CPA Study Group 11
Comprehensive exam
Management Advisor Services
Items 1 to 2are based on the following information:
Jam Screenshot Co. manufactures and sells T-shirts imprinted with college names and slogans. Last
year, the shirts sold for P 7.50 each, and the variable cost to manufacture them was P 2.25 per unit.
The company needed to sell 20,000 shirts to break even. The net after-tax inCome last year was P
5,040. The company's expectations for the coming year include the following:
The sales price of the T-shirts will be P 9.
Variable costs to manufacture will increase by one-third.
Fixedcosts will increase by 10%.
The income tax rate of 40% will be unchanged.
1. What is the number of T-shirts Jam Screenshot Co. must sell to break even in the coming year?
B
a 17,500 C. 20,000
b 19,250 d. 22,000
C 2. If Jam Screenshot [Link] to earn P 22,500 in post-tax income for the coming year, the
company's sales volume in pesos must be
a. P 207,000 C. P229,500
b. P 213,750 d. P 257,625
3. For the first year of Incognito Company's operations, 5,000 units of its only product remained on
hand:
Manufacturing costs Fixed P 250,000
(Production: 50,000 units) Variable 180,000
Selling and administrative costs Fixed 75,000
Variable 80,000
B Howwould the profit of Incognito compare between direct costing and full costing?
a. Direct costing will be P25,000 higher c. Full costing will be P 32,500 higher
b. Fullcosting will be P25,000 higher d. Direct costing willbe P32,500 higher
B [Link] 20,000 units are produced, fixed costs are P16 per unit. Therefore, when 40,000 units are
produced, fixed costs will:
Increase to P 32 per unit C. Remain at P 16 per unit
b Decrease to P 8per unit d. Total P 640,000
C 5. Confidential Farm Inc. has determined that it can minimize its WACC by using a debt-equity ratioof
2/3. The firm's cost of debt is 9% before taxes while the cost of equity isestimated to be 12% before
taxes. If the tax rate is 40%, then what is the company's WACC?
6.48% C. 9.36%
b. 7.92% d. 10.80%
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C 6. Sis How Much Dis Industries is replacing a grinder purchased 5 years ago for P 15,000 with a new
one costing P 25,000. The old grinder is being depreciated on a straight-line basis over 15 years to a
zero-salvage value; Flamingo will sell this old equipment to a third party for P6,000. The new
equipment will be depreciated on a straight- line basis over 10 years with azero-salvage value.
Assuming a 40% tax rate, what is Sis How's net cash investment at the time of purchase if the old
grinder is sold andthe new one purchased?
a. P 25,000 C. P 17,400
b. P 19,000 d: P 15,000
7. [CPALE] JollibabyCompany believes that it can sell long-term bonds with a6% coupon, but a price
B that gives a yield-to-maturity of 9%. If such bonds are part of next year's financing plans, which of the
following should be used for bonds in the after-tax (40%) cost-of-capital calculation?
a. 3.6% b. 5.4% C. 4.2% d. 6.0%
Items 8 and 9 are based on the following information:
Xian Gasha Chismis, Inc. presents the following cost and other pertinent information for its lone
product: unit selling price, P 15; variable manufacturing costs per unit of production, P 8; total annual
fixed manufacturing costs, P 25,000; variable administrative costs per unit of production, P3; total
annual fixed selling &administrative expenses, P 15,000. During Xian's first year, 12,500 units were
produced and 10,000 units were sold.
A 8 The ending inventory under variable costing would be:
a. P 20,000 c. P 25,000
b. P 27,500 d. P32,500
B 9. The total fixed costs charged against the first year of operations under full costing would be:
a. P 15,000 c. P 25,000
b. P35,000 d. P40,000
D 10. Marie Sacal, the owner of Smoked Bacon then Duck Company, has a monthly target operating
income of P 32,000. Variable expenses are 40% of sales and monthly fixed expenses are P 8,000.
Assuming that Marie reaches its target, by how would its operating income change if sales volume
declines by 4%?
a Increase by 4% C. Decrease by 4%
b Increase by 5% d. Decrease by 5%
A 11. Anthony Jen ZManufacturers had the following costs when it produces 100,000 and sold 80,000
units of its only product:
Manufacturing costs Selling &Admin. Costs
Fixed P180,000 Fixed P 90,000
Variable 160,000 Variable 40,000
How much lower would Anthony's profit be if it used variable costing (VC) instead of absorption
costing (AC)?
a. P 36,000 b. P 54,000 c. P 68,000 d. P 94,000
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B 12. Rico Blangko, Inc. sells a single product, at P20 per unit. The firm's most recent income statement
revealed unit sales of 100,000, variable costs of P800,000, and fixed costsof P400,000. If aP4 drop
inselling price willboost unit sales volume by 20%, what will the company experience?
a. P 80,000 drop in profitability
b.P 240,000 drop in profitability
C. P400,000 drop in profitability
d. No change in profit because a 20% drop in sales price is balanced bya 20% increase in volume
A 13. KathDen Company uses an annualcost formula for overhead of P18,000 +P1.60 for each direct
labor hour worked. For the upcoming month, Sana plans to manufacture 96,000 units. Each unit
required five minutes of direçt labor. What is KathDen's budgetedoverhead for the upcoming month?
P 14,300 C. P 30,800
b. P 18,800 d. P 171,600
CC [Link], Love,CPA Co. incurred the following factory overhead costs for the second quarter of the
year:
Machine Hours Factory Overhead
April 150 P4,200
(3 May - 120 P3,600
June 180 P4,800
Using high-low method, how much is the fixed factory overhead cost for the second quarter?
P 1,200 b. P 2,400 C. P3)600 d. P4,800
A 15. Baby Kisses Company sold 12%, non-convertible preferred stock with a par value of P50. The stock
sold for P 55, and flotation costs were 6% of the market price. Tax rate is 30%. What is Baby's cost of
preferred stock?
a. 11.61% b. 10.91% C. 8.12% d.
Soxnb
7.64%
D 16. Assuming P 20,000 net annual cash inflows from a 3-year P 36,000-capital investment project, then
what is the closest estimate of the break-even cash flow rate of return (IRR) for the project?
30.7%
D b
30.9% c.
30.8% d. 30.6%
B [Link] Acting Company that has sales of P 200,000, a contributionmargin ratio of 20% and a
margin of safety{MS) of P 80,[Link] is its fixed cost?
a. P 16,000 b. P 24,000 C. P 80,000 d. P 96,000
C 18. Marizo Racalzo manufactures a single product. Unit variable production costs are P 20 and fixed
production costs are P 150,000. Marizo uses a normal activity of 10,000units to set its standard costs.
Marizo began the year with no inventory, produced 11,000 units, and sold 10,500 units. Ending
iayentory under absorption costing (AC) is:
a. P17,500 b. P 15,000 C. P 10,000 d. P 20,000
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D 19. Touch Me Not Company has a payback goal of 3 years for a new sorter being evaluated that costs
P450,000 and has a 5-year life. Straight-line depreciation willbe used; nosalvage value is anticipated.
Tax rate is 40%. To meet the payback goal, how much must the sorter generate as pre-tax cash
D savings?
P 60,000 C. P 150,000
b P 100,000 d. P 190,000
B 20. Jose MariTyan invested in a new machine that cost P80,000. The machine being depreciated over
5 years using straight-line depreciation with no salvage value. The machine expected to produce
B incremental cash revenues of P100,000 per year and incremental cash expenses of P30,000 per year.
The tax rate is 25%. Calculate Jose Mari Tyan'sincrementaloperating after-tax cash flowS.
a. P 70,000 b. P 56,500 C. P 52,500 d. P40,500
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