MS

ReSA PW B48
 ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 48  Oct 2024 CPA Licensure Exams  Pre-Week Lecture BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek
MANAGEMENT SERVICES Aljon Lee  Elirie Arañas  Kenneth Manuel
4.Which financial executive is primarily responsible for both management and financial accounting?
B a. Treasurer c. Chief Financial Officer (CFO)

MS PREWEEK LECTURE b. Controller d. Chief Operating Officer (COO)

5. Which of the following is most likely the function of a controller rather than a treasurer?
D a. Investor relations c. Credit and collections
Breakdown of 70 items in MANAGEMENT SERVICES b. Banking and custody d. Government reporting
6. The person (s) directly responsible for attaining of organizational objectives is (are) the:
 40 items - Management Accounting (Part 1) C a. Controller c. Line management
✓ Cost Concepts and Behavior b. Chief financial officer d. Staff management
✓ Cost-Volume-Profit Analysis 7. As teamwork has become more prominent in the last few years, differences between staff and line management:
✓ Standard Costing & Variance Analysis B a. Have increased c. Have become more important relative to promotions
✓ Variable Costing vs. Absorption Costing b. Have diminished d. Have only been evident in employee reward system
✓ Financial Planning & Budgets 8. Management accounting plays three key roles in a business organization: (1) Scorekeeping, (2) Attention-Directing
✓ Responsibility Accounting & Transfer Pricing (3) Problem-Solving. Problem-solving is best illustrated in which of the following situations?
Balanced Scorecard a. A daily sales report {scorekeeping}
✓
b. Tracking the type of product returned {attention-directing}
* same source taken
by the examiners
✓ Relevant Costing & Differential Analysis
c. Making a recommendation regarding the lease or purchase of a fleet of vehicles
 25 items - Financial Management (Part 2)  d. None of the choices illustrates problem-solving or any important role in management accounting
✓ Financial Statement Analysis NOTE: SCOREKEEPING entails accumulating data and reporting results describing how the organization is
✓ Working Capital Management doing. ATTENTION-DIRECTING involves reporting and interpreting information that helps managers focus on
✓ Capital Budgeting operational inefficiencies and opportunities. PROBLEM-SOLVING involves identifying available alternatives and often
✓ Risks & Leverage recommends the best course of action.
✓ Capital Structure & Long-Term Financing Decision 9. For control decisions, emphasis is placed on the ___ role(s) of management accounting.
✓ Financial Markets D a. Scorekeeping c. Problem-Solving
 b. Attention-Directing d. Both Scorekeeping and Attention-Directing
 5 items - Economics (Part 3) 10. For strategic decisions, emphasis is placed on the ___ role(s) of management accounting. - >
long-term
✓ Macroeconomics C a. Scorekeeping c. Problem-Solving
✓ Microeconomics  b. Attention-Directing d. Both Scorekeeping and Attention-Directing
11. The IMA Standards of Ethical Professional Practice for management accountants comprises of (A) competence, (B)
Consider the trend of the 70 items in MS based on recent batches of CPA board examinations: confidentiality, (C) integrity and (D) credibility. “Integrity” requires management accountant to:
CPALE Batch THEORIES PROBLEMS a. Maintain an appropriate level of professional expertise by continually developing knowledge and skills
and perform duties in accordance with relevant laws, regulations, and technical standards {competence}
May 2024  23 items (33%) 47 items (67%) b. Keep information confidential unless disclosure is authorized or legally required {confidentiality}
October 2023  26 items (37%) 44 items (63%) c. Mitigate actual conflicts of interest and refrain from engaging in any conduct that would prejudice
May 2023  28 items (40%) 42 items (60%) carrying out duties ethically>
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upon the person

October 2022  24 items (34%) 46 items (66%)

 d. Communicate information fairly and objectively and disclose all relevant information expected to
influence an intended user’s understanding of the reports, analysis and recommendations {credibility} -> information
May 2022  39 items (56%) 31 items (44%) 12. Which of the following actions should a management accountant take first in confronting a potential ethical conflict
5-Batch Average  28 items (40%) 42 items (60%) concerning your direct supervisor?
a. Confront the supervisor directly.
Above pieces of information are based on the estimates given by past board examinees. To get the closest b. Discuss the situation with your supervisor’s direct supervisor. if D is not applicable
>
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estimate of the actual number, comments and feedbacks were obtained from surveyed examinees right after 2 c. Inform the Board of Directors of the existence of a potential conflict.
taking MS, which typically falls on the first day of CPALE.  I d. Review your organization’s procedures concerning resolution of such a conflict.
Aside from going over this preweek material, please take time to revisit the following selected MCQs: COST BEHAVIOR with LEARNING CURVE & REGRESSION ANALYSIS
✓ MS Quiz 1: 1, 4 to 9, 21, 22 1. For a simple regression analysis that is used to estimate the total factory overhead, an internal auditor finds that the
✓ MS Quiz 2: 3, 7, 14, 21, 23, 24, 27 line of regression that intersects with the y-axis is P 5,000 while the slope of the line is 0.20. The independent
✓ MS Quiz 3: 1, 4, 9, 14, 15, 22, 25 to 27 variable amounts to P 900,000 for month. What is the estimated amount of factory overhead for the month?
✓ MS Quiz 4: 1, 6, 8, 9, 11, 15, 17, 20, 22, 29 C a. P 92,500 b. P 180,000 c. P 185,000 d. P 230,000
✓ MS First Pre-Board Exams: 10, 12 to 14, 40 to 42, 61, 64 Solution: Y = a + bX = 5,000 + 0.20 (900,000)
✓ MS Final Pre-Board Exams: 11, 14, 26, 41, 46, 56, 65 2. In the standard regression equation y = a + bx, the letter b is best described as a(n)
✓ MS-L (Capital Budgeting…) Self-Test Exercises: 102-105, 108-109, 125-133 D a. Independent variable {X} c. Constant coefficient {a}
The questions found in this preweek material are MCQs taken from various sources: past Philippine CPA board b. Dependent variable {Y} d. Variable coefficient
exams, CMA resources, foreign test banks, and other reliable sources. MS Preweek is not in any way designed 3. The slope of the line of regression is
nor intended to predict the questions to be given in the actual CPALE. These questions however may serve C a. The level of total fixed costs. c. The rate at which the dependent variable varies.
as a reminder, a topical outline, a checklist, or a ‘morale-booster’ for your last-minute preparation in MS. b. The level of total variable costs. d. The rate at which the independent variable varies.
Items 4 and 5 are based on the following information
Part 1 – MANAGEMENT ACCOUNTING (40 items in the CPALE) Cocktails-Mocktails Company incurred the following factory overhead costs for the second quarter of the year:
3408
\

Machine Hours Factory Overhead 4800 3608

MANAGEMENT ACCOUNTING
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April 150 P 4,200 = 20

(2400) (120 x 20)
1. Managerial accounting is very similar to financial accounting in this aspect. May 120 P 3,600 150-120
1200
D a. Users of reports c. Emphasis between past and future June 180 P 4,800
b. Type of data provided to users d. Reliance on the accounting database 4. Using high-low method, how much is the fixed factory overhead cost for the second quarter? X 3
NOTE: A data warehouse or ‘Infobarn’ stores information used by different managers for multiple purposes. a. P 1,200 b. P 2,400 c. P 3,600 d. P 4,800 3408
2. Management accounting Solution: Variable cost per hour = ∆ Y ÷ ∆ X = (4,800 – 3,600) ÷ (180 – 120) = 20 per hour
D a. Provides information about the company as a whole Monthly fixed cost = 3,600 – 20 (120) = 1,200
b. Reports information that has occurred in the past that is verifiable and reliable 5. Which of the following equations shall be used under least-squares method?
c. Provides information that is generally available only on a quarterly or annual basis D a. 12,600 = 3 a + 69,300 b c. 1,890,000 = 450 a + 69,300 b
d. Focuses on estimating future revenues, costs, and other measures to forecast activities and their results b. 1,926,000 = 3 a + 69,300 b d. 1,926,000 = 450 a + 69,300 b
3. Which of the following groups would be least likely to receive detailed management accounting reports? Solution: Sum of the hours: 450 Sum of the squared hours: 69,300
B a. Managers c. Sales representatives Sum of the costs: 12,600 Equation 1: 12,600 = 3 a + 450 b
b. Stockholders d. Production supervisors Sum of the hours x costs: 1,926,000 Equation 2: 1,926,000 = 450 a + 69,300 b

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek
6.
Regression analysis is superior to other cost behavior analysis techniques because it ABSORPTION & VARIABLE COSTING with PRICING DECISION (Extra: ACTIVITY-BASED COSTING)
D a. Examines only one variable c. Produces measures of probable error 1. Mojito manufactures a single product. Unit variable production costs are P 20 and fixed production costs are P
b. Is not a simple sampling technique d. Considers all the points in the regression line 150,000. Mojito uses a normal activity of 10,000 units to set its standard costs. Mojito began the year with no
7. Correlation is a term frequently used in conjunction with regression analysis and is measured by the value of the inventory, produced 11,000 units, and sold 10,500 units. Ending inventory under absorption costing (AC) is:
coefficient of correlation (r). The best explanation of the value ‘r’ is that it C a. P 10,000 b. P 15,000 c. P 17,500 d. P 20,000
a. is positive only for downward-sloping regression lines Solution: AC inventory: [20 + (150,000 ÷ 10,000)] x (11,000 – 10,500) Incidentally, VC inventory: 20 (500)
b. ranges in size from negative infinity to positive infinity Note: Once normal capacity is given, the unit FFOH is based on normal production. A capacity or volume variance
c. interprets variances in terms of the independent variable explains any difference between the normal production used and actual production attained.
d. is a measure of the relative relationship between two variables 2. Sangria’s production facility has an ideal capacity of 12,500 units, which was used as the basis for the normal capacity
8. In regression analysis, the coefficient of determination (r²) is a measure of of 10,000 units. The company was able to produce 11,000 units during the period. Fixed manufacturing costs were
a. The slope of the regression line P 200,000 while variable manufacturing costs were also P 200,000. The volume or capacity variance is:
"
?
"I non-determination rxv r[
I-r
=
b. The predicted value of the dependent variable B a. P 20,000 unfavorable c. P 24,000 favorable
0 5 x 0 5 0 25
c. The amount of variation in the dependent variable explained by the independent variables
=
b. P 20,000 favorable d. P 40,000 favorable
. .
.

0 75
d. The amount of variation in the dependent variable unexplained by the independent variables - > non-determination
Solution: Volume (Capacity) Variance: (Actual Production – Normal Production) unit FFOH
.

9. In regression analysis, R-squared (r2) of 0.99 between two variables indicates a (an) = (11,000 – 10,000) (200,000 ÷ 10,000) Favorable: Actual Production > Normal Production
a. Weak goodness-of-fit c. Reasonable goodness-of-fit Note: Volume or capacity variable only exists under AC. No volume variance exists under variable costing (VC).
b. Excellent goodness-of-fit d. Spurious relationship between the two variables random 3. When monthly production volume is constant and sales volume is less than production, profit determined with AC7 VC
10. Which of the following statements is false regarding learning/experience/productivity/efficiency curve? variable costing procedures will:
C a. Learning curves differ from company to company a. Always be greater than profit determined using absorption costing P7s
b. Changes in personnel can change the learning curve b. Always be less than profit determined using absorption costing
At > BI
c. Learning curves can always be used for indirect labor c. be equal to profit determined using absorption costing
d. The learning curve may spike for a short time even if it is going to drop in the long run d. be equal to contribution margin per unit times units sold
11. Akio produces electronic components in a highly labor-intensive environment. Sydney Electronics has asked Akio to Note 1: If Production > Sales, then Ending Inventory > Beginning Inventory, and also, AC profit > VC profit.
bid on a component that Akio made for Sydney last month. The previous order was for 80 units and required 120 Note 2: Inventory cost under AC > Inventory cost under VC, regardless of production and sales.
direct labor hours to produce. Sydney would now like 240 additional components. Akio experiences an 80% learning 4. Margarita Manufacturers had the following costs when it produces 100,000 and sold 80,000 units of its only product: -100-80
curve on all its jobs. The number of direct labor hours needed to complete the 240 additional components is: Manufacturing costs Selling & Admin. Costs 180k x20
A a. 187.2 b. 256.0 c. 307.2 d. 360.0 Fixed P 180,000 Fixed P 90,000 = 36k
100
Solution: UNITS AVERAGE  total ÷ units TOTAL  units x average Variable 160,000 Variable 40,000
80 (given) 1.5 hours  120 ÷ 80 120 hours (given) How much lower would Margarita’s profit be if it used variable costing (VC) instead of absorption costing (AC)?
160  80 x 2 1.2 hours  1.5 x 80% 192 hours  160 x 1.2 a. P 36,000 b. P 54,000 c. P 68,000 d. P 94,000
320  160 x 2 0.96 hour  1.2 x 80% 307.2 hours  320 x 0.96 Solution: ∆ income = ∆ Inventory x unit FFOH = (100,000 – 80,000) x (180,000 ÷ 100,000)
Total hours for 240 additional units → 320 units less 80 units: 307.2 hours – 120 hours 5. A manufacturing company uses a traditional cost accounting system to apply quality control costs uniformly to all
COST-VOLUME-PROFIT ANALYSIS products at a rate of 15% of direct labor cost. Monthly direct labor cost for its main product is P 30,000. To distribute TC : 30k x 15 % = 4500
1. Cost-volume-profit (CVP) analysis is MOST essential in the determination of the quality control cost more equitably, the company is considering Activity-Based Costing (ABC). The monthly data
D a. Production level that is equal to sales shown below have been gathered for the main product: ABC : 12 X 12

I
b. Volume of operations in order to break-even Activity Cost Driver Cost Rate Quantity for Main Product
17 5KX0 14
1 Number of types of materials P 12 per type 12 types
. .

c. Variable costs necessary to equal fixed costs 1904

d. Relationship between revenues and costs at various levels of operations 2 Number of units P 0.14 per unit 17,500 units 30x77

2. Determine the least accurate statement regarding assumptions and relationships in CVP analysis. 3 Number of orders P 77 per order 30 orders
4049
A a. Fixed costs are always constant c. Fixed cost per unit varies with volume What is the monthly quality control cost assigned to the main product using ABC?
b. Net loss is unrecovered fixed costs d. At breakeven, fixed cost is simply recovered a. P 150 per order c. P 404 lower than using the traditional system
3. Adriel, Inc. sells a single product for P 40 per unit, which it purchases for P 20. The salespeople receive a salary plus b. P 4,500 d. P 404 higher than using the traditional system
a commission of 5% of sales. Last year the organization’s net income (after taxes) was P 100,800. The organization Solution: Traditional costing: 15% (30,000) = 4,500 ABC: 12 (12) + 0.14 (17,500) + 77 (30) = 4,904
is subject to an income tax rate of 30%. The fixed costs of the organization are: Items 6 and 7 are based on the following information
48
Advertising P 124,000 Bloody Mary Company is preparing its annual profit plan. The controller estimates the amount of overhead that
Rent 60,000 (20) should be allocated to the individual product lines from the information given as follows:
Salaries 180,000 (4)(40 x 10 % ) Wall Mirrors Specialty Windows
Other fixed costs 32,000 Units produced 25 25
16 CM
Total P 396,000 Material moves per product line 5 15
What is the breakeven point in units? Direct labor hours per unit 200 200
70 % D a. 8,800 units b. 18,000 units c. 19,800 units d. 22,000 units Budgeted materials handling costs P 50,000
100 8 :
6. Under a traditional costing system, what would be the materials handling costs allocated to one unit of wall mirrors?
.

- Solution: Breakeven Point in Units: 396,000 ÷ (40 – 20 – 2*) *Commission: 5% (40)

4. Using the same information from the previous question (item 3): Aiah is considering changing the compensation B a. P 500 c. P 2,000
194k
(144k) 80k) +
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plan for sales personnel. If Aiah increases the commission to 10% of sales and reduces salaries by P 80,000, what b. P 1,000 d. P 5,000
= 28750x40 = 1150
14 peso sales volume must Aiah have to earn the same net income as last year? Solution: Traditional costing (based on DL hours): 50,000 [200 ÷ (200 + 200)] ÷ 25 units
a. P 1,042,000 b. P 1,100,000 c. P 1,150,000 d. P 1,630,000 7. Under ABC, what would be the materials handling costs allocated to one unit of wall mirrors?
Solution: Required unit sales: [(396,000 – 80,000) + (100,800 ÷ 0.7)] ÷ (40 – 20 – 4) = 28,750 units A a. P 500 c. P 1,500
5. What is the fixed cost for a company that has sales of P 200,000, a contribution margin ratio of 20% and a margin b. P 1,000 d. P 2,500
of safety (MS) of P 80,000? Solution: ABC: 50,000 [5 ÷ (5 + 15)] ÷ 25 units
B a. P 16,000 b. P 24,000 c. P 80,000 d. P 96,000 8. In target costing customers
Solution 1: BES = Sales – MS = 200,000 – 80,000 = 120,000 FC = BES x CMR = 120,000 x 20% a. The market price of the product is taken as a given
Solution 2: CM = Sales x CMR = 40,000 Profit = MS x CMR = 16,000 FC = CM – profit = 40,000 – 16,000 b. Only raw materials, labor, and variable overhead cannot exceed a threshold target 32's competition
c. Only raw materials cannot exceed a threshold target
Target Cost =
SP-Profit
6. As projected profit increases, the costs
D a. Breakeven point goes down c. Contribution margin goes up d. Raw materials are recorded directly to cost of goods sold
b. Margin of safety stays constant d. Degree of operating leverage declines NOTE: In a highly competitive industry where pricing is largely based on prevailing market price, target cost is
7. In a period of decreasing sales, the most rapid decrease in profit will result in a firm with a: computed as follows: Target cost = market price – desired profit
a. Cost structure which includes mostly fixed costs A1 P
.
= D %. S X DOL BUDGETING with PROBABILITY ANALYSIS Budgete plan
b. Cost structure which includes mostly variable costs 1. A budget can serve as US control
c. Unit cost structure which reflects mostly variable costs a. A control tool c. A planning and control tool
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d. Cost structure balanced between variable and fixed costs b. A planning tool  usual mistake ☺ d. A basis for preparing financial statements Actual
NOTE: High FC → High Operating Leverage (since DOL = CM ÷ profit) → profit is more sensitive to sales.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek
2. In the budgeting and planning process for a firm, which one of the following should be completed first? 24. What is the budgeted or scheduled production for the third quarter (in units)?
D a. Sales budget  usual mistake ☺ c. Cost management plan B a. 16,500 b. 17,500 c. 18,000 d. 18,500
b. Financial budget d. Strategic plan-

long-term plan - master budget -

annual Solution: 3Q production = sales + closing units – opening units = 18,000 + (25% x 16,000) – (25% x 18,000)
3. Strategic planning is 25. Assuming that the budgeted production in second quarter is 15,000 units, what would be budgeted purchases of
D a. setting standards for the use of important but hard-to-find materials. raw materials in the second quarter (in pounds)?
b. planning activities for promoting products for the future. A a. 61,000 b. 61,500 c. 62,000 d. 62,500
c. planning for appropriate assignments of resources. Solution: 2Q purchases = usage + closing lbs. – opening lbs. = (15,000 x 4) + 0.1 (17,500 x 4) – 0.1 (15,000 x 4)
 d. stating and establishing long-term plans.
13. Strategy specifies: STANDARD COSTING with GP VARIANCE ANALYSIS
a. The demand created for products and services 1. A difference between standard costs used for production and the budgeted costs of the same effort can exist because
b. Standard procedures to ensure quality products A a. Standard costs represent what costs should be, whereas budgeted costs are expected actual costs
c. Incremental changes for improved performance b. Budgeted costs are historical costs, whereas standard costs are based on engineering studies
 d. How an organization matches its own capabilities with the opportunities in the marketplace c. Budgeted costs include some slack, whereas standard costs do not
14. The process of preparing a budget: d. Standard costs include some slack, whereas budgeted costs do not
A a. Forces coordination and communication across business functions 2. Variance analysis should be used
b. Increases accounting efficiencies a. To understand why variances arise
c. Promotes production automation b. To encourage employees to focus on meeting standards
d. Reduces overcapacity c. As the only source of information for performance evaluation
15. The master budget embraces the impact of d. To administer appropriate disciplinary action to employees that do not meet standards
A a. Operating and financing decisions c. Financing and managerial decisions 3. The production department should generally be responsible for material price variances that resulted from
b. Operating and managerial decisions d. Operating, managerial, and financing decisions a. Purchases made in uneconomical lot-sizes. c. Purchase of the wrong grade of materials.
16. The steps to follow when preparing the operating budget are b. Rush orders arising from poor scheduling. d. Changes in the market prices of raw materials.
A a. Revenue budget, production budget, and direct materials purchases budget. Items 4 and 5 are based on the following information
b. Costs of goods sold budget, production budget, and cash budget. Rhum has a budgeted normal monthly capacity of 5,000 labor hours with a production of 4,000 units. Standards are:
c. Revenue budget, overhead budget, and production budget. Materials 2 kilos at P 1.00
d. Revenue budget, cash inflows, and production expenditures. Labor P 8.00 per hour
17. Pro forma financial statements are part of budgeting process. Normally, the last pro forma statement prepared is: Factory overhead at normal capacity:
C a. Income statement c. Statement of cash flows Fixed expenses P 5,000.00
b. Statement of cost of goods sold d. Statement of manufacturing costs Variable expenses P 1.50 per labor hour
18. Unlike zero-based budgeting, incremental budgeting During November, actual factory overhead totaled P 11,250 and 4,500 labor hours cost P 33,750. Production during
C a. Starts from a base of zero {Zero-based budgeting} the month was 3,500 units using 7,200 kilos of materials at a cost of P 1.20 per kilo.
b. Requires a manager to justify the entire budget for each year {Zero-based budgeting} 4. What was the material purchase price variance?
c. Simply adjusts the current year’s budget to allow for changes planned for the coming year A a. P 1,440 U b. P 3,440 U c. P 204 F d. P 2,187.50 F
d. Eliminates the need to review all functions periodically to obtain optimum use of resources Solution: Material purchase price variance (MPV): AQ (AP – SP) = 7,200 (1.20 – 1.00)
19. ‘Kaizen’ budgeting refers to the budgeting process where 5. What was the labor efficiency variance?
a. The budget is based on only one level of activity {Static budget} B a. P 2,250 U b. P 1,000 U c. P 2,187.50 F d. P 62.50 F
b. The budget is based on many levels of activity so that the budget may be adjusted based on actual Solution: Labor efficiency variance: (AH – SH) SR = [4,500 – 3,500 (1.25*)] 8
activity {Flexible budget} * Standard hours per unit (based on normal capacity): 5,000 ÷ 4,000 = 1.25
c. The budget is based not on the existing system, but on changes or improvements that are to be made Items 6 to 8 are based on the following information
d. A product’s revenues and expenses are estimated over its entire life cycle (i.e., from R&D phase to Vodka Company uses a standard cost system and prepared the following budget for May when 24,000 machine
customer support phase) {Life-cycle budget} hours of activity were projected: variable overhead, P 48,000; fixed overhead: P 240,000. Actual data for May were:
20. When actual performance varies from the budgeted performance, managers will be more likely to revise future Standard machine hours allowed for output attained: 25,000 Variable overhead incurred: P 50,000
budgets if the variances were Actual machine hours worked: 24,000 Fixed overhead incurred: P 250,000
D a. Small c. Controllable rather than uncontrollable 6. What was the standard variable overhead rate for May?
b. Favorable rather than unfavorable d. Uncontrollable rather than controllable A a. P 2.00 b. P 2.08 c. P 5.00 d. P 5.21
21. In probability analysis, expected value may be considered as a Solution: Standard variable overhead rate: P 48,000 ÷ 24,000 machine hours
C a. Simple average c. Weighted average 7. What were the variable-overhead (A) spending and (B) efficiency variances, respectively?
b. Moving average d. Geometric average D a. P 0, P 0 b. P 0, P 2,000 U c. P 2,000 U, P 0 d. P 2,000 U, P 2,000 F
22. Martini makes P 500,000 if the fishing season weather is good, P 200,000 if the weather is fair, and loses P 50,000 Solution: VFOH spending variance: AFOH (V) – BAAH (V) = 50,000 – 24,000 (2)
if the weather is poor during the season. If the weather forecasts a 40% probability of good weather, a 25% VFOH overhead efficiency variance: BAAH (V) – BASH (V) = (AH – SH) VR = (24,000 – 25,000) 2
probability of fair weather, and a 35% probability of poor weather, what is the expected monetary value for Martini? 8. What were the fixed-overhead (A) budget and (B) volume variances, respectively?
B a. P 200,000 b. P 232,500 c. P 267,500 d. P 500,000 D a. P 0, P 10,000 F b. P 10,000 F, P 0 c. P 10,000 U, P 0 d. P 10,000 U, P 10,000 F
Solution: Expected value (100%) = 40% (500,000) + 25% (200,000) + 35% (-50,000) Solution: FFOH budget (spending) variance: AFOH (F) – BAAH (F) = 250,000 – 240,000
23. Manhattan Company began operations on January 1 of the current year with a P 12,000 cash balance. 40% of sales FFOH volume variance: BASH (F) – SHSR (F) = 240,000 – 25,000 (240,000 ÷ 24,000)
are collected in the month of sale; 60% are collected in the month following sale. 20% of purchases are paid in the NOTE: In standard cost variance analysis, under-applied = unfavorable (over-applied = favorable)
month of purchase, and 80% are paid in the month following purchase. 9. Whiskey Company, which sells a single product, provided the following data:
January February 2024 2023
Sales P 35,000 P 55,000 Unit Sold 150,000 180,000
Purchases 30,000 40,000 Sales P 750,000 P 720,000
Operating expenses (P 2,500 monthly depreciation) 7,000 9,000 A a. Price: P 150,000 F, Volume: P 120,000 U c. Price: P 180,000 F, Volume: P 150,000 U
If operating expenses are paid in the month incurred, then what is the increase in cash balance for February? b. Price: P 150,000 U, Volume: P 120,000 F d. Price: P 180,000 U, Volume: P 150,000 F
B a. P 2,000 increase b. P 4,500 increase c. P 5,000 increase d. P 7,500 increase Solution: Sales Price Variance: 150,000 (5 – 4) Sales Volume Variance: (150,000 – 180,000) 4
Solution: 40% (55,000) + 60% (35,000) – 20% (40,000) – 80% (30,000) – (9,000 – 2,500) 10. Strategic analysis to operating income does not require determining: From Houngren
Items 24 and 25 are based on the following information a. Price recovery component c. Growth component
Old-Fashioned Company has budgeted quarterly sales for the year 2024 as follows: b. Cost recovery component d. Productivity component
Quarter 1 2 3 4
Sales in unit 12,000 14,000 18,000 16,000 RESPONSIBILITY ACCOUNTING & TRANSFER PRICING
The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in 1. Variance analysis would be appropriate to measure performance in
units. Four pounds (lbs.) of raw materials are required for each unit produced. The raw materials inventory at the D a. Cost centers c. Investment centers
end of each quarter should equal 10% of the next quarter's production needs in materials. b. Profit centers d. Cost, profit and investment centers

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 48 – October 2024 CPA Licensure Examination
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MS Preweek
2. A primary consideration in tracing a cost in responsibility accounting is 2. Bacardi plans to shut down a division with a P 20,000 contribution margin. Overhead allocated is P 50,000, P 5,000
CM) AFC -> continue
C a. Whether it is fixed or variable of which cannot be eliminated. What is the increase in income by discontinuing the division?
b. Whether it is production or administrative C a. P 5,000 b. P 20,000 c. P 25,000 d. P 30,000
c. Who or what caused the cost to be incurred Solution: Segment margin = CM – avoidable fixed cost = 20,000 – (50,000 – 5,000) = (P 25,000) CM < AFC a Shutdown
d. Where in the organizational structure the cost occurred 3. Tanduay currently sells 10,000 units of product M for P 18.00 each. Variable costs are P 8.00 per unit. A discount
3. Which of these items will LEAST likely appear in the internal performance report prepared by a profit center manager? store has offered P 16.00 for 4,000 units of product M. If Tanduay accepts the special order, it will lose some sales
a. Intersegment and external sales c. Direct variable cost at the regular price. Determine the number of units Tanduay could lose before the order became unprofitable.
b. Discretionary fixed cost d. Committed fixed cost C a. 2,000 units b. 2,667 units c. 3,200 units d. 5,000 units
4. Residual income is a better measure for performance evaluation than return on investment because Solution: Special order margin = Regular sales margin → 4,000 (16 – 8) = x (18 – 8)
B a. The problems associated with measuring the asset base are eliminated 4. Firms may be asked to accept a special order of their product for a reduced price if:
b. Desirable investment decisions will not be neglected by high-return divisions a. The order is small c. It can be concealed from the government
c. Only the gross book value of assets needs to be calculated b. Excess capacity exists d. The plant is producing at maximum capacity
d. The arguments about the implicit cost of interest are eliminated 5. Johnnie Company is approached by a customer to fulfill a large one-time-only special order for a product similar to
one offered to regular customers. The following per unit data apply for sales to regular customers:
Items 5 to 8 are based on the following information
Direct materials P 455
The following is available for an investment center of Gin Corporation for 2024:
Direct labor 300
Sales P 100,000
Operating expenses 85,000
J15 Variable manufacturing support 45
Fixed manufacturing support 100
Average operating assets 40,000
Total manufacturing costs P 900
Stockholder’s equity 25,000
Mark-up (60%) 540
Required rate of return 18%
Targeted selling price P 1,440
5. Determine the operating profit margin.
Johnnie has excess capacity. If Johnnie accepts the order, direct materials cost will increase by P 30 per unit. What
A a. 15% b. 25% c. 37.5% d. 60%
is the minimum acceptable price of this one-time-only special order?
Solution: Profit margin = operating income ÷ sales = (100,000 – 85,000) ÷ 100,000
A a. P 830 b. P 900 c. P 930 d. P 1,470
6. What is the assets turnover?
Solution: Minimum price (with excess capacity) = (455 + 30) + 300 + 45
B a. 1.5x b. 2.5x c. 3.5x d. 4x
6. Walker Company uses 8,000 units of a certain part in production each year. Presently, this part is purchased from
Solution: Assets turnover = sales ÷ operating assets = 100,000 ÷ 40,000 Ol
ROl =
an outside supplier at P 12 per unit. For some time now, there has been idle capacity in the factory that could be
7. What is the return on investment? or PM X ATO
Ave Asset utilized to make this part. The following are the unit costs of making this part internally:
a. 15% b. 25% c. 37.5% d. 60%
Direct materials P 3.25
Solution: RoI = operating income ÷ operating assets = (100,000 – 85,000) ÷ 40,000 15
15 100
or
37 5 % Direct labor 2.75
RoI (alternative solution) = profit margin x assets turnover = 15% x 2.5
X =
100
.

40 40 Variable manufacturing overhead 2.00

8. What is the residual income?
Fixed manufacturing overhead 5.00
B a. P 7,200 b. P 7,800 c. P 9,600 d. P 15,000
The above fixed manufacturing overhead represents an allocation of existing costs to this part. However, there would
Solution: Residual income = operating income – required income = 15,000 – 18% (40,000)
be an increase of P 12,000 in fixed manufacturing overhead costs for the salary of a new supervisor. If Walker
9. The following information is available for Brandy Enterprises for 2024:
outsources the part from the outside supplier, what is the effect on a per-unit basis?
Net operating profit after taxes P 36,000,000
D a. P 2.50 savings b. P 3.50 savings c. P 1.00 loss d. P 2.50 loss
Depreciation expense 15,000,000
Solution: Relevant cost to make = 3.25 + 2.75 + 2 + (12,000 ÷ 8,000) vs. Relevant cost to buy = 12
Change in net working capital 10,000,000
7. Star Records produces two different products, A and B. The company has 100 pounds of raw materials and 300
Capital expenditures 12,000,000
direct labor hours available for production. The time requirement and contribution margins per unit are as follows:
Invested capital (total assets – current liabilities) 100,000,000
A B
Weighted average cost of capital 10%
Raw materials per unit (pounds) 1 2
What is the amount of the economic value added (EVA)?
Direct labor hours per unit 4 2
B a. P 36,000,000 b. P 26,000,000 c. P 20,000,000 d. P 15,000,000
Contribution margin per unit P4 P5
Solution: EVA = profit after tax – required profit = 36 M – 10% (100 M)
What is the objective function for maximizing profits and the equation for the constraint on raw materials?
Items 10 & 11 are based on the following information Objective Function Constraint on raw materials
The Motor Division of Beer Corporation uses 5,000 carburetors per month in its production of automotive engines. a. Max Z = 1 A + 2 B 4 A + 2 B < 100
It presently buys all of the carburetors it needs from two outside suppliers at an average cost of P100. The Carburetor b. Max Z = 4 A + 5 B 1 A + 2 B < 100
Division of Beer manufactures the exact type of carburetor that the Motor Division requires. The Carburetor Division c. Max Z = 4 A + 2 B 4 A + 5 B < 100
is presently operating at its capacity of 15,000 units per month and sells all of its output to a foreign car manufacturer d. Min Z = 4 A + 5 B 4 A + 2 B < 300
at P 106 per unit. Its cost structure (on 15,000 units) is: NOTE: In linear programming, Corner Points refer to maximized combinations of variables within the feasible region.
Variable production costs P 70 Objective Function: Maximize Z = 4A + 5B 3 Corner Points or Feasible Combinations
Variable selling costs 10 2 Constraints Functions 1) A = 0, B = 50 → Z = 250
All fixed costs 10 1) Constraint on DM: 1 A + 2 B < 100 2) A = 75, B = 0 → Z = 300
The Carburetor Division would not incur any variable selling costs on units that are transferred internally. 2) Constraint on DL: 4 A + 2 B < 300 3) A: 66.67, B: 16.67 → Z = 350 (optimal product mix)
10. What is the maximum of the transfer price range for a transfer between the two divisions? 8. The primary criterion when faced with a resource allocation decision is:
a. P 106 b. P 100 c. P 90 d. P 70 D a. cost minimization
Solution: Maximum transfer price is based on the purchase price offered by the outside supplier. b. achievement of organizational goals
11. What is the minimum of the transfer price range for a transfer between the two divisions? 70 + (106 70 10)
- -
= 94 c. reduction in the amount of time required to perform a particular job
a. P 70 b. P 90 c. P 96 d. P 106 vc + Lost CM
 d. how well the alternatives help achieve company goals in relation to the costs incurred for these systems
Solution 1: Minimum transfer price (full capacity): 106 – 10
BALANCED SCORECARD & GLOBAL CONTEMPORARY/EMERGING ISSUES IN MANAGEMENT ACCOUNTING
Solution 2: Minimum transfer price = Unit VC + Lost UCM = 70 + (106 – 70 – 10)
1. The balanced scorecard has been adopted by many corporations. Which best describes the balanced scorecard?
12. The minimum transfer price generally is equal to the
D a. A strategy that meets management’s objectives.
A a. Opportunity costs plus incremental costs
b. A diagram illustrating cause and effect relationships
b. Opportunity costs less additional outlay costs Financial
c. A table of key actions to achieve strategic objectives
c. Opportunity costs divided by the additional outlay costs
d. A strategic performance measurement and management framework customer
d. Opportunity costs times 125% plus the additional outlay costs
2. A balanced scorecard is primarily concerned with
RELEVANT COSTING with LINEAR PROGRAMMING a. Staff c. Systems Internal Business Process
1. A segment should be kept if segment revenues exceed b. Strategy d. Structure
D a. Fixed costs c. Segment variable costs and fixed costs 3. It is an operational factor that directly affects the economic viability of the organization. Learning & Growth
b. Segment variable costs d. Avoidable costs associated with the segment A a. Key success factor c. Customer focus
b. Continuous improvement d. Supply chain

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek
4. Strategy should focus PRIMARILY on the organization’s Part 2 – FINANCIAL MANAGEMENT (25 items in the CPALE)
B a. Products c. Employees
b. Customers d. Shareholders WORKING CAPITAL MANAGEMENT
5. To be successful, a company needs to be: 1. The goal of working capital management is to:
B a. Employee driven c. Management driven C a. Pay off short-term debts
b. Customer driven d. “Driven” by the board of directors b. Balance current assets against current liabilities
6. Which of the following is NOT a way for a company to improve customer response time? c. Achieve a balance between risk and return to maximize the firm’s value
C a. Use faster delivery procedures c. Purchase material in larger quantities d. Achieve a balance between short-term and long-term assets to achieve the firm’s overall goals
b. Produce the product more quickly d. Increase capacity of bottleneck operations 2. The working capital financing policy that subjects the firm to the greatest risk of being unable to meet the firm’s
7. Which balanced scorecard performance measure is part of those used for internal business processes perspective? maturing obligations is the policy that finances (where: CA = current assets) liquidity
a. Cycle time c. Customer retention {Customers} a. Temporary CA with long-term debts c. Permanent CA with long-term debts
b. Employee satisfaction {Learning & Growth} d. Return on investment {Financial} b. Fluctuating CA with short-term debts d. Permanent CA with short-term debts
8. Which of the following is NOT an appropriate measure of internal business process performance? 3. If a firm increases its current assets relative to total assets,
D a. Quality costs c. Manufacturing cycle efficiency A a. It reduces return and risk c. It increases return but reduces risk
b. Delivery cycle time d. Number of customer complaints {Customers} -wait MC DC
b. It increases return and risk d. It reduces return but increases risk
9. Moscow Manufacturing Corporation has the following information: 4. A consultant recommends that a company hold funds for the following two reasons:
before production
Moving time 8 days Processing time 10 days X ↑ Reason #1: Cash needs can fluctuate substantially throughout the year
WAIT TIME
Inspection time 2 days Storage time 30 days Reason #2: Opportunities for buying at a discount may appear during the year
start & The cash balances used to address the reasons given above are correctly classified as
What is the manufacturing cycle efficiency (MCE)? after production V ↑
A a. 20% b. 25% c. 60% d. 80% L Reason # 1 Reason # 2
queve
Solution: MCE: value-added time ÷ throughput time (manufacturing cycle) = 10 ÷ (8+2+10+30) a. Speculative balances Speculative balances
10. Productivity is measured by the b. Speculative balances Precautionary balances
C a. Total quantity of input used to generate total quantity of output for a period c. Precautionary balances Speculative balances
b. Total quantity of output generated from a limited amount of input during a period d. Precautionary balances Precautionary balances
c. Quantity of good output generated from a specific amount of input during a period 5. Which money market security is most often held as a substitute for cash?
d. Quantity of good output generated from the quantity of good input used during a period A a. Treasury bills c. Gold
11. The approaches and activities of managers in short-run and long-run planning and control decisions that increase value b. Common stock d. AAA corporate bonds
for customers and lower costs of products and services are known as 6. Which of the following is true about a firm’s float?
A a. Cost management c. Enterprise resource planning a. A firm strives to minimize the float for both cash receipts and cash disbursements
b. Value chain management d. Customer value management b. A firm strives to maximize the float for both cash receipts and cash disbursements
12. An Enterprise Resource Planning (ERP) system can best be described as: c. A firm strives to maximize the float for cash receipts and minimize the float for cash disbursements.
D a. a collection of programs that use a variety of unconnected databases d. A firm strives to maximize the float for cash disbursements and minimize the float for cash receipts.
b. a sophisticated means of linking two or more companies to facilitate their planning processes 7. A firm has daily cash receipts of P 100,000. A bank has offered to reduce the collection time on the firm’s deposits
c. a database that is primarily used by a purchasing department to determine the correct amount of a by two days for a monthly fee of P 750. If money market rates are expected to average 6% during the year, what 100k x6 % x2 = 12k
particular supply item to purchase is the net annual benefit (loss) from having this service? 750x12 = ak
 d. a single database that collects data and feeds it into applications that support each of the company’s a. P 12,000 b. P 6,000 c. P 3,000 d. P 0
business activities, such as purchases, production, distribution, and sales Solution: Benefit: 100,000 (2 days) 6% = 12,000 Cost: 750 (12 months) = 9,000 3k

13. It is an approach to continuous improvement that focuses on serving customers and uses front-line workers to identify 8. A lockbox plan is
and solve problems systematically. C a. Used to identify inventory safety stocks.
C a. ABC system c. Total quality management (TQM) b. A method for safe-keeping of marketable securities.
b. Just-in-time (JIT) system d. Process value analysis c. A system for speeding up a firm’s collections of checks received.
14. Total Quality Management (TQM) should be viewed as d. A system for slowing down the collection of checks written by a firm.
C* a. Goal centered and standard driven c. Customer centered and employee driven 9. A growing company is assessing current working capital requirements. An average of 58 days is required to convert
b. Policy centered and procedure driven d. Management centered and technology driven raw materials into finished goods and to sell them. An average of 32 days is required to collect on receivables. If 58]32
NOC

15. Which of the following quality tools is another term for gradual yet continuous improvement? the average time the company takes to pay for its raw materials were 15 days after they are received, then what
a. Theory of constraints c. Business process reengineering would be the total cash conversion cycle (CCC) for this company? (15)
b. Kaizen d. Kanban system a. 11 days b. 41 days c. 75 days d. 90 days NOC
75
16. Business Process Reengineering (BPR) is a more radical approach to improvement than TQM since BPR Solution: CCC = (DSI or Age, inventory) + (DSO or Age, AR) – (DPO or Age, AP) = 58 + 32 – 15
a. Requires a change in the company’s products 10. JYP Company has P 5,000,000 of average inventory and sales of P 30,000,000. Using a 365-day year, calculate the 345
150 = S

b. Involves completely redesigning business processes by outside consultants firm’s inventory conversion period or age in inventory. 30m = 40 83
Are
Inuty
.

C
c. Involves redesigning business processes and eliminating value-added activities a. 30.25 days b. 45.00 days c. 60.83 days d. 72.44 days 5m
I

d. Empowers front-line workers to solve problems and it focuses on attention on solving problems rather Solution: Inventory turnover: 30 M ÷ 5 M = 6 times Age of inventory: 365 ÷ 6
than on finger-pointing 11. An increase in sales resulting from an increased cash discount for prompt payment would be expected to cause: Age Inuty =
345

17. Under Theory of Constraints (ToC), improvement efforts should be focused a. A decrease in cash conversion cycle c. An increase in operating cycle ↓ Age of receivable ITO

A a. Work center that is a constraint c. Cost center that incurs the highest costs b. A decrease in purchase discounts taken d. An increase in average collection period shorter collection period

b. Work center that has no constraint d. Cost center that has least number of constraints 12. Ignoring cost and other effects, which of the following measures would tend to reduce the cash conversion cycle?
C a. Take cash discounts when offered
inspection 18. A company that wants to be known as a world-class manufacturer of quality products shall spend more heavily on b. Maintain the level of receivable as sales decrease
this type of quality costs.
on
conformance
after production rework cost
c. Internal failure costs ~ before delivery c. Forgo cash discounts that are currently being taken
>
-
a. Appraisal costs
before production b. Prevention costs I conformance d. External failure costs - after delivery d. Buy more materials to take advantage of price breaks
(training warranty cost
> -

19. Which of the four quality costs would be the MOST damaging to a company’s ability to build a reputation as a world- 13. EOQ is the order quantity that results in
class manufacturer of quality products? a. No inventory shortages c. The minimum total annual inventory costs
D a. Appraisal costs c. Internal failure costs b. Maximum inventory costs d. The maximum total annual inventory costs
b. Prevention costs d. External failure costs 14. A decrease in inventory order costs will tend to
20. Following are items included in the quality cost report prepared for the last month: B a. Increase the reorder point c. Decrease the holding cost percentage
Employee training costs P 50,000 prevention b. Decrease the economic order quantity d. Have no effect on the economic order quantity
Product testing P 20,000 appraisal 15. For inventory management, ignoring safety stocks, which of the following is a valid computation of the reorder point?
Equipment maintenance P 80,000 prevention B a. The Economic Order Quantity
Rework upon inspection P 25,000 internal b. The anticipated demand during the lead time
a. Appraisal cost is P 25,000 c. External failure cost is P 20,000 c. The square root of the anticipated demand during the lead time
b. Prevention cost is P 130,000 d. Internal failure cost is P 105,000 d. The EOQ multiplied by the anticipated demand during the lead time

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek
16. Nayeon Corporation’s economic order quantity (EOQ) for Material MR-69 is 5,000 pounds. If the company maintains 3. Based on the data presented below, what is Jihyo Corporation’s cost of sales for the year?
a safety stock of MR-69 at 500 pounds, and its order point is 1,500 pounds, what would be the total annual carrying Current ratio 3.5
3) =
(2500 + 500) x 0 . 20 = 600 costs assuming the carrying cost per unit is P 0.20?
a. P 100 b. P 600 c. P 1,000 d. P 1,100
Acid test ratio
Year-end current liabilities
3.0
P 600,000
Solution: Average inventory: (EOQ/2) + safety stock = (5,000/2) + 500 = 3,000 units Carrying cost: 3,000 (0.2) Beginning inventory P 500,000
17. Twice Company uses 4,500 units of Part Once-18 each year. The cost of placing one order for the part is estimated Inventory turnover 8.0
to be about P 20. Other costs associated with carrying Part Once-18 in inventory are:
C a. P 1,600,000 b. P 2,400,000 c. P 3,200,000 d. P 6,400,000
Annual cost per part
Solution: Ending inventory = (current ratio – quick ratio) current liabilities = (3.5 – 3) 600,000 = P 300,000
Insurance P 0.20
Average inventory = (500,000 + 300,000) ÷ 2 = 400,000
2xDXOC Property taxes 0.09
2x4 5kx/ Inventory turnover = CGS ÷ average inventory CGS = 8 times x 400,000
Interest on funds invested 0.15
.

CC
= 75 4. The lowest inventory turnover can be expected for a:
1 4 Others 0.06
D a. Flower shop b. Shoe retailer c. Grocery store d. Furniture shop
.

Total costs P 0.50

5. Accounts receivable turnover will normally decrease because of:
Assume that the company has been able to reduce the cost of placing an order to only P 1.00 and that when the B a. An increase in cash sales in proportional to credit sales
waste and inefficiency caused by inventories is considered, the cost to carry an inventory jumps to P 1.60 per unit. b. A change in credit policy to lengthen the period for cash discounts
What would be the Economic Order Quantity (EOQ) under these conditions? c. A significant sales volume decreases near the end of the accounting period
a. 75 b. 80 c. 95 d. 100 d. The write-off of an uncollectible account (assume the use of allowance for doubtful accounts method)
Solution: EOQ = Square root of [2 D O ÷ C] = Square root of [2 (4,500) 1 ÷ 1.60] 6. Identify the set of ratios that is most useful in evaluating solvency.
18. When a company analyzes credit applicants and increase the quality of accounts rejected, a company is trying to: D a. Debt ratio, current ratio, and TIE c. Debt ratio, quick ratio, and TIE
B a. Maximize sales c. Increase bad debt losses b. Debt ratio, TIE, and RoA d. Debt ratio, TIE, and cash flow to debt
b. Maximize profit d. Increase average collection period 7. The Du Pont model measures
40 5m 80% %
19. Sana Company’s budgeted sales for the coming year are P 40,500,000 of which, 80% are expected to be credit sales A a. Return on investment c. Throughput PM X AT
x
=
32 Um Rol =

at terms of n/30. Sana estimates that a proposed relaxation of credit standards would increase credit sales by 20%
.
.

b. Residual income d. Profit NINI S

4mx30 and increase in the average collection period from 30 days to 40 days. Cost of money is 15%. Based on a 360-day
32 4 1. = PMX 2
8. A company has a Total Assets Turnover of 2.0, Return on Assets (ROA) of 4% and Return on Equity (ROE) of 6%. X
.
I
=
C.
year, how much opportunity cost is involved with the proposed relaxation of credit standards? What is the profit margin and debt ratio, respectively?
A S A

32 4mx 1 2
. .

x48 =
4 32m
.
I 1 . 62m x 15 %
=
CUB
A* a. P 243,000 b. P 540,000
Solution: Old AR balance: 32.4 M x (30 ÷ 360) = 2.7 M
c. P 900,000 d. P 1,620,000
Opportunity Cost: 15% (4.32 M – 2.7 M)
a. 2% and 0.33 b. 4% and 0.33
Solution: ROA = Profit Margin x Assets Turnover
c. 4% and 0.67
4% = Profit Margin x 2
d. 2% and 0.67 ROE = ROA =4
ER
= 0 . 47 = 2 = 0 3
.

ER
New AR balance: 32.4 M x 1.2 x (40 ÷ 360) = 4.32 M ROE = ROA ÷ equity ratio 6% = 4% ÷ equity ratio equity ratio: 4% ÷ 6% = 0.67 41
20. Momo Company buys on terms 2/10, net 30 but generally does not pay until 40 days after the invoice date. Its Debt ratio = 100% - equity ratio Incidentally, equity multiplier is 1.5 (6% ÷ 4%) or 1 ÷ (0.666666)
= 1 5 %.

4 I
purchases total P2,160,000 per year. Assuming 360 days a year, what is the amount of non-free trade credit used 9. A firm has a debt-equity ratio of 50%. It has interest expense of P 500,000 on P 5,000,000 of total debt outstanding.
.

2 .
14m x 30 by the company on the average each year? Its tax rate is 40%. If the firm’s RoA is 6%, by how many percentage points is the firm’s RoE greater than its RoA?
= 180k a. P 240,000 b. P 180,000 c. P 120,000 d. P 60,000
348 B a. 0.0% b. 3.0% c. 5.2% d. 7.4%
Solution: (2,160,000 ÷ 360) x (40 – 10) Solution: Du Pont technique: RoA ÷ equity ratio = RoE 6% ÷ (100 ÷ 150) = 9%
NOTE: FREE trade credit refers to payments made within the discount period while NON-FREE trade credit refers to 10. Dahyun Company’s net income for 2024 was P 60,250. Its average stockholders’ equity for 2024 was P 500,000, ROE = NI For CS
payment made after the discount period, thereby foregoing discounts or incurring financing costs (hence, non-free). inclusive of P 50,000 par value of preferred stock with a dividend rate of 8%. What is the company’s return on
21. If a firm purchases raw material from its supplier on a 2/10, net 60 cash discount basis, the equivalent annual interest common stockholders’ equity?
Are
Equity
rate (using a 360 day-year) of foregoing the cash discount and making payment on the 60th day is a. 11.25% b. 12.05% c. 12.50% d. 13.39%
B a. 73.5% b. 14.7% c. 12.2% d. 2.0% 40250 (50kx8 % )
Solution: Return on common SHE = Income available to common shareholders ÷ average common SHE
-

Solution: [discount % ÷ (100% - discount %)] x [360 ÷ (credit term – discount term)] = (2 ÷ 98) x (360 ÷ 50) - 12 5 %
Return on common SHE = [60,250 – 8% (50,000)] ÷ (500,000 – 50,000)
.

450k
22. An entity obtaining short-term financing with trade credit will pay a higher percentage financing cost when the Items 11 and 12 are based on the following information
D a. Discount percentage is lower c. Items purchased have a lower price Mina Company has earnings per share (EPS) of P 6.20, pays dividend of P 3.72 per share, and has a market price of
b. Items purchased have a higher price d. Supplier offers a longer discount period P 49.60 per share.
23. Short-term, unsecured promissory notes issued by large firms are known as: 11. What is the dividend yield?
A a. Commercial paper c. Bankers’ acceptances
Divers
A a. 7.5% b. 8% c. 13.3% d. 60% Div Yield
=

b. Agency securities d. Repurchase agreements 5

Solution: Dividend yield = dividends ÷ price = 3.72 ÷ 49.60
24. Chaeyong Traders borrowed P 30,000 at an annual percentage rate (APR) of 10%. The loan called for a 12. What is the payout ratio?
compensating balance of 20%. What is the effective interest rate (EAR) on the loan?
30KX = 3 =1. S a. 12.5% b. 11.1% c. 10% d. 9.1%
a. 7.5% b. 8%
Solution: Dividend payout = dividends ÷ EPS = 3.72 ÷ 6.20
c. 13.3% d. 60% DivPy
=
Divpersh 3 72
.

= 40 %
Solution: EAR = 10% ÷ (100% - 20%) Alternatively: EAR = 10% (30,000) ÷ 30,000 (80%) = 3,000 ÷ 24,000 Dividend payout = dividend yield x price-earnings ratio = 7.5% x 8
EPS 4 2
.

25. A company obtained a short-term bank loan of P 250,000 at an APR of 6%. As a condition of the loan, the company Incidentally, retention or plowback ratio = 100% - dividend payout = 40%
(250k x4) -
(23kx2) =
14 5
% .
is required to maintain a balance of P 25,000 in its checking account, which earns 2%. What is the effective interest 13. External capital requirements (i.e., AFN) are lower for entities with which one of the following characteristics?
= 6 44 %
.
rate of the loan? D a. Lower profit margins c. Higher sales growth rates
250k -

251 =
2234
a. 6.66% b. 6.44% c. 6.00% d. 5.80% b. Lower retention ratios d. Lower capital intensity ratios
Solution: EAR = 6% (250,000) – 2% (25,000) ÷ (250,0000 – 25,000) = 14,500 ÷ 225,000
26. A short-term bank loan will have a higher effective financing cost if it has which combination of characteristics? COSTS of CAPITAL, CAPITAL STRUCTURE & LEVERAGE
a. A 10% compensating balance and regular interest 1. Which of the following is NOT a component used in calculating the cost of capital?
b. A 10% compensating balance and discount interest
c. A 20% compensating balance and regular interest
EAR
sho
= B a. Cost of long-term debt
b. Cost of short-term debt
c. Cost of common stock
d. Cost of retained earnings
d. A 20% compensating balance and discount interest 2. A company believes that it can sell long-term bonds with a 6% coupon, but a price that gives a yield-to-maturity of
27. Tzuyu Company has a P 2,000,000 line of credit. The line has an interest rate of 6% and a commitment fee of 2%. 9%. If such bonds are part of next year’s financing plans, which of the following should be used for bonds in the
400k X6 % =
24k If Tzuyu is using P 400,000 of the line of credit, what is the annual percentage rate (APR) of line of credit? after-tax (40%) cost-of-capital calculation?
(2m -400K) x2 %
] 54k a. 6% b. 8% c. 14% d. 16% B a. 3.6% b. 5.4% c. 4.2% d. 6.0%
321 14 % Solution: Interest charges: 6% (400,000) = 24,000 Commitment Fee: 2% (2M – 400,000) = 32,000
= =
Look Solution: Cost of debt: yield rate (100% – tax rate) = 9% (100% – 40%)
APR = (24,000 + 32,000) ÷ 400,000 3. Blink Company sold 12%, non-convertible preferred stock with a par value of P 50. The stock sold for P 55, and
FINANCIAL STATEMENT ANALYSIS with ADDITIONAL FUNDS NEEDED flotation costs were 6% of the market price. Tax rate is 30%. What is Blink’s cost of preferred stock?
1. Which of the following standards of comparison is particularly useful in identifying trends? A a. 11.61% b. 10.91% c. 8.12% d. 7.64%
C a. Competitor’s performance c. Past performance Solution: Cost of preferred stock: dividend yield = expected dividend ÷ net price = [50 (12%)] ÷ [55 (94%)]
b. Predetermined standards d. Forecast NOTE: Flotation cost is considered in computing cost of debts/shares, NOT in computing cost of retained earnings.
3 4 2. A company has an acid-test ratio of 1.5 to 1.0. Which will cause this ratio to deteriorate for the company? 4. Generally, the most expensive source of financing for a firm is:
= 1 5
1 33 D a. Debt c. Retained earnings
.

2
= .

C a. Sale of equipment at a loss c. Borrowing short-term loan from a bank

3
b. Sale of inventory on account d. Payment of cash dividends previously declared b. Preferred stock d. New common stock

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek
D , if "paid" Do 5 /1 + 0 6) D
.
:
,

5. A firm is expected to pay a dividend of P 5.00 per share this year. Dividend is expected to grow at a rate of 6%. If 6. What relationship does risks and returns normally have?
Di 5 the current market price of the stock is P 60 per share, what is the estimated cost of equity? a. Direct relationship c. Spurious relationship
+
g + 4 14 3 %
D
,= Do x (100 % + g)
a. 6% b. 8.3% c. 12% d. 14.3% b. Inverse relationship d. Illicit and discreet relationship
=
.

Do 40
Solution: Cost of equity (Gordon model): dividend yield + growth rate = (5 ÷ 60) + 6% 7. Risk aversion is the behavior exhibited by managers who require a greater than proportional
6. The Gordon model (Dividend Growth model) assumes that the return on share of common stock is comprised of a: B a. Increase in return, for a given decrease in risk.
A a. Dividend yield and dividends growth rate c. Capital gains yield and dividend growth rate b. Increase in return, for a given increase in risk.
b. Dividend yield and expected price next year d. Capital gains growth rate and dividend growth rate c. Decrease in return, for a given increase in risk.
7. The value of the stock increases as the d. Decrease in return, for a given decrease in risk.
D a. Value of the debt decreases c. Required rate of return increases 8. It is a measure of relative dispersion used in comparing the risk of assets with differing expected returns.
b. Dividend growth rate decreases d. Required rate of return decreases A a. Coefficient of variation c. Mean
8. Bangkok Corporation carries no debt in its capital structure. Its beta is 0.8. The risk-free rate is 9 percent and the b. Chi square d. Standard deviation
RF + B(Mr RF) -

expected return on the market is 15 percent. The company has an opportunity to invest in a project that earns 12%. NOTE: Coefficient of variation = Standard deviation ÷ Expected return
What is Bangkok’s required rate of return (i.e., cost of capital)? 9. Financial markets that trade debt securities with maturities of less than 1 year are called:
9% + 0 .
8(15 % -
9 %
.

.
) a. 4.8% b. 9% c. 12% d. 13.8% A a. Money markets c. Primary markets
8 %
Solution: Cost of capital (CAPM): risk-free rate + beta-adjusted risk premium = 9% + 0.8 (15% - 9%) b. Capital markets d. Secondary markets
13
9. Under CAPM, “beta” can best be described as the 10. Which of the following financial instruments can be traded in money markets?
.

D a. Weighted-average return of an investment portfolio C a. Mortgages c. BSP Treasury Bills

b. Variability of standard deviation of the investment returns b. Preferred stocks d. BSP Treasury Bonds
c. Investment return’s sensitivity to changes in interest rates 11. The most important considerations with respect to short-term investments are
d. Investment return’s sensitivity to changes in the market’s returns B a. Return and value c. Return and risk
10. The additional return one must expect to receive for assuming risk? b. Risk and liquidity d. Growth and value
B a. Risk discount c. Risk-free rate of return 12. Financial markets in which equity and debt instruments with maturities greater than 1 year are traded are called
b. Risk premium d. Expected rate of return B a. Money markets c. Currency markets
11. Jakarta Company’s cost of equity is 18%, its before-tax cost of debt is 8%, and its corporate tax rate is 40%. Given b. Capital markets d. Private placements
the following balance sheet, calculate the after-tax weighted average cost of capital. 13. In capital markets, the primary market is concerned with
ASSETS LIABILITIES & EQUITY A a. New issues of bond and stock securities
Cash P 100 Accounts payable P 200 b. Exchanges of existing bond and stock securities
Accounts receivable 400 Accrued taxes due 200 c. Sales of forward or future commodities contracts
Inventories 2,000 Long-term debt 400 d. New issues of bond and stock securities and exchanges of existing bond and stock securities
Plant and equipment 1,300 Equity 1,200 14. The market for outstanding, listed common stock is called
P 2,000 P 2,000 C a. Primary market c. Secondary market
B a. 16.8% b. 14.7% c. 10.3% d. 9.7% b. New issue market d. Over-the-counter market
Solution: Debt: 8% (1-0.4) x (400 ÷ 1,600) Equity: 18% x (1,200 ÷ 1,600) CAPITAL BUDGETING
12. When establishing optimal capital structure, firms should strive to
1. In deciding whether to replace a machine, which of the following is NOT a sunk cost?
D a. Maximize the marginal cost of capital c. Minimize the amount of debt financing used
D a. Book value of the existing machine c. Depreciated cost of the existing machine
b. Maximize the amount of equity financing d. Minimize the weighted average cost of capital
b. Original cost of the existing machine d. Expected resale price of the existing machine
13. If a high percentage of an entity’s total costs is fixed, the entity’s operating leverage will be
2. In capital budgeting, which of the following is NOT considered in the net investment for decision making purposes?
B a. Low c. Unchanged
a. Additional working capital requirements
b. High d. Unable to be determined
b. Tax shield on loss of disposal of old machine
14. Positive financial leverage is an indication of:
c. Salvage value of the old machine to be replaced
C a. Liquidity and solvency are expressed as a single measure
d. Salvage value of the new machine for replacement Future
b. Yield that shareholders can expect on their investment
3. Bangtan Company considers replacing old equipment that has a net book value of P 100,000, remaining useful life
c. The benefit obtained from the use of borrowed funds
of 4 years with P 25,000 depreciation each year. The old equipment can be sold for P 80,000. The new
d. The rate at which the earnings of a company are expected to grow
equipment costs P 160,000 and has a 4-year useful life. Cash savings on operating expenses before 40% taxes
NOTE: The positive financial leverage results when a business borrows funds and then invests the funds at a rate of
amount to P 50,000 per year. What is the amount of initial net cash outflow in the new equipment?
return higher than the rate at which they were borrowed (i.e., return on equity > return on assets > cost of debt)
C a. P 160,000 b. P 80,000 c. P 72,000 d. P 68,000
15. Because the degree of total leverage is multiplicative and not additive, when a firm has very high operating leverage
Solution: Net investment: costs – savings = present cash OUT – present cash IN = 160,000 – (80,000 + 8,000*)
it can moderate its total risk by
* Tax savings from loss on sale of old equipment: 40% (80,000 – 100,000)
D a. Increasing EBIT c. Using more financial leverage
4. In computing the initial investment for decision-making, taxes would be relevant for all of the following, EXCEPT:
b. Increasing Sales d. Using a lower level of financial leverage
C a. Avoidable repairs of old asset
NOTE: Total Leverage = Operating Leverage x Financial Leverage
b. Profit on sale of old asset replaced by a new one
INVESMENT RISKS & CAPITAL MARKETS c. Increase in working capital required to support new capital investment
1. The relevant portion of an asset’s risk attributable to market factors that affect all firms is called d. Loss on write-off of other assets disposed because of new capital investment
a. Unsystematic risk c. Systematic risk 5. Army Industries invested in a new machine that cost P 80,000. The machine being depreciated over 5 years using (100K 30k) x 75
-

% =
52 54
.

b. Diversifiable risk d. Controllable risk straight-line depreciation with no salvage value. The machine is expected to produce incremental cash revenues of 80k
2. Unsystematic risk is not relevant because P 100,000 per year and incremental cash expenses of P 30,000 per year. The tax rate is 25%. Calculate Army X 25 %=
4k
5
a. It does not change c. It can be eliminated through diversification Industries’ incremental operating after-tax cash flows.
b. It cannot be estimated d. It cannot be eliminated through diversification a. P 70,000 b. P 56,500 c. P 52,500 d. P 40,500 54 54
.

3. This risk represents the portion of an asset’s risk that can be eliminated by combining assets with less than perfect Solution: After-tax cash flow: (100,000 – 30,000) 75% = 52,500
positive correlation. Tax shield of depreciation: (80,000 ÷ 5 years) 25% = 4,000
A a. Diversifiable risk c. Systematic risk 6. Jin is considering an investment in a new machine to replace its existing one. Information on the existing machine
b. Non-diversifiable risk d. Non-controllable risk and the replacement machine follow:
4. The higher an asset’s beta, Cost of the new machine P 40,000 40k 4k
-

A a. The more responsive it is to changing market returns. Net annual savings in operating costs 9,000 = 3 78
.

b. The less responsive it is to changing market returns. Salvage value now of the old machine 6,000 9k

c. The higher the expected returns will be in a down market. Salvage value of the old machine in 8 years 0
d. The lower the expected return will be in an up market. Salvage value of the new machine in 8 years 5,000
5. Under CAPM, the beta coefficient is a measure of __________ risk and an index of the degree of movement of an What is the expected payback period for the new machine?
asset’s return in response to a change in the __________. a. 8.50 years b. 4.44 years c. 3.78 years d. 2.67 years
D a. Diversifiable, prime rate c. Diversifiable, bond index rate Solution: Payback period = Net investment ÷ net cash flow = (40,000 – 6,000) ÷ 9,000
b. Non-diversifiable, T-Bill rate d. Non-diversifiable, market return

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek BATCH 48 – October 2024 CPA Licensure Examination
MS Preweek
7. As a capital budgeting technique, the payback period considers depreciation expense (DE) and time value of money Part 3 – ECONOMICS (5 items in the CPALE)
(TMV) as follows: * tax shield of DE not the DE itself
a. DE, relevant and TVM, relevant c. DE, irrelevant and TVM, relevant 1. ___ economics is the analysis that generates objective descriptions or predictions that can be verified with data.
b. DE, irrelevant and TVM, irrelevant d. DE, relevant and TVM, irrelevant A a. Positive c. Normative
8. The payback method assumes that all cash inflows are reinvested to yield a return equal to  b. Negative d. Marginal
D a. The discount rate c. The internal rate of return 2. Which of the following is an example of a positive economic statement?
b. The hurdle rate d. Zero B a. Economics is the most useful social science
9. A piece of labor-saving equipment that JK Electronics Company could use to reduce costs in one of its plants in Busan b. An increase in income causes an increase in savings
Province has just come into the market. Relevant data follow: CF = NI + DE c. The government should ideally work as a welfare state
90k -

34k
Life of the equipment 12 years  d. Eliminating poverty is more important than reducing inflation
= 12 5 %
.
Purchase cost of the equipment P 432,000 = 12 34k
= 3. ___ economics prescribes what an individual or society ought to do.
432k Annual cash savings from use of equipment P 90,000 C a. Positive c. Normative
What is the ARR based on original investment to be provided by the equipment?  b. Negative d. Behavioral
a. 8.3% b. 12.5% c. 20.8% d. 29.2% 4. Which of the following is an example of a normative economic statement?
Solution: ARR (original investment): (90,000 – 36,000*) ÷ 432,000 *Depreciation: 432,000 ÷ 12 years D a. An increase in income is accompanied by an increase in savings
Items 10 and 11 are based on the following information b. An increase in income is accompanied by an increase in consumption
Jimin Foundation is a tax-exempt charitable organization. Jimin invested P 400,000 in a five-year project at the c. An increase in the money supply will lead to an increase in inflation rate
beginning of year 1. Jimin estimates that the annual cash savings from this project will amount to P 130,000. The  d. An increase in government expenditure will lead to an increase in well-being
P 400,000 of assets will be depreciated over their five-year life on the straight-line basis. On investments of this type, 5. Which of the following statements correctly differentiates between positive and normative economics?
Jimin’s required rate of return is 12%. Information on present value factors is as follows: A a. Positive economics is descriptive, whereas normative economics is advisory.
12% 14% 16% b. Positive economics is based on judgments, whereas normative economics is not.
PV of P 1 for 5 periods 0.57 0.52 0.48 c. Positive economics describes what people ought to do, whereas normative economics describes what
PV of an annuity of P 1 for 5 periods 3.60 3.40 3.30 people actually do.
130kx3 4 = 448k
.

10. What is the net present value of the project?  d. Positive economics is applied to microeconomics, whereas normative economics is applied to
(400k) a. P 36,000 b. P 57,000 c. P 68,000 d. P 250,000 macroeconomics.
Solution: Net present value = 130,000 (3.6) – 400,000 6. The 3 basic principles in modern economics are optimization, equilibrium and empiricism. EMPERICISM refers to:
NPV 48k
Incidentally, Profitability index = 468,000 ÷ 400,000 = 1.17 times C a. The process of choosing the best option from a set of alternatives, given the available information
11. What is the internal rate of return on the project? {optimization}
400k 3 074( ? )
a. Less than 12% c. Less than 16%, but more than 14% b. A special situation where everyone is simultaneously optimizing, so that nobody will benefit personally
= 130k X
b. Less than 14%, but more than 12% d. More than 16% by changing his or her behavior {equilibrium}
.

Solution: PV factor: 400,000 ÷ 130,000 = 3.076 c. The analysis that is evidenced-based as it uses data to test theories and to determine what is causing
12. The calculation of the net present value of an investment project requires that the depreciation tax shield be things to happen in the world
included at:  d. The study of how economic agents choose to allocate scarce resources and how the choices affect society
a. the amount of the depreciation times the tax rate. {economics}
b. the amount of the depreciation with no adjustment for taxes. 7. A consumer has P 50 to spend. He must decide between buying two goods: magazines (mags) priced at P 5 each
c. the amount of the depreciation times one minus the tax rate. and DVDs priced at P 10 each. Pursuant to the principle of optimization, which of the following combinations of the
d. zero, since depreciation is not relevant to the calculation of net present value. two goods will exactly satisfy his budget constraint?
13. In an investment in plant asset, the return that keeps the market price of the firm stock unchanged is B a. 3 mags, 4 DVDs b. 2 mags, 4 DVDs c. 6 mags, 1 DVDs d. 2 mags, 2 DVDs
B a. Net present value c. Adjusted rate of return Solution: (2 mags x 5) + (4 DVDs x 10) = 50
b. Cost of capital d. Unadjusted rate of return 8. Scenario: Ken must choose between driving and taking a train to destination A. Travelling by train will cost her P
14. Which capital budgeting method assumes that the funds are reinvested at the company’s cost of capital? 400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs P 250.
a. Payback c. Net present value Her opportunity cost of time is P 15 per hour. What must Ken do?
b. Accounting rate of return d. Time adjusted rate of return A a. Drive, to save P 120 c. Travel by train, since it is quicker
15. The internal rate of return method assumes that the project funds are reinvested at the  b. Drive, to save P 150 d. Travel by train, to P 30 in travel time
a. Hurdle rate c. Cost of equity capital Solution: Train: 400 + 4 (15) = 460 Drive: 250 + 6 (15) = 340
b. Cost of debt capital d. Rate of return earned on the project 9. The term “free riders” refers to people who:
16. Everything else being equal, the internal rate of return (IRR) of an investment project will be lower if: A a. Don’t contribute but still benefit from others’ actions
D a. Cash inflows are larger c. The project has a shorter payback period b. Make economic decisions randomly and are not rational
b. The investment cost is lower d. Cash inflows are received later in project life c. Selflessly pay for others’ consumption of goods and services
17. All other factors equal, which will affect a project’s internal rate of return, net present value and payback period?  d. Haggle over the prices of the goods and services that they buy
C a. An increase in discount rate c. An increase in the initial cost of the project 10. Which of the following is an example of free riding?
b. A decrease in the life of the project d. All of the choices a. An individual who sneaks inside a music concert
18. If a capital project’s sophisticated rate falls below the hurdle rate, then its b. A consumer who buys his groceries from a nearby store
A a. NPV < 0 c. NPV = 0 c. A tax payer who exercises in the public park near his house
b. NPV > 0 d. NPV = 1  d. A club member who makes voluntary contributions to the club
19. Capital rationing 11. Assume that a house is rented by 4 students. When it comes to keeping the house clean, each of the four roommates
D a. Is another term for Capital Budgeting has an incentive to leave cleaning to the others. As a result, the house is never clean. What is the best solution to
b. Is not necessary when interest rates are low this problem of free riding?
c. Is not a problem for firms that have a high cost of capital B a. Ask every roommate to clean the house if they dirty it
400 X 1 44 = 574400x0 8 :
d. Is the process of selecting the more desirable projects from all those available. b. Require every roommate to contribute to a cleaning service
. .

480
1500)
20. Consider the following two mutually exclusive projects: Project X costs P 500 and has cash flows of P 400 in each c. Require each room mate to pay more toward the house rent and groceries
100 X 0 44
. 64 =
of the next 2 years. Project Y also costs P 500, and generates cash flows of P 600 and P 100 for the next 2 years,  d. Assign one roommate the responsibility to keep a watch over the other students
76
544 respectively. Which project(s) should the firm choose if the cost of capital is 25%? 12. If people expect the price of coffee to rise next month, the demand for coffee will
(500) a. Project X only c. Both Projects if individual B a. Decrease now c. Stay the same now and increase next month
b. Project Y only d. Neither of the Two Projects b. Increase now d. Stay the same now and next month
44 Solution: Project X: NPV = 400 (1.44) – 500 = 76 Project Y: NPV = 600 (0.8) + 100 (0.64) – 500 = 44 13. If a small percentage increase in the price of a good results in a rather large percentage reduction in the demanded
21. A project that when accepted or rejected will not affect the cash flows of another project refers to: of the good, demand is said to be * 1. * D %. QD
X ED =

Sales]
B a. Dependent projects c. Mutually inclusive projects B a. Unit-elastic (ED = 1) c. Relatively inelastic (ED < 1)
b. Independent projects d. Mutually exclusive projects b. Relatively elastic (ED > 1) d. Perfectly inelastic (ED = 0) Elastic 10 % & 5 0
.
=
50 %
ea
to the

14. When the demand for a product is elastic, an increase in the price of a product will
a. Increase competition c. Decrease total revenue # x &D = SFX unit sales
b. Increase total revenue d. Not affect total revenue perfect 10 %* X0 =
0%
inelastic "Revenue" = "Sales"
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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
MS Preweek MS Preweek
excess of demand
consumer surplus
over equilibrium price
BATCH 48 – October 2024 CPA Licensure Examination BATCH 48 – October 2024 CPA Licensure Examination
#
Demand-buyer/consumers 15. A shift in the supply curve may result from the following, EXCEPT
Soar
27. Trade deficit occurs when
a. Changes in production technology ⑨ ⑨ Floor (min) a producers A a. Export of goods < imports of goods c. Export of services > imports of services
Supply-sellers/producers b. Changes in the number of sellers in the market [surplus] b. Export of goods > imports of goods d. Export of services < imports of services
c. Changes in the number of buyers in the market social & equilibrium
28. Balance of payments is an accounting statement that records monetary transactions between:
d. Changes or expected changes about future prices of resources surplus C a. Two residents of the same nation c. Residents of a nation and the rest of the world
16. The competitive model of supply and demand predicts that a surplus can arise only if there is a & · ceiling (max) -
b. Residents and non-residents of a nation d. Non-residents of a nation and the rest of the world
consumers
a. Maximum price above the equilibrium price c. Maximum price below the equilibrium price Dive 29. A Philippine importer of English clothing has contracted to pay an amount fixed in British pounds three months from
b. Minimum price below the equilibrium price d. Minimum price above the equilibrium price Q [shortage now. If the importer worries that the Philippine peso may depreciate sharply against the British pound in the interim,
17. The “Social Surplus” (a.k.a. Total or Economic Surplus) is the producer surplus it would be well advised to
a. Difference between the maximum price a consumer is willing to pay and the price the consumer actually B a. Sell pounds in the forward exchange market c. Sell pesos in the futures market
pays {Consumer Surplus} b. Buy pounds in the forward exchange market d. Buy pesos in the futures market
b. Difference between the price a producer actually gets and the price the producer is willing to take 30. A company has recently purchased some stock of a competitor. However, it is somewhat concerned that the market
{Producer Surplus} price of this stock could decrease over the short run. The company could hedge against the possible decline in the
c. Difference between consumer surplus and producer surplus stock’s market price by:
d. Sum of consumer surplus and producer surplus B a. Selling a put option on that stock c. Purchasing a call option on that stock
18. Compared with firms in a perfectly competitive market, a monopolist tends to b. Purchasing a put option on that stock d. Obtaining a warrant option on that stock
A a. Produce substantially less but charge a higher price 31. Which is a positive effect of inflation?
b. Produce substantially more and charge a higher price Recession Inflation a. Uncertainty about future inflation may discourage investment and saving
c. Produce the same output and charge a higher price b. Loss in stability in the real value of money and other monetary items over time
d. Produce substantially less and charge a lower price Money Supply t c. Mitigation of economic recessions and debt relief by reducing the real level of debt
d. Shortages of goods if consumers begin hoarding in anticipation of price increase in the future
-

19. Monopolistic competition is characterized by

a. A relatively large group of sellers who produce differentiated products Fiscal
Policy 32. STAGFLATION is defined as the “double trouble” of high level of inflation combined with the increase in
b. A relatively small group of sellers who produce differentiated products ·
tax A a. Unemployment c. The money supply
↓ ↑
c. A monopolistic market where the consumer is persuaded that there is perfect competition b. The price level d. Corporate profits
d. A relatively large group of sellers who produce a homogenous product spending (budget) ↑ 33. The most effective fiscal policy program for reducing demand-pull inflation is to:

⑨
·

↓
20. There are different types of unemployment in an economy: Frictional, Structural, Cyclical, and also, Seasonal. Which a. Decrease government spending and increase taxes
of the following refers to Frictional Unemployment? Monetary Policy b. Increase government spending and decrease taxes
a. Those seeking first employment, switching jobs or return to work after a while ·

open market c. Increase both government spending and taxes

b. Mismatch of skills with work required or automation and migration of a business process {Structural} operations
buy sell d. Decrease the money supply
c. Laid-off workers due to a poor economy or a downturn in business cycle during recession {Cyclical} 34. Which of the following is a tool of monetary policy that a nation’s central bank could use to stabilize the economy
d. Business slowdown or shutdown due to season changes {Seasonal} ↓ during recession?
reserve
↑
·

21. “Full Employment” occurs when there is only frictional unemployment. Which best describes “Full Employment?” a. Selling government securities c. Increasing bank discount rates
*
C a. Everyone who is above 16 years of age has a job.
·
interest rate ↓ ↑ b. Lowering bank reserve requirements d. Imposing lower tax rate Fiscal
b. Everyone in the labor force has a job. 35. When interest rates increase, ceteris paribus, the demand for money
c. Everyone who wants a job has a job. B a. Increases c. Remains constant
d. No such thing. b. Decreases d. May increase or decrease
22. Natural Rate of Unemployment (NRU) happens in a growing and healthy economy from the combination of economic, 36. Under the “Loanable Funds” theory, which is determined by the demand and supply of funds in the loan, bond and
social, and political factors that exist at given time. Which of the following is the right formula for NRU? other credit markets?
a. NRU = Frictional Unemployment + Structural Unemployment a. Inflation c. Unemployment
b. NRU = Structural Unemployment + Cyclical Unemployment b. Interest Rate d. GDP per capita
c. NRU = Cyclical Unemployment + Frictional Unemployment Note 1: The “loanable funds” theory states that interest rates is determined through the supply and demand for
d. NRU = Frictional Unemployment + Structural Unemployment + Cyclical Unemployment loanable funds --- the ‘supply’ comes from savings, while the ‘demand’ comes from investment opportunities.
Note 1: NRU is the unemployment that occurs if the cyclical unemployment is zero. Note 2: The “loanable funds” theory explains how lenders and borrowers interact to determine the equilibrium
Note 2: Effective fiscal and monetary policies can address cyclical unemployment, but not NRU. interest rate, which is the rate at which the quantity of funds supplied equals the quantity of funds demanded.
23. President FM is concerned that a recent financial crisis will increase the natural rate of unemployment. After three - End of MCQs – GAR ,
CPA = P
full quarters of negative economic growth, the unemployment rate now stands at 10%, and he fears it will persist at
Terminologies mentioned in the two most recent CPALEs --- May 2024 & October 2023 CPALEs
this level indefinitely. As the President’s economic advisor, which possible reply to the President’s concerns agrees
with natural unemployment rate theory? FINANCIAL MANAGEMENT MANAGEMENT ACCOUNTING ECONOMICS
Effective Annual Rate (EAR) Margin of Safety GDP per Capita
a. The natural unemployment rate is calculated independently of the cyclical or structural unemployment
AC profit vs. VC profit Accept or Reject, Make or Buy Natural Rate of Unemployment
rates. Net Present Value, IRR, Payback Budgeted Collection, Budgeted Disbursement Fiscal Policy
b. All else being equal, the cyclical unemployment brought about by the recession will not affect the natural Du Pont: ROA, ROE, Assets Turnover Du Pont: ROI, ROA, ROE, Assets Turnover Monopolistic Competition
unemployment rate Line of Credit Variable Cost, Fixed Cost, Step Cost vs. Mixed Cost Social Surplus
c. As the recession has increased cyclical unemployment, the natural rate of unemployment has indeed Manufacturing Cycle Efficiency Return on Investment, Residual Income Inflation
CAPM: Beta Coefficient, Market Return Labor Efficiency Variance, Materials Price Variance Elasticity
increased because of this crisis.
Net Investment, Net Cash Flows Minimum Transfer Price Trade Deficits: Imports vs. Exports
d. All the given choices agree with the nature unemployment rate theory Debt Ratio, Dividend Yield, AR Turnover Controllable Margin, Segment Margin Currency Depreciation vs. Exchange Rate
NOTE: OKUN’s LAW in economics states that a country must grow its gross domestic product (GDP) by 2% in order Cost of Capital, Dividend Growth Model Line Function vs. Staff Function Loanable Funds vs. Deficit/Surplus
to achieve a 1% decrease in the unemployment rate. Conversely, economists can use Okun's law as an indicator of Discounted vs. Non-Discounted Loans Variable FOH Efficiency Variance Free Riding
how much GDP may be lost with rising unemployment rates. Current Ratio vs. Quick Ratio Sales Mix, Breakeven Point Monetary Policy vs. Money Supply
Annualized Percentage Rate (APR) Split-Off Point Market Price
24. Gross domestic product (GDP) is the value of goods and services made
Risk-Averse vs. Risk-Taker Balanced Scorecard Recession
a. By Filipinos within the Philippines only EOQ & Reorder Point Degree of Operating Leverage OTHERS
b. By Filipinos within and outside the Philippines GNP Financial Leverage Probability Activity Based Costing (AFAR)
c. In the Philippines by Filipino citizens and corporations only Risk (Systematic/Unsystematic) vs. Return Excess Capacity Forward Contract (AFAR)
d. In the Philippines by Filipino and foreign citizens and corporations Accounts Receivable Management Budgeted Cash Balance, Budgeted Purchases Preventive vs. Appraisal Costs (old)
25. GDP if adjusted for inflation is called (I) _____, while GDP unadjusted for changing prices is called (II) ____ Discounted vs. Non-Discounted Loans Coefficient of Correlation (r), Determination (r 2) Internal Failure vs. External Failure (old)
Float, Lockbox System, Cash Conversion Cycle Kaizen Budgeting Okun’s Law (Specialized Economics)
C a. (I) real GDP (II) fake GDP c. (I) real GDP (II) nominal GDP Standard Deviation, Coefficient of Variation Linear Programming: Constraint vs. Objective Functions IMA Code of Ethics (old)
b. (I) nominal GDP (II) real GDP d. (I) adjusted GDP (II) real GDP Long-Term Debt to Capitalization Ratio Management Accounting vs. Financial Accounting Cash Flow Hedge (AFAR)
Note: Real GDP is the more reliable economic measure than nominal GDP.
26. When a country imports more than it exports, the country “The winner is not determined at the start of the race; it is usually the last-minute
B a. Has negative net imports c. Is suffering from inflation
effort that counts. You are almost at the finish line, so make yourself count.” – CPL
b. Has negative net exports d. Is experiencing an income boom

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Inflation - CPI

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