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15/01/2005 :
(04/05)
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Question One:
Each Multiple choice question has four suggested answers, letter (A), (B), (C),
or (D). You should read each question and then decide which choice is best.
1) Questions (1-3). Refer to the following: Compton, Inc. makes and sells a
single product, Zippy. Three yards of cotton are needed to make one Zippy.
Budgeted production of Zippy for the next five months is as follows: August
14,000 units September 14,500 units October 15,500 units November 12,600
units December 11,900 units. The company wants to maintain monthly ending
inventories of cotton equal to 20% of the following month's production needs.
On 31st of July, 2,500 yards of cotton were on hand. The cost of cotton is $0.85
per yard. The company wants to prepare a Direct Materials Purchase Budget for
the fourth quarter. The total cost of cotton to be purchased in August is:
A. 40,970.
B. 48,200.
C. 33,840.
D. 42,300.
2) The desired ending inventory of cotton for the month of September is:
A. 7,560 yards
B. 8,400 yards
C. 8,700 yards
D. 9,300 yards
3) The total needs of cotton for the month of November are:
A. 37,800 yards
B. 44,940 yards
C. 37,380 yards
D. 45,360 yards
4) Questions (4-6). Refer to the following: Barton, Inc. has budgeted sales in
units for the next five months as follows: June 4,600 units July 7,200 units
August 5,400 units September 6,800 units October 3,800 units. Past experience
has shown that the ending inventory for each month must be equal to 10% of
the next month's sales in units. The inventory on May 31 contained 400 units.
The company needs to prepare a Production Budget for the second quarter of
the year. The opening inventory in units for September is:
A. 380 units
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 B. 6,800 units
C. 540 units
D. 680 units
5) The total number of units to be produced in July is:
A. 7,740 units
B. 7,200 units
C. 7,020 units
D. 7,280 units
6) The desired ending inventory for August is:
A. 540 units
B. 680 units
C. 720 units
D. 380 units
7) Questions (7&8). Redmond Awnings, a division of Wrapup Corp., has a net
operating income of $60,000 and average operating assets of $300,000. The
required rate of return for the company is 15%. What is the division's residual
income?
A. $ 240,000
B. $ 46,000
C. $ 15,000
D. $ 30,000
8) What is the division's ROI?
A. 25 %
B. 5 %
C. 15 %
D. 20 %
9) A major advantage of budgeting is that it
A. Eliminates many of the uncertainties associated with the business
environment.
B. Ensures that management's objectives will be met.
C. Requires managers to give planning top priority among their duties.
D. Eliminates the need for management to engage in control activities.
10) Which of the following adds value to a product or service?
A. Queue time.
B. Move time.
C. Process time.
D. Inspection time.
11) The break-even point is the point where
A. Total sales revenue equals total expenses, variable and fixed.
B. Total contribution margin equals total fixed expenses.
C. Both A and B are true.
D. Neither A nor B is true.

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12) The break-even point in units is calculated using
A. Fixed expenses and the contribution margin ratio.
B. Variable expenses and the contribution margin ratio.
C. Fixed expenses and the unit contribution margin.
D. Variable expenses and the unit contribution margin.

13) The margin of safety can be defined as

A. The excess of budgeted or actual sales over budgeted or actual variable expenses.
B. The excess of budgeted or actual sales over budgeted or actual fixed expenses.
C. The excess of budgeted or actual sales over the break-even volume of sales.
D. The excess of budgeted net income over actual net income.

14) The following monthly data are available for the Boarder, Inc. and its only
product: Unit sales price= $36 Unit variable expenses = $28 Total fixed
expenses = $50,000. Actual sales for the month of May = 7,000 units The
margin of safety for the company for May was:
A. 27,000
B. 56,000
C. 6,000
D. 106,000

15) Terrell, Inc. sells a single product at a selling price of $40 per unit. Variable
costs are $22 per unit and fixed costs are $82,800.Terrell's break-even point is
A. 184,000
B. 3,764 units
C. 15,054
D. 2,070 units

16) Barton Co. has sales of 2,000 units at $70 per unit. Variable costs are 40 % of
the sales price. If total fixed costs are $44,000, the degree of operating
leverage is
A. 7.9
B. 1.40
C. 3.50
D. 2.10

A. Split off point
B. Break even point
C. Cost Indifference point
D. Price Indifference point

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 A. Variable costs
B. Step Variable costs
C. Fixed costs
D. Mixed costs

A.
B.
C.
D.

A.
B.
C.
D.

21) The amounts charged by one segment of an organization for a product or service
that it supplies to another segment of the same organization.
A. Balanced Scorecard
B. Economic Value Added
C. Transfer Prices
D. Residual Income

22) To maximize total contribution margin, a firm should:

A. Promote those products having the highest unit contribution margins.
B. Promote those products having the highest contribution margin ratios.
C. Promote those products having the highest contribution margin per unit of
a constrained resource.
D. Promote those products having the highest contribution margins and
contribution margin ratios.
23) Ali operates a part time auto repair service. He estimates that a new diagnostic
computer system will result in increased cash inflows of $1,500 in year 1,
$2,100 in Year 2, and $3,200 in Year 3. If Ali's cost of capital is 10%, then the
most he would be willing to pay for the new computer system would be:
A. 4,599
B. 5,502
C. 5,638
D. 5,107

%

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 720600 B 507000 A
911100 D 791740 C

Question Two:
) ( ( )
:
1. ( )When an ABC system is used a number of allocation
bases are used to assign costs to products.
( )


( )


( )

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Question Three:
: :
1. Advantages of Budgeting:
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2. The Balanced Scorecard :
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6. Methods for Capital Budgeting Decisions which do
consider the time value of money:
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) : (
Question One:

12 . $10
$20
2000 %10 .
3
.$1.20

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.
360
.

Question Two:

2004 :

400,000 50,000 150,000 200,000
)(245000 )(35000 )(90,000 )(120,000 :
155000 15000 60,000 80,000

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 : :
(75000) (10,000) (25000) (40,000)
(60,000) (7500) (22,500) (30,000)
20,000 (2500) 12500 10,000 ( )

. 2500
60,000
. . 500
:
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Question Three:
Jericho Company makes two products, B1 and B2. The Company has budgeted
sales of 50,000 B1 Units and 110,000 B2 Units.
- Both products require 2 direct labor-hours to complete.
- The Company plans to work 500,000 hours to meet the budgeted production . All
production is sold.
- Direct materials cost $ 90 per unit for the B1 unit and $ 50 for the B2 unit.
- Direct labor costs at $ 10 per hour.
- Total overhead costs for the year (2004) are estimated to be $ 7 million.
- The ABC project team at Jericho Company has developed the following basic
information :
- Jericho has budgeted sales of 50,000 B1 units and 110,000 B2 units.

Activity and Activity Estimated Expected Activity

Measures Overhead Total B1 B2
Cost
Labor related (DLH) $ 800,000 500,000 100,000 400,000
Machine related (MH) 2,100,000 1,000,000 300,000 700,000
Machine Setups (setups) 1,600,000 4,000 3,000 1,000
Production orders (orders) 450,000 1,200 400 800
Product testing (tests) 1,700,000 20,000 16,000 4,000
Parts administration (parts) 350,000 700 400 300

$7,000,000
Required:
1. Compute the unit product cost for B1 and B2 based upon activity.

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Question Four:
Sea Company, of Gaza, Palestine, has budgeted costs in its various
departments as follows for the coming year:
Factory Administration $540,000
Custodial Services 137,520
Personnel 57,680
Maintenance 90,400
Stampingoverhead 752,600
Assemblyoverhead 351,800
Total overhead cost 1,930,000

The company allocates service department costs to other departments, in

the order listed below.
Number Total Square Meters Direct
Machine-
of Labor- of Space Labor-
Hours
Employees Hours Occupied Hours
Factory Administration 22 -- 5,000 -- --
Custodial Services 8 6,000 2,000 -- --
Personnel 10 10,000 3,000 -- --
Maintenance 50 44,000 10,000 -- --
Stampingoverhead 80 60,000 70,000 40,000 140,000
Assemblyoverhead 120 180,000 20,000 160,000 20,000
290 300,000 110,000 200,000 160,000
Stamping and Assembly are operating departments: the other departments all act
in a service capacity. The company does not make a distinction between fixed and
variable service department costs. Factory Administration is allocated on the basis
of labor-hours; Custodial Services on the basis of square meters occupied;
Personnel on the basis of number of employees; and Maintenance on the basis of
machine hours.
Required:
Allocate service department costs to consuming departments by the
step method.