91. Given the following statements:
(i): ROI and RI are tools for evaluating the performance of a profit centre
(ii): Net income is a tool to evaluate management performance of divisional managers.
(iii): For long-term decision about which segment should be expanded its production and sales to achieve the highest overall target profit, the basis of making decision is the segment's contribution margin ratio
Which statement(s) is/ are correct?
a. None of the above statements is correct
b.(i) and (iii)
C (i), (ii) and (iii)
d (i) and (ii)
Because (1) wrong, choose option A
92. Which of the following is the best description of an investment centre?
a. A centre in which managers has control over only for financial outputs in form of generating sales revenue
b. A centre in which managers has control over only for costs
c. A centre in which managers has control over for profit
d. A centre in which managers has control over for costs, revenues and current as well non-current operating assets
93. The W investment center trades only the product M at the selling price of $120 per unit, variable costs of $50 per unit, total fixed costs of $1,500,000 each year. Which amount is the revenue of the W investment centre in order to achieve its targeted RI of $1,510,000 at the minimum rate of return of 10% on total annual operating assets of $8,400,000?
a. All are incorrect
b. $6,600,000
c. $3,720,000
d. $5,160,000
RI (residual income) = profits before interest and tax – Notional or imputed interest cost = Operating income – (minimum rate of return x operating assets) = Net operating income – (Average operating assets x Minimum required rate of return)
1,510,000 = operating income – (10% x 8,400,000)
Operating income = 2,350,000
Revenue – cost expense = 2,350,000
120x – 50x – 1,500,000 = 2,350,000
x = 55,000 => Revenue = 120*55,000 = 6,600,000
94. What is the purpose of a flexible budget?
a. To allow management some latitude in meeting goals
b. To eliminate cyclical fluctuations in production reports by ignoring variable costs
c. To reduce the total time in preparing the annual budget
d. To compare actual and budgeted results at virtually any level of production
95. Franklin's cost formula for its supplies cost is $1,350 per month plus $18 per frame. For the month of June, the company planned for activity of 716 frames, but the actual level of activity was 713 frames. The actual supplies cost for the month was $14,820. The supplies cost in the flexible budget for June would be closest to:
a. $14,238
b. $14,820
c. $14,178
d. $14,184.
Cost = Fixed cost + (Variable cost per unit × q)= $1,350 + ($18 × 713) = $14,184
96. King Ltd. manufactures electronic appliances. Last month King Ltd. recorded the following quality costs:
(1) Discarded electrical components due to defects: $2,000
(2) Managing customer complaints: $3,000
(3) Quality training programs for employees: $5,000
(4) Supplier audit: $6,000
(5) Process inspection: $4,500
(6) Work-in-process inspection: $5,000
(7) Maintaining equipment used to perform quality tests: $2,500
(8) Costs of hiring a technician to fix machine break-down: $3,000
(9) Legal fees paid to a customer: $6,000
King Ltd.'s total appraisal costs was:
a. $9,500
b. $12,000
c. $18,000
d. $5,000
97. A mobile producer has implemented a TQM system to ensure high quality and consistency across all outlets. As part of the scheme, the producer offers a free replacement to any customer not completely satisfied with their purchase. Which of the following best describes the cost providing replacement mobiles?
a. An internal failure cost
b. An appraisal cost
C. A prevention cost
d. An external failure cost
This is a cost arising from inadequate quality discovered after the transfer of ownership, an external failure cost.
98. Which of the following statements about transfer pricing is not true?
a. If the selling division has no spare capacity, the transfer price should be the marginal cost of production, plus any lost contribution
b. The transfer price should match the selling division's cost of capital to customer
c. If the selling division has spare capacity, the transfer price should be the marginal cost of production
d. The most efficient transfer price will be the opportunity cost of the selling division
99. The best description of flexible budget is:
a. A budget which is designed to change as volume of activity changes on the basis of analyzing the cost behavior patterns
b. A rolling budget which is reviewed quarterly, and updated accordingly
c. A twelve-month period budget which includes semi-variable overhead costs only
d. A budget which improved lead time between the preparation of the master budget and the commencement of the budget period
100. In which of the following situations would the use of the imposed budgets not be appropriate?
a. During the period of economic hardship such as Covid-19
b. During the crisis period when the organization’s survival is challenging
c. In a very small business
d. In decentralized organizations and acting autonomously
Imposed budgets are effective in very small businesses and in times of crisis or economic hardship.
They are not appropriate in organisations that encourage participative management and employee empowerment.
(i): ROI and RI are tools for evaluating the performance of a profit centre
(ii): Net income is a tool to evaluate management performance of divisional managers.
(iii): For long-term decision about which segment should be expanded its production and sales to achieve the highest overall target profit, the basis of making decision is the segment's contribution margin ratio
Which statement(s) is/ are correct?
a. None of the above statements is correct
b.(i) and (iii)
C (i), (ii) and (iii)
d (i) and (ii)
Because (1) wrong, choose option A
92. Which of the following is the best description of an investment centre?
a. A centre in which managers has control over only for financial outputs in form of generating sales revenue
b. A centre in which managers has control over only for costs
c. A centre in which managers has control over for profit
d. A centre in which managers has control over for costs, revenues and current as well non-current operating assets
93. The W investment center trades only the product M at the selling price of $120 per unit, variable costs of $50 per unit, total fixed costs of $1,500,000 each year. Which amount is the revenue of the W investment centre in order to achieve its targeted RI of $1,510,000 at the minimum rate of return of 10% on total annual operating assets of $8,400,000?
a. All are incorrect
b. $6,600,000
c. $3,720,000
d. $5,160,000
RI (residual income) = profits before interest and tax – Notional or imputed interest cost = Operating income – (minimum rate of return x operating assets) = Net operating income – (Average operating assets x Minimum required rate of return)
1,510,000 = operating income – (10% x 8,400,000)
Operating income = 2,350,000
Revenue – cost expense = 2,350,000
120x – 50x – 1,500,000 = 2,350,000
x = 55,000 => Revenue = 120*55,000 = 6,600,000
94. What is the purpose of a flexible budget?
a. To allow management some latitude in meeting goals
b. To eliminate cyclical fluctuations in production reports by ignoring variable costs
c. To reduce the total time in preparing the annual budget
d. To compare actual and budgeted results at virtually any level of production
95. Franklin's cost formula for its supplies cost is $1,350 per month plus $18 per frame. For the month of June, the company planned for activity of 716 frames, but the actual level of activity was 713 frames. The actual supplies cost for the month was $14,820. The supplies cost in the flexible budget for June would be closest to:
a. $14,238
b. $14,820
c. $14,178
d. $14,184.
Cost = Fixed cost + (Variable cost per unit × q)= $1,350 + ($18 × 713) = $14,184
96. King Ltd. manufactures electronic appliances. Last month King Ltd. recorded the following quality costs:
(1) Discarded electrical components due to defects: $2,000
(2) Managing customer complaints: $3,000
(3) Quality training programs for employees: $5,000
(4) Supplier audit: $6,000
(5) Process inspection: $4,500
(6) Work-in-process inspection: $5,000
(7) Maintaining equipment used to perform quality tests: $2,500
(8) Costs of hiring a technician to fix machine break-down: $3,000
(9) Legal fees paid to a customer: $6,000
King Ltd.'s total appraisal costs was:
a. $9,500
b. $12,000
c. $18,000
d. $5,000
97. A mobile producer has implemented a TQM system to ensure high quality and consistency across all outlets. As part of the scheme, the producer offers a free replacement to any customer not completely satisfied with their purchase. Which of the following best describes the cost providing replacement mobiles?
a. An internal failure cost
b. An appraisal cost
C. A prevention cost
d. An external failure cost
This is a cost arising from inadequate quality discovered after the transfer of ownership, an external failure cost.
98. Which of the following statements about transfer pricing is not true?
a. If the selling division has no spare capacity, the transfer price should be the marginal cost of production, plus any lost contribution
b. The transfer price should match the selling division's cost of capital to customer
c. If the selling division has spare capacity, the transfer price should be the marginal cost of production
d. The most efficient transfer price will be the opportunity cost of the selling division
99. The best description of flexible budget is:
a. A budget which is designed to change as volume of activity changes on the basis of analyzing the cost behavior patterns
b. A rolling budget which is reviewed quarterly, and updated accordingly
c. A twelve-month period budget which includes semi-variable overhead costs only
d. A budget which improved lead time between the preparation of the master budget and the commencement of the budget period
100. In which of the following situations would the use of the imposed budgets not be appropriate?
a. During the period of economic hardship such as Covid-19
b. During the crisis period when the organization’s survival is challenging
c. In a very small business
d. In decentralized organizations and acting autonomously
Imposed budgets are effective in very small businesses and in times of crisis or economic hardship.
They are not appropriate in organisations that encourage participative management and employee empowerment.
