Question 1-7 (Chapter 8)

Use the following information for questions 1 and 2.

Prasmul Inc. has collected the following data concerning one of its products:
Unit sales price €145
Total sales 15,000 units
Unit cost €115
Total investment €1,800,000

1. The ROI percentage is:

a. 20%.
b. 25%.
c. 30%.
d. 35%.

2. The markup percentage is:

a. 20.69%.
b. 22.59%.
c. 25%.
d. 26.09%.

Use the following information for questions 3-5.

Prasmul Inc has a new product going on the market next year. The following data are projections
for production and sales:
Variable costs €250,000
Fixed costs €450,000
ROI 14%
Investment €2,000,000
Sales 200,000 units

3. What is the target selling price per unit?

a. €4.90
b. €3.50
c. €2.65
d. €3.65

4. What is the markup percentage?

a. 112%
b. 20%
c. 62%
d. 40%

5. What would the markup percentage be if only 150,000 units were sold and Prasmul Inc
still wanted to earn the desired ROI?
a. 32.95%
b. 53.33%
c. 35.0%
d. 43.92%

6. Prasmul Inc has just developed a new product. The following data is available for this
product:
Desired ROI per unit £ 30
Fixed cost per unit 50
Variable cost per unit 75
Total cost per unit 125
The target selling price for this product is:
a. £155.
 b. £125.
c. £105.
d. £80.

7. The calculation to determine target cost is:

a. variable manufacturing costs + fixed manufacturing costs.
b. sales price – (variable manufacturing costs + fixed manufacturing costs).
c. variable manufacturing costs + selling and administrative variable costs.
d. sales price – desired profit.

Question 8-13 (Chapter 9)

8. The production budget shows expected unit sales of 32,000. Beginning finished goods
units are 3,600. Required production units are 33,600. What is the desired ending
finished goods units?
a. 2,000
b. 3,600
c. 6,400
d. 5,200

9. The production budget shows expected unit sales are 100,000. The required production
units are 104,000. Which combination is possible for the beginning and desired ending
finished goods units, respectively?
Beginning Units Ending Units
a. 10,000 6,000
b. 6,000 10,000
c. 4,000 10,000
d. 10,000 4,000

10. The direct materials budget shows:

Units to be produced 3,000
Total pounds needed for production 9,000
Total materials required 9,900
What are the direct materials per unit?
a. 0.33 pounds
b. 3.0 pounds
c. 3.3 pounds
d. Cannot be determined from the data provided.

11. Prasmul Inc makes and sells umbrellas. The company is in the process of preparing its
Selling and Administrative Expense Budget for the last half of the year. The following
budget data are available:
Variable Cost Per Unit Sold Monthly Fixed Cost
Sales commissions €0.60 € 6,000
Shipping 1.20
Advertising 0.30
Executive salaries 40,000
Depreciation on office equipment 8,000
Other 0.35 28,000
Expenses are paid in the month incurred. If the company has budgeted to sell 8,000
umbrellas in October, how much is the total budgeted variable selling and administrative
expenses for October?
a. €16,800
b. €18,400
c. €101,600
d. €19,600
12. Which one of the following is not a benefit of budgeting?
a. It facilitates the coordination of activities.
b. It provides definite objectives for evaluating performance.
c. It provides assurance that the company will achieve its objectives.
d. It requires all levels of management to plan on a recurring basis.

13. The following information is taken from the production budget for the first quarter:
Beginning inventory in units 1,200
Sales budgeted for the quarter 426,000
Capacity in units of production facility 472,000
How many finished goods units should be produced during the quarter if the company
desires 3,200 units available to start the next quarter?
a. 428,000
b. 424,000
c. 474,000
d. 429,200

Question 14-18 (Chapter 10)

14. In Prasmul Inc, indirect labor is budgeted for €72,000 and factory supervision is
budgeted for €24,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct
labor hours are worked, flexible budget total for these costs is:
a. €96,000.
b. €108,000.
c. €105,000.
d. €99,000.

15. Prasmul Inc uses flexible budgets. At normal capacity of 16,000 units, budgeted
manufacturing overhead is: £48,000 variable and £270,000 fixed. If Prasmul Inc had
actual overhead costs of £321,000 for 18,000 units produced, what is the difference
between actual and budgeted costs?
a. £3,000 unfavorable
b. £3,000 favorable
c. £9,000 unfavorable
d. £12,000 favorable

16. A company’s planned activity level for next year is expected to be 100,000 machine
hours. At this level of activity, the company budgeted the following manufacturing
overhead costs:
Variable Fixed
Indirect materials HK$140,000 Depreciation HK$60,000
Indirect labor 200,000 Taxes 10,000
Factory supplies 20,000 Supervision 50,000
A flexible budget prepared at the 80,000 machine hours level of activity would show total
manufacturing overhead costs of
a. HK$288,000.
b. HK$360,000.
c. HK$384,000.
d. HK$408,000.

17. Prasmul Inc recorded operating data for its shoe division for the year.
Sales €1,500,000
Contribution margin 300,000
Controllable fixed costs 180,000
Average total operating assets 600,000
How much is controllable margin for the year?
a. 20%
 b. 50%
c. €300,000
d. €120,000

18. Assume that actual sales results exceed the planned results for the second quarter. This
favorable difference is greater than the unfavorable difference reported for the first
quarter sales. Which of the following statements about the sales budget report on June
30 is true?
a. The year-to-date results will show a favorable difference.
b. The year-to-date results will show an unfavorable difference.
c. The difference for the first quarter can be ignored.
d. The sales report is not useful if it shows a favorable and unfavorable difference for
the two quarters.

Question 19-25 (Chapter 11)

19. The predetermined overhead rate for Prasmul Inc is £5, comprised of a variable
overhead rate of £3 and a fixed rate of £2. The amount of budgeted overhead costs at
normal capacity of £150,000 was divided by normal capacity of 30,000 direct labor
hours, to arrive at the predetermined overhead rate of £5. Actual overhead for June was
£9,500 variable and £6,050 fixed, and standard hours allowed for the product produced
in June was 3,000 hours. The total overhead variance is:
a. £3,050 F.
b. £550 F.
c. £550 U.
d. £3,050 U.

20. Prasmul Inc’s variance report for the purchasing department reports 1,000 units of
material A purchased and 2,400 units of material B purchased. It also reports standard
prices of €2 for Material A and €3 for Material B. Actual prices reported are €2.10 for
Material A and €2.80 for Material B. Prasmul Inc should report a total price variance of:
a. €380 F.
b. €340 F.
c. €340 U.
d. €380 U.

21. Prasmul Inc has a standard of 1.5 pounds of materials per unit, at €6 per pound. In
producing 2,000 units, Prasmul Inc used 3,100 pounds of materials at a total cost of
€18,135. Prasmul Inc's materials price variance is:
a. €135 U.
b. €465 F.
c. €600 F.
d. €1,050 F.

22. Prasmul Inc developed the following per unit materials standards for its product: 3
pounds of direct materials at HK$5 per pound. If 12,000 units of product were produced
last month and 37,500 pounds of direct materials were used, the direct materials quantity
variance was:
a. HK$4,500 favorable.
b. HK$7,500 unfavorable.
c. HK$4,500 unfavorable.
d. HK$7,500 favorable.

23. The difference between a budget and a standard is that:

a. a budget expresses what costs were, a standard expresses what costs should be.
b. a budget expresses management's plans, while a standard reflects what happened.
c. a budget expresses a total amount, while a standard expresses a unit amount.
 d. standards are excluded from the cost accounting system, whereas budgets are
generally incorporated into the cost accounting system.

24. The balanced scorecard approach:

a. uses only financial measures to evaluate performance.
b. uses rather vague, open statements when setting objectives in order to allow
managers and employees flexibility.
c. normally sets the financial objectives first, and then sets the objectives in the other
perspectives to accomplish the financial objectives.
d. evaluates performance using about 10 different perspectives in order to effectively
incorporate all areas of the organization.

25. The perspectives included in the balanced scorecard approach include all the following
except the:
a. internal process perspective.
b. capacity utilization perspective.
c. learning and growth perspective.
d. customer perspective.