Second Quiz in Management Advisory Services

Cash and marketable securities

1. The length of time it takes for the initial cash outflows for goods and services to be realized as cash
flows from sales is called.
a. Product life cycle. c. cash conversion cycle.
b. Manufacturing cycle d. vicious cycle.

2. If the average age of accounts payable is 15 days, the average age of accounts receivable is 60 days,
and the average age of inventory is 10 days, the number of days in the operating cash conversion
cycle is
a. 70 days. c. 55 days.
b. 85 days. d. 60 days.

3. The following data are taken from the records of Apple Corporation for the year ended December
31, 200B:
Net credit sales P576,000
Average materials inventory 8.000
Average finished goods inventory 12,000
Average accounts receivable 80,000
Average accounts payable 5,000
Net credit purchases 120,000
Raw materials used 96,000
Gross profit rate 25%

What is the average number of days in the company’s operating cash conversion cycle? (Use a
360-day year)
a. 50 days. c. 75 days.
b. 105 days. d. 45 days.

4. In cash management, the difference between the bank balance for a firm’s account and the cash
balance that the firm show on its own book is called
a. Bank charges. c. float.
b. Interest income. d. reconciling item.

5. Bank sometimes require it borrowers to maintain a certain percentage of the face amount of a loan
which the bank requires its borrowers to keep in a non-interest bearing current account. This is
called compensating balance, which
a. Decreases the effective interest rate of interest paid by the borrower.
b. Represents prepaid interest in the loan.
c. Compensates the bank for services rendered by providing it with deposits of funds.
d. Cannot be used for disbursements by both the borrower and the bank.

6. A working capital technique that increases the payable float and therefore delay the outflow of cash
is
a. Electronic data system (EDI).
b. Automatic fund transfer (AFT).
c. Draft.
d. Baumol cash management model.

7. For manufacturing firm, the most direct way of preparing a cash budget requires incorporation of
the following, except
a. Sales projections and credit terms.
b. Collection percentages and other cash receipts.
c. Projected net income and depreciation expenses.
d. Estimated purchases and payment terms and other cash disbursements.

8. The length of time it takes for the initial cash outflows for goods and services to be realized as cash
flows from sales is called.
c. Product life cycle. c. cash conversion cycle.
d. Manufacturing cycle d. vicious cycle.
 9. City Masks and Costumes Inc. (CMC) has a majority of its customers located in the states of Davao
and Cagayan De Oro. Philippine National Bank, a major bank, has agreed to provide a lockbox
system to CMC at a fixed fee of P50,000 per year and a variable fee of P0.50 for each payment
processed by the bank. On average, CMC receives 50 payments per day, each averaging P20,000.
With the lockbox system, the company's collection float will decrease by 2 days. The annual
interest rate on money market securities is 6%. If CMC makes use of the lockbox system, what
would be the net benefit to the company? Use 365 days per year.
a. 50,000. c. 60,875.
b. 60,000. d. 55,000.

10. The three major motives for holding cash are for
a. Transactional, psychological, and social purposes.
b. Speculative, fiduciary, and transactional purposes.
c. Transactional, precautionary and speculative process.
d. Speculative, social, and precautionary purposes.

Economic essential concepts

1. It is a sequence of economic activity in a nation’s economy that is typically characterized by four
phases – recession, recovery, growth, and decline – that repeat themselves over time.
a. Operating cycle. c. business cycle.
b. Accounting cycle. d. life cycle.

2. It is the most unwelcome stage of the business cycle for business owners and consumer alike. It
may be described as a period of reduced activity in which levels if buying, selling, production and
employment typically diminish.
a. Deflation. c. recession.
b. Inflation. d. disinflation.

3. Also known as an upturn, this stage of the business cycle is the point at which the economy
“troughs” out and start working its way up to better financial footing.
a. Growth. c. recovery.
b. Trough. d. depression.

4. This stage of the business cycle may be described as a point of sustained expansion, increased
consumer confidence, and high levels of business activity.
a. Recovery. c. growth.
b. Recession. d. inflation.

5. Also referred to as a contraction or downturn, this stage of the business cycle basically marks the
end of the period of growth. It is characterized by decreased levels of consumer purchases
(especially of durable goods) and, subsequently, reduced production of the business.
a. Recession. c. decline.
b. Recovery. d. growth.

6. In economics, it refers to a rise in the general level of prices of goods and services in an economy
over a period of time.
a. Recession. c. inflation.
b. Deflation. d. depression.

7. Inflation can have positive and negative effects on an economy. Positive effects of inflation include
a. Loss in stability in the real value of money and other monetary items over time.
b. Uncertainty about future inflation may discourage investment and saving.
c. Mitigation of economic recessions and debt relief by reducing the real level of debt.
d. Shortages of goods if consumer begin hoarding in anticipation of price increases in the future.

8. Economist generally agree that high rates of inflation and hyper-inflation are caused by an
excessive growth of the money supply. Central banks may control the following, except
a. Setting interest rates.
b. Setting of banking reserve requirements.
c. Requiring some banks to shut down.
d. Conducting open market operations.

9. In economist, it refers to the decrease in the general price level of goods and services.
a. Disinflation. c. deflation.
 b. Inflation. d. recession.

10. If both supply and demand for a good increase, the market price will
a. Increase. c. not predictable with only these facts.
b. Decrease. d. not change.

Cost concepts and classification

1. Sunk cost
a. Are relevant cost.
b. Can be change by a decision made now or to be made in the future.
c. Are irrelevant for decision-making process.
d. Are decreases in costs from one alternative to another.

2. Depreciation computed using the straight-line method is classified as

a. Variable cost. c. fixed cost.
b. Relevant cost. d. opportunity cost.

3. In cost accounting, the term relevant range refers to the range over which
a. Relevant cost are incurred.
b. Production should be confined.
c. Cost relationships are valid.
d. Total fixed cost fluctuate.

4. The salaries of the factory janitorial and maintenance staff should be classified as
a. Direct labor cost. c. factory overhead cost.
b. Period cost. d. prime cost.

5. Which of the following is a direct product cost?

a. Depreciation of factory equipment.
b. Salesman’s commission.
c. Wood in a furniture factory.
d. Salary of the foreman in the assembly division of an automobile company.

6. Manufacturing cost do not include

a. Prime cost.
b. Conversion cost.
c. Salary of the company president, under whom is the vice president for production.
d. Indirect materials.

7. Opportunity costs are

a. Costs irrevocably incurred by past c. Not recorded in the accounting records.
actions.

b. The difference between actual and d. Partly fixed costs and partly variable
standard costs. costs.

8. The approach to cost analysis, in which for a single independent variable algebraic equations are
used to position the line precisely, is called:
a. The high-low approach. c. The regression approach.
b. The graphic approach. d. The multiple regression approach.

9. The slope of the regression line represents:

a. The fixed cost per unit. c. The variable cost per unit.
b. The total fixed cost . d. The total variable cost.

10. An activity that adds costs to the product or service, but does not make such product or service
more valuable to customers is called
a. value-adding activity. c. non- value adding activity.
b. Costly activity. d. valuable activity.
Management consultancy practice by CPAs and management accounting
1. The primary purpose of management is to
a. To achieve the objectives of the MS firm
b. To help the client maximize its resources
c. To improve the client’s use of its capabilities and resources to achieve the objectives of such
client’s organization
d. To help the client identify its problems

2. Management consulting
a. Is limited to CPAs
b. May be practiced by anybody since it is not limited to CPAs.
c. Is not limited to CPAs
d. Is regulated by law, such that an individual must pass a government licensure examination first
before he could practice the same

3. CPAs are in more advantageous position than members of other professions to render MAS because
a. Most CPAs are highly educated
b. Only CPAs may render MAS
c. The CPA is already familiar with the client and his business, and enjoys his client’s confidence
d. A CPA is a person with recognized standing.

4. Following are possible end-products of an MS engagement, except

a. An organization plan with statements of duties and responsibilities
b. An electronic data processing system
c. Blue print of a construction project
d. Sales reporting system

5. Which of the following statement(s) is (are) true?

1. MAS relates to the future
2. MAS covers a wider area than the usual audit and tax work
3. Because of the broad scope covered by MAS, a wider variety of assignments are usually
encountered
4. MAS engagement require highly qualified staff
a. Only two statements are true. c. All the statements are true

b. Only three statements are true d. Only one statement is true

6. Which of the following statements is not acceptable?

a. A CPA represents three major players in the industry in rationalizing the industry’s incentive
before the government public hearing.

b. A CPA provides consulting services to an existing audit client.

c. A CPA shares with a new and substantial client information regarding another client belonging
to the same industry.

d. A CPA offers and provides consulting services to two major competing client.

7. Which of the following is not a characteristic of Management Advisory Services?

a. MAS is broad in scope.

b. MAS involves problem-solving affecting the future operations of the client.

c. MAS is repetitive as far as the same client is concerned.

d. Beneficiary of service is management.

8. The analytical approach and process may be summarized into three broad stages – analysis, design
and implementation.
The implementation stage consists of
a. Evaluating and determining possible solutions and presenting findings and recommendations.
b. Ascertaining the pertinent facts and circumstances, seeking and identifying objectives, and
defining the problem or opportunity for improvement
 c. Planning and scheduling actions to achieve the desired results, as well as advising and providing
technical assistance in implementing
d. All of the above.

Management accounting
9. Managerial accounting reports can be described as:
a. General-purpose c. Special purpose.

b. Classified financial statements d. Macro-report

10. Which type of authority do management accountants generally exercise?

a. Functional b. Company c. staff d. line

11. Which of the following is not usually a controller’s function?

a. Planning for control. c. credit and collection.

b. Protection of assets. D. Tax administration.

12. Which of the following is not a Controller’s function?

a. In charge of planning and control.

b. Protection of assets such as adequate insurance coverage. Etc.
c. Arranging short-term financing.
d. Interpreting and reporting on effects of external factors on the business.

13. It is the practice of helping the organizations to improve their performance, primarily through the
analysis of existing organizational problems and development of plans for improvement.
a. accounting. c. management accounting.
b. total quality management. d. auditing.

END

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