems are more complex. My fixed costs are also ₱200,000 and I am
selling 200,000 units of product. My variable costs are ₱2.80 per unit, which
is ₱0.20 less than my selling price of ₱3. What is your selling price?

MR. STEADY: My selling price is ₱12 per unit.

15. The incomes (losses) presently being earned (incurred) by the firms of the
two gentlemen are:
MR. STEADY MR. CHANGEABLE
a. ₱0 (₱160,000)
b. ₱ 240,000 ₱ 600,000
c. ₱200,000 ₱ 40,000
d. ₱0 ₱0

16. Assume that Mr. Steady could increase his volume to 400,000 units by
decreasing his price to ₱2.80 per unit. Would this price reduction be
desirable, assuming that the present plant capacity is adequate?
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a. No, because a loss of ₱9.20 per unit would be incurred.

b. No, because profit would decrease by ₱880,000.
c. Yes, because profit would increase to ₱120,000.
d. Yes, because profit would increase to ₱2,680,000.

17. Assume that Mr. Changeable could sell only 100,000 units if he raised his
price to ₱5 per unit. Would this price increase be desirable.
a. Yes, because profit would increase to ₱40,000.
b. Yes, because profit would increase by ₱180,000.
c. Yes, because profit would increase by ₱140,000.
d. Yes, because profit would increase by ₱20,000.

18. The break-even points expressed in units for the firms of the two gentlemen
are:
MR. STEADY MR. CHANGEABLE
a. 16,667 66,667
b. 100,000 71,429
c. 20,000 200,000
d. 20,000 1,000,000

19. Of the following, the variance that does not appear in a variable costing
income statement is the:
a. materials price variance c. spending variance
b. idle capacity variance d. labor rate variance

20. The horizontal line that divides the cost-volume-profit graph into two parts
is the
a. sales line c. variable cost line
b. fixed cost line d. break-even point

21. A capital investment evaluation technique that requires a trial-and-error

search in a present value table when cash flows are not equal in each year
of the investment life is the
a. present value method
b. accounting rate of return method
c. discounted cash flow rate of return method
d. average return on investment method

22. A company opened its new plant in a city at the beginning of the current
year to manufacture burglar alarms. During the yea, the plant sold 50,000
units of burglar alarms at an average price of ₱54 per unit. At the end of the
year, there were 10,000 units of finished burglar alarms on hand. There were
no goods in process inventory at the end of the year. During the year, the
plant reported the following costs charged to the Goods in Process account:
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Direct materials ₱810,000

Direct labor 648,000
Variable factory overhead 270,000
Fixed factory overhead 540,000

Operating expenses for the year are as follows:

Selling expenses ₱270,000 plus ₱4.05 per unit sold

Administrative ₱180,000 plus ₱1.80 per unit sold

The plant manager prepared an income statement for the current year
showing an income of ₱67,500, based on an absorption costing assumption.
The company controller, who is an advocate of variable costing, insists that
on a variable costing basis, the plant did not cover the fixed costs incurred
for the year.

If income were computed using the variable costing assumption, such

income would be:
a. lower than absorption costing income by ₱90,000.
b. lower than absorption costing income by ₱45,000.
c. equal to income under absorption costing.
d. zero

23. In connection with a standard cost system being developed by a company,

the following information is being considered with regard to standard hours
allowed for output of one unit of product:

Average historical performance for the

past three years 1.85 hours
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

the company to use in establishing standard hours allowed?
a. 1.85 c. 1.25
b. 1.60 d. 1.50

24. The concept of management by exception refers to management’s

a. consideration of only rare events.
b. consideration of only those items which vary materially from plans.
c. consideration of items selected at random.
d. consideration of all items except none.
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25. A manufacturer who sells its product at ₱150 per unit has the following costs
based on full capacity:

Materials ₱ 20
Labor 30
Overhead (60% fixed) 50
Total ₱100

A special order for 2,000 units was received. It was anticipated that the only
additional cost that shall be incurred is ₱10 for shipping. The manufacturer
has more than sufficient capacity to produce the special order.

What could be the minimum price that should be considered by the

manufacturer in the negotiation?
a. ₱100 c. ₱70
b. ₱90 d. ₱80

26. Which of the following statements is false?

a. The high-low method is the least accurate method of analyzing mixed
costs because the high and low points may not be representatives of
costs throughout the entire relevant range.
b. A cost formula produced by the high-low-points method and a cost
formula produced in the scattergraph method would be the same
within rounding error.
c. The scattergraph method is more accurate than the high-low method,
since all the observed data points can be taken into account when the
straight line is drawn.
d. The accountant assumes the relationship between costs and activity is
approximately a straight line within the relevant range.

ITEMS 27 TO 29 ARE BASED ON THE FOLLOWING INFORMATION:

At the end of the first year of operations of a corporation, the following

information was taken from the accounting record:

Sales (all on credit) ₱800,000

Cost of goods sold 480,000
Average inventory 80,000
Average accounts receivable 133,300
Net income 24,000
Total assets 300,000
Total liabilities 150,000

The corporation did not declare dividends during the year and capital stock
was neither issued nor retired. The liabilities consisted of accounts payable
and accrued items. No interest expense was incurred.

27. The corporation’s inventory turnover during its first year was
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a. 1.67 times c. 6 times

b. 3.60 times d. 10 times

28. The accounts receivable turnover was

a. 1.67 times c. 6 times
b. 3.60 times d. 10 times

29. The rate of return on the year-end total assets was

a. 8% c. 5%
b. 16% d. 3%

ITEMS 30 TO 32 ARE BASED ON THE FOLLOWING:

A company has two divisions. Division I has received an order for 20,000
additional units of product at ₱40 per unit. The variable cost in Division 1 is
₱20 per unit exclusive of a component part that can be acquired from
Division 2.

Division 2 uses a full cost transfer price which includes ₱15 variable cost plus
a pro rata share of fixed cost which is calculated as 100% of the variable
labor cost. The variable cost is made up of ₱10 of labor and ₱5 of materials.

30. The transfer price charged by Division 2 for its product is

a. ₱35 c. ₱15
b. ₱25 d. ₱40

31. If this transfer price is used, is Division 1 likely to accept the order?
a. No, because a loss of ₱5 per unit would be incurred.
b. No, because Division 1 would just break-even from the order.
c. Yes, because profit of ₱20 would be earned from the order.
d. Yes, because profit of ₱5 per unit would be earned from the order.

32. If both divisions are operating below capacity, should the order be accepted?
a. No, because the profit position of the company as a whole is not
expected to improve if the order is accepted.
b. Yes, because the company’s profit would increase by ₱100,000.
c. No, because the order would result in a loss of ₱100,000 for the
company as a whole.
d. No decision could be made because the quantitative information
presented in the problem are insufficient to compute expected
income or loss from the order.

33. The ratio that indicates the relationship of net income to total assets is the
a. current ratio
b. acid-test ratio
c. rate of return on capital employed
d. net income as a percentage of sales
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34. Responsibility accounting requires that costs be classified into categories on

the basis of:
a. direct and indirect costs
b. direct costs and costs allocated from other departments
c. controllable and noncontrollable costs
d. producing department and service department costs

ITEMS 35 TO 37 ARE BASED ON THE FOLLOWING:

A corporation is planning to issue new bonds at a lower interest rate in order

to cancel currently outstanding bonds. The controller realizes that this
decision to redeem bonds and issue new ones can be viewed as a capital
investment decision. When using capital expenditures evaluation techniques,
the company has adopted the following cutoff points: 8 years for the
maximum payback period, 16% for the minimum desired discounted cash
flow rate of return, and a net present value of at least ₱100,000.

The net cash investment is estimated to be ₱550,000, which is the difference

between the net cash outflow to redeem the original issue and the amount
raised by the new issue. The net cash benefit is estimated to be ₱120,000
per year for 15 years, and is the difference between the annual net cash
outlay required on the original issue and the new issue.

The present value of ₱1 at 16% on year 15 is 0.108; the present value of ₱1

received or paid annually for each of the next 15 years at 15% is 5.575.

35. The payback period for this project is:

a. 4.583 years
b. 8 years
c. 15 years
d. impossible to compute using the given data.

36. The net present value amounts to:

a. ₱430,000
b. ₱550,000
c. ₱119,000
d. impossible to compute using the given data.

37. If the results of evaluation are compared with the cutoff points set by the
company, the project is:
a. acceptable under both payback and present value methods.
b. not acceptable under both payback and present value methods.
c. acceptable under the payback method but unacceptable under the
net present value method.
d. acceptable under the net present value method but unacceptable
under the payback method.
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ITEMS 38 AND 39 ARE BASED ON THE FOLLOWING:

A company manufactures a laser device that can be used to detect if a person

is infected with the Covid-19 Virus even without undergoing Swab or Antigen
Tests. The most inexpensive model sells for ₱80, has variable production
costs of ₱40 per unit, commission cost of ₱6 per unit, and variable
distribution cost of ₱6 per unit. Fixed manufacturing costs associated with
this model are ₱100,000. Sales of the laser device are 4,000 units a year.

A civic organization in a nearby Barangay has offered to buy 1,200 units at

₱60 each. This order would require a one-time cost of ₱18,000 to lease extra
space and equipment until the order is completed. However, the normal
commission of ₱6 per unit and the variable distribution cost would be
eliminated.

38. Should the special order be accepted?

a. Yes, because the company would earn incremental profit of ₱1,200.
b. Yes, because the company would earn incremental profit of ₱6,000.
c. No, because the company would lose ₱24,000.
d. No, because the company’s present profit would decrease to ₱6,000.

39. If the regional distribution representative from the said nearby barangay
demands his commission, should the order be accepted?
a. No, because the special order would result in a loss of ₱6,000.
b. No, because the special order would result in a loss of ₱31,200.
c. No, because the special order would result in a loss of ₱1,200.
d. No, because the special order would result in a loss of ₱24,000.

40. Espana Company produces a single product. Last year, Espana’s net
operating income under absorption costing was P3,600 lower than under
variable costing. The company sold 10,000 units during the year, and its
variable costs were P9 per unit, of which P1 was variable selling expense.

If production cost was P11 per unit under absorption costing, then how many
units did the company produce during the year?
a. 11,200 c. 8,200
b. 8,800 d. 11,800

41. How many separate cost pools should be formed given the following
information:
Cost Cost driver
Postage costs # of brochures mailed
Printing and paper costs # of brochures mailed
Quality control costs # of inspections
Customer service costs # of customers served

a. 1 cost pool c. 3 cost pools

b. 2 cost pools d. 4 cost pools
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42. A report that measures financial and nonfinancial performance measures for
various organization units in a single report is called a(n):
a. balanced scorecard c. imbalanced scorecard
b. financial report scorecard d. unbalanced scorecard

43. Using residual income as a measure of performance rather than return on

investment promotes goal congruence because residual income:
a. places importance on the reduction of underperforming assets
b. calculates a percentage return rather than an absolute return
c. concentrates on maximizing an absolute amount of pesos
d. concentrates on maximizing the return on sales

44. Irene Corporation, whose tax rate is 40%, has two sources of funds: long-
term debt with a market value of P8,000,000 and an interest rate of 8%,
and equity capital with a market value of P12,000,000 and a cost of equity
of 12%. Irene has two operating divisions, the Blue division and the Gold
division, with the following financial measures for the current year:

Operating
Total Assets Current Liabilities
Income
Blue Div. P 9,500,000 P2,800,000 P1,055,000
Gold Div. P11,000,000 P2,200,000 P1,200,000

What is Economic Value Added (EVA) for the Blue Division?

a. (P233,400) c. P188,600
b. P21,960 d. P433,960

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 45 THROUGH 47:

The Maltronics Corporation reported the following information for its

Malabon Division:
Revenues P1,000,000
Operating costs 600,000
Taxable income 200,000
Operating assets 500,000

Income is defined as operating income.

45. What is the Malabon Division's investment turnover ratio?

a. 2.00 c. 2.50
b. 3.33 d. 0.80

46. What is the Malabon Division's return on sales?

a. 0.20 c. 0.50
b. 0.40 d. 0.60
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47. What is the Malabon Division's return on investment?

a. 0.2 c. 0.5
b. 0.4 d. 0.8

48. 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

49. Labango Cleaners has been considering the purchase of an industrial dry-
cleaning machine. The existing machine is operable for three more years and
will have a zero disposal price. If the machine is disposed now, it may be
sold for P60,000. The new machine will cost P200,000 and an additional cash
investment in working capital of P60,000 will be required.

The new machine will reduce the average amount of time required to wash
clothing and will decrease labor costs. The investment is expected to net
P50,000 in additional cash inflows during the year of acquisition and
P150,000 each additional year of use. The new machine has a three-year
life, and zero disposal value. These cash flows will generally occur
throughout the year and are recognized at the end of each year.

Income taxes are not considered in this problem. The working capital
investment will not be recovered at the end of the asset's life.

What is the net present value of the investment, assuming the required rate
of return is 10%? Would the company want to purchase the new machine?
a. P82,000; yes c. P(50,000); yes
b. P50,000; no d. P(82,000); no

50. The Zeron Corporation recently purchased a new machine for its factory
operations at a cost of P921,250. The investment is expected to generate
P250,000 in annual cash flows for a period of six years. The required rate of
return is 14%. The old machine has a remaining life of six years. The new
machine is expected to have zero value at the end of the six-year period.
The disposal value of the old machine at the time of replacement is zero.

An excerpt from the present value table appears below:

n 14% 16% 18%

5 3.433 3.274 3.127
6 3.889 3.685 3.498
7 4.288 4.039 3.812
What is the internal rate of return?
a. 15% c. 17%
b. 16% d. 18%
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51. Costs incurred in detecting which of the individual units of products do not
conform to specifications are:
a. prevention costs c. internal failure costs
b. appraisal costs d. external failure costs

52. An example of a nonfinancial measure for customer satisfaction is:

a. delivery delay c. return on sales
b. employee turnover d. process yield

53. A budget should/can do all of the following EXCEPT:

a. be prepared by managers from different functional areas working
independently of each other
b. be adjusted if new opportunities become available during the year
c. help management allocate limited resources
d. become the performance standard against which firms can compare
the actual results

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 54 THROUGH 56:

The following information pertains to a company:

Month Sales Purchases

January ₱30,000 ₱16,000
February ₱40,000 ₱20,000
March ₱50,000 ₱28,000

• Cash is collected from customers in the following manner:

Month of sale 30%
Month following the sale 70%

• 40% of purchases are paid for in cash in the month of purchase, and
the balance is paid the following month.

• Labor costs are 20% of sales. Other operating costs are ₱15,000 per
month (including ₱4,000 of depreciation). Both of these are paid in the
month incurred.

• The cash balance on March 1 is ₱4,000. A minimum cash balance of

₱3,000 is required at the end of the month. Money can be borrowed
in multiples of ₱1,000.

54. How much cash will be collected from customers in March?

a. ₱47,000 c. ₱50,000
b. ₱43,000 d. None of these answers are
correct.
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55. How much cash will be disbursed in total in March?

a. ₱21,000 c. ₱44,200
b. ₱25,000 d. ₱48,200

56. What is the ending cash balance for March?

a. (₱25,000) c. ₱3,200
b. ₱3,000 d. ₱3,800

57. A company evaluates manufacturing overhead in its factory by using

variance analysis. The following information applies to the month of May:

Actual Budgeted
Number of frames manufactured 19,000 20,000
Variable overhead costs ₱ 4,100 ₱ 2 per direct labor hour
Fixed overhead costs ₱22,000 ₱20,000
Direct labor hours 2,100 0.1 hour per frame

What is the fixed overhead spending variance?

a. ₱1,000 favorable. c. ₱2,000 favorable.
b. ₱1,000 unfavorable. d. ₱2,000 unfavorable.

58. The role of an independent accounting firm (or consultant) in performing

Management Advisory Services is
a. to provide advice and technical assistance, and should provide for
client participation in the analytical approach and process.
b. to provide advice and technical assistance, but should not provide for
client participation in the analytical approach and process.
c. to improve the client's use of its capabilities and resources to achieve
the objectives of the organization.
d. to provide advice and technical assistance and should provide for the
consultant's participation in the implementation of the
recommendation.

59. An upturn in economic activity is indicated by all of the following, except

a. Increased housing starts.
b. Reduction in the quantity of unemployment claims.
c. Increase in personal travel.
d. Reduction in the amount of luxury purchases.

60. Selected costs associated with a product are as follows:

Total standard hours for units produced 5,000.00

Total actual direct labor cost ₱111,625.00
Actual per hour labor rate ₱23.50
Standard per hour labor rate ₱24.00
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What amount is the total direct labor price variance?

a. ₱2,375 unfavorable. c. ₱2,500 unfavorable.
b. ₱2,375 favorable. d. ₱2,500 favorable.

ITEMS 61 to 64 ARE BASED ON THE FOLLOWING INFORMATION:

The owners of a convenience store have been looking for ways to improve
sales at the store. One of the proposals is to have a weekly raffle with a
total prize of ₱10,000 per week. For every ₱50 worth of goods purchased,
the customer shall receive a numbered ticket for the raffle. The variable cost
to print and distribute the tickets has been estimated at five pesos (₱5.00).
Promotions and other fixed costs in connection with the raffle, likewise, have
been estimated at ₱15,000 per week. The current weekly operating results
of the company are given below:

Sales ₱1,000,000
Variable costs 700,000
Fixed cost for the week 120,000

61. What is the sales revenue required to break-even without the raffle?
a. ₱180,000 c. ₱300,000
b. ₱171,428 d. ₱400,000

62. What is the sales revenue required to break-even with the raffle?
a. ₱725,000 c. ₱675,000
b. ₱483,333 d. ₱580,000

63. If the raffle can increase sales by 50% per week, profit will
a. increase by ₱155,000. c. decrease by ₱25,000.
b. increase by ₱25,000. d. remain unchanged.

64. If the company’s objective in conducting the weekly raffle is to double its
present profit, how much sales must be generated to attain this profit
objective?
a. ₱2,525,000 c. ₱2,000,000
b. ₱1,625,000 d. ₱1,683,333

65. Some possible causes of an unfavorable materials quantity variance include

the following, except:
a. untrained workers c. faulty machines
b. loss of quantity discount d. low quality materials

66. Financial accounting provides a historical perspective, whereas management

accounting emphasizes:
a. the future c. a current perspective
b. past transactions d. reports to shareholders
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67. A company is determining how to finance some long-term projects. The

company has decided it prefers the benefits of no fixed charges, no fixed
maturity date and an increase in the credit-worthiness of the company.
Which of the following would best meet the company’s financing
requirements?
a. Bonds. c. Long-term debt.
b. Common stock. d. Short-term debt.

68. Shimon Corporation manufactures industrial-sized water coolers and uses

budgeted machine-hours to allocate variable manufacturing overhead. The
following information pertains to the company's manufacturing overhead
data:

Budgeted output units 15,000 units

Budgeted machine-hours 5,000 hours
Budgeted variable manufacturing
overhead costs for 15,000 units ₱161,250
Actual output units produced 22,000 units
Actual machine-hours used 7,200 hours
Actual variable manufacturing overhead costs ₱242,000

What is the flexible-budget variance for variable manufacturing overhead?

a. ₱5,500 favorable c. ₱4,300 favorable
b. ₱5,500 unfavorable d. None of these answers is correct

69. An economy is at the peak of the business cycle. Which of the following
policy packages is the most effective way to dampen the economy and
prevent inflation?
a. Increase government spending, reduce taxes, increase money
supply, and reduce interest rates.
b. Reduce government spending, increase taxes, increase money
supply, and increase interest rates.
c. Reduce government spending, increase taxes, reduce money supply,
and increase interest rates.
d. Reduce government spending, reduce taxes, reduce money supply,
and reduce interest rates.

70. In the cost of quality, which of the following is an example of an “internal

failure”?
a. Cost of inspecting products on the production line by quality
inspectors.
b. Labor cost of product designers whose task is to design components
that will not break under extreme temperature conditions.
c. Cost of reworking defective parts detected by the quality assurance
group.
d. Cost of parts returned by customers.

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