MONDRIAAN AURA COLLEGE

Refresher I
Management Advisory Services
MAS - 002
1.

It is an offer of service. When accepted or approved, it becomes a contractual agreement.

a. Confirmation letter
c. Engagement letter
b. Contract
d. Proposal letter

2.

CPAs in management advisory services practice must observe the ethical requirements the accountancy profession
except as to:
a. Independence
c. Incompatible occupation
b. Contingent fees
d. None of the above

3.

Which of the following types of management services is not directly related to accounting and finance functions?
a. Cost analysis of major investment decision
c. Design, installation or review of budgetary system
b. Long range planning
d. Valuation of capital stock of companies for purposes of merger
or sales

4.

Which of the following types of management services is normally related to accounting and finance?
a. Management audit
c. Costs determination of alternatioves in collective bargaining agreements
b. Marketing forecasts
d. None of the above

5.

Which of the following statements is not true?

a. In the rendition of MAS, independence must be observed so as to maintain the essential requisites of impart
iality and objectivity.
b. All provisions of the Code of Professional Ethics are applicable to the practice of MAS excep[t those rules
related to expression of an opinion on financial statements.
c. MAS seves only in the areas of accounting and finance.
d. Before accepting an engagement, a practitioner should notify the client of any reservations he has regarding
anticipated benefits.

6.

Which of the following is not a characteristic of management services?

a. A wider variety of assignments are encountered in MAS than in audit.
b. MAS engagement are recurring
c. MAS pinpoint actions to be taken, the benefit of which will be received in the future.
d. In MAS engageents, the nature of work involved requires a lesser need for junior assistance.

7.

Which of the following is not a characteristic of MAS?

a. MAS is broad in scope
b. MAS involves problem-solving affecting the future operations of the client.
c. Beneficiary of services is management.

d. MAS repetitive as far as te same client is concerned.

8.

Which of the following is not a qualification of a CPA in MAS practice?

a. Familiarity wit the client's financial accounting and internal control system.
b. Analytical experience in problem solving.
c. Actual performance of management advisory service
d. All of these

9.

Competence in management advisory services is acquired by:

a. Education
b. Auditing and other experiences

c. Actual performance of management advisory servic

d. All of these

10. The following characteristics refer to Financial Accounting except:

a. Provides information to external users
c. Has no externally imposed standards.
b. Emphasizes on objective data
d. Generates general purpose financial statements.
11. That kind of accounting concerned with providing information to management in making decisions about the
operations of the business.
a. Responsibility accounting
b. Cost accounting

c. Management accounting
d. Correct answer not given

12. The difference between variable costs and fixed costs is:
a. Variable costs per unit fluctuate and ficed costs per unit are variable.
b. Variable costs per unit are fixed over the relevant range and fixed costs per unit are variable.
c. Total variable costs are variable over the relevant rante and fixed in the long term, while fixed costs never change.
d. Variable costs per unit change in varying increments, wile fixed costs per unit change in equal increments.
13. A CPA should reject management advisory services engagement if:
a. It would require him to make management decisions for an audit client.
b. The proposed engagement is not accounting related.
c. His recommendations are to be subjected to a review by the client.
d. He audits the financial statements of a subsidiary of the prospective client.
14. The following characterize management advisory services, except:
a. Involves decisions for the future.
b. Broader in scope and varied in nature.
c. Utilize more junior staf than senior members of the firm.
d. Relate to specific problems where expert help is required.
15. A CPAs scope of management services is broad and covers all of the following, except:
a. Change in management engagements.
c. Audit engagements

b. Computerization engagements

d. Re-engineering engagements

16. A management advisory services engagement generally involves the following activities in what order?
I. Post engagement follow-up
V. Preparing for and starting the engagement
II. Implementing the recommendation
VI. Evaluating the engagement
III. Conducting the engagement
VII. Preparing and representing the report and recommendations
IV. Negotiating the engagement
a. VII, VI, V, IV, III, II and I
c. IV, III, V, VI, II, VII, and I
b. III, IV, V, VI, VII, I, and II
d. IV, V, III, VII, II, VI, and I
17. As a consultant, the CPA practitioner should:
a. Exercise administrative control over the client's staff to avoid unnecessary delays in implementation.
b. Encourage independence of te client on the consultant's staff so as to poipoint clear responsibility in implementing system.
c. Not take responsibility for making decisions and policy judgments in MAS engagements.
d. Conduct his engagement as if he is a member of the client's organization
18. Which of the following is not a qualification of a CPA in MAS practice?
a. Familiarity wit the client's financial accounting and internal control systems
b. Analytical experience in problem-solving.
c. Professional independence, objectivity and integrity.
d. Auditor of the client.
19.

Identify te following statements as true or false.

Statement I: MAS principally involves the consultative services to management in his decision making.
Statement II: MAS consultation, unlike MAS engagement, generally involves advise of information by a CPA in
which an analytical process is applied.
Statement III: Because the CPA must be independnet, he must not allow the client to participate in any phase of
his engagement.
Statement I
Statement II
Statement III
a.
1
1
0
b.
0
c.
0
d.
1

20. Which of the following will not impair the independence of a CPA in the rendition of management services?
a. The CPA performs decision-making for his client.
b. The CPA performs services wherein he is in effect acting as an employee of the client.
c. The CPA losses his objectivity and acts in a manner as if he is advocating for the interest of is client.
d. The CPA does not extend his services beyond the presentation of recommendations of giving of advice.

21. Which of the following statements is false?

a. A CPAs provide management services to go around the ethical constraints as mandated by the Accountancy Act.
b. Businesses hire management consultants to help define specific problems and develop solutions.
c. Included in the practice of consulting is the provision of confidential service in wich te identity of the client is
concealed.
d. CPAs performing management services may be considered to be in the practice of management consulting.
22. Which of the following statements is not acceptable?
a. CPA represents three major players in the industry in rationalizing the industry's incentive before the government
public hearings.
b. A CPA shares with a new and substantial client information regarding another client belonging to the same industry.
c. A CPA provides consulting services to an existing audit client.
d. A CPA offers and provides consulting services to two major competing clients.
23.

Indicate the statements as either true or false.

Statement I: CPAs in MAS practice must observe the general provision of the Code of Professional Ethics for
CPAs, as well as the provision thereof of CPAs in Public Accounting, except those provisions of
expression of opinions on financial statements.
Statement II: Management consultancy is an exclusive field of practice for CPAs and is regulated by law.
Statement III: Although management services (MS) extend beong the traditional accounting services, MS practitioners are still bound by the rules of professional ethics in the practice of accounting in general.
Statement I
Statement II
Statement III
a.
1
0
0
b.
0
1
1
c.
d.
1
0

24.

In a decision analysis situation, which one of the following costs is not likely to contain a variable cost component?
a. Labor
b. Overhead
c. Depreciation
d. Selling

25. Which one of the following is correct regarding a relevant range?

a. Total variable cost will not change.
b. Total fixed costs will not change.
c. Actual fixed costs usually fall outside the relevant range.
d. The relevant range cannot be changed after being established.
26. Which of the following statements is true?
a. The higher is the production witin the relevant range, the higher is the fixed cost per unit.
b. The higher is the production within the relevant range, the higher is the variable cost per unit.
c. The lower is the production witin the relevant range, the lower is the total fixed cost.
d. The lower is the production within the relevant range, the lower is the total variable cost.

27. As volume increases:

a. Total fixed costs remain constant and per-unit fixed costs increase.
b. Total fixed costs remain constant and per-unit fixed costs decreases.
c. Total fixed costs remain constant andper-unit fixed costs remain constant.
d. Total fixed costs increase andper-unit costs increase.
28. Within the relevant range, the amount of variable cost per unit:
a. Differs at each production level.
b. Increases as production increases
29.

c. Decreases as production increases

d. Remains constant at each production level.

Unit fixed costs:

a. Are constant per unit regardless of units produced or sold.
b. Are determined by dividing total fixed costs by a denominator such as production volume.
c. Vary directly with the activity level when stated on a per unit basis.
d. Include both fixed and variable elements.

30. Which of the following berst describes a fixed costs?

a. It may change in total when such change is unrelated to changes in production.
b. It may change in total when such change is related to changes in production.
c. It is constant per unit of changes in production.
d. It may change in total when such change depends upon production or within the relevant range.

ncy profession

ce functions?
f budgetary system
mpanies for purposes of merger

ctive bargaining agreements

as regarding

ance of management advisory service

ncial statements.

osts never change.

e report and recommendations

ty in implement-

on by a CPA in

n any phase of

Accountancy Act.

of the client is

e the government

to the same industry.

nal Ethics for

ose provisions of

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ost component?

oduction increases
ant at each production level.

MONDRIAAN AURA COLLEGE

Refresher 1
Management Advisory Services
MAS - 003
1.

Which of the following does not belong to the list?

a. Common-size financial statements
b. Peso and percentage changes on financial statements.
c. Financial ratios
d. Long-form report

2.

When a balance sheet amount is related to an income statement amount in computing ratio:
a. The income statement amount should be converted to an average for the year.
b. Comparison with industry ratios is not meaningful.
c. The balance sheet amount should be converted to an average for the year.
d. The ratio loses its historical perspective because a beginning of the year is combined with an end
of the year amount.

3.

A major problem in comparing profitability measures among companies is the:

a. Lack of general agreement over which profitability.
b. Differences in the size of the companies.
c. Differences in the accounting methods used by the companies.
d. Differences in the dividend policies of the companies.

4.

In 2005, MJP Corporation's net income was P800,000 and in 2006 it was P200,000. What percentage
increase in net income must MJP achieve in 2007 to offset the 2006 decline in net income?
a. 60%
b. 600%
c. 400%
d. 300%

5.

The following common size income statement are available for Sparky Corporation for the two years
ended December 31, 2006, and 2005:
2006
2005
Sales
100%
100%
Cost of Sales
55%
70%
Gross profit on sales
45%
30%
Operating expenses (including income tax)
20%
18%
Net income
25%
12%
The trend percentages for sales are as follows:
2004
130%
2003
100%
What should be the trend percentage for gross profit on sales for 2006?
a. 58.5%
b. 130%
c. 150%
d. 195%
Nos 6 and 7 are based on the following data:
Nory Company is preparing its common-size financial statements and revealed the following information
(in thousands of pesos)
Accounts receivable
P
10,000.00
Inventory
20,000.00
Total current assets
35,000.00
Total assets
84,000.00
Bonds Payable
21,000.00
Retained Earnings
7,000.00
Sales revenue
75,000.00
Cost of goods sold
62,000.00
Income taxes expense
22,000.00

6.

How would Nory's inventory appear on a common-size balance sheet?

a. 11.9%
7.

b. 23.8%

c. 57.15%

How would Nory's retained earnings appear on a common-size balance sheet?

a. 8.3%
b. 9.4%
c. 20.0%

d. 65.3%

d. 33.3%

8.

Index numbers would probably be most interested in which ratio?

a. Trend analysis
c. Vertical analysis
b. Ratio analysis
d. Common-size statements

9.

An income statement showing only component percentages is known as:

a. Common pesos statement
c. Common-size income statement
b. Condensed income statement
d. Comparative income statement

10. Horizontal, vetical, and common-size analyses are techniques that are used by analysts in undertaking
the financial statemnets of companies. Which of the following is an example of vertical, commonsize analysis?
a. Commission expense in 2006 is 10% greater than it was in 2005.
b. A comparison in financial ratio between two or more firms in the same industry.
c. A comparison in financial form between two or more firms in different industries.
d. Commission expense in 2006 is 5% of sales.
11. It refers to the practice of financing assets with borrowed capital. Its extensive use may impact on the
return on common stockholders' equity to be above or below the rate or return on total assets.
a. Discounting
b. Mortgage
c. Leverage
d. Arbitrage
12. Securing of funds for investment at a fixed rate of return to fund suppliers to enhances the well being of
the common stockholders is known as:
a. Financial leverage
c. Prudent borrowing
b. Fund management
d. Financial arbitrage
13. In the process of investing of surplus cash, the term "riding the yield curve" refers to :
a. Diversifying securities portfolio so that the firm has an equal balance of long-term versus shortterm securities.
b. Swapping different maturities of similar quality debt securities in order to obtain higher yield.
c. Purchasing only the longest maturities for given rates of return.
d. Adherence to the liquidity preference theory of securities investment.
14. When compared to a debt-to-asset ratio, a debt-to-equity ratio would be:
a. Be lower than the debt-to-asset ratio.
b. Be higher than the debt-to-asset ratio.
c. Be about the same a the debt-to-asset ratio.
d. Have no relationship at all to the debt-to-asset ratio.
15. If the ratio of total liabilities to stockholders equity increases, a ratio that must would also increase is:
a. Time interest ratio.
c. Total liabilitis to total assets
b. The current ratio.
d. Return on stockholders equity
16. A measure of the company's long-term debt paying ability is:
a. Return on asets
b. Times interest earned

c. Dividend payout
d. Length of the operating cycle

MONDRIAAN AURA COLLEGE

Refresher 1
Management Advisory Services
MAS - 004

In a decision-making case, wich of the following costs is generally not relevant to the decision?
a. Avoidable costs
b. Historical costs
c. Opportunity costs
d. Differential costs

In a decision-making case, which of the following costs is not likely to contain a relevant cost component?
a. Labor costs
c. Depreciation costs of an existing asset
b. Selling costs
d. Factory overhead costs

Opportunity cost is an important concept in decision-making. This may be described as:

a. The difference in total costs between two choices.
b. The contribution to income that is forgone by not using limited resources in its best alternative use.
c. A cost that may arise in the future.
d. A cost that is already been incurred.

Which of the following must bae considered in determining the relevance of a particular cost to a decision/
a. Verifiability and accuracy of the cost
c. Amount of cost
b. Potential effect of the cost on the decision
d. Riskiness of the decision

Which of the following statements about relevant or differential cost analysis is correct?
a. All variable cost are relevant
b. All fixed cost are irrelevant
c. All variable and fixed costs to be incurred are considered as they change with each decision alternative.
d. All future costs are relevant.

6.

Which of the following statements is true?

a. The higher is the production witin the relevant range, the higher is the fixed cost per unit.
b. The higher is the production within the relevant range, the higher is the variable cost per unit.
c. The lower is the production witin the relevant range, the lower is the total fixed cost.
d. The lower is the production within the relevant range, the lower is the total variable cost.

7.

As volume increases:
a. Total fixed costs remain constant and per-unit fixed costs increase.
b. Total fixed costs remain constant and per-unit fixed costs decreases.
c. Total fixed costs remain constant andper-unit fixed costs remain constant.
d. Total fixed costs increase andper-unit costs increase.

8.

Within the relevant range, the amount of variable cost per unit:

a. Differs at each production level.

b. Increases as production increases
9.

c. Decreases as production increases

d. Remains constant at each production level.

Unit fixed costs:

a. Are constant per unit regardless of units produced or sold.
b. Are determined by dividing total fixed costs by a denominator such as production volume.
c. Vary directly with the activity level when stated on a per unit basis.
d. Include both fixed and variable elements.

10. Which of the following berst describes a fixed costs?

a. It may change in total when such change is unrelated to changes in production.
b. It may change in total when such change is related to changes in production.
c. It is constant per unit of changes in production.
d. It may change in total when such change depends upon production or within the relevant range.

11

In a make or buy decision analysis, the cost to buy is compared with the:
a. Total cost to make.
c. Variable manufacturing costs.
b. Relevant cost to make.
d. Cost to purchase

12

Production of a special order will increase the company's profit if the incremental revenue from the special
order is greater than the:
a. Fixed costs incurred in producing the special order.
b. Direct materials and labor costs in producing the order.
c. Relevant costs of producing and selling the order, including any opportunity cost to be incurred if the
order is accepted.
d. Indirect cost of producing the order.

13

A company is considering to accept a special order which will enable to use its currently idle capacity. It
wants to conduct a differential cost analysis so it could set the special price for the order. In its cost
analysis, which of the following should not be included?
a. Variable overhead
b. Direct labor
c. Direct materials
d. Depreciation

14

In determining the lowest price that can be quoted for a special order that will use idle capacity within a
production, area the best allocation method to use is:
a. Process costing
c. Absorption costing
b. Job order costing
d. Variable costing

15

In a make or buy decision analysis, the cost to buy is compared with the:
a. Total cost to make
c. Variable manufacturing costs.
b. Relevant cost to make
d. Cost to purchase

16

In a make or buy decision analysis, wich of the following qualitative factors is/are usually considered?
a. Assurance of quality control
c. Special technology
b. Skilled labor
d. All of the above
Nos 17 to 20 are based on the following information
Miss Reeva Malaga, a graduate of Saint Louis University in Baguio, is going to Manila for the CPA Board
Examination at the Roque Rev. (Roque Review School of Accountancy). She is considering to stay in a
dormitory that is just a store's throw away from Roque Rev. during her 5-month stay in Manila. Her aunt,
however, is offering her a room in her house which is about three (3) kilometers away from the school. She
told her aunt that she would first conduct differential analysis before making her decision on where to stay.
She listed the following costs and cost estimates:
If she will stay in
Her Aunt's house
Plane ticket: Cebu-Manila-Cebu
P
8,000.00
Tuition fee*
1,000.00
Board and lodging fee
Share in food and household expenses
10,000.00
Transportation (Aunt's house-school-Aunt's house)
1,700.00
Snacks, etc. (while in school)
4,000.00
Books used in college to be used during the review
10,000.00
New review books to be purchased
2,000.00
Clothes to be brought to Manila
6,000.00
Personal supplies while in Manila**
400.00
Other expenses (for contingencies, gimmicks, etc.)
3,000.00
*Being an honor graduate, Miss Malaga is a Roque Rev School. She has to pay the miscellaneous fee of
only P 1,000 for the whole review term.
**Her aunt will shoulder some of her personal supplies if she will stay in her (Aunt's) house.
Miss Malaga is currently working as an accounting clerk in a Baguio-based firm, earning P 8,000 per month.
She could have stayed in Cebu to continue working, but she wants to review in Manila and fulfill her dream
of becoming a CPA. She informed her boss of her decision to review in Manila. She filed a five-month
study leave (without pay) which her boss approved.

17

If the alternatives are whether to stay in her Aunt's house or in a dormitory, the relevant costs are:
Her Aunt's house
A dormitory
a. P
15,100.00
32,000.00
b.
46,100.00
63,000.00
c.
55,000.00
16,000.00
d.
16,000.00
55,000.00

18

What is the opportunity cost in reviewing in Manila?

a. P 40,000.00
b. P 8,000.00

c. P 16,900.00

d. P 0.00

19

Miss Malaga will incur some future costs during her stay in Manila. Such items, although future costs,
are considered irrevelant becfause they do not differ under the alternatives. The total amount of such
irrelevant because they do not differ under the alternatives. The total amount of such irrelevant future
costs is:
a. P 16,000.00
b. P 46,100.00
c. P 55,000.00
d. P 63,000.00

20

Included in Ms. Malaga's list are some costs which are considerede irrelevant because they have already
been incurred in the past. These costs are called past costs, sunk costs, or historical costs, and amount to:
a. P 16,000.00
b. P 47,100.00
c. P 55,000.00
d. P 64,000.00

. Differential costs

oduction increases
ant at each production level.

Depreciation

If she will stay in

A dormitory
8,000.00
1,000.00
25,000.00
4,000.00
10,000.00
2,000.00
6,000.00
2,000.00
5,000.00

P 63,000.00

P 64,000.00