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152-0704

152-0704

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Question Paper
Management Accounting - II - (152) \u2013 July 2004
\u2022\u2022
Answer all questions.
\u2022\u2022
Marks are indicated against each question.
1.
Which of the following statements is/aret rue with respect to transfer pricing?

(a) It motivates divisional managers to make good economic decisions
(b) It is useful for evaluating performance of the divisional managers
(c) It is a selling price established for goods or services sold by one division to other under the same

organisation
(d) It does not help in measuring divisional performances
(e) All (a), (b) and (c) above.

(1 mark)
< Answer
>
2.
The most fundamental responsibility center affected by the use of market-based transfer prices is
(a) Revenue center
(b) Cost center
(c) Profit center
(d) Investment center
(e) Production center.
(1 mark)
< Answer
>
3.
Which of the following pricing techniques ignores fixed cost?
(a) Standard cost based pricing
(b) Full cost pricing
(c) Cost plus profit pricing
(d) Return on investment based pricing
(e) Differential cost pricing.
(1 mark)
< Answer
>
4.
Which of the following factors should be considered while fixing the price?
(a) Product cost
(b) Competitors\u2019 price
(c) Prices of substitutes
(d) Unique features of the product
(e) All of the above.
(1 mark)
< Answer
>
5.
Which of the following statements isfalse in respect of full cost pricing and contribution margin
pricing?
(a) They are not competing to each other
(b) In both the methods, the selling prices proposed must be only tentative and they are always

subject to adjustments
(c) Fixed costs are important in both the pricing models
(d) In both the methods, a normal mark-up on total costs is made and the volume of production is

taken into consideration
(e) They represent to a certain degree, cost plus pricing.
(1 mark)
< Answer
>
6.
Assuming that the mark-up-percentage and the quantity of production/sales remain constant, which of
the following pricing method/ methods will give more profit as the fixed cost of production increases?
(a) Return on investment pricing
(b) Full cost pricing
(c) Contribution margin approach to pricing
(d) Both (a) and (b) above
(e) Both (b) and (c) above.
(1 mark)
< Answer
>
7.
The information contained in cost of goods manufactured budget most directly relates to
(a) Materials used, direct labor, overhead applied, and ending work-in-process budgets
(b) Materials used, direct labor, overhead applied, and work-in-process inventories budgets
< Answer
>
(c) Materials used, direct labor, overhead applied, work-in-process inventories, and finished goods

inventories budgets
(d) Materials used, direct labor, overhead applied, and finished goods inventories budgets
(e) Materials used, direct labor, overhead applied, unit production, and raw materials inventories

budgets.
(1 mark)
8.
Which of the following statements ist rue with regard to the difference between a flexible budget and
a fixed budget?
(a) A flexible budget primarily is prepared for planning purposes while a fixed budget is prepared for
performance evaluation
(b) A flexible budget provides cost allowances for different levels of activity whereas a fixed budget

provides costs for one level of activity
(c) A flexible budget includes only variable costs whereas a fixed budget includes only fixed costs
(d) A flexible budget is established by operating management while a fixed budget is determined by

top management
(e) The variances are usually larger with a flexible budget than with a fixed budget.
(1 mark)
< Answer
>
9.
While preparing a performance report for a cost center using flexible budgeting techniques, the
planned cost column should be based on

(a) Cost incorporated in the master budget
(b) Budgeted amount in the original budget prepared before the beginning of the period
(c) Budget adjusted to the actual level of activity for the period being reported
(d) Actual amount for the same period in the preceding year
(e) Budget adjusted to the planned level of activity for the period being reported.

(1 mark)
< Answer
>
10.
Which of the following may be considered as an independent item in the preparation of master budget?
(a) Production budget
(b) Capital investment budget
(c) Proforma income statement
(d) Proforma statement of financial position
(e) Overhead expenses budget.
(1 mark)
< Answer
>
11.
There are various budgets within the master budget. One of these budgets is the production budget.
Which of the following best describes the production budget?

(a) It aggregates the monetary details of the operating budget
(b) It is calculated from the desired ending inventory and the sales forecast
(c) It includes required material purchases
(d) It includes required direct labor hours
(e) It summarizes all discretionary costs.

(1 mark)
< Answer
>
12.
Which of the following statements isfalse?
(a) Insufficient training is a reason for labor efficiency variance
(b) When workers are not able to do the work due to some reason during the hours for which they are

paid, it results in idle time variance
(c) High labor turnover is a reason for labor efficiency variance
(d) Different rates being paid to workers employed to meet seasonal demands leads to labor rate

variance
(e) Promotion of employees without proper authorization by personal favoritism or supervisors leads
to labor efficiency variance.
(1 mark)
< Answer
>
13.
Which of the following factors is/are considered in determining the period of the short-range budget?
(a) The budget period should be long enough to allow for the financing of production
well in advance of actual needs
(b) The budget period should be long enough to cover complete production of various products
< Answer
>
(c) For business of a seasonal nature, the budget period should cover at least one entire seasonal

cycle
(d) The budget period should coincide with the financial accounting period for comparison
(e) All of the above.

(1 mark)
14.
Which of the following statements most appropriately describe(s) the role of budgets?

(a) Budgets should be administered rigidly so that people believe in them
(b) Attaining the budget is an end in itself
(c) Managers should commit to the budget and keep it as adopted
(d) Changing conditions call for changes in plans and long-term goal of the organization should be

the guide for changes to the budget itself
(e) All of the above are true.
(1 mark)
< Answer
>
15.
If the budget of a company is reviewed and updated at regular intervals, it is known as
(a) Capital budget
(b) Rolling budget
(c) Flexible budget
(d) Fixed budget
(e) Zero-based budget.
(1 mark)
< Answer
>
16.
Which of the following budget challenges the existence of every budgetary unit at every budget
period?
(a) Rolling budget
(b) Participative budget
(c) Zero based budget
(d) Strategic budget
(e) Short-range budget.
(1 mark)
< Answer
>
17.
The relationship between the budgeted number of working hours and the maximum possible working
hours in a budgeted period is
(a) Efficiency ratio (b) Activity ratio
(c) Calendar ratio (d) Capacity
usage ratio
(e) Capacity utilization ratio.
(1 mark)
< Answer
>
18.
A company is currently using the budget as a tool for planning. The management has decided to use
the budgets for control purposes also. To affect this change, the financial controller must

(a) Develop forecasting procedures
(b) Organize a budget committee and appoint a budget director
(c) Report daily to operating management all deviations from the plan
(d) Report daily to top management all deviations from the plan
(e) Synchronize the budgeting and accounting systems within the organizational structure.

(1 mark)
< Answer
>
19.
Material yield variance can be defined as

(a) Standard cost per unit\u00d7 (Actual loss ~ Standard loss)
(b) Standard cost per unit\u00d7 (Actual loss ~ Standard loss on actual input)
(c) Standard cost per unit\u00d7 (Actual loss ~ Standard loss on standard input)
(d) Actual cost per unit\u00d7 (Actual loss ~ Standard loss)
(e) Actual cost per unit\u00d7 (Actual loss ~ Standard loss on actual input).

(1 mark)
< Answer
>
20.
If a company has unfavorable material price variance, which of the following departments is primarily
held responsible?
(a) Stores department
(b) Production department
(c) Inspection department
(d) Purchase department
(e) Receiving department.
(1 mark)
< Answer
>
21.
Which of the following statements ist rue?
< Answer
>

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