San Sebastian College Recoletos de Cavite

College of Accountancy
AC17 General Review
1. To distinguish between management accounting and financial
accounting, the following statements are correct except:
a. Management accounting in view of its various integrated recipients
should have a separate data recording and retrieval system from
financial accounting.
b. Financial accounting is bound by Generally Accepted Accounting
Principles (GAAP), and management accounting need not be in
conformity with GAAP.
c. Financial accounting can be regarded as the process while
management accounting can be regarded as the product of that
process.
d. Management accounting output must be released on time so as not
to erode its usefulness; Financial accounting output can still be
useful even when delayed.
2. The activities in a management systems control can be grouped into
four
1. Measurement of actual
4. Comparing actual
performance
performance versus
2. Deciding and implementing
standards and analyzing
corrective actions
results.
3. Determining standard of
performance
The above steps must done in this sequence
a. 4, 3, 2,
b. 3, 1, 4,
c. 1, 3, 4,
d. 3, 4, 1,
1
2
2
2
3. If, just prior to a period of rising prices, a company changed its inventory
measurement method from FIFO to LIFO, the effect in the next period would
be to
a. Increase both the current ratio and inventory turn-over
b. Decrease both the current ratio and inventory turn-over
c. Increase the current ratio and decrease inventory turn-over
d. Decrease the current ratio and increase inventory turn-over
4. When a balance sheet amount is related to an income statement amount
in computing a ratio,
a. The balance sheet amount should be converted to an average for the
year.
b. The income statement amount should be converted to an average for
the year.
c. Both amounts should be converted to market value.
d. Comparisons with industry ratios are not meaningful.
5. During 2012, Reuel Company purchased P1, 920, 000 of inventory. The
cost of goods sold for 2012 was P1, 800, 000 and the ending invenotyr at
December 31, 2012 was P360, 000. What was the inventory turn-over for
2012?
a. 5.0
b. 5.3
c. 6.0
d. 6.4
6 to 10.

Lara Company produces a single product. It sold 25, 000 units last year with
the following results:
Sales P625, 000
Variable Costs P375, 000
Fixed Costs 150, 000 525, 000
Net Income before taxes 100, 000
Income Taxes (45%) 45, 000
Net Income P 55, 000
In an attempt to improve its product, Lara is considering replacing a
component part in its product that has a cost of P2.50 with a new and
better part costing P4.50 per unit in the coming year. A new machine would
also be needed to increase plant capacity. The machine would cost P18, 000
with a useful life of 6 years and no salvage value. The company uses
straight line depreciation on all plant assets.
6. What was Lara Companys break-even point in number of units last year?
a. 6, 000
b. 15, 000
c. 21, 000
d. 18, 000
7. How many units of product would Lara Company have had to sell in the
last year to earn P77, 000 in net income after taxes?
a. 29, 000
b. 23, 000
c. 22, 700
d. 29, 300
8. If Lara Company holds the sales price constant and makes the suggested
changes, how many units of product must be sold in the coming year to
break-even?
a. 15, 300
b. 18, 750
c. 19, 125
d. 21, 000
9. If Lara Company holds the sales price constant and makes the suggested
changes, how many units of the product will the company have to sell to
make the same net income after taxes as last year?
a. 31, 625
b. 31, 250
c. 33, 500
d. 25, 300
10. If Lara Company wishes to maintain the same contribution margin ratio,
what selling price per unit of product must it charge next year to cover the
increased material costs?
a. P27.00
b. P25.00
c. P32.50
d. P28.33
11. For May 2013, Young Company has budgeted its cash receipts at P125,
000 and its cash disbursements at P138, 000. The companys cash balance
on May 1 is P17, 000. If the desired May 31 cash balance is P20, 000, then
how much cash must the company borrow during the month (before
considering any interest payments)?
a. P4, 000
c. P12,
d. P16,
b. P8, 000
000
000
12. Which of the following factors is not likely to be considered by
management in determining whether a variance should be regarded as an
exception?
a.
Consistency of occurrence over time.
b.
Ability to control the item related to the variance.
c.
Nature of the item related to the variance.
d.
Costing method used to calculate the variance.

13. Picnic Items, Inc. manufactures coolers that contain a freezable ice bag.
For an annual volume of 10,000 units, fixed manufacturing costs of P500,
000 are incurred. Variable costs per unit amounts are:
Direct materials P80
Direct Labor 15
Variable Factory Overhead 20
Bags Corporation offered to supply the assembled ice bag for P40 with a
minimum order of 5, 000 units. If picnic accepts the offer it will be able to
reduce variable labor and overhead costs by 50%. The direct materials for
the freezable ice bag will cost Picnic P20 if it will produce it. Considering
Bags Corporation offer, Picnic should
a. Buy the freezable ice bag due to P150, 000 advantaged.
b. Produce the freezable ice bag due to P225, 000 advantaged.
c. Produce the freezable ice bag due to P25, 000 advantaged.
d. Buy the freezable ice bag due to P50, 000 advantaged.
14. Which of the following characteristics are generally associated with a
conservative financial policy?
a. High current assets relative to sales and high current liabilities
relative to total assets.
b. High current assets relative to sales and low current liabilities
relative to total assets.
c. Low current assets relative to sales and high current liabilities
relative to total assets.
d. Low current assets relative to sales and low current liabilities
relative to total assets.
15. The Manila Commercial Bank and Rap Corp. signed a loan agreement
subject to the following terms.
I. Stated interest rate of 18% on a one-year discounted loan.
II. 15% compensating non-interest bearing checking account balance to be
maintained by Rap with Manila Commercial Bank.
The net proceeds of the loan was P1 million. The principal amount of the
loan was
a. P1, 176,
b. P1, 000,
c. P1, 492,
d. P1, 219,
471
000
537
512
16. Three suppliers of East Corporation offer different credit terms. West
Co. offers terms of 1 / 15, net 30. North Corp. offers terms of 1/10. Net
30. South Inc. offers terms of 2/10, net 60. East Corp. would have to borrow
from a bank at an annual rate of 12% in order to take any cash discounts.
Which one of the following would be the most attractive for Ma Corp.?
(Assume 360 days a year).
a. Purchase from West Co., pay in 15 days and borrow any money
needed from the bank.
b. Purchase from West Co., pay in 30 days and borrow any money
needed from the bank.
c. Purchase from South Inc., pay in 60 days and borrow any money
needed from the bank.
d. Purchase from North Corp. and pay in 30 days.

17. Fabella Company budgeted sales on account of P120,000 for July,

P211,000 for August and P198,000 for September. Collection experience
indicates that 60% of the budgeted sales will be collected the amount after
the sale, 36% the second month, and 4% will be uncollectible. The cash
receipts from accounts receivable that should be budgeted for September
would be
a. P169,
b. P147,
c. P197,
d. P194,
800
960
880
760
18. Changing a firms credit terms from 2/20, net/60 to 2/10, net/30 will
generally
a. Increase the average collection period and increase sales
b. Increase the average collection period and reduce sales
c. Reduce the average collection period and increase sales
d. Reduce the average collection period and reduce sales.
19. The size of safety stocks for inventory is important for most firms.
Though several factors can be cited as contributing to the determination of
the size of safety stocks that a firm should carry, the issue can often be
reduced to a single factor. Which one of the following statements best
summarizes the factor that affects the level of safety stock that a firm will
carry?
a. The amount of idle cash management believes it has to invest in
safety stock.
b. The rapidity with which the inventory position will turn over.
c. The level of production the firms bank is willing to finance.
d. The level of uncertainty with respect to an out-of-stock condition that
management is willing to accept.
20. The following information regarding inventory policy was assembled by
the JRJ Corporation. The company uses a 50-week year in all calculations.
Sales: 10,000 units per year
Safety Stocks: 1,300 units
Order Quantity: 2,000 units
Lead Time: 4 weeks
The reorder point is
a. 3,300
units

b. 2,100
units

c. 100 units

d. 1,300
units

Questions 21 and 22 are based on the following data:

Allo foundation, a tax exempt organization, invested P200, 000 in a fiveyear project at the beginning of 2013. Allo estimates that the annual cash
savings from this project will amount to P65, 000. The P200, 000 of assets
will be depreciated over their five-year life on the straight line basis. On
investments of this type, Allos desired rate of return is 12%.
21. The net present value of the project is
a. P34,32
b. P36,40
5
0

c. P90,00
0

d. P125,0
00

22. Allos time-adjusted rate of return on this project is

a. Less than 12%
c. Less than 16%, but more
b. Less than 14%, but more
than 14%
than 12%
d. More than 16%

23. Under the time-adjusted rate of return capital budgeting technique, it is

assumed that cash flows are reinvested at the
a. Cost of capital
b. Hurdle rate of return
c. Rate earned by the investment
d. There is no assumption about reinvestment of cash flows
24. The net present value capital budgeting technique can be used when
cash flows from period to period are:
Uniform
Uneven
a.
No
Yes
b.
No
No
c.
Yes
No
d.
Yes
Yes
25. It is assumed that cash flows are reinvested at the rate actually earned
by the investment in which of the following capital budgeting techniques?
Time-adjusted rate of return
Net present value
a.
Yes
Yes
b.
Yes
No
c.
No
No
d.
No
Yes