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Problem:Maria Agnes Calay won a grant from Small Enterprise Business last month. Together with her adviser, Alexander Grande III, they proposed to set up a La Presa Inn and Resort in their barangay. Their business proposal is extensive, environmental friendly and helps nearby barangays earn livelihood projects.La PresaLa Presa is an upland barangay in Tuba, Benguet between the twin peaks of Mt. . Cabuyao and Sto Tomas. They grow very good strawberries, lettuces and some crops grown in high altitude places.Project proponentsXander Grande is the heir to the Grande Hotel. He has an extensive experience in running hotel chains. He recently returned from his studies in London School of Economics where he specialized in corporate finance. He runs his own investment company called Malaya Investments with his staff, Orly.Mang Boboy Calay is the leader of the La Presa project. He is high school graduate but is street smart farmer. He does not like finance and management jargons but can execute business strategies flawlessly if he understands the concept.Manong Bangky is in charge of the Bangky Souvenirs business. He sells La Presa stuffed toys made in Benguet. He has 2 best sellers items, the Kambal na Strawberry and Pusong Strawberry.Judy is the owner of the La Presa Restaurant uses 5,000 wanton per month for its famous Soup no. 5. Current costs are:Ingredients costP4.00

Labor and other variable expenses2.00

Mirasol runs the Strawberya Enterprises that manufactures and bottles vegetable mixtures used for baking. Monthly production averages 200,000 bottles per month for the three quarters of the current year. Each bottle sells for P20 in the market. The annual fixed costs for Strawberya is P7,200,000 evenly distributed on a twelve month period.The first quarter of the year is a critical period for Strawberya. It is during this quarter of the year where the demand of the product is expected to go down due to seasonal variation. During this period, the demand is estimated to be an average of 40,000 bottles per month.On the belief that the company will be saved from greater losses, management is considering to shutdown operations during the first quarter of the following year. A decision to shutdown would decrease the fixed assets by 30%. However, during the shut down period, additional cost of P140,000 is needed for security and insurance. To restart operations again, the company will spend another P50,000.The following data concerning production cost per bottle are gathered from the records of Strawberya Enterprises:Direct materials7

Direct labor4

Variable overhead3

Variable selling expenses2

Total variable costs16

Dona Soledad owns and operate the Grande Manufacturing, an agricultural and processing company. It expects to spend P400,000 in 2016 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save P40,000 in fixed appraisal costs and variable costs of P0.40 per unit of finished product. The new method involves P60,000 in training costs and an additional P160,000 in annual equipment rental. It takes two units of material for each finished product.Internal failure costs average P80 per failed unit of finished goods. During 2015, 5% of all completed items had to reworked. External failure costs average P200 per failed unit. The companys average external failures are 1% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.Answer More ChallengesQuestion 1Mang Boboy in one of the meetings with investors asked Xander what is the impact of the increase in the discount rate. What is the best answer of Xander:it is impossible to tell what happens to the factorspresent value factors remain constantpresent value factors increasepresent value factors decreaseManagement Advisory Services - Capital Budgeting (Easy)Question 2After Xander explained the concept of discount rate, Mang Boboy asked again about the difference of that discount rate with the discount rate of the Bangko Sentral ng Pilipinas. What will be Xanders best answer?specified percentage of a commercial banks deposit liabilities that must be deposited in the central bank.rate that the central bank charges for loans granted to commercial banksrate that commercial banks charge for loans granted to the public.ratio of excess reserves to legal reserves that are deposited in the central bank.Management Advisory Services - Uncategorized (Uncategorized)Question 3Bangky Souvenirs Company is planning to sell two lines of stuffed toys, Pusong Strawberry and Kambal na Strawberry in the coming Christmas. The company budgets the following sales figures:Pusong StrawberryKambal na StrawberryTotal

Units sold6004001,000

Revenues P200 and P100 per unit120,00040,000160,000

Variable costs P120 and P70 per unit72,00028,000100,000

Contribution margin P80 and P3048,00012,00060,000

Fixed costs45,000

Operating income15,000

What is the breakeven point in units?1,0001,250750800Management Advisory Services - Uncategorized (Uncategorized)Question 4Bangky Souvenirs Company is planning to sell two lines of stuffed toys, Pusong Strawberry and Kambal na Strawberry in the coming Christmas. The company budgets the following sales figures:Pusong StrawberryKambal na StrawberryTotal

Units sold6004001,000

Revenues P200 and P100 per unit120,00040,000160,000

Variable costs P120 and P70 per unit72,00028,000100,000

Contribution margin P80 and P3048,00012,00060,000

Fixed costs45,000

Operating income15,000

What is the breakeven point in sales pesos?200,000100,000150,000120,000Management Advisory Services - Uncategorized (Uncategorized)Question 5Ka Sebio offers to sell Judy dumplings at P5 each. If Judy buys dumplings, he can eliminate P4,000 per month in fixed making costs. He thinks he can also earn an additional P3,000 per month in contribution margin by adding three tables where the wantons had been made.Should Judy accept the offer from Ka Sebio?Yes, buying is cheaper by 12,000Yes, buying is cheaper by 22,000No, making is cheaper by 12,000No, making is cheaper by 22,000Management Advisory Services - Uncategorized (Uncategorized)Question 6Since the La Presa residents are farmers, how will you best describe what do we mean when we say committed costsare likely to respond to the amount of attention devoted to them by a specified managerare governed mainly by past decisions that established the present levels of operating and organizational capacity and that only change slowly in response to small changes in capacitymanagement decides to incur in the current period to enable the company to achieve objectives other than the filling of orders placed by customersfluctuate in total in response to small changes in the rate of utilization of capacityManagement Advisory Services - Financial Management (Average)Question 7How much is the shutdown costs of the Strawberya Enterprises?1,260,0001,400,0001,450,0001,350,000Management Advisory Services - Uncategorized (Uncategorized)Question 8How much is the shutdown savings of Strawberya Enterprises?350,0001,800,0001,400,0001,350,000Management Advisory Services - Uncategorized (Uncategorized)Question 9What is the shutdown point of the Strawberya Enterprises?125,00075,00085,00087,500Management Advisory Services - Uncategorized (Uncategorized)Question 10What is the net effect on appraisal costs for Grande Manufacturing 2016, assuming the new receiving method is implemented and that 800,000 material units are received?15,00025,00020,00040,000Management Advisory Services - Uncategorized (Uncategorized)Question 11How much will internal failure costs of Grande Manufacturing change , assuming 800,000 units of materials are received and that the new receiving method reduces the amount of unacceptable product units in the manufacturing process by 10%.80,00075,000100,000120,000Management Advisory Services - Uncategorized (Uncategorized)Question 12How much will external failure costs of Grande Manufacturing change , assuming 800,000 units of materials are received and that product failures with customers are cut in half with the new receiving method?80,000200,000100,000120,000Management Advisory Services - Uncategorized (Uncategorized)Question 13Performance results for 4 geographic divisions of Grande Manufacturing company are:DivisionTarget return on investmentActual return on investmentReturn on sales

A18%18.1%8%

B16%20.0%8%

C14%15.8%6%

D12%11.0%9%

The division with the best performance is:ABCDManagement Advisory Services - Uncategorized (Uncategorized)Question 14Grande Manufacturing Company has developed a new product for spacecraft that includes the manufacture of a complex part. The manufacturing of this part requires a high degree of technical skill. Management believes there is a good opportunity for its technical force to learn and improve as it becomes accustomed to the production process. The production of the first unit requires 10,000 direct labor hours. If an 80% learning curve is used, the cumulative direct labor hours requires for producing a total of 8 units would be:29,52040,96064,00080,000Management Advisory Services - Uncategorized (Uncategorized)Question 15The construction of La Presa Inn involves environmental costs. Which of the following fail to be captured and reported by a company's accounting system as an environmental cost?Off-site remediation costsHidden costsMonitoring costsOn-site remediation costsAbatement costsManagement Advisory Services - Responsibility Accounting (Difficult)Question 16Agnes keeps P500 in here piggy bank and she would like to invest. She has two choices. Investment #1 yields a return of 8% compounded annually while Investment #2 yields 7.75% compounded monthly. Which would she choose and why?She will choose the 7.75% yield because it has a higher effective annual rate.She will choose the 7.75% yield because it has a lower effective annual rate..She will choose the 8% yield because it has a higher effective annual rate.cannot tellManagement Advisory Services - Valuing Stocks & Bonds (Difficult)Question 17Xander is managing Malaya Investment, a firm that pays corporate taxes on its net income (T = 0.375) but operates in an otherwise perfect capital market environment. Malaya Investment has a perpetual expected cash inflow each year () of P150, which can be larger or smaller, but is never less than P50 per year. The cost of capital is 12%. What is Xanders net worth? Note that the amounts are in million pesos.781.251,2301,250791.25Management Advisory Services - Capital Structure (Difficult)Question 18Orly, Inc. attempts to capture the impact of all the relevant dimensions connected with debt financing by using the net-benefit-to-leverage factor (T*). T* is assumed to be derived from a linear approximation to the actual net-benefit-to-leverage relationship over some relevant range of values for the leverage ratio L. Orlys unleveraged value (VU) is P100M (M = million) and it estimates T* to be 0.2. It issues P20M in debt. According to the corporate tax view of capital structure, what is its gain to leverage (GL)?104,500,000104,000,000103,500,000103,000,000Management Advisory Services - Capital Structure (Average)Question 19Malaya Investments borrows P500 and its leveraged firm value is P1,000. Its cost of equity and debt are 12% and 8%. Its corporate tax rate is 30%. What is its weighted average cost of capital?12.00%20.00%8.80%11.60%Management Advisory Services - Capital Structure (Average)Question 20In one of the meetings in Malaya Investment, an investor asked Orly what affects the size of a firms minimum cash balance. Which will not be included as his answer.the availability of long-term investment opportunitieshow quickly and cheaply a firm can raise cash when neededhow accurately the firms managers can predict when cash payment requirements will occurhow much precautionary cash the firms managers want to have for emergenciesManagement Advisory Services - Financial Management (Easy)Question 21Mang Boboy will sell his old truck to finance the La Presa Inn. When disposing of the old truck and replacing it with a new one, tax effect onloss on sale of the old asset reduces the basis of the new assetgain on sale of the old asset reduces the basis of the new assetgain on sale of the old asset increases the basis of the new assetgain on sale of the old asset increases the basis of the new asset and loss on sale of the old asset reduces the basis of the new assetManagement Advisory Services - Capital Budgeting (Easy)Question 22Orly was reviewing an investment report for the French investors of La Presa Inn. Which of the following changes would not decrease the present value of the future depreciation deductions on a specific depreciable asset?a decrease in the rate of depreciationan increase in the life expectancy of the depreciable asseta decrease in the discount ratea decrease in the marginal tax rateManagement Advisory Services - Capital Budgeting (Average)Question 23Grande Corporation manufactures a product through a continuous process in different departments. As their cost accountant, you are given the production data of Department A to accumulate costs and prepare the necessary reports:Units

Work- in process, May 1, 2011(30% tocomplete)15,000

Units started and completed60,000

Work-in process, May,31,2011 (50% complete)3,000

Normal lost units discovered at the end of process2,000

Costs

MaterialsP78,000

ConversionP85,000

Work-in process cost, May 1, 2011P45,000

Materials are added at the start of the production while conversion costs are evenly distributed during the production process.Compute the current total unit cost for materials and conversion:3.142.452.232.53Management Advisory Services - Uncategorized (Uncategorized)Question 24Grande Company produces two products in a single factory. The following production and cost information has been determined:Model 1Model 2

Units produced10, 0002, 000

Material moves (total)10040

Testing time (total)250125

Direct labor hour per unit15

The controller has determined total overhead to be P480,000. P140,000 relates to material moves; P150,000 relates to testing; the remainder is related to labor time. If Grande uses activity-based costing to allocate overhead to each model, what would overhead per unit be for Model 1?4029.502412Management Advisory Services - Activity Based Costing (Difficult)Question 25With respect to debt financing, which of the following statements is most accurate from the perspective of the firm seeking funds?short-term loans are less risky and usually less expensive than equityshort-term loans are more risky and usually less expensive than long-term loansshort-term loans are more risky and usually more expensive than equityshort-term loans are more risky and usually more expensive than long-term debtManagement Advisory Services - Financing Decisions (Difficult)Question 26Debt is generally the least expensive source of capital. This is primarily due toThe tax deductibility of interest paymentsFixed interest paymentsIts position in the priority of claims on assets and earnings in the event of liquidationThe secured nature of a debt obligationManagement Advisory Services - Financial Statement Analysis (Difficult)Question 27Which of the following is taken into account by the net-present-value method?A Project's Immediate Cash Flows (Yes): Cash Flows During a Project's Life (Yes); Time Value of Money (No)A Project's Immediate Cash Flows (No): Cash Flows During a Project's Life (Yes); Time Value of Money (No)A Project's Immediate Cash Flows (No): Cash Flows During a Project's Life (Yes); Time Value of Money (Yes)A Project's Immediate Cash Flows (Yes): Cash Flows During a Project's Life (Yes); Time Value of Money (Yes)A Project's Immediate Cash Flows (Yes): Cash Flows During a Project's Life (No); Time Value of Money (No)Management Advisory Services - Capital Budgeting (Difficult)Question 28Malaya Investments got a bond for a coupon rate of 6%. The yield to maturity is 7%. The bond has a remaining life of 20 years and makes semi-annual coupon payments? What is this bonds current market value?640.65252.571,000.00893.22Management Advisory Services - Valuing Stocks & Bonds (Difficult)Question 29Grande Company presented the following information:Units to be sold50,000 units

Total costs of the unitsP550,000

Fixed capital investmentsP1,000,000

Variable capital on sales20%

What would be the selling price in order to produce a 20% return on investment?15.62515.65216.52515.256Management Advisory Services - Transfer Pricing (Difficult)Question 30For a given level of tax collections, prices, and interest rates, a decrease in governmental purchases will result inincrease in aggregate demandincrease in aggregate supplydecrease in aggregate demanddecrease in aggregate supplyManagement Advisory Services - Uncategorized (Uncategorized)Answer More Challenges