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Weekly Quiz: MAS Financial Management

Question #1

Cesar Company has the following information

Breakeven sales 528,000

Variable cost ratio 60%

At a net profit ratio of 8%, what is Cesars degree of operating leverage?
2 times 3 times 5 times 4 times

Question #2

The normal operating cycle is 150 days while payable turnover is 6 times. How many cash
conversion cycles are there within a 300-day year?
5 cycles 4 cycles 3 cycles 6 cycles

Question #3

The residual income of a company segment is positive when

sales variances are favorable costs variances are unfavorable minimum ROI is
based on companys cost of capital minimum ROI is lower than the segments ROI

Question #4

What is Valentins cost of sales for the year?

Current ratio 3.5

Acid test ratio 3.0

Year-end current P600,000

liabilities

Beginning inventory P500,000

Inventory turnover 8.0

2,400,000 6,400,000 3,200,000 1,600,000

Question #5

Shelton Devin Corp. has two subsidiaries, of which 30% of ownership in each subsidiary lies
with Shelton Devin. The CEO of the company is not in favor of presenting consolidated
financial statements. Based on the information, which of the following is most likely true?
The decision of the CEO is wrong as companies are required to issue consolidated
statements when the ownership exceeds 20%. The decision of the CEO is wrong as
companies are required to issue consolidated

statements only if they hold more than ten subsidiaries The decision of the CEO is correct
as companies are required to issue

consolidated statements only when the ownership exceeds 50% The decision of the CEO is
correct as companies are required to issue

consolidated statements when they have three or more subsidiaries

Question #6

A Companys return on assets is determined to be 15% while debt ratio remains relative
constant at 40%. What is the companys return on equity?
25.00% 2.67% 37.50% 6.00%

Question #7

At the start of the year, Zhoe Company initiated a quality improvement program. The program
was successful in reducing scrap and rework costs. To help assess the impact of the quality
improvement program, the following data were collected for the current year:

Sales 100,000

Scrap 20,000

Rework 25,000

Quality training 10,000

Product warranty 30,000

Product inspection 40,000

Materials inspection 20,000

In a quality cost report prepared by the Zhoe Company, what total amount should be shown as
non-conformance costs?
70,000 115,000 75,000 45,000

Question #8

What is Valentins cost of sales for the year?

Current ratio 3.5

Acid test ratio 3.0

Year-end current P600,000

liabilities
 Beginning inventory P500,000

Inventory turnover 8.0

1,600,000 2,400,000 3,200,000 6,400,000

Question #9

Silicon Technologies has the following relationships:

Annual sales P1,200,000

Current liabilities 375,000

Days sales outstanding (DSO) (365-day 40

a year)

Inventory turnover ratio 4.80

Current ratio 1.20

The companys current assets consist of cash, inventories, and accounts receivable. How much
cash was Silicon have on its balance sheet?
125,000 68,493 8,333 200,000

Question #10

Odon is considering an investment in a new machine to replace its existing one. Information
on the existing machine and the replacement machine follow:

Cost of the new machine P40,000

Net annual savings in operating costs 9,000

Salvage value now of the old machine 6,000

Salvage value of the old machine in 8 0

years

Salvage value of the new machine in 8 5,000

years
What is the expected payback period for the new machine?
3.78 years 2.67 years 8.50 years 4.44 years

Question #11

The following information pertains to data that have been gathered in the process of
estimating a simple least squares regression for ABC Corporation:

Mean value of the dependent 30

variable

Mean value of the independent 8

variable
 Coefficient of the independent 3
variable

Number of observations 12
What is the a value for the least squares regression model?
0 20 6 60

Question #12

GHI Company is approached by a customer to fulfill a large one-time-only special order for a
product similar to one offered to regular customers. The following per unit data apply for sales
to regular customers:

Direct materials 455

Direct labor 300

Variable manufacturing 45
support

Fixed manufacturing 100

support

Total manufacturing 900

support

Mark-up (60%) 540

Targeted selling price 1,440

GHI Company has excess capacity. If GHI accepts the order, direct materials cost will increase
by P30 per unit. What is the minimum acceptable price of this one-time-only special order?
1,470 900 830 930

Question #13

The first order of 500 units incurred P120,000 of labor costs; the next order of 500 units
required an additional P72,000 of labor costs. What percentage of learning occurred?
85% 80% 90% 95%

Question #14

When would a retailer tend to decrease the safety stock of inventory?

cost of carrying inventory increases transportation time increases sales volume
permanently increases sales variability increases

Question #15

A horizontal merger is a merger between

A producer and its supplier. Two or more firms from different and unrelated markets.
Two or more firms at different stages of the production process. Two or more firms in
the same market.

Question #16

If a companys cash conversion cycle increases, then the company

reduces its payable deferral period incurs more shortage or stockout costs becomes
more profitable increases its investment in working capital

Question #17

If a firm is offered credit terms of 2/10, net 30 on its purchases. Sound cash management
practices would mean that the firm would pay the account on which of the following days?
Day 2 and 30. Day 2 and 10. Day 30. Day 10.

Question #18

A customer of Irving Gemstones owed P20,000 on account. Due to nonreceipt of payments after
5 months of the due date, the amount was written off as doubtful using the direct write-off
method. After 2 years, the customer paid the full amount due. How should this transaction be
journalized?
The amount received should be debited to Accounts Receivable and credited to

the Allowance for Doubtful accounts The amount received should be debited to Cash and
credited to a revenue

account, such as Uncollectible Accounts Recovered The amount received should be debited
to Cash and credited to the Accounts

Receivable account The amount received should be debited to the Allowance for Doubtful
accounts

and credited to Accounts Receivable

Question #19

A company believes that it can sell long-term bonds with a 6% coupon, but a price that gives a
yield-to-maturity of 9%. If such bonds are part of next years financing plans, which of the
following should be used for bonds in their after tax (40 percent rate) cost-of-capital
calculation?
5.4% 3.6% 6.0% 4.2%

Question #20

Brendan Bishop Scientific is considering acquisition of a plant in exchange of the par value of
its stock. However, the CFO of Brendan Bishop is not in favor of the acquisition. Which of the
following is the most likely reason for the CFO's disagreement?
The company's stock is most likely overpriced It is difficult to estimate the net
realizable value of the asset and, hence, difficult to estimate the annual depreciation expenses
 The company has fewer amounts of long-term assets The true cost of the asset cannot
be determined as the stock's trading activity

should also be considered

Question #21

A growing company is assessing current working capital requirements. The Company has
P5,000,000 in inventory and P2,000,000 in accounts receivables. Its average daily sales are
P100,000. It has P1,500,000 in accounts payable. Its average daily purchases are P50,000.
What is the length of the companys cash conversion period?
40 days 20 days 50 days 30 days

Question #22

Claire Enterprises has P150,000 in accounts receivable at the end of Year 1, and it estimates its
bad debts to be 5% of the receivables. Hence, the accountant reports P7,500 as bad debts and
the net realizable value as P142,500. Under which of the following circumstances will the
amount of bad debts reported most likely reduce?
If the company lengthens the credit period allowed If the company shortens the credit
period allowed If the allowance for doubtful accounts has a debit balance of P1,500 If
the allowance for doubtful accounts has a credit balance of P1,500

Question #23

If a company tends to be more conservative with respect to its working capital policy, then it
would tend to have a(n)
increase in the ratio of current assets to current liabilities decrease in the ratio of
current assets to current liabilities increase in the normal operating cycle decrease in
the normal operating cycle

Question #24

A banking system with a reserve ratio of 20%. A change in reserves of P1,000,000 can increase
its total demand deposit by
5,000,000 800,000 1,000,000 200,000

Question #25

Elsa Fashions wants to eliminate its credit department. It also wants to get cash immediately
and continue all operational activities directly with the customers. Which of the following
approaches would be the best to fulfill the company's objectives?
Securitization. Special investment vehicle Factoring Sale with recourse

Question #26

Why is equity capital generally more expensive than debt financing?

 investors expect to be paid more due to exposure to higher risk dividends fluctuate
more than interest rates investors have a greater demand for equity investments than for
debt investments. interest on bonds is a legal obligation

Question #27

What is Valentins cost of sales for the year?

Current ratio 3.5

Acid test ratio 3.0

Year-end current P600,000

liabilities

Beginning inventory P500,000

Inventory turnover 8.0

6,400,000 2,400,000 1,600,000 3,200,000

Question #28

Cagas Corporation is negotiating with a bank for a P300,000 one-year loan. The loan is
discounted with a 9 percent interest rate and a 20% compensating balance. Suppose that Cagas
Corporation requires the entire amount of P300,000 as net proceeds, how much is the Loans
required compensating balance?
65,934 60,000 75,000 84,507

Question #29

Jen, Inc., began operations on January 1 of the current year with a P12,000 cash balance. Forty
percent of sales are collected in the month of sale; 60% are collected in the month following
sale. Similarly, 20% of purchases are paid in the month of purchase, and 80% are paid in the
month following purchase. The following data apply to January and February:

  January February

Sales 35,000 55,000

Purchases 30,000 40,000

Operating 7,000 9,000

expenses
If operating expenses are paid in the month incurred and include monthly depreciation
charges of P2,500, determine the increase (decrease) change in Jens cash balance during
February.
P5,000 increase P7,500 increase P2,000 increase P4,500 increase

Question #30

Under Theory of Constraints

 improvement efforts should be focused on non-constraints efforts that are designed to
improve the rate of output of a workstation should generally be focused on the constraint a
company that wants to improve its operations should focus its improvement efforts on the
workstation with the highest productive capacity. no company has constraints

Question #31

The management accountant of Tillboard Inc. has recognized a sale of receivables or factoring
in the books for the current year. In doing so, he considered these three factors:
1) Ability of the buyer to sell the asset
2) Surrender of control
3) Asset outside the reach of the seller
Under which of the following situations can the decision of the management
accountant go wrong?
The company has an agreement to repurchase the asset before its maturity The seller is
liable for any loss realized or gain earned on the asset The asset is outside the reach of the
creditors of the company The seller should be able to use the asset as collateral

Question #32

Rogers Electronics is planning to make a market in the company's stock. The company's CFO
suggests the reacquisition of shares. Which of the following is most likely to happen if the
CFO's suggestion is implemented?
The stock price will increase The risk of takeovers by competitors will increase This
could serve as an indication of the company's negative outlook about its

future performance This will hinder exercise of employee stock options

Question #33

Fonz Inc., expects to sell 20,000 pool cues for P24.00 each. Direct materials costs are P4.00,
direct manufacturing labor is P8.00, and manufacturing overhead is P1.60 per pool cue. The
following expected beginning and desired ending inventory levels apply to 2017:

  Beginning Ending
Inventory Inventory

Direct materials 24,000 units 24,000 units

Work-in-process 0 units 0 units

inventory

Finished goods 2,000 units 2,500 units

inventory
How many pool cues need to be produced in 2017?
20,500 19,500 22,000 22,500

Question #34
Cesar Company has the following information

Breakeven sales 528,000

Variable cost ratio 60%

At a net profit ratio of 8%, what is Cesars degree of operating leverage?
5 times 4 times 2 times 3 times

Question #35

Warner Machines missed recording purchases worth P10,000 in the current year's income
statement. While finalizing the financial statements, the company's accountant detected the
error and partially corrected it. Under which of the following situations will the company
report lower than actual net income?
If the accountant has only increased accounts payable by P10,000 If the accountant has
only added missing purchases worth P10,000 to the cost of

goods sold If the accountant has reduced cash by P10,000 If the accountant has reduced
inventory by P10,000

Question #36

Regan Foundation is a tax-exempt charitable organization. Regan invested P400,000 in a five-

year project at the beginning of year 1. Regan estimates that the annual savings from this
project will amount to P130,000. The P400,000 of assets will be depreciated over their five-year
life on the straight-line basis. On investments of this type, Regans required rate of return is
12%. Information on present value factors is as follows:

  12% 14% 16%

PV of P1 for 5 periods 0.57 0.52 0.48

PV of an annuity of P1 for 5 3.60 3.40 3.30

periods
What is the present value of the project?
250,000 36,000 57,000 68,000

Question #37

Bicol Company wants to have an idea of the optimal cash transfer size for 2013 using the
Baumol model. The finance manager has estimated that semiannual cash disbursements for
2013 will total P27.04 million and the cost per transfer is P400,000. Assuming that interest rate
is 16%, how much is the optimal cash transfer size for 2013?
260,000 208,000 520,000 367,696

Question #38

An individual receives an income of P3,000 per month and spends P2,500. An increase in
income of P500 per month occurs, an individual spends P2,800. What is the marginal
propensity to save?
 60% 80% 20% 40%

Question #39

A company believes that it can sell long-term bonds with a 6% coupon, but a price that gives a
yield-to-maturity of 9%. If such bonds are part of next years financing plans, which of the
following should be used for bonds in their after tax (40 percent rate) cost-of-capital
calculation?
6.0% 3.6% 4.2% 5.4%

Question #40

Dividend yield is 12% while price-earnings ratio is set 5 times. Determine the retention or
plowback ratio
60% 2.4% 41.7% 40%

Question #41

UVW Company produces three products. Production and cost information is a as follows:

  Model A1 Model B2 Model C3

Units produced 2,000 6,000 12,000

Direct labor hours 4,000 2,000 4,000

Number of setups 100 150 250

Number of shipments 200 225 275

Engineering change 15 10 5
orders
Overhead costs include setups P45,000, shipping costs P70,000, and engineering costs, P90,000.
What would be the overhead cost per unit for B2 if activity based costing were used?
61.50 11.00 33.00 45.50

Question #42

The coefficient of variation provides a measure of the relative variability or riskiness of

investments. The expected rate of return for the stock of Julie Company is 20%, with a
standard deviation of 15%. The expected return for the stock of Victor Company is 10%, with a
standard deviation of 9%. Which of the following conclusions can be made?
Victors stock is riskier because of its higher coefficient of variation. Julies stock is
riskier because of its higher return. Victors stock is less risky because of its lower standard
deviation Julies stock is riskier because of its lower coefficient of variation

Question #43
England Company is concerned about the companys account receivable turnover ratio. The
company currently offers customers terms of 3/10 net 30. Which of the following strategies
would most likely improve the companys accounts receivable turnover ratio?
entering into a factoring agreement with a finance company changing customer terms
to 1/10 net 30 changing customer terms to 3/20, net 30 pledging the accounts receivable
to a finance company

Question #44

The following data are given for Pats Corp:

  September October November December

Cash sales 7,000 6,000 8,000 6,000

Credit sales 50,000 48,000 62,000 80,000

Total sales 57,000 54,000 70,000 86,000

Past experience indicates that credit sales collections normally occur in the following pattern:
1. No collections are made in the month sale
2. Eighty percent of the sales of any month are collected in the following month.
3. 19% of sales are collected in the second following month.
4. One percent of sales are uncollectible.
What are the total cash receipts for the sales made in November?
69,380 61,380 47,900 55,900

Question #45

The annual insurance premium for a factory building would be a:

variable cost, product cost, direct cost with regards to units of product fixed cost,
product cost, and direct cost with regard to units of product. fixed cost, product cost,
indirect cost with regard to units of product fixed cost, period cost, and indirect cost with
regard to units of product

Question #46

An organization sells a single product for P40 per unit, which it purchases for P20. The sales
people receive a salary plus a commission of 5% of sales. Last year the organizations net
income (after) taxes was P100,800. The organization is subject to an income tax rate of 30%.
The fixed costs of the organization are:

Advertising 124,000

Rent 60,000

Salaries 180,000

Other fixed costs 32,000

Total 396,000
The organization is considering changing the compensation plan for sales personnel. If the
organization increases the commission to 10% of sales and reduces salaries by P80,000, what
peso sales volume must the organization have in order to earn the same net income as last
year?
1,100,000 1,150,000 1,042,000 1,630,000

Question #47

Joshua will make P500,000 if the fishing season weather is good, P200,000 if the weather is fair,
and would actually lose P50,000 if the weather is poor during the season. If the weather
service gives a 40% probability of good weather, a 25% probability of fair weather, and a 35%
probability of poor weather, what is the expected monetary value for Joshua?
232,500 267,500 500,000 200,000

Question #48

The following information pertains to data that have been gathered in the process of
estimating a simple least squares regression for ABC Corporation:

Mean value of the dependent 30

variable

Mean value of the independent 8

variable

Coefficient of the independent 3

variable

Number of observations 12
What is the a value for the least squares regression model?
20 60 0 6

Question #49

A growing company is assessing current working capital requirements. The Company has
P5,000,000 in inventory and P2,000,000 in accounts receivables. Its average daily sales are
P100,000. It has P1,500,000 in accounts payable. Its average daily purchases are P50,000.
What is the length of the companys cash conversion period?
30 days 50 days 40 days 20 days

Question #50

At the start of the year, Zhoe Company initiated a quality improvement program. The program
was successful in reducing scrap and rework costs. To help assess the impact of the quality
improvement program, the following data were collected for the current year:

Sales 100,000

Scrap 20,000
Rework 25,000

Quality training 10,000

Product warranty 30,000

Product inspection 40,000

Materials inspection 20,000

In a quality cost report prepared by the Zhoe Company, what total amount should be shown as
non-conformance costs?
75,000 70,000 115,000 45,000
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