May 2014 Batch . MSPW — PROBLEMS IMPORTANT NOTESIN ‘This material shall be used in conjunction with MSPW ~ Theories. "MSPW ~ Problems" Is a comprehensive material comprised of past CPA board exam questions as well a5 published questions taken from identified sources, This material shall be deemed incomplete without revisiting the following tems: “ items 19, 20, 26, 30, 33 and 34 items,08, 10, 23, 28, 29, 35, 36, 52 and 56 to 59 Items‘15, 17, 18, 26, end 33 sms 18, 29, 33, 38, 41, 45, 47, 56, 57 and 70 sms 17, 19, 21, 22, 26 and 37 items 11, 24, 27, 31, 32, 52 to 57, 61, 62, 67, 68, 71 and 72 items 07, 24, 28, 34’and 50 items 28, 29, 32, 34, 35, 41 to 45, 61 to 64, 81 and 85. iterns 11, 24, 28 to 30, 33, 54, 64, 68 and 70 : iLems 04, 06, 16, 23, 31, 44, 65, 75 and 86 (pp. 1 - 6) items 11, 21, 24, 30, 31, 34 (pp. 6 to 12) 5, 7, 16, 38, 50, 57 to 60 MSQ - 12:"Items 06, 07, 13, 22, 40, 56, 64, 65 and 67 MS Practice Set A: items 5 and 17 to 28 MS Practice Set B: items 5 to 11, 12 to 15 and 17 MS Practice Set C: items 6 and 15 to 20 MS Practice Set D: items 2, 3, 6, 7, 9, 11, 12 and 15 MS Practice Set E: items 2, 6, 8, 13 and 18 : MS Practice Set F: items 1'to 4 and 7 to 9 MS Quiz 1: items 1, 6, 7, 8, 12, 13, 17, 18, 20 and 22 to 24 MS Quiz 2: items 1, 2, 4, 7, 9, 11 to 15, 24 and 25, MS Quiz 3: items 5, 6, 9, 10, 14 to 19, 23 to 27 and 30 MS Quiz 4: items 1 to'20 (all items!) MS FIRST Pre-board Exam: items 10, 11, 30, 33, 34 and 39 MS FINAL Pre-board Exam: items 4, 6, 8, 13, 16, 24, 26, 39, 41, 46 and 49 Mock CPA Board Exam for MS . Consider the trend in the nature of MS questions given forthe past 3 years (2011 to 2013). This is based on candidates’ comments and feedbacks which were obtained right ater taking the CPA exam: KERR RRR KRESS SEES ESE ETS ABC Electronics Company is developing a new product, surge protectors for high-voltage electrical flows. The cost information for this product is as follows: Unit costs Direct P25 ’ Direct labor 4.00 Distribution PO75 ‘The company will also be absorbing P 120,000 of additional fixed costs associated with this new product. A corporate fixed charge of P 20,000 currently absorbed by other products wil be allocated to this new product. ‘ABC Electronics’ effective income tax rate is 40%, If the selling price is P 14 per unit, then the breakeven point in units (rounded to the nearest hundred) for surge protectors is 2. 8,500 units b, 10,000 units 15,000 units 4. 20,000 units ‘Solution: BEP: 120,000 + (14 ~ 8) ‘Note: ignore allocated fixed-costs ‘An organization sells a single product for P 40 per unit, which it purchases for P 20.'The salespeople receive @ salary plus a commission of 5% of sales. Last year the organization's net income (after) taxes was P 100,800. ‘The organization is subject to an income tax rate of 30%. The fixed costs ofthe organization are we EB ‘Advertising P 124,000, ed fede Rent 60,000 RES wm Salaries 180,000 +=" & ee Other fixed costs __32,000 Total F.396,000 “The organization is corsidering changing the compensation plan for sales personnel. If the organization increases the commission to 10% of sales and reduces salaries by P 80,000, what peso sales volume must the ‘organization have in order to eam the same net income as last year? ‘a. P 1,042,000 b. 1,100,000. P'1,150,000 d. P 1,630,000 ‘Solution: Sales = [(396,000 ~ 80,000) + (100,800 + 0.7)} + (40 ~ 20 ~ 4) = 28,750 units3. GH Company produces one product. A i0% wage increase goes into effect next year to the manufacturing. employees (variable fabor). No other chariges in casts are expected. Overhead will not change 2s 2 result of wage Increase. You are satisfied that volume is the primary factor affecting costs and have separated the sem varlable costs into their fixed and variable components by means of the least squares method. You also observa thatthe beginning and ending inventories are never materially different. Below are current year data assembled for your analysis : Selling price per unit Peo 86 hb. Se ‘Annual volume of sales 5,000 units. Fixed costs 51,000 Variable cost per unit: Materials, 30.00 Labor 12.00 Overhead 6.00 . ‘What increase in the selling price is necessary to cover the 10% wage Increase and stil maintain the current Contribution margin ratio? ar POS b P1.00 c P1.50 d. P2.00 Solution: variable cost ratio: 48 + 80 = 60% selling price: [48 + 10% (12)] + 0.6 = 82 4. DEF Company has developed @ new project that will be marketed for the first time during the next fiscal year. ‘Although Marketing Department estimates that 35,000 units could be sold at P 36 per unit. DEF's management has allocated only enough manufacturing capacity to produce a maximum of 25,000 unitS.of the new product annually. The fixed costs associated with the new product are budgeted at P 450,000 for the year, which includes P 60,000 for depreciation on new manufacturing equipment. ata associated with each unit of Product are presented below. DEF is subject to a'40% income tax rate. Vanable costs Direct material 7.00 Direct labor 350 Manufacturing overhead 4.90 Total variable manufacturing cost P1450 Selling expenses 1.50 Total variable cost Piso0 DEF Company’s management has stipulated that it will not approve the continued manufacture of the new product after the next fiscal year unless the after-tax profit is at east P 75,000 in the first year, “The unit selling rice to achieve this target profit must be at least * ‘pecs a. P37.00 b. P36.60 P3460 4. P3900 . ‘Solution: 25,000 = [450,000 + (75,000 + 0.6)] = (SP ~ 16) tye 5. Product JKL has sales of P 200,000, a contribution margin ratio of 20% and a margin of safety of P 80,000. What is JKUs fixed cost? d cts ett P 80,000 ‘6. 96,000” ne a, P 16,000 b. P24,000 ! ee Solution: Margin of safety x CMR = profit = 16,000 (CM = 200,000 x 20% = 40,000 Oe bore 6. MNO Company's sales declined from P 100,000 to P 80,000, while Its income declined by 300%, Given these data, the company must have had an operating leverage of jeg. b HE a 27 bw c 15 a BO BOR Ge gt Solution: DOL = CM + profit before tax = A% income + A % sales = 300% + 20% a8 7. The method of least squares was used to develop a cost equation to predict the cost of purchasing goods. Eighty Points were used for the regression. The following output was received: Intercept 30,500 fest Slope 1 Coefficient of correlation 085 eS egeye Standard error P 1,500 “The driver used was ‘number of purchase orders.’ What isthe cost of purchasing if 10,000 orders are processed? 2. P 129,500 b. P 130,500 & P135,000 dP 132,000 Solution: Y = a + bX >'Total cost = 30,500 + 10 (10,000) 8. In its first year of operations, UW Manufacturers had the following costs when it produces 100,000 and sold £80,000 units of its only product: we Manufacturing costs Fixed ——P- 180,000 a My Variable 160,000 : Selling & Admin. Costs Fixed ‘90,000 fe Variable 40,000 How much fower would UW's net income be If t used varlable costing instead of full absorption costing? 2. P36,000 b. P54,000 c.P.68,000 d.P94,000 Solution: A Income = (100,000 ~ 80,000) x (180,000 + 100,000) Page 2 of 11 pages : ©a 40. a. 12, 13, 14, 15. sold 9,000 units. Fixed Last year, UVW Company produced 10,000 units and Ixed manufacturing overhead costs Ware’ 20,000, and variable manufacturing overhead costs were P 3 per unit. For the year, as opposed to the Tet Income under variable costing, one would expect net income under the absorption costing method to be ’3.__P 2,000 higher Ps bP 3,000 higher . P5000 lower Solution: 6 income = (10,000 ~ 9,000) 20,000/10,000 = P 2,009 "Production > Sales’ means ‘Ay > Vy" XYZ Company manufactures a single product. Unit variable production costs are P 20 and fixed production cost area aeled uses a wor al acini of 10,000 uns to set Its slondard costs. X¥E tegen the voor catn a inventory, produced 11,000 units, and sold 10,500 units. Ending inventory under absorotion costing a. P 10,000 *b, P 15,000 ce." P 17,500 4, P 20,000 Solution: 500 units [20 + (150,000 + 10,000)]_ NOTE: Once normal capacity (or budget) Is given, the unit FFOH‘ is based! or NORMAL )Bkoddctions A eapadity ior*volume: variance” explain any: eirterence betweenathess Formal capacity (oF budget) usc an setuel froekTENOA atthe, DEF has total budgeted fixed overhead costs of P 150,000. Actual production of 39,000 units resulted In a favorable P 6,000 volume variance. What normal capacity was used to determine the fixed overhead rate? a. 33,000 b. 37,500 * 39,500 4. 40,500 : ‘Solution: Volume variance = (AP-NP) FFOH/u 6,000 F = (39,000 ~ NP) + 150,000/NP- [ABC is budgeting sales of $3,000 units of product Nous for October 2014. The manufacture of one unit of Nous requires four (4) kilos of chemical Loire. During October 2014, ABC plans to reduce the Inventory of Loire by $50,000 kilos and increase finished goods inventory of Nous by 6,000 units. There Is no Nous work in process inventory. How many kilos of Loire ts ABC budgeting to purchase in October 2014? . a. 138,000 b. 162,000 c. 186,000 4. 238,000 ‘Solution: Budgeted production (units): 53,000 + 6,000 = 52,000 units, ‘Budgeted purchases (kilos): 59,000 units (4) ~ 50,000 MNO Company prepared the following figures for its sole product @s a basis for its 2014 budget: Expected sales £80,000 units Estimated unit sales price P50 Required material per unit 1 kilo Material inventory at beginning 10,000 kilos Material inventory at end 12,000 kilos Purchase price per kilo of materials P0.20 Finished goods inventory - beginning 5,900 units Finished goods inventory ~ end 6,000 units Direct labor hours per 1,000 units 50 Direct labor cost per hour Ps Variable factory overhead per hour P6 Fixed factory overhead 25,000 : What is the total budgeted manufacturing cost for 20147 . P-72,900 b. P81,700 < P-97,000 4. P97,900 * Solution: Budgeted production (units): 80,000 + 6,000 ~ 5,000 = 81,000 units (equivalent to 81,000 kilos) DM: 81,000 (0.20) DL: 81(50)8 VFOH: 81(50)6 — FFOH: P 25,000 For the year ended 31 December 2014, RST Co, incurred direct costs of P 500,000 based on a particular course of action during 2014, If a different course of action had been taken, direct costs would have been P 400,000. In additon, RST's 2014 fixed costs were P 90,000. What was the incremental cost? ‘a. P 10,000 b. P.90,000 cP 100,000 d. 190,000 Solution: 500,000 - 400,000 * NOTE: Fixed costs are considered irrelevant, unless avoidable, DEF Company uses 8,000 units of a certain part in production each year. Presently, this part Is purchased from ‘an outside supplier at P 12 per unit, There has been idle capacity in the factory that could be utilized to make this part. The following information has been assembled on the unit costs of making this part internally: Direct materials P 3.25 Direct labor 2.75 Variable manufacturing overhead 2.00 Fixed manufacturing overhead 5.00 “The fixed manufacturing overhead listed above represents an allocation of existing costs to this part. However, there would be an increase of P 12,000 in fixed manufacturing overhead costs for the salary of a new supervisor. Assume other things stay the same, at what price per unit from the outside supplier should TUB be yaditexeas (on economic grounds) to buying or making the part? a. P00 b. P85 © P90 J, P9.50 s Solution: Cost to make = cost to buy = 3.25 + 2.76 + 2 + (12,000 + 8,000) Page 3 of 11 pages . i)