MANAGEMENT ADVISORY SERVICES

Second Pre-board rhad

1. A management advisory services engagement generally involves the

following activities in what order?
I. Post engagement follow-up
II. Implementing the recommendation
III. Conducting the engagement
IV. Negotiating the engagement
V. Preparing for and starting the engagement
VI. Evaluating the engagement
VII. Preparing and presenting the report and recommendations

a. VII, VI, V, IV, III, II, and I

b. III, IV, V, VI, VII, I, and II
c. IV, III, V, VI, II, VII, and I
d. IV, V, III, VII, II, VI, and I

2. A CPA should reject management advisory services engagement if

a. It would require him to make management decisions for the
client
b. The proposed engagement is not accounting related
c. His recommendations are to be subjected to review by the client
d. He audits the financial statements of a subsidiary of the
prospective client

3. Management accounting
a. is governed by GAAP
b. draws from disciplines other than accounting
c. is geared primarily to the past rather than the future
d. is designed for external reporting

4. Managerial accounting differs from financial accounting in that

financial accounting is
a. More oriented toward the future
b. Primarily concerned with external financial reporting
c. Concerned with non-quantitative information
d. Heavily involved with decision analysis and
implementation of decisions

5. To distinguish between management accounting and financial

accounting, the following statements are correct except
a. Management accounting, in view of its various integrated
recipients should have a separate data recording and retrieval system
from financial accounting
b. Financial accounting is bound to GAAP, and management
accounting need not be in conformity with GAAP
c. Financial accounting can be regarded as the process
while management accounting can be regarded as the product of that
process
d. Management accounting output must be released on time so
as not to erode its usefulness financial account output can still be
useful even when delayed

6. Which of the following types of management services is not

directly related to accounting and finance functions?
a. Cost analysis of major investment decisions
b. Long-range planning
c. Design, installation or review of the budgetary system
d. Valuation of capital stock of companies for purposes of
merger or sale.

7. Which of the following types of management services is normally

related to accounting and finance?
a. Management audit
b. Marketing forecasts
c. Costs determination of alternatives in collective
bargaining agreements.
 d. Job evaluation and salary administration.

8. Which of the following statements about management or financial

accounting is false?
a. Financial accounting must follow GAAP
b. Management accounting is not subject to regulatory reporting
standards
c. Both management and financial accounting are subject to
mandatory record keeping requirements
d. Management accounting should be flexible

A company manufactures and sells a single product. Planned and

actual production in 2018, its first year of operation, was 100,000
units. Planned and actual costs in 2018 were as follows:
Manufacturing Non-manufacturing
Variable P600,000 P500,000
Fixed 400,000 300,000

The company sold 85,000 units of product in 2018 at a selling

price of P30 per unit.

9. Using variable costing, the company’s operating income in 2018

would be
a. P750,000 b. P840,000 c. P915,000 d. 975,000

During the first year of operations, a company produced 275,000

units and sold 250,000 units. The following costs were incurred during
the year:
Variable costs per unit:
Direct materials P15.00
Direct labor 10.00
Overhead 12.50
Selling and administrative 2.50

Total fixed costs:

Manufacturing overhead P2,200,000
Selling and administrative 1,375,000

10. How much is the difference in income computed under

variable costing against income computed under absorption costing?
a. P200,000 greater c. P325,000 greater
b. P220,000 greater d. P62,500 lesser

At the end of Kate Company’s first year of operations, 1,000 units

of inventory remained on hand. Variable and fixed manufacturing costs
per unit were P90 and P20, respectively.

11. If Kate uses absorption costing rather than direct costing,

the result would be a higher pretax income of
a. P20,000 b. P70,000 c. P0 d. P90,000

A company had a net income of P85,500 using variable costing and a

net income of P90,000 using absorption costing. Total fixed
manufacturing overhead was P150,000, and production was 100,000 units.

12. Between the beginning and the end of the year, the inventory
level
a. increased by 4,500 units
b. decreased by 4,500 units
c. increased by 3,000 units
d. decreased by 3,000 units

Last year, Olympia Company had a net income of P92,000 using

absorption costing and a net income of P98,600 using variable costing.
Fixed manufacturing overhead cost was P3 per unit for the last two
years. Production was 18,000 units.

13. The sales units for the year were?

a. 24,600 b. 20,200 c. 15,800 d. 15,000
 Last year, Walk Company had 16,000 units in its beginning
inventory. During the year, the company’s variable production costs were
P6 per unit and its fixed manufacturing overhead costs were P4 per unit.
The company’s net income for the year was P24,000 higher under
absorption costing than it was under variable costing.

14. The number of units in the ending inventory must have been?
a. 22,000 b. 10,000 c. 6,000 d. 4,000

Last year, Blake Company’s income under absorption costing was

P3,600 lower than its income under variable costing. The company sold
10,000 units during the year, and its variable costs were P9 per unit,
of which P1 was variable selling expense. Production cost was P11 per
unit under absorption costing.

15. How many units did the company produce during the year?
a. 8,200 b. 8,800 c. 11,200 d. 11,800

Utility costs at Service Co. are a mixture of fixed and variable

components. Records indicate that utility costs are an average of P0.40
per hour at an activity level of 9,000 machine hours and P0.25 per hour
at an activity level of 18,000 machine hours.

16. What is the expected total utility cost if the company works
13,000 machine hours?
a. P4,225 b. P5,200 c. P4,000 d. P3,250

Larson Co. used the high-low method to derive the cost formula for
electrical power cost. According to the cost formula, the variable cost
per unit of activity is P3 per machine hour. Total electrical power cost
at the high level of activity was P7,600 and at the low level of
activity was P7,300. The high level of activity used was 1,200 machine
hours.

17. What was the low level activity machine hours?

a. 800 b. 900 c. 1,000 d. 1,100

Sales for a retail shop were P250,000. Net income totaled P30,000
and cost of goods sold was P110,000. Total contribution margin was
P100,000.

18. How much was total variable selling and administrative

expenses?
a. P40,000 b. P100,000 c. P70,000 d. 150,000

The cost of goods sold in the Marin Co.’s retail shop totaled
P325,000. Fixed selling and administrative expenses totaled P115,000 and
variable selling and administrative expenses were P210,000. Contribution
margin totaled P590,000.

19. How much was total sales?

a. P1,125,000 b. P1,030,000 c. P915,000 d. 650,000

Glory Company’s gross margin exceeded its contribution margin by

P25,000. Sales totaled P175,000 when net income was P20,000 with selling
and administrative expenses of P55,000.

20. How much was total contribution margin?

a. P75,000 b. P80,000 c. P30,000 d. P50,000

Kramer Company has a sales level of P450,000. Its gross margin is

P90,000 less than its contribution margin. Net income is P30,000 with
selling and administrative expenses of P140,000.

21. How much is the total fixed expenses?

a. P360,000 b. P230,000 c. P190,000 d. 280,000
 At a volume of 20,000 direct labor hours, Tirso Company incurs
P50,000 in factory overhead costs, including P10,000 in fixed costs.
The volume is expected to increase to 25,000 direct labor hours.

22. Tirso would expect to incur total factory overhead costs of:
a. P50,000 b. P60,000 c. P62,500 d. P72,500

Shipping cost at Junk Co. is a mixed cost with variable and fixed
components. Past records indicate total shipping cost was P18,000 for
16,000 pounds shipped and P22,500 for 22,000 pounds shipped. The company
expects to ship 18,000 pounds next month,

23. How much would be the total shipping cost?

a. P18,500 b. P20,400 c. P19,500 d. P24,000

Walsh Company has three stores: X, Y, and Z. During August, the

variable expenses in X were P90,000 and the contribution margin ratio
was 25%. Store Y had a contribution margin of P27,000 and a contribution
margin ratio of 20%. Sore Z had variable expenses of P120,000 and a
variable expense ratio of 60% of sales.

24. How much was total sales for August?

a. P318,000 b. P455,000 c. P485,000 d. 555,000

Scotty Company has two divisions, A and B. The following data were
presented for the previous month:
Division A Division B
Sales P50,000 P75,000
Variable cost ratio 70% 60%
Segment margin P 7,000 P 7,500

Common fixed expenses were P10,000.

25. How much is total fixed expenses?

a. P10,000 b. P30,500 c. P40,500 d. P65,500

Channing Company has two divisions, S and T. The company’s overall

contribution margin ratio is 30% when sales in the two divisions total
P750,000. Variable expenses were P450,000 in Division S, and
contribution margin ratio is 25%.

26. How much was sale sin Division T?

a. P75,000 b. P150,000 c. P225,000 d. P300,000

Given the following data:

Return on investment 15%
Sales P120,000
Average operating assets P60,000
Minimum ROR 12%
Margin 7.5%

27. The residual income would be

a. P1,800 b. P5,400 c. P2,700 d. P3,600

Given the following data:

Average operating assets P250,000
Total liabilities 100,000
Sales 600,000
Contribution margin 150,000
Net operating income 30,000

28. The ROI would be

a. 5% b. 12% c. 25% d. 60%

The Tip Division of Dudley Company reported the following data last
year:
Return on investment 20%
Minimum ROR 12%
Residual income P50,000
 29. How much is the average operating assets last year?
a. P625,000 b. P250,000 c. P416,677 d. 333,333

30. How much was the division’s net operating income last year?
a. P250,000 b. P125,000 c. P100,000 d. P75,000

31. A segment of a business responsible for both revenues and

expenses would be what type of center
a. cost b. investment c. profit d. residual income

32. X Co. manufactures toy airplanes. Information of X Co.’s

labor costs follow:
Sales commissions P5 per plane
Administration P10,000 per month
Indirect factory labor P3 per plane
Direct factory labor P5 per plane
The following information applies to the upcoming month of July for X
co.
Budgeted production 1,200 units
Budgeted sales 1,000 units

What is X Co.’s budgeted factory labor cost for July?

a. P8,000 b. P15,600 c. P25,600 d. P9,600

33. E Co. has the following expected pattern of collections on

credit sales: 70% collected in the month of sale, 15% in the month
after the month of sale, and 14% in the second month after the
month of sale. The remaining 1% is never collected. At the end of
May, E Co. has the following accounts receivable balances
From April sales P21,000
From May sales 48,000

E’s expected sales for June are P150,000. How much cash will E Co.

expect to collect in June?

a. P127,400 b. P129,000 c. P148,600 d. P152,520

34. For the month of October, P Corp. predicts total cash

collections to be P1 million. Also for October P Corp. estimates
that each beginning cash balance will be P50,000 and that it will
borrow cash in the amount of P70,000. If P Co. estimates an ending
cash balance of P30,000 for October, what must its projected cash
disbursements be?
a. P1,090,000 b. P1,120,000 c. P1,070,000 d. P1,020,000

35. Volkers Hospitals has provided you with the following budget
information for April:
Cash collections P876,000
April cash balance 23,000
Cash disbursements 978,600

Volkers has a policy of maintaining a minimum cash balance of

P20,000 and borrows only in P1,000 increments. How much will Volkers
borrow in April?
a. P80,000 b. P79,600 c. P99,000 d. P100,000

36. Mc Gill Co. manufactures card tables. MC Gill has a policy

of maintaining a finished goods inventory equal to 40% of the next
month’s planned sales. Each card tables requires 3 hours of labor.
The budgeted labor rate for the coming year is P13 per hour.
Planned sales for the months of April, May, and June are 4,000;
5,000; and 3,000 units respectively. What is Mc Gill Co.’s
budgeted direct labor cost for May?
a. P54,600 b. P163,800 c. P226,200 d. P179,400
 37. Budgeted sales for the first 6 months of 2012 for Henry Co.
are listed below:
January February March April May June
Units 6,000 7,000 8,000 7,000 5,000 4,000

Henry Co. has a policy of maintaining an inventory of finished

goods equal to 40% of the next month’s budgeted sales. How many units
has Henry Co. budgeted to produce in the first quarter of 2012?
a. 21,400 b. 20,600 c. 19,000 d. 23,000

38. Winner Inc. has projected sales to be: February, P6,000;

March, P5,000; April, P4,000; May, P7,000. Winner has 30% cash
sales and 70% sales on account. Accounts are collected 40% in the
month of the sale and 60% collected the second month. Accounts
receivable for May 31 would be
a. P5,030 b. P6,000 c. P5,880 d. P6,300

39. The Home Co. is planning its operations form the month of
March. The following estimates for the month were submitted:
Cash payment for merchandise in March P180,000
Inventory, March 1 60,000
Inventory, March 31 20,000
Trade accounts payable, March 1 100,000
Trade accounts payable, March 31 120,000

If the gross profit rate is 40% of sales, how much is the budgeted
sales for March?
a. P300,000 b. P400,000 c. P540,000 d. P600,000

40. Bridge Co. has budgeted sales for 100,000 units of its
product for the year. Expected unit cost based on past experience
should be P60 for direct materials, P40 for direct labor, and P30
for factory overhead. Assume that there is no work-in-process
inventory. The company begins the year with 40,000 finished units
on hand and budgeted the ending finished goods inventory at only
10,000 units. What is the budgeted production cost for the year?
a. P700,000 b. P1,900,000 c. P9,100,000 d.
P16,900,000

41. Midas Co. had a cost of goods sold budget for the quarter of
P210,000.
Additional data are as follows:
Finished goods, beginning P38,000
Finished goods, ending 41,000
Factory overhead budget 63,000
Direct labor cost budget 58,000
No work in process inventories

What is the direct materials usage budget

a. P86,000 b. P88,000 c. P90,000 d. P92,000

42. Jones, a department manager, exercises control over the

department’s costs. Following is selected information relating to
the department for July:
Variable factory overhead:
Budgeted based on standard hours allowed P80,000
Actual 85,000
Fixed factory overhead:
Budgeted 25,000
Actual 27,000
The department’s unfavorable spending variance for July was:
a. P7,000 b. P5,000 c. P2,000 d. P0

43. The actual direct labor hours were 4,000. The standard
variable overhead rate is P2.50 per hour. The actual variable
overhead was P10,400. The spending variance:
a. was P800 unfavorable c. was P800 favorable
b. was P400 unfavorable d. was P500 unfavorable
 44. The following information in presented to you by Jane
Company:
Standard quantity Standard price
or hours or rate
Direct labor 3 hours P 5.00
Variable overhead 3 hours P 6.00

During the month, 6,800 hours of labor were used to produce 2,200
units of product. The actual variable overhead costs were P39,984.

The variable overhead spending variance and efficiency variance was:

a. P816 unfavorable and P384 favorable, respectively
b. P816 favorable and P1,200 unfavorable, respectively
c. P816 favorable and P384 unfavorable, respectively
d. P816 unfavorable and P1,200 favorable, respectively

45. The following average times were recorded for one unit of
product:
Process time 3.00 days
Inspection time 0.50 days
Move time 0.25 days
Queue time 0.25 days
Wait time from start to completion of product 6.0 days

The manufacturing cycle efficiency (MCE) for the product was:

a. 0.333 b. 0.750 c. 0.428 d. 0.500

46. The standard hours for direct labor are 3 hours. The
standard rate per hour is P5.00. During the month, 7,000 hours of
labor were used at P4.80 per hour to produce 2,200 units of
product. An entry to record usage of direct labor will include
(but not be limited to):

a. Labor Rate Variance, Dr., P1,400; Labor Efficiency Var., Cr.,

P2,000
b. Labor Efficiency Variance Dr., P2,000; Labor Rate Variance, Cr.
P1,400
c. Labor Rate Variance, Cr. P1,400
d. Labor Efficiency Variance, Cr., P2,000

47. The standard quantity of direct materials is 5 kilograms

(kgs.). The standard price is P3.00 per kg.. During the month,
12,000 kgs. Of material were purchased for P3.05 per kg.. Nine
thousand kgs. Of materials were used to produce 1,700 units of
product. The materials price variance is determined at time of
purchase. An entry to record material usage will include (but not
be limited to):

a. Work in Process, Dr., P25,500; Materials Quantity Variance,

Cr., P1,500
b. Work in Process, Dr., P25,500; Materials Quantity Variance,
Dr., P1,500
c. Work in Process, Dr., P27,000; Materials Quantity Variance,
Dr., P1,500
d. Work in Process, Dr., P25,500; Materials Quantity Variance,
Dr., P1,525

48. The following information in presented to you by Kate

Company:
Standard labor-hours allowed, 8,000.
Actual labor-hours used, 8,400.
Variable Standard Actual Costs Budgeted costs
Overhead: cost/hour for 8,400 hours for 8,000 hours Variance
Indirect labor P0.90 P7,980 P7,200 P780
Power 0.25 1,960 2,000 40

The total variable overhead variance is:

a. P820 unfavorable c. P820 favorable
b. P740 favorable d. P740 unfavorable

49. The following information in presented to you by Lanney

Company:
Standard labor-hours allowed, 9,000.
Actual labor-hours used, 8,400.

Variable Standard Actual hours Actual hours Budgeted costs

Overhead: cost/hour at actual rate at standard rate for 9,000 hours
Maintenance P0.80 P6,700 P6,720 P7,200
Power 0.30 2,600 2,520 2,700

The variable overhead spending variance is:

a. P60 favorable c. P60 unfavorable
b. P100 unfavorable d. P100 favorable

50. The following information in presented to you by Mandy

Company:
Direct labor-hours: 7,200. Units completed: 1,900.
The standard cost card shows:
Variable overhead: 4 hours @ P5.25 per direct labor-hour
Fixed overhead: 4 hours @ P2.00 per direct labor-hour
Actual fixed factory overhead was P16,550.
The volume variance was P800 unfavorable.

The amount of fixed overhead cost contained in the flexible budget

for overhead was:
a. P15,200 b. P16,000 c. P13,700 d. P14,400

51. Total underapplied factory overhead was P500. The variable

overhead spending variance was P300 unfavorable, the efficiency
variance was P150 unfavorable, and the fixed overhead budget
variance was P300 favorable. The volume variance was:
a. an unfavorable variance of P350 c. an unfavorable variance of
P50
b. a favorable variance of P50 d. a favorable variance of P350

52. The BLACK CORP.'S plant manager does not know what to do
with 15,000 units of defective product on stock which costs the
company P40,000 to produce. There are two proposals submitted for
this consideration:
1. Sell the product as a scrap for P2.50 per unit, or. . .
2. Rework the units at a cost of P35,000 and sell the product
for P7.50 per unit
The net advantage or disadvantage to the company if proposal No. 2,
(rework the units) is followed is:
a. P32,500 advantage
b. P70,000 disadvantage
c. P35,000 disadvantage
d P37,500 advantage

53. KXM Bottling Corporation makes and sell two soft drinks,
COLA and ORANGE.
The comparative data for the two shows:
Cola Orange
Selling price, per bottle P9.50 P9.80
Variable cost 6.5 7.20
Production capacity per 250 bottles 300 bottles
hour

There are 500 available production hours per month. Based on the
above information.
a. ORANGE and COLA’s unit contribution margin is the same hence it
is equally profitable to produce either.
b. It is more profitable to produce ORANGE.
 c. COLA’s contribution margin is higher than that of ORANGE hence
more profitable to produce.
d. It is more profitable to produce COLA.

54. Edifer Tools, Inc. uses a semi-automated process in its

production. It is faced a proposal to completely automate its
production. Below are the data for these alternative methods:
Complete Semi-automated
automation
Material cost per unit P 12.00 P 10.50
Labor cost per unit 3.00 15.00
Other variable per unit 4.50 3.00
Lease cost per year P 75,000 P 30,000
Maintenance cost per year 15,000 6,000

The cost indifference point is at (units)

a. 3,300 b. 3,000 c. 6,000 d. 6,300

55. The Chip Division of Supercomp Co. produced a high-quality

computer chip. Unit production costs (based on capacity production
of 100,000 units per year) follow:
Direct materials P50
Direct labor 20
Overhead (20% variable) 10
Other information:
Sales price 100
S&A cost (40% variable) 15

Chip division is presently operating at a level of 80,000 chips

per year. Accepting a “special order” on 2,000 ships at P88 will
a. increase profits by P4,000 c. decrease profits by P14,000
b. increase profits by P20,000 d. decrease profits by P24,000

56. Sagaysay Co. makes and sales brushes and combs. It can sell
all of either product it can make. The following data are
pertinent to each respective product:
Brushes Combs
Units of output/machine hour 8 20
Selling price per unit P12.00 P4.00
Direct materials 1.00 1.20
Direct labor 2.00 0.10
Variable overhead 0.50 0.05
Total fixed overhead is P380,000.

The company has 40,000 machine hours available for production.

What sales mix will maximize profits?
Brushes Combs
a. 320,000 0
b. 0 800,000
c. 160,000 600,000
d. 252,630 252,630

57. Arm Co. has 15,000 units in inventory that had a production
cost of P3 per unit. These units cannot be sold through normal
channels due to significant technology change. These units could
be reworked at a total cost of P23,000 and sold for P28,000.
Another alternative is to sell the units to a junk dealer for
P8,500. The relevant cost for Arm to consider in making its
decision is
a. P45,000 of original product costs
b. P23,000 for reworking the units
c. P68,000 for reworking the units
d. P28,000 for selling the units to the junk dealer

58. The income statement of product Lugi, one of the several

products being sold by Rigodon Co. is reproduced below:
Sales P 80,000
Costs and expenses 92,000
 Net income (loss) (P12,000)

P37,600 of the costs and expenses above are fixed of which P21,600
is unavoidable regardless of whether the product will be dropped or not

What is the product elimination point?

a. P54,400 b. P16,000 c. P50,000 d. P70,400

59. Scully, Inc. has been manufacturing 5,000 units of Part 20

which is used in the manufacture of one of its products. At this
level of production, the cost per unit of manufacturing Part 20 is
as follows:
Direct materials P2
Direct labor 8
Variable overhead 4
Fixed overhead applied 6

Mulder Co. has offered to sell Scully 5,000 units of Part 20 for
P19 a unit. Scully has determined that it could use the facilities
presently used to manufacture Part 20 to manufacture Product X and
generate an operating profit of P4,000. Scully has also determined that
two thirds of the fixed overhead applied will continue even if Part 20
is purchased from Mulder. To determine whether to accept Mulder’s offer,
the net relevant manufacturing costs to Scully are:
a. P70,000 b. P80,000 c. P90,000 d. P95,000

60. Kai Co. produces 1,000 units of Part X per month. The total
manufacturing costs of the part are as follows:
Direct materials P10,000
Direct labor 5,000
Variable overhead 5,000
Fixed overhead 30,000

An outside supplier has offered to supply the part at P30 per

unit. It is estimated that 20% of the fixed overhead assigned to Part X
will no longer be incurred if the company purchases the part from the
outside supplier. What is the maximum price that Kai Co. would be
willing to pay the outside supplier?
a. P30 b. P26 c. P20 d. P15
61. During the year, Dee Corp. experienced the following power
outages
# of outages per mo. # of months
1 3
2 2
3 4
4 3

Each power outage results in –out-of-pocket cost of P4,000. For

P9,000 per month, Dee can lease an auxiliary generator to provide power
during outages.
If Dee leases an auxiliary generator, the estimated savings (or
additional expenditures for the year would be
a. (P36,0000) b. (P12,000) c. P16,000 d. P19,000

62. A manufacturing company produces and sells three products,

X, Y, and Z. The following information is available form the
records of the past year:

Product Selling price CMR Sales mix- units

X P50.00 10% 50
Y 37.50 20% 40
Z 25.00 40$ 10
 Fixed cost = P34,800

Management is optimistic that the over-all profit picture can be

improved by selling greater proportion of the more profitable lines.
After a full investigation, it is found that the following sales mix
should be possible in the future. Product X, 30 units; product Y, 50
units; and product Z, 20 units.

To realize a profit of P68,875, how many units of product Z must

be produced and sold using the new sales mix?
a. 2,860 b. 4,290 c. 7,150 d. 14,300

63. DEF Company is a retailer for video disks. The projected net
income for the current year is P200,000 based on sales volume of
200,000 video disks. DEF has been selling the disk for P16 each.
The variable cost consist of P10 unit purchase price of the disks
and handling cost of P2 per disk. DEF’s annual fixed costs are
P600,000. Management is planning for the coming year and it
expects that the unit purchase price of the video disks will
increase 30 percent. (Ignore income taxes)

What is the company’s break-even point for the current year in number of
video disks?
a. 152,000 c. 155,000
b. 150,000 d. 140,000

64. The ABC Hydro Systems Engineering Associates, Inc. provides

consulting services to city water authorities. The consulting
firm’s contribution margin ratio is 20 percent, and its annual
fixed expenses are P120,000. The firm’s income tax rate is 40
percent.

Suppose the firm’s income tax rate rises to 45 percent, what is

the firm’s break-even point of consulting service revenue?
a. P1,000,000 c. P600,000
b. P 800,000 d. P900,000

65. KC Co. produced 5,000 units of product. There was no

beginning inventory. The fixed factory overhead incurred was
P4,000. The ending inventory was 200 units. The net income under
absorption costing method was P12,000

What would be the net income under direct costing method?

a. P12,400 b. P8,000 c. P11,840 d. P16,000

The management of SOLIS CORP. is evaluating the profitability of

the company's present product mix. Several proposals are being reviewed.
A partial income statement and other information follows:
ABC DEF GH1 JKL TOTAL
Sales P24,000 P35,000 P24,000 P30,000 P 113,000
Cost of Sales 10,000 20,000 25,000 25,000 80,000
Gross Profit P14,000 P15,000 P(1,000) P5,000 P33,000
Operating costs 5,000 8,125 8,000 6,000 27,125
NI before taxes P9,000 P6,875 P(9,000) P(1,000) P5,875

Unit sold 2,000 2,500 3,000 4,000

S. Price per unit P12.00 P14.00 P8.00 P7.50
Variable cost per unitP3.00 P5.00 P6.50 P5.00
Variable operating
Cost per unit P1.50 P1.25 P2.00 P1.00

The various proposals shall be treated as separate and independent

of the other proposals. Consider only the product change stated in each
proposal, the activity of the other products remain the same. Disregard
effect of income taxes.

Based on the following information:

66. If the production of GHI is stopped, the effect on income
will be
 a. P1,000 increase c. P1,000 decrease
b. P1,500 increase d. P9,000 increase

67. If the production of GHI is stopped and an accompanying loss

of the customers results in a decrease of 500 units in sales of
Product DEF. The total effect on income will be
a. P1,500 increase c. P3,875 decrease
b. P3,875 increase d. P2,375 decrease

68. If the selling price of GHI is increased by P1.25 per unit

with a reduction in the number of unit sold to 2,000, the effect
on income will be
a. P1,500 increase c. P3.000 decrease
b. P3.000 increase d. P1,500 decrease

69. The factory in which GHI is produced can be used to

manufacture another product, N4NO. The total variable costs and
expenses per unit of this new product are P9.50 and 2,500 units
can be sold at P10.75 each. If MNO is introduced and GHI
discontinued, the total effect on income is
a. P4,625 increase c. P3,125 decrease
b. P3,125 increase d. P4,625 decrease

70. Production of ABC can be increased by 100% by adding a

second shift. Variable cost of sales, however, will increase by P2
for each of the additional units of ABC. If the additional units
of ABC can be sold at the same selling price of P12 each, then net
income will have a
a. P24,000 increase c. P14,000 decrease
b. P17,000 increase d. P11,000 increase