BASIC CONCEPT B.

is prepared using whatever methods the company finds beneficial

Ma vs Fa C. is prepared for stockholders
7. Which of the following statements is true when comparing managerial accounting to D. is prepared following Generally Accepted Accounting Principles
financial accounting? 68. Which of the following is true of managerial accounting rather than financial accounting?
A. Managerial accounting places more emphasis on precision than financial accounting. A. The outputs of this accounting system are the primary financial statements
B. Both are highly dependent on timely information. B. The methods of this accounting system are established by an overseeing board.
C. Both rely on the same accounting information system. C. The accounting methods are standardized to allow comparisons among companies
D. Managerial accounting is concerned with external decision makers. Bobadilla
D. The accounting system would be unique to each company
8. Which of the following is true of managerial accounting rather than financial accounting? Management Accountant
A. The outputs of this accounting system are the primary financial statements. 25. Which of the following activities is not usually performed by a management accountant?
B. The methods of this accounting system are established by an overseeing board. A. Assisting managers to interpret data in managerial accounting reports.
C. The accounting methods are standardized to allow comparisons among companies. B. Designing systems to provide information for internal and external reports.
D. The accounting system would be unique to each company. Bobadilla C. Gathering data from sources other than the accounting system.
13. Which of the following statement is FALSE? D. Deciding the best level of inventory to be maintained.
A. Managerial accounting need not conform to GAAP. 28. Management accountants would not
B. Financial accounting reports focus on subunits of the organization. A. assist in budget planning.
C. Managerial accounting is not required B. prepare reports primarily for external users.
D. Managerial accounting focuses on the needs of internal users. C. determine cost behavior.
23. Managerial accounting differs from financial accounting in that it is D. be concerned with the impact of cost and volume on profits.
A. more concerned with segments of a company. 39. Management accountants help develop and maintain reporting systems that are aligned
B. less constrained by rules and regulations. with organizational structures and that provide useful information on an organization’s
C. more concerned with the future. performance. Management decision processes fall into three categories that consist of
D. all of the above. A. Nonrepetitive, nonprogrammed, and nonstrategic.
26. Which of the following statements correctly distinguishes financial and managerial B. Repetitive, nonprogrammed, and strategic.
accounting? C. Repetitive, programmed, and strategic.
A. managerial accounting reports on the whole organization D. Nonrepetitive, nonprogrammed, and strategic.
B. financial accounting is oriented toward the future 86. Management accountants generally exercise which type of authority?
C. financial accounting is primarily concerned with providing information for internal A. Company. C. Line.
users B. Functional. D. Staff.
D. managerial accounting is oriented more toward the planning and control aspects of
management COST VOLUME PROFIT ANALYSIS
30. Management accounting is similar to financial accounting in that BEP in Peso
A. both are governed by generally accepted accounting principles. Levi’s Company has revenues of P500,000, variable costs of P300,000, and pretax profit of
B. both deal with economic events. P150,000. Had the company increased the sales price per unit by 10%, reduced fixed costs by
C. both concentrate on historical data. 20%, and left variable cost per unit unchanged, what would the new breakeven point in pesos
D. both classify reported information in the same manner. have been?
32. Managerial accounting differs from financial accounting in that financial accounting is A. P 88,000 C. P100,000
A. more oriented toward the future. B. P 80,000 D. P125,000
B. primarily concerned with external financial reporting. Sales (500,000 x 1.10) 550,000
C. concerned with nonquantative information. Variable cost 300,000
D. heavily involved with decision analysis and implementation of decisions Contribution margin 250,000
49. The following are inherent to either management accounting or financial accounting:
1. External report CMR = 250 ÷ 550 = 45.45%
2. Historical information Original fixed costs:
3. Contribution approach income statement 500,000 – 300,000 – 150,000 = 50,000
4. Generally accepted accounting principles New fixed cost = 50,000 x 0.80 = 40,000
5. Prospective financial statements Breakeven sales = 40,000/0.4545 = P88,000
Which of the foregoing are related to management accounting and financial accounting, Question Nos. 92 through 96 are based on the following:
respectively? Pullman Company is a small but growing manufacturer of telecommunications equipment. The
Bobadilla A. B. C. D. company has no sales force of its own; rather, it relies completely on independent sales agents to
Management Accounting 1, 2, 5 3, 5 2, 3 3 market its products. These agents are paid a commission of 15% of selling price for all items
Financial Accounting 3, 4 1, 2, 4 1, 4, 5 1, 2, 4, 5 sold.
64. Management accounting and financial accounting differ in that management accounting
information Maui Soliman, Pullman’s controller, has just prepared the company’s budgeted income statement
A. is prepared following prescribed rules for next year. The statement follows:
 What is the breakeven point in pesos for next year assuming that the agents’ commission rate is
Pullman Company increased to 20%?
Budgeted Income Statement A. P13,171,000 C. P13,714,286
For the Year Ended December 31 B. P15,000,000 D. P12,750,000 Bobad
Sales P16,000,000
Manufacturing costs: What is the breakeven point in pesos for next if the company employs its own sales force?
Variable P7,200,000 A. P15,000,000 C. P13,090,909
Fixed overhead 2,340,000 9,540,000 B. P12,954,545 D. P15,157,895
Gross margin 6,460,000 Answer: B
Selling and administrative costs: Fixed Costs:
Commissions to agents 2,400,000 Overhead 2,340,000
Fixed marketing costs* 120,000 Marketing 120,000
Fixed administrative costs 1,800,000 4,320,000 Administrative 1,800,000
Net operating income 2,140,000 Interest 540,000
Less fixed interest cost 540,000 Total 4,800,000
Income before income taxes 1,600,000
Less income tax (30%) 480,000 Contribution margin ratio:
Net income P1,120,000 1 - [(7,200,000 + 2,400,000)/16M] = 40%
*Primarily depreciation on storage facilities
Breakeven next year with no change in commission:
4,800,000 ÷ 0.4 = P12,000,000
As Maui handed the statement to Kim Viceroy, Pullman’s president, she commented, “I went
Answer: C
ahead and used the agents’ 15% commission rate in completing these statements, but we’ve just
If the commission rate is increased by 5%, the contribution margin is decreased by 5% or a
learned that they refuse to handle our products next year unless we increase the commission rate
new contribution margin ratio of 35%
to 20%.”
“That’s the last straw,” Kim replied angrily. “Those agents have been demanding more and more,
Breakeven sales next year.
and this time they’ve gone too far. How can they possibly defend a 20% commission rate?”
4,800,000 / 0.35 = P13,714,286
“They claim that after paying for advertising, travel, and the other costs of promotion, there’s
nothing left over for profit,” replied Maui.
Answer: A
“I say it’s just plain robbery,” retorted Kim. “And I also say it’s time we dumped those guys and
Fixed cost under 15% commission plan 4,800,000
got our own sales force. Can you get your people to work up some cost figures for us to look at?”
Increase in Fixed cost 2,400,000
“We’ve already worked them up,” said Maui. “Several companies we know about pay a 7.5%
Decrease in audit fee ( 75,000)
commission to their own salespeople, along with a small salary. Of course, we would have to
Increased fixed costs 7,125,000
handle all promotion costs, too. We figure our fixed costs would increase by P2,400,000 per year,
but that would be more than offset by the P3,200,000 (20% x P16,000,000) that we would avoid
The commission rate of 7.5%, instead of 15% will raise the contribution margin ratio to
on agents’ commissions.”
47.5% (40% + 7.5%).
The breakdown of the P2,400,000 cost figure follows:
Salaries:
Sales manager P 100,000
The following information should be used to answer Question Nos. 125 through 131.
Salespersons 600,000
Due to erratic sales of its sole product - a high-capacity battery for laptop computers, Salcedo
Travel and entertainment 400,000
Company has been experiencing difficulty for some time. The company’s income statement for the
Advertising 1,300,000
most recent month is given below:
Total P2,400,000
Sales (19,500 units @ P300) P5,850,000
“Super,” replied Kim. “And I note that the P2,400,000 is just what we’re paying the agents under
Less variable expenses 4,095,000
the old 15% commission rate.
Contribution margin 1,755,000
“It’s even better than that,” explained Maui. “We can actually save P75,000 a year because that’s
Less fixed expenses 1,800,000
what we’re having to pay the auditing firm now to check out the agents’ reports. So our overall
Net loss P (45,000)
administrative costs would be less.
“Pull all of these number together and we’ll show them to the executive committee tomorrow,”
The break even in peso sales for Salcedo Company is:
said Kim. “With the approval of the committee, we can move on the matter immediately.”
A. P6,000,000 C. P5,852,756
What is the breakeven point in pesos for next year assuming that the agents’ commission rate
B. P2,571,429 D. P7,500,000
remains unchanged at 15%?
Answer: A
A. P10,650,000 C. P 9,000,000
Breakeven peso sales: P1,800,000 ÷ 0.3 P6,000,000
B. P12,000,000 D. P10,750,000 Bobadilla
CMR = P1,755,000 ÷ P5,850,000 30%
Margin of Safety used is
The following information pertains to Hennin Corporation for the year ending December 31, 2006: A. developed using the indicator method
Budgeted sales P1,000,000 B. the sum of the sales expected by individual managers
Breakeven sales 700,000 C. based on expected selling prices of the products
D. based on probabilities
Budgeted contribution margin 600,000
Cashflow breakeven 200,000 31. Several sales forecasts are available from different sources and the managers have good
The margin of safety for the Hennin Corporation is: ideas about their likelihoods. This situation call for the use of
A. P300,000 C. P500,000 A. the expected value concept C. indicator methods
B. P400,000 D. P800,000 B. historical analysis D. a scatter diagram
Answer: A Accounts receivable balance
Margin of safety in peso sales = Budgeted sales – Breakeven sales
Margin of safety = P1M – P.7M P300,000 As of January 1, 2007, the Liberal Sales Company had an account receivable of P500,000. The
Alonzo Corporation had sales of P120,000 for the month of May. It has a margin of safety ratio of sales for January, February, and March were as follows: P1,200,000, P1,400,000 and
25 percent, and an after-tax return on sales of 6 percent. The company assumes its sales being P1,500,000, respectively. Of each month’s sales, 80% is on account. 60% of account sales is
constant every month. If the tax rate is 40 percent, how much is the annual fixed cost? collected in the month of sale, with remaining 40% collected in the following month.
A. P 36,000 C. P 90,000 What is the accounts receivable balance as of March 31, 2007?
B. P432,000 D. P360,000 Bobadilla A. P720,000 C. P587,200
Cultured Company is a manufacturer of its only one product line. It had sales of P400,000 for B. P480,000 D. P600,000
2007 with a contribution margin ratio of 20 percent. Its margin of safety ratio was 10 percent. Answer: B
The balance of Accounts Receivable, based on the collection pattern for Liberal Sales
What are the company’s fixed costs? Company, equals 40 percent of credit sales for that month:
A. P 72,000 C. P 80,000 P1,500,000 x 0.8 x 0.4 = P480,000
B. P288,000 D. P320,000 Credit to accounts receivable
CMR = Before Tax Profit Margin Ironman Company is preparing its cash budget for the month ending November 30. The
M/S Ratio following information pertains to Ironman’s past collection experience from its credit sales:
= (0.06 ÷ 0.6) ÷ .25 Current month’s sales 12%
= 40% Prior month’s sales 75%
Sales two months prior to current month 6%
FC = (120,000 x .40) – (120,000 x .10) = P36,000 Sales three months prior to current month 4%
Annual FC = 36,000 x 12 P432,000 Cash discounts (2/30, net/90) 2%
Doubtful accounts 1%
. Answer: A Credit sales:
Profit Margin = 20% x 10% = 2% November – estimated P2,000,000
Profit = 400,000 x 2% = 8,000 October 1,800,000
Fixed Costs = CM - Profit September 1,600,000
Fixed Costs = (400,000 x 20%) – 8,000 P72,000 August 1,900,000
How much is the estimated credit to Accounts Receivable as a result of collections
Pansipit Company had a 25 percent margin of safety. Its after-tax return on sales is 6 percent. expected during November?
The company’s income is subject to tax rate of 40 percent. If fixed costs amount to P320,000, A. P1,730,200 C. P1,762,000
how much peso sales did Pansipit make for the year? B. P1,757,200 D. P1,802,000
A. P1,066,667 C. P1,280,000 Answer: C
B. P1,000,000 D. P 800,000 Gross receivable collected month’s sales
Answer: A November 2,000,000 x .12 P 240,000
CMR = Before-tax return on sales/MSR October 1,800,000 x .75 1,350,000
= (0.06  0.60)  0.25 0.40 or 40% September 1,600,000 x .06 96,000
BES = 320,000  0.40 P 800,000 August 1,900,000 x .04 76,000
Sales = 800,000  0.75 P1,066,667 Total credit P1,762,000
BUDGETING
30. Using the concept of ‘expected value” in sales forecasting means that the sales forecast to be Increase in accounts receivable
Lazaro Company will open a new store on January 1. Based on experience from its other retail Labor expense and overhead are direct cash outflows paid in the month incurred, while interest
outlets, Lazaro is making the following sales projections: and taxes are paid quarterly.

The corporation usually maintains a minimum cash balance of P25,000, and it puts its excess cash
Cash Sales Credit Sales into marketable securities. The average tax rate is 40 percent, and the company usually pays out
January P600,000 P400,000 50 percent of net income in dividends to stockholders. Marketable securities are sold before funds
February 300,000 500,000 are borrowed when a cash shortage is faced. Ignore the interest on any short-term borrowings.
March 400,000 600,000 Interest on the long-term debt is paid in March, as are taxes and dividends.
April 400,000 800,000
As of year-end, the Ingo Corporation balance sheet was as follows:
Lazaro estimates that 70% of the credit sales will be collected in the month following the
Ingo Corporation
month of the sale, with the balance collected in the second month following the sale.
Balance Sheet
Based on these data, the balance in accounts receivable on January 31 will be increased
December 31, 2006
by
A. 400,000 C. P120,000
ASSETS
B. P280,000 D. P580,000
Current assets:
Answer: A
Cash P 30,000
The balance of Accounts Receivable as of January 31, its first month of operations, will
Accounts receivable 320,000
increase by P400,000 because the first collection on account sales will be in February.
Inventory 237,800
However, a question of how much increase in Accounts Receivable in February will equal
Total current assets 587,800
to the difference between the February credit sales and 70% of January sales.
Plant and equipment, net of accumulated depreciation of P200,000 800,000
Question Nos. 39 through 45 are based on the following data:
Total Assets P1,387,800
The Ingo Corporation makes standard-size 2-inch fasteners, which it sells for P155 per thousand.
Irine Tee, the major stockholder, manages the inventory and finances of the company. She
estimates sales for the following months to be: LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable P 93,600
January P263,500 (1,700,000 fasteners) Long-term debt, 8% 400,000
February P186,000 (1,200,000 fasteners) Common stock 504,200
March P217,000 (1,400,000 fasteners) Retained earnings 390,000
April P310,000 (2,000,000 fasteners)
Total Liabilities and Stockholders’ Equity P1,387,800
May P387,500 (2,500,000 fasteners)

Last year Ingo Corporation's sales were P175,000 in November and P232,500 in December The budgeted production respective to each month of the first quarter of the coming year are:
(1,500,000 fasteners). A. 1,400,000; 2,000,000; 2,500,000 C. 2,500,000; 2,000,000; 1,400,000
B. 1,400,000; 2,500,000; 2,000,000 D. 2,000,000; 1,400,000; 2,500,000
Ms. Tee is preparing for a meeting with Peninsula Banking Corporation to arrange the financing Answer: A
for the first quarter. Based on her sales forecast and the following information she has provided, Budgeted Production
you have to prepare a monthly cash budget, a monthly and quarterly pro forma income
January February March Total
statement, a pro forma quarterly balance sheet, and all necessary supporting schedules for the
first quarter. Sales 1,700,000 1,200,000 1,400,000 4,300,000
Inventory, end 2,600,000 3,400,000 4,500,000 4,500,000
Past history shows that Ingo Corporation collects 50 percent of its accounts receivable in the Total 4,300,000 4,600,000 5,900,000 8,800,000
normal 30-day credit period (the month after the sale) and the other 50 percent in 60 days (two Inventory, beg. (2,900,000 (2,600,000 (3,400,000 (2,900,000
months after the sale). It pays for its materials 30 days after receipt. In general, Ms. Tee likes to Budgeted production 1,400,000 2,000,000 2,500,000 5,900,000
keep a two-month supply of inventory in anticipation of sales. Inventory at the beginning of
December was 2,600,000 units. (This was not equal to her desired two-month supply.) The amount of accounts payable paid in March for the purchase of materials is:
A. P150,000 C. P104,000
The major cost of production is the purchase of raw materials in the form of steel rods, which are B. P120,000 D. P130,000
cut, threaded, and finished. Last year raw material costs were P52 per 1,000 fasteners, but Ms.
Answer: B
Tee has just been notified that material costs have risen, effective January 1, to P60 per 1,000
Payments for Purchases:
fasteners. The Ingo Corporation uses FIFO inventory accounting. Labor costs are relatively
constant at P20 per thousand fasteners, since workers are paid on a piecework basis. Overhead is January (December purchases - 1,800,000 x 0.052) P 93,600
allocated at P10 per thousand units, and selling and administrative expense is 20 percent of sales. February (January purchases – 1,400,000 x 0.06) 84,000
March (February purchases – 2,000,000 x 0.06) 120,000 B. P343,000 D. P280,000
Total for the quarter P297,600 Answer: A
August sales
The expected cash collections on accounts receivable in the month of February are: Billed 8/20 P350,000 x 18% P 63,000
A. P224,750 C. P 93,000 Billed 9/10 P350,000 x 80% x 98% 274,400
B. P248,000 D. P186,000 Collections in Sept of Aug sales P337,400
Answer: B
Budgeted Collections on Accounts Receivable The budgeted peso value of Russon’s inventory on August 31 will be
January February March Total A. P110,000 C. P112,000
November sales 87,500 87,500 B. P 80,000 D. P100,000
December sales 116,250 116,250 232,500 Answer: B
January sales 131,750 131,750 263,500 Russon provides 25 percent of next month’s quantity sales.
February sales 93,000 93,000 25% x P400,000 x 80% = P80,000
Total 203,750 248,000 224,750 676,500
How much cash can Russon plan to collect from accounts receivable during July?
The amount of accounts receivable outstanding as of March 31, 2007 is: A. P574,000 C. P619,000
A. P217,000 C. P310,000 B. P662,600 D. P608,600
B. P224,750 D. P108,500 Answer: D
Answer: C May sales billed June 10 250,000x18% P 45,000
A month’s sales is collected 50 percent each in the first and second month. Therefore, the June Sales:
accounts receivable outstanding as of March 31 includes March’s sales as well as 50 percent Billed June 20 300,000 x 18% 54,000
of February sales. Billed July 10 300,000 x .80 z .98 235,200
February’s accounts (P186,000 x 0.5) P 93,000 July sales
March’s sales 217,000 Billed July 20 P350,000 x .80 x .98 P274,400
Outstanding accounts receivable, March 31 P310,000 July CollectionsP608,600
Question Nos. 46 through 48 are based on the Russon Corporation, a retailer whose sales are all
made on credit. Sales are billed twice monthly, on the 10th of the month for the last half of the
prior month’s sales, and on the 20th of the month for the first half of the current month’s sales.
The terms of all sales are 2/10, net 30. Based upon past experience, the collection of accounts
receivable is as follows:

Within the discount period80%

On the 30th day18%
Uncollectible 2%
Russon’s average markup on its products is 20% of the sales price. All sales and purchases occur
uniformly throughout the month. The sales value of shipments for May and the forecasts for the
next four months follow:
May (actual)P500,000
June 600,000
July 700,000
August 700,000
September 400,000
Russon purchases merchandise for resale to meet the current month’s sales demand and to
maintain a desired monthly ending inventory of 25% of the next month’s sales. All purchases are
on credit with terms of net/30. Russon pays for 50% of a month’s purchases in the month of
purchase and 50% in the month following the purchase.

How much cash can Russon plan to collect in September from sales made in August?
A. P337,400 C. P400,400