Hock Section B Questions

Hock 2020 Part 1
Section B - Planning, Budgeting, and Forecasting.

Questions
Strategic Planning 34
Budgeting Concepts 49
Forecasting Techniques - Regression Analysis 15
Forecasting Techniques - Learning Curves 24
Forecasting Techniques – Probability 34
Budget Methodologies 30
Annual Profit Plan and Supporting Schedules 108
Top-Level Planning and Analysis 15
309
Strategic Planning
1. Question ID: ICMA 19.P1.016 (Topic: Strategic Planning)
A company is in the process of developing its mission statement. Which one of the following is least
appropriate for a company’s mission statement?
 A. Defining the purpose of the company.

 B. Promoting a common shared goal on the part of employees.
 C. Identifying what product or service the company is providing.
 D. Explaining the tactics for increasing market share in a specific region.

A company sells a product that is aimed at the broad mass market but is perceived as unique
throughout its industry. The company is earning above average returns on the product. Which one of
the following is the most appropriate term for the competitive strategy followed by the company?
 A. Market focus.
 B. Differentiation.
 C. Financial leadership.
 D. Cost focus.

The concurrent action of basic competitive forces as defined by Porter’s 5 forces model determines
the
 A. long-term profitability and the competitive intensity of the industry.

 B. strategy that a firm should follow to achieve its objectives.
 C. entrance barriers that potential players must face to get into the industry.
 D. rivalry inside the industry.
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Hock 2020 Part 1
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After leading the market for the past decade, the growth of product ABC is slowing down. In this
stage of its life cycle, the product is still generating significant amounts of cash flows that cover the
company’s investment into new product innovations. According to the BCG Growth-Share Matrix,
product ABC is most likely an example of a
 A. dog.
 B. star.
 C. question mark.
 D. cash cow.

The management of a food-processing company is analyzing its internal strengths and weaknesses
as part of its strategic planning process. Which one of the following is most likely considered a
strategic internal variable for the company?
 A. Technological changes in food-processing methods.

 B. The economic forces that regulate the local labor supply.
 C. Changes in the legal code for food processors.
 D. The culture at the company’s food-processing plant.
6. Question ID: HOCK CMA P3A H9 (Topic: Strategic Planning)

When the organization develops a plan or plans to prepare for future, often unpredictable events, it
is called:
 A. Contingency planning.
 B. Long-term business planning.
 C. Capital budgeting.
 D. Short-term business planning.

Which of the following is not a significant reason for planning in an organization?
 A. Forcing managers to consider expected future trends and conditions.

 B. Promoting coordination among operation units.
 C. Enabling selection of personnel for open positions.
 D. Developing a basis for controlling operations.

Analyzing a company's technological capabilities, employee skills, and sales team performance will
provide
 A. external factors that identify the company's strengths and threats.

 B. external factors that identify the company's strengths and weaknesses.
 C. internal factors that identify the company's strengths and opportunities.
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 D. internal factors that identify the company's strengths and weaknesses.

According to the BCG Growth-Share Matrix, all of the following are included in product life-cycle
strategies except:
 A. "Milking" the product.

 B. Superior responsiveness to customers.
 C. Increase investment in the product to maximize market share.
 D. Aggressive pricing to increase market share quickly.
The sources of a company's distinctive competencies are:
 A. High profitability and sustained profit growth.

 B. The company's resources and capabilities.
 C. The company's prior strategic commitments.
 D. The company's threats and opportunities.

During the strategic planning process, which one of the following is an external factor to be
analyzed?
 A. Societal culture.
 B. Organizational culture.
 C. Organizational structure.
 D. Employee morale.

It could be argued that the reason a company has succeeded in a very competitive market while its
rivals have failed is because:
 A. The successful company has adopted more steps to its formal strategic planning process.
 B. The strategies that the successful company pursues have a strong impact on its performance
relative to its rivals.
 C. The company has evolved into a multi-divisional organization.
 D. The company has adopted a strategy with a low propensity for risk-taking.
13. Question ID: CMA 692 H9 (Topic: Strategic Planning)

Strategy is a broad term that usually means the selection of overall objectives. Strategic analysis
ordinarily excludes the
 A. Target product mix and production schedule to be maintained during the year.
 B. Forms of organizational structure that would best serve the entity.
 C. Best ways to invest in research, design, production, distribution, marketing, and administrative
activities.

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 D. Trends that will affect the entity's markets.
Profitability is derived from three basic factors. Which of the following is not one of those?
 A. The amount of value placed on the company's products or services by the customer.
 B. The costs of creating the company's products or services.
 C. The price that the company charges for its products and services.
 D. Research and development that is highly innovative.

An organization that has a competitive advantage over its industry rivals will
 A. be able to distribute its product more quickly than other industry competitors.
 B. spend more money on advertising than its competitors do.
 C. be more profitable than the average company in its industry.
 D. have distribution channels that are wider than others in its industry.
Michael Porter's Five Forces Model helps managers to analyze forces that shape competition within
an industry in order to identify opportunities and threats in their industry environments. Which of the
following forces is not one of the Five Forces?
 A. The closeness of substitutes to a company's products.

 B. The bargaining power of competitors.
 C. Risk of entry by potential competitors.
 D. The bargaining power of suppliers.
To avoid failure, a company must maintain a constant focus on all of the following except:
 A. Identification and adoption of the best industrial practices.

 B. The nature of the organization's previous strategy and strategic commitments.
 C. Continuous improvement and learning.
 D. The foundation and practices of competitive advantage.
18. Question ID: CMA 692 H4 (Topic: Strategic Planning)

The plan that describes the long-term position, goals, and objectives of an entity within its
environment is the
 A. Capital budget.
 B. Strategic plan.
 C. Cash management budget.
 D. Operating budget.

Hock 2020 Part 1
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A company has developed and implemented a wireless charging feature into one of its flashlights.
No other competitor in the marketplace currently offers this feature. In a marketing research study,
the vast majority of consumers indicated that they would pay a premium for this feature. Which one
of the following is the best strategy to bring this product to the market?
 A. Porter's cost strategy.

 B. Porter's focus strategy.
 C. Porter's differentiation strategy.
 D. Porter's segmentation strategy.
20. Question ID: CMA 1290 3.16 (Topic: Strategic Planning)

All of the following are characteristics of the strategic planning process except the
 A. Analysis and review of departmental budgets.

 B. Review of the attributes and behavior of the organization's competition.
 C. Analysis of external economic factors.
 D. Emphasis on the long run.

Which one of the following management considerations does the company usually address first in
strategic planning?
 A. Overall objectives of the company.

 B. Recent annual budgets.
 C. Outsourcing.
 D. Structure of the organization.
Some of the benefits that horizontal integration may provide include the all of the following except:
 A. Increased bargaining power over supplier, providers and buyers.

 B. Cost reduction.
 C. Diseconomies of scale.
 D. Increase in the value of a company's product offering through differentiation

Which one of the following describes what an organization wants to accomplish and leads to the
formulation of long-term business objectives?
 A. Strategy.
 B. Mission Statement.
 C. Competency.
 D. Values.

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The method(s) that managers employ to attain one or more of the organization's goals can be
defined as:
 A. Choosing the company's organizational structure.

 B. Strategy.
 C. Capital investments.
 D. Determining the company's business model.
Which of the following is not a characteristic of a tactical plan:
 A. Top management is responsible for development and overall implementation.

 B. It relates to production, materials requirements, inventory, cash flows and income statements.
 C. It is quantitative in focus.
 D. It covers a period of time one year to five years.
The four factors that derive from a company's distinctive competencies and which create competitive
advantage are
 A. superior efficiency, quality, innovation, and customer responsiveness.

 B. continuous improvement, continuous learning, prior strategic commitments and absorptive
capacity.
 C. employee productivity, capital productivity, product innovation and process innovation.
 D. the value (utility) customers place on the company's products, the price it charges for its products,
the costs of creating those products, and the profitability of the company.
Four generic competitive strategies can be used to achieve competitive advantage. Which of the
following is not one of those strategies?
 A. Differentiation.
 B. Innovation.
 C. Focused cost leadership.
 D. Cost leadership.
Companies group customers in order to gain a competitive advantage. This is called:
 A. Positioning.
 B. Product differentiation.
 C. Market segmentation.
 D. Customer differentiation.

Hock 2020 Part 1
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Products that are identified in the BCG Growth-Share Matrix as Cash Cows possess relatively
 A. high market share in a low growth market.

 B. low market share in a low growth market.
 C. high market share in a high growth market.
 D. low market share in a high growth market.

A company's mission statement is, above all, intended to define:
 A. The specific actions that the company should take.

 B. The company's profit objectives.
 C. The weaknesses of the firm.
 D. Why the company exists, or its "reason to be."
Strategic managers use different business-level strategies to put the company's business model into
action. Business-level strategies include all of the following except
 A. How and where to invest the company's capital in ways that will result in competitive advantage.
 B. How much to differentiate and how to price the company's product or service.
 C. What products should be offered and to which customer groups (market segments).
 D. How to improve the product attributes, the service attributes and personnel attributes associated
with the company's product.

A company is the leading company in the premium bottled water industry. Its growth is mainly driven
by the negative health publicity on carbonated soft drinks and other sweetened beverages.
Extensive inventory and distribution infrastructure is needed to compete in this industry. Its main
packaging materials can be sourced either locally or easily imported from overseas. With its 60%
market share, the company is able to influence prices and competitive activity. The second biggest
competitor holds 20% market share, while the remaining 20% is shared by many small companies.
Supermarkets and other grocery retailers are the largest customer segment, accounting for
approximately 45% of sales. The supermarkets and grocery retailers are driving volume growth and
are undergoing consolidation into larger supermarket conglomerates. Using Porter’s 5 Forces, which
one of the following statements best reflects the industry environment?
 A. Low profitability due to low threat of substitutes and new entrants.

 B. High profitability due to high power of buyers and sellers.
 C. Low profitability but can increase due to increasing power of buyers.
 D. High profitability but can decrease due to increasing power of buyers.

Hock 2020 Part 1
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Cerawell Products Company is a ceramics manufacturer that is facing several challenges in its
operations. Which one of the following is subject to the least control by the management of Cerawell
in the current fiscal year?
 A. Vendors have asked that the contract price for the goods they supply to Cerawell be renegotiated
and adjusted for inflation.
 B. Experienced employees have decided to terminate their employment with Cerawell and go to
work for the competition.
 C. A competitor has achieved an unexpected technological breakthrough that has given them a
significant quality advantage, and has caused Cerawell to lose market share.
 D. A new machine that was purchased this year has not helped reduce Cerawell's unfavorable labor
efficiency variances.
One of the steps in the the strategic planning process is analyzing external factors in order to identify
the organization's opportunities and threats. Which of the following is not a part of external analysis?
 A. Examination of the industry in which the company operates.

 B. Analysis of the national environment in which the company operates.
 C. Identification of the company's strengths and weaknesses.
 D. Analysis of the macroenvironment.
Budgeting Concepts
35. Question ID: ICMA 19.P1.030 (Topic: Budgeting Concepts)
The major objectives of budgeting are to
 A. define responsibility centers, facilitate the identification of blame for missed budget predictions,
and ensure goal congruence between superiors and subordinates.
 B. define responsibility centers, provide a framework for performance evaluation, and promote
communication and coordination among the organization’s segments.
 C. foster the planning of operations, provide a framework for performance evaluation, and promote
communication and coordination among the organization’s segments.
 D. foster the planning of operations, facilitate the identification of blame for missed budget
predictions, and ensure goal congruence between superiors and subordinates.

A company pays its production manager an annual bonus based on how well the manager performs
against the production department’s annual budgets. The production manager has been
overestimating budgeted costs the past few years in order to obtain a higher bonus payment. The
production manager’s actions are best described as
 A. motivating employee effort.

 B. building budgetary slack.
 C. setting budgeted performance.
 D. balancing production costs.
Hock 2020 Part 1
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When properly developed and administered, budgets provide the following advantages to the
organization except to
 A. provide a structure for measuring performance.

 B. promote the efficient allocation of resources.
 C. motivate managers and other employees.
 D. ensure that the organization makes a profit.

The management of a company has just completed a thorough review of its strategic goals and
formulated the company’s long-term plan and short-term objectives. The most appropriate next step
for the company is the development of a
 A. operating budget.
 B. capital budget.
 C. master budget.
 D. financial budget.

Which one of the following is not an advantage of a participatory budgeting process?
 A. Coordination between departments.

 B. Control of uncertainties.
 C. Communication between departments.
 D. Goal congruence.

The following sequence of steps are employed by a company to develop its annual profit plan.
 Planning guidelines are disseminated downward by top management after receiving input
from all levels of management.
 A sales budget is prepared by individual sales units reflecting the sales targets of the various
segments. This provides the basis for departmental production budgets and other related
components by the various operating units. Communication is primarily lateral with some
upward communication possible.
 A profit plan is submitted to top management for coordination and review. Top
management's recommendations and revisions are acted upon by middle management. A
revised profit plan is resubmitted for further review to top management.
 Top management grants final approval and distributes the formal plan downward to the
various operating units.
This outline of steps best describes which one of the following approaches to budget development?
 A. Total justification of all activities by operating units.

 B. Imposed budgeting by top management.
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 C. Bottom-up approach.
 D. Top-down approach.
41. Question ID: CMA 1293 H1 (Topic: Budgeting Concepts)

The use of standard costs in the budgeting process signifies that an organization has most likely
implemented a
 B. Static budget.
 C. Flexible budget.
 D. Zero-base budget.

Jura Corporation is developing standards for the next year. Currently XZ-26, one of the material
components, is being purchased for $36.45 per unit. It is expected that the component’s cost will
increase by approximately 10% next year and the price could range from $38.75 to $44.18 per unit
depending on the quantity purchased. The appropriate standard for XZ-26 for next year should be
set at the
 A. current actual cost plus the forecasted 10% price increase.

 B. highest price in the anticipated range to insure that there are only favorable purchase price
variances.
 C. lowest purchase price in the anticipated range to keep pressure on purchasing to always buy in
the lowest price range.
 D. price agreed upon by the purchasing manager and the appropriate level of company
management.

All of the following are disadvantages of authoritative budgeting as opposed to participatory
budgeting, except that it
 A. reduces the communication between employees and management.

 B. may limit the acceptance of proposed goals and objectives.
 C. reduces the time required for budgeting.
 D. may result in a budget that is not possible to achieve.

One approach for developing standard costs incorporates communication, bargaining, and
interaction among product line managers; the immediate supervisors for whom the standards are
being developed; and the accountants and engineers before the standards are accepted by top
management. This approach would best be characterized as a(n):
 A. Team development approach.

 B. Engineering approach.
 C. Centralized top-down approach.
 D. Imposed approach.

Hock 2020 Part 1
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45. Question ID: CMA 697 3.11 (Topic: Budgeting Concepts)
When developing a budget, an external factor to consider in the planning process is
 A. A change to a decentralized management system.

 B. The implementation of a new bonus program.
 C. New product development.
 D. The merger of two competitors.

The preparation of a comprehensive master budget culminates with the preparation of the
 A. Capital investment budget.

 B. Production budget.
 C. Cash management and working capital budget.
 D. Strategic budget.

When budgets are used to evaluate performance and to set limits on spending, the process will often
result in departments adding something "extra" to ensure the budgets will be met. This "extra" is
 A. Management by objectives.
 B. Budgetary slack.
 C. Strategic planning.
 D. Continuous budgeting.

Kallert Manufacturing currently uses the company's budget only as a planning tool. The company
decided that it would be beneficial to also use budgets for control purposes. In order to implement
this change, the management accountant must
 A. Appoint a budget director.

 B. Organize a budget committee.
 C. Synchronize the budgeting and accounting system with the organizational structure.
 D. Develop forecasting procedures.

In developing the budget for the next year, which one of the following approaches would produce
the greatest amount of positive motivation and goal congruence?
 A. Have the divisional and senior management jointly develop goals and objectives while
constructing the corporation's overall plan of operation.
 B. Have senior management develop the overall goals and permit the divisional manager to
determine how these goals will be met.
 C. Permit the divisional manager to develop the goal for the division that in the manager's view will
generate the greatest amount of profits.
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 D. Have the divisional and senior management jointly develop goals and the divisional manager
develop the implementation plan.

A company is setting up a new division to sell its products in Africa. An accountant has determined
that the new African division will have to sell 250,000 units in order to cover the division’s fixed costs
of $365,000. The company is estimating total sales of $475,000 for the new African division. What is
the contribution margin per unit for the new African division?
 A. $1.46.
 B. $0.68.
 C. $0.44.
 D. $1.90.

Which one of the following reasons is not a significant reason for planning in an organization?
 A. Forcing managers to consider expected future trends and conditions.

 B. Promoting coordination among operating units.
 C. Developing a basis for controlling operations.
 D. Monitoring profitable operations.

From the perspective of corporate management, the use of budgetary slack
 A. Increases the probability that budgets will not be achieved.

 B. Increases the ability to identify potential budget weaknesses.
 C. Increases the effectiveness of the corporate planning process.
 D. Increases the likelihood of inefficient resource allocation.

Many companies use comprehensive budgeting in planning for the next year's activities. When both
an operating budget and a financial budget are prepared, which one of the following is correct
concerning the financial budget?
Included in the Financial Budget, respectively:
Capital Budget, Master Budget Balance Sheet, Cash Budget
 A. No, No, No
 B. No, Yes, No
 C. Yes, No, Yes
 D. Yes, Yes, Yes

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A company uses participative budgeting. In order to more easily meet budgetary goals, the controller
underestimates the amount of revenue and overestimates fixed selling and administrative expenses.
This is an example of
 A. zero-based budgeting.
 B. budgetary slack.
 C. flexible budgeting.
 D. budgetary variance.

Helen Thomas, Amador Corporation's vice president of planning, has seen and heard it all. She has
told the corporate controller that she is "....very upset with the degree of slack that veteran managers
use when preparing their budgets."
Thomas has considered implementing some of the following activities during the budgeting process.
1. Develop the budgets by top management and issue them to lower-level operating units.
2. Study the actual revenues and expenses of previous periods in detail.
3. Have the budgets developed by operating units and accept them as submitted by a
company-wide budget committee.
4. Share the budgets with all employees as a means to reach company goals and objectives.
5. Use an iterative budgeting process that has several "rounds" of changes initiated by
operating units and/or senior managers.
Which one of these activities should Amador implement in order to best remedy Thomas's concerns,
help eliminate the problems experienced by Amador, and motivate personnel?
 A. 2 and 3.
 B. 2 and 4.
 C. 1 only.
 D. 2, 4 and 5.

All of the following statements concerning standard costs are correct except that:
 A. Standard costs are usually set for one year.

 B. Standard costs are usually stated in total, while budgeted costs are usually stated on a per-unit
basis.
 C. Time and motion studies are often used to determine standard costs.
 D. Standard costs can be used in costing inventory accounts.

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A controllable expense
 A. Is an expense whose actual amount will not normally differ from the standard (budget) amount.
 B. Is an expected future expense that will be different under various alternatives.
 C. Is one that is directly influenced at a given level of managerial authority within a given time period.
 D. Is an expense that will remain semivariable in total over the relevant range in a given time period.

All of the following are advantages of the use of budgets in a management control
system except that budgets:
 A. Promote communication and coordination within the organization.

 B. Limit unauthorized expenditures.
 C. Provide performance criteria.
 D. Force management planning.

Which one of the following best describes the role of top management in the budgeting process?
Top management
 A. lacks the detailed knowledge of the daily operations and should limit their involvement.
 B. needs to separate the budgeting process and the business planning process into two separate
processes.
 C. should be involved only in the approval process.
 D. needs to be involved, including using the budget process to communicate goals.

The use of budgetary slack does not allow the preparer to
 A. Project actual expenses.

 B. Use the budget to control subordinate performance.
 C. Be flexible under unexpected circumstances.
 D. Increase the probability of achieving budgeted performance.
61. Question ID: CIA 1188 IV.51 (Topic: Budgeting Concepts)

Budgets are a necessary component of financial decision making because they help provide a(n)
 A. automatic corrective mechanism for errors.

 B. efficient allocation of resources.
 C. means to use all the firm's resources.
 D. means to check managerial discretion.

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The budgeting technique that is most likely to motivate managers is
 A. bottom-up budgeting.
 B. top-down budgeting.
 C. program budgeting and review technique.
 D. zero-base budgeting.

Suboptimal decision making is not likely to occur when:
 A. Guidance is given to subunit managers about how standards and goals affect them.
 B. The subunits in the organization compete with each other for the same input factors or for the
same customers.
 C. There is little congruence among the overall organization goals, the subunit goals, and the
individual goals of decision makers.
 D. Goals and standards of performance are set by the top-management.

All types of organizations can benefit from budgeting. A major difference between governmental
budgeting and business budgeting is that
 A. Governmental budgeting usually represents a legal limit on proposed expenditures.

 B. Governmental budgeting is usually done on a zero-base.
 C. Business budgeting is required by the SEC.
 D. Business budgeting can be used to measure progress in achieving company objectives, whereas
governmental budgeting cannot be used to measure progress in achieving objectives.

All of the following are disadvantages of top-down budgeting as opposed to participatory
budgeting, except that it:
 A. Reduces the communication between employees and management.

 B. Reduces the time required for budgeting.
 C. May limit the acceptance of proposed goals and objectives.
 D. May result in a budget that is not possible to achieve.

The goals and objectives upon which an annual profit plan is most effectively based are
 A. Quantitative measures such as growth in unit sales, number of employees, and manufacturing
capacity.
 B. Financial measures such as net income, return on investment, and earnings per share.
 C. A combination of financial, quantitative, and qualitative measures.
 D. Qualitative measures of organizational activity such as product innovation leadership, product
quality levels, and product safety.
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A continuous budget is one that
 A. is created after the organization has been operating for at least one period.
 B. is adjusted throughout the period for changing environmental factors.
 C. uses the prior period's actual results as the current period's budget.
 D. is available for a specified future period by adding a period to the period that just ended.

Which one of the following is not considered to be a benefit of participative budgeting?
 A. Individuals at all organizational levels are recognized as being part of the team; this results in
greater support of the organization.
 B. Managers are more motivated to reach the budget goals since they participated in setting them.
 C. The budget estimates are prepared by those in direct contact with various activities.
 D. When managers set the final targets for the budget, top management need not be concerned with
the overall profitability of current operations.

The budgeting process should be one that motivates managers and employees to work toward
organizational goals. Which one of the following is least likely to motivate managers?
 A. Having top management set budget levels.

 B. Holding subordinates accountable for the items they control.
 C. Participation by subordinates in the budgetary process.
 D. Use of management by exception.

All of the following are advantages of top-down budgeting as opposed to participatory
budgeting, except that it:
 A. Increases coordination of divisional objectives.

 B. May limit the acceptance of proposed goals and objectives.
 C. Reduces the time required for budgeting.
 D. Facilitates implementation of strategic plans.

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Granger Company is reviewing its standard machine hours per unit to use in its budget for the
upcoming year. The machine manufacturer's specifications indicated a unit could be made in 0.75
hours, and a benchmarking study showed a competitor produced at a speed of 0.78 machine hours
per unit. Granger's actual results from last year averaged 0.83 machine hours per unit even though a
standard of 0.80 machine hours per unit had been established using engineering studies. The
standard Granger should use in its upcoming budget is
 A. 0.83 machine hours per unit.

 B. 0.78 machine hours per unit.
 C. 0.75 machine hours per unit.
 D. 0.80 machine hours per unit.
72. Question ID: CIA 590 IV.14 (Topic: Budgeting Concepts)

One of the primary advantages of budgeting is that it
 A. does not take the place of management and administration.

 B. requires departmental managers to make plans in conjunction with the plans of other
interdependent departments.
 C. bases the profit plan on estimates.
 D. is continually adapted to fit changing circumstances.

Budgeting problems where departmental managers are repeatedly achieving easy goals or failing to
achieve demanding goals can be best minimized by establishing:
 A. Participative budgeting where managers pursue objectives consistent with those set by top
management.
 B. A policy that allows managers to build slack into the budget.
 C. Better communication whereby managers discuss budget matters daily with their superiors.
 D. Preventive controls.

Which one of the following statements concerning approaches for the budget development process
is correct?
 A. With the information technology available, the role of budgets as an organizational communication
device has declined.
 B. To prevent ambiguity, once departmental budgeted goals have been developed, they should
remain fixed even if the sales forecast upon which they are based proves to be wrong in the middle
of the fiscal year.
 C. The top-down approach to budgeting will not ensure adherence to strategic
organizational goals.
 D. Since department managers have the most detailed knowledge about organizational operations,
they should use this information as the building blocks of the operating budget.

Hock 2020 Part 1
Questions
Each organization plans and budgets its operations for slightly different reasons. Which one of the
following is not a significant reason for planning and budgeting?
 A. Checking progress toward the objectives of the organization.

 B. Providing a basis for controlling operations.
 C. Ensuring profitable operations.
 D. Forcing managers to consider expected future trends and conditions.

Which one of the following items would most likely cause the planning and budgeting system to fail?
The lack of
 A. historical financial data.

 B. input from several levels of management.
 C. top management support.
 D. adherence to rigid budgets during the year.

Hock 2020 Part 1
Questions
Rainbow Inc. recently appointed Margaret Joyce as vice president of finance and asked her to
design a new budgeting system. Joyce has changed to a monthly budgeting system by dividing the
company’s annual budget by twelve. Joyce then prepared monthly budgets for each department and
asked the managers to submit monthly reports comparing actual to budget. A sample monthly report
for Department A is shown below.
Rainbow, Inc.
Monthly Report for Department A
Actual Budget Variance
Units 1,000 900 100F
Variable production costs
Direct material $2,800 $2,700 $100U
Direct labor 4,800 4,500 300U
Variable factoy overhead 4,250 4,050 200U
Fixed costs
Depreciation 3,000 2,700 300U
Taxes 1,000 900 100U
Insurance 1,500 1,350 150U
Administration 1,100 990 110U
Marketing 1,000 900 100U
Total costs $19,450 $18,090 $1,360U
This monthly budget has been imposed from the top and will create behavior problems. All of the
following are causes of such problems except:
 A. The lack of consideration for factors such as seasonality.

 B. Top management's authoritarian attitude toward the budget process.
 C. The use of a flexible budget rather than a fixed budget.
 D. The inclusion of noncontrollable costs such as depreciation.

Hock 2020 Part 1
Questions
Which one of the following will allow a better use of standard costs and variance analysis to help
improve managerial decision-making?
 A. Company A does not differentiate between variable and fixed overhead in calculating its overhead
variances.
 B. Company B uses the prior year's average actual cost as the current year's standard.
 C. Company C investigates only negative variances.
 D. Company D constantly revises standards to reflect learning curves.

The process of creating a formal plan and translating goals into a quantitative format is
 A. Job-order costing.
 B. Budget manual preparation.
 C. Budgeting.
 D. Process costing.

Which one of the following is usually not cited as being an advantage of a formal budgetary
process?
 A. Forces management to evaluate the reasonableness of assumptions used and goals identified in
the budgetary process.
 B. Provides a formal benchmark to be used for feedback and performance evaluation.
 C. Ensures improved cost control within the organization and prevents inefficiencies.
 D. Serves as a coordination and communication device between management and subordinates.

All of the following are criticisms of the traditional budgeting process except that it
 A. is not used until the end of the budget period to evaluate performance.
 B. makes across-the-board cuts when early budget iterations show that planned expenses are too
high.
 C. incorporates non-financial measures as well as financial measures into its output.
 D. overemphasizes a fixed time horizon such as one year.

Hock 2020 Part 1
Questions
Diana Stinson, Cherry Valley Inc.'s factory manager, had lost her patience. Six months ago, she had
appointed a team from the production and service departments to finalize the allocation of costs and
setting of standard costs. They were still feuding, and so she had hired Brennan and Rose, a large
consulting firm, to resolve the matter.
All of the following are potential consequences of having the standards set by Brennan and
Rose except that
 A. There could be dissatisfaction if the standards contain costs which are not controllable by the unit
held responsible.
 B. The standards may appear to lack management support.
 C. Employees could react negatively since they did not participate in setting the standards.
 D. Brennan and Rose may not fully understand Cherry Valley's manufacturing process, resulting in
suboptimal performance.

Budgetary slack can best be described as
 A. The elimination of certain expenses to enhance budgeted income.

 B. A plug number used to achieve a pre-set level of operating income.
 C. The planned underestimation of budgeted expenses.
 D. The planned overestimation of budgeted expenses.

Hock 2020 Part 1
Questions
Forecasting Techniques - Regression Analysis
84. Question ID: ICMA 19.P1.023 (Topic: Forecasting Techniques - Regression Analysis)
An international nonprofit organization finances medical research. The majority of its revenue and
support comes from fund-raising activities, investments, and specific grants from an initial
sponsoring corporation. The organization has been in operation for over 15 years, and has just
finished a major fund-raising event that raised $500 million for the current fiscal period. The following
are selected data from recent financial statements (in millions of dollars).
Current Year Past Year

Revenue $500 $425
Investments (average balances) 210 185
Investment income 16 20
Administrative expense 10 8
A financial analyst wants to determine if the change in investment income during the current year
was due to changes in investment strategy, changes in portfolio mix, or other factors. Which one of
the following techniques should be used?
 A. Multiple regression analysis that includes independent variables associated with the nature of the
investment portfolio and market conditions.
 B. Simple linear regression that compares investment income changes over the past five years to
determine the nature of the changes.
 C. Ratio analysis that compares changes in the investment portfolio on a monthly basis.
 D. Best practice analysis that compares the investment income as a percentage of total assets to a
competitor’s investment income as a percentage of total assets.
The results of regressing Y against X are as follows.
Coefficient
Intercept 5.23
Slope 1.54
When the value of X is 10, the estimated value of Y is
 A. 8.05
 B. 6.77
 C. 20.63
 D. 53.84

Hock 2020 Part 1
Questions
86. Question ID: CMA 1290 4.27 (Topic: Forecasting Techniques - Regression Analysis)
In the standard regression equation y = a + b(x), the letter b is best described as a(n)
 A. Dependent variable.
 B. Constant coefficient.
 C. Variable coefficient.
 D. Independent variable.
87. Question ID: HOCK CMA.P1A2.01 (Topic: Forecasting Techniques - Regression Analysis)
A linear relationship between an independent and a dependent variable means that
 A. a graph of the two variables will result in a straight line within the relevant range.
 B. a forecast made using the historical data will be reasonably accurate.
 C. the relationship between the two variables must be a direct one.
 D. when the independent variable increases, the dependent variable increases by the same amount
as the independent variable has increased.
88. Question ID: CMA 1291 H1 (Topic: Forecasting Techniques - Regression Analysis)
A distinction between forecasting and planning
 A. Arises because forecasting covers the short-term and planning does not.
 B. Is not valid because they are synonyms.
 C. Is that forecasts are used in planning.
 D. Is that forecasting is a management activity whereas planning is a technical activity.
89. Question ID: CIA 1194 II.46 (Topic: Forecasting Techniques - Regression Analysis)
In regression analysis, which of the following correlation coefficients represents the strongest
relationship between the independent and dependent variables?
 A. -.89
 B. 1.03
 C. .75
 D. -.02
A company uses regression analysis in which monthly advertising expenses are used to predict
monthly product sales, both in millions of dollars. The results show a regression coefficient for the
independent variable equal to 0.8. This coefficient value indicates that
 A. when monthly advertising is at its average level, product sales will be $800,000.
 B. the average monthly advertising expenditure in the sample is $800,000.
 C. advertising is not a good predictor of sales because the coefficient is so small.

Hock 2020 Part 1
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 D. on average, every additional dollar of advertising results in $0.8 of additional sales.
The letter x in the standard regression equation is best described as a(n)
 A. Coefficient of determination.
 B. Constant coefficient.
 C. Dependent variable.
 D. Independent variable.
Automite Company is an automobile replacement parts dealer in a large metropolitan community.
Automite is preparing its sales forecast for the coming year. Data regarding both Automite's and
industry sales of replacement parts as well as both the used and new automobile sales in the
community for the last 10 years have been accumulated. If Automite wants to determine if its sales
of replacement parts are patterned after the industry sales of replacement parts or to the sales of
used and new automobiles, the company would employ
 A. Statistical sampling.
 B. Simulation techniques.
 C. Time series analysis.
 D. Correlation and regression analysis.
93. Question ID: CIA 593 III.64 (Topic: Forecasting Techniques - Regression Analysis)
What coefficient of correlation results from the following data?
X Y
1 10
2 8
3 6
4 4
5 2
 A. +1
 B. 0
 C. -1
 D. Cannot be determined from the data given.

Hock 2020 Part 1
Questions
A company has accumulated data for the last 24 months in order to determine if there is an
independent variable that could be used to estimate shipping costs. Three possible independent
variables being considered are packages shipped, miles shipped, and pounds shipped. The
quantitative technique that should be used to determine whether any of these independent variables
might provide a good estimate for shipping costs is
 A. flexible budgeting.
 B. linear regression.
 C. variable costing.
 D. linear programming.
In order to analyze sales as a function of advertising expenses, the sales manager of Smith
Company developed a simple regression model. The model included the following equation, which
was based on 32 monthly observations of sales and advertising expenses with a related coefficient
of determination of .90.
S = $10,000 + $2.50A
S = Sales
A = Advertising expenses
If Smith Company's advertising expenses in one month amounted to $1,000, the related point
estimate of sales would be
 A. $11,250.
 B. $12,500.
 C. $12,250.
 D. $2,500.
For cost estimation simple regression differs from multiple regression in that simple regression uses
only
 A. one dependent variable, while multiple regression uses more than one dependent variable.
 B. one dependent variable, while multiple regression uses all available data to estimate the cost
function.
 C. one independent variable, while multiple regression uses more than one independent variable.
 D. dependent variables, while multiple regression can use both dependent and independent
variables.

Hock 2020 Part 1
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Correlation is a term frequently used in conjunction with regression analysis, and is measured by the
value of the coefficient of correlation, r. The best explanation of the value r is that it
 A. Interprets variances in terms of the independent variable.

 B. Is a measure of the relative relationship between two variables.
 C. Ranges in size from negative infinity to positive infinity.
 D. Is always positive.
The correlation coefficient that indicates the weakest linear association between two variables is
 A. 0.35
 B. -0.11
 C. 0.12
 D. -0.73

Hock 2020 Part 1
Questions
Forecasting Techniques - Learning Curves

99. Question ID: ICMA 19.P1.031 (Topic: Forecasting Techniques - Learning Curves)
A corporation has determined that when the quantity produced in units doubles from x to 2x, the
average time per unit for 2x units is 90% of the average time per unit for x units. The decline in time
per unit as production doubles is an example of
 A. cumulative average-time learning model.

 B. incremental unit-time learning model.
 C. high-low cost estimation model.
 D. simple regression cost estimation model.
Propeller Inc. plans to manufacture a newly designed high-technology propeller for airplanes.
Propeller forecasts that as workers gain experience, they will need less time to complete the job.
Based on prior experience, Propeller estimates a 70% cumulative learning curve and has projected
the following costs.
If Propeller manufactures eight propellers, the total manufacturing cost would be
Cumulative number Manufacturing Projections

of units produced Average cost per unit Total costs
1 $20,000 $20,000
2 14,000 28,000
If Propeller manufactures eight propellers, the total manufacturing cost would be
 A. $112,000.
 B. $62,643.
 C. $54,880.
 D. $50,660.
In competing as a subcontractor on a military contract, Aerosub Inc. has developed a new product
for spacecraft that includes the manufacturing of a complex part. Management believes there is a
good opportunity for its technical force to learn and improve as they become accustomed to the
production process. Accordingly, management estimates an 80% learning curve would apply to this
unit. The overall contract will call for supplying eight units. Production of the first unit requires 10,000
direct labor hours. The estimated total direct labor hours required to produce the seven additional
units would be
 A. 30,960 hours.
 B. 56,000 hours.
 C. 70,000 hours.
 D. 40,960 hours.

Hock 2020 Part 1
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102. Question ID: CMA 688 5.7 (Topic: Forecasting Techniques - Learning Curves)
LCB, Inc. is preparing a bid to the Department of the Navy to produce engines for rescue boats. The
company has manufactured these engines for the Navy for the past 3 years, on an exclusive
contract, and has experienced the following costs:
Cumulative Total Cumulative

Units Cumulative Labor
Produced Materials Costs
10 $ 60,000 $120,000
20 120,000 192,000
40 240,000 307,200
At LCB, variable overhead is applied on the basis of $1.00 per direct labor dollar. Based on historical
costs, LCB knows that the production of 40 engines will be allocated $100,000 of fixed overhead
costs. The bid request is for an additional 40 units; all companies submitting bids are allowed to
charge a maximum of 25% above full cost for each order.
LCB's rate of learning on the 3-year engine contract is
 A. 79.0%
 B. 62.5%.
 C. 75.5%.
 D. 80.0%.
Which one of the following techniques would most likely be used to analyze reductions in the time
required to perform a task as experience with that task increases?
 A. Regression analysis.
 B. Sensitivity analysis.
 C. Learning curve analysis.
 D. Normal probability analysis.

Hock 2020 Part 1
Questions
104. Question ID: CIA 1193 III.69 (Topic: Forecasting Techniques - Learning Curves)
Management of a bookkeeping company observed that the average time spent to perform identical
tasks using a new software package decreases as the number of tasks performed increases. The
following information on the use of the new software was collected.
Number of Tasks Total Time to Average Time

Performed Perform All Tasks To Perform Each Task
1 10 minutes 10 minutes
2 18 minutes 9 minutes
4 32.4 minutes 8.1 minutes
If this learning effect continues, what is the average time to perform each of the first eight tasks?
 A. 7.29 minutes.
 B. 8.1 minutes.
 C. 5.90 minutes.
 D. 6.56 minutes.
Aerosub Inc. has developed a new product for spacecraft that includes the manufacturing 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 they become
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 required for producing a
total of eight units would be
 A. 80,000 hours.
 B. 29,520 hours.
 C. 64,000 hours.
 D. 40,960 hours.
High Tech Industries, Inc. is in the process of preparing a competitive bid for the sale of a
customized product. High Tech is currently manufacturing a comparable specialized component that
is labor intensive with a long production run. The method that High Tech should use to project the
cost of manufacturing the proposed new customized product is
 A. Learning curve analysis.

 B. Monte Carlo simulation.
 C. Regression analysis.
 D. Expected value analysis.

Hock 2020 Part 1
Questions
Lake Corporation manufactures specialty components for the electronics industry in a highly labor
intensive environment. Arc Electronics has asked Lake to bid on a component that Lake made for
Arc last month. The previous order was for 80 units and required 120 hours of direct labor to
manufacture. Arc would now like 240 additional components. Lake experiences an 80% learning
curve on all of its jobs. The number of direct labor hours needed for Lake to complete the 240
additional components is
 A. 187.2.
 B. 256.0.
 C. 360.0.
 D. 307.2.
Seacraft Inc. received a request for a competitive bid for the sale of one of its unique boating
products with a desired modification. Seacraft is now in the process of manufacturing this product
but with a slightly different modification for another customer. These unique products are labor
intensive and both will have long production runs. Which one of the following methods should
Seacraft use to estimate the cost of the new competitive bid?
 A. Continuous probability simulation.

 B. Learning curve analysis.
 C. Regression analysis.
 D. Expected value analysis.
A manufacturing company has the opportunity to submit a bid for 20 units of a product on which it
has already produced two 10-unit lots. The production manager believes that the learning
experience observed on the first two lots will continue for at least the next two lots. The direct labor
required on the first two lots was as follows.
 5,000 direct labor hours for the first lot of 10 units
 3,000 additional direct labor hours for the second lot of 10 units
The learning rate experienced by the company on the first two lots of this product using the
Cumulative Average-Time Learning Model is
 A. 80.0%.
 B. 62.5%.
 C. 60.0%.
 D. 40.0%.

Hock 2020 Part 1
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Huron Company plans to bid on a special project that calls for a total of 24,000 units. The units will
be produced in lots, with the first lot consisting of 750 units. Based on prior experience, the direct
labor time needed per unit of product will be progressively smaller by a constant percentage rate as
experience is gained in the manufacturing process. The quantitative method that would best
estimate Huron's total cost for the project is
 A. Discounted cash flow techniques.

 B. Differential calculus.
 C. Learning curve techniques.
 D. Linear programming.

1 $20,000 $20,000
2 14,000 28,000
The estimated cost of an order for seven additional propellers, after completing production of the first
propeller, would be
 A. $98,000.
 B. $54,880.
 C. $34,880.
 D. $92,000.

Hock 2020 Part 1
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Moss Point Manufacturing recently completed and sold an order of 50 units that had costs as
follows.
Direct materials $1,500

Direct labor (1,000 hours x $8.50) 8,500
Variable overhead (1,000 hours x $4.00)* 4,000
Fixed overhead** 1,400
$15,400
*Applied on the basis of direct labor hours.
**Applied at the rate of 10% of variable cost.
The company has now been requested to prepare a bid for 150 units of the same product.
If an 80% learning curve is applicable, Moss Point's total cost on this order would be estimated at
 A. $41,800
 B. $32,000.
 C. $26,400.
 D. $38,000.

10 $ 60,000 $120,000
20 120,000 192,000
40 240,000 307,200
In order to ensure that the company would not lose money on the project, LCB's minimum bid for the
40 units would be
 A. $760,800
 B. $885,800
 C. $608,640
Hock 2020 Part 1
Questions
 D. $708,640
Langley Corporation is developing a new product that will be manufactured in pairs. The company
recently produced the first two units of this product using 200 hours of direct labor time. If Langley
has a 90% learning curve and uses the cumulative average-time learning model, the total direct
labor time to manufacture the first four units of this new product is
 A. 400 hours.
 B. 360 hours.
 C. 324 hours.
 D. 380 hours.
The average labor cost per unit for the first batch produced by a new process is $120. The
cumulative average labor cost after the second batch is $72 per product. Using a batch size of 100
and assuming the learning curve continues, the total labor cost of four batches will be
 A. $2,592.
 B. $4,320.
 C. $17,280.
 D. $10,368.
A manufacturing firm plans to bid on a special order of 80 units that will be manufactured in lots of 10
units each. The production manager estimates that the direct labor hours per unit will decline by a
constant percentage each time the cumulative quantity of units produced doubles. The quantitative
technique used to capture this phenomenon and estimate the direct labor hours required for the
special order is
 A. learning curve analysis.

 B. cost-profit-volume analysis.
 C. the Markov process.
 D. linear programming analysis.

Hock 2020 Part 1
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Martin Fabricating uses a cumulative average-time learning curve model to monitor labor costs. Data
regarding two recently completed batches of a part that is used in tractor-trailer rigs is as follows.
Batch Number Cumulative Average

Number of Units Hours Per Unit
1 50 20
2 50 16
If the same rate of learning continues for the next several batches produced, which of the following
best describes (1) the type (i.e., degree) of learning curve that the firm is experiencing and (2) the
average hours per unit for units included in the 201-400 range of units produced (i.e., the last 200
units)?
 A. Learning curve - 20%; average hours per unit for units 201-400 - 3.84 hours.
 B. Learning curve - 80%; average hours per unit for units 201-400 - 10.24 hours.
 C. Learning curve - 80%; average hours per unit for units 201-400 - 7.68 hours.
 D. Learning curve - 20%; average hours per unit for units 201-400 - 10.24 hours.
A manufacturing company required 800 direct labor hours to produce the first lot of four units of a
new motor. Management believes that a 90% learning curve will be experienced over the next four
lots of production. How many direct labor hours will be required to manufacture the next 12 units?
 A. 1,792
 B. 2,160
 C. 1,944
 D. 2,016

Hock 2020 Part 1
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10 $ 60,000 $120,000
20 120,000 192,000
40 240,000 307,200
The maximum bid price that LCB, Inc. could submit to the Department of the Navy for the 40 units is
 A. $608,640.
 B. $760,800.
 C. $708,640.
 D. $885,800.
Moss Point Manufacturing recently completed and sold an order of 50 units that had costs as
follows.
Direct materials $1,500

Direct labor (1,000 hours x $8.50) 8,500
Variable overhead (1,000 hours x $4.00)* 4,000
Fixed overhead** 1,400
$15,400
*Applied on the basis of direct labor hours.
**Applied at the rate of 10% of variable cost.
If Moss Point had experienced a 70% learning curve, the bid for the 150 units would
 A. Include increased fixed overhead cost per unit.

 B. Be 10% lower than the total bid at an 80% learning curve.
 C. Include 6.40 direct labor hours per unit at $8.50 per hour.
 D. Show a 30% reduction in the total direct labor hours required with no learning curve.

Hock 2020 Part 1
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1 $20,000 $20,000
2 14,000 28,000
If Propeller produces eight units, the average manufacturing cost per unit will be
 A. $9,800.
 B. $14,000.
 C. $1,647.
 D. $6,860.
Aerosub Inc. has developed a new product for spacecraft that includes the manufacturing 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 they become
accustomed to the production process. The production of the first unit requires 10,000 direct labor
hours. If an 80% learning curve is used and eight units are produced, the cumulative average direct
labor hours required per unit of the product will be
 A. 6,400 hours
 B. 5,120 hours.
 C. 8,000 hours.
 D. 10,000 hours.

Hock 2020 Part 1
Questions
Forecasting Techniques - Probability

123. Question ID: CMA 1288 5.14 (Topic: Forecasting Techniques - Probability)
Ron Bagley is contemplating whether to investigate a labor efficiency variance in the Assembly
Department. It will cost $6,000 to undertake the investigation and another $18,000 to correct
operations if the department is found to be operating improperly. If the department is operating
improperly and Bagley failed to make the investigation, operating costs from the various
inefficiencies are expected to amount to $33,000. Bagley would be indifferent between investigating
and not investigating the variance if the probability of improper operation is
 A. 0.71.
 B. 0.29.
 C. 0.40.
 D. 0.60.
The Booster Club at Blair College sells hot dogs at home basketball games. The group has a
frequency distribution of the demand for hot dogs per game and plans to apply the expected value
decision rule to determine the number of hot dogs to stock.
The Booster Club should select the demand level that:
 A. Is closest to the expected demand.

 B. Has the greatest expected monetary value.
 C. Has the greatest probability of occurring.
 D. Has the greatest expected opportunity cost.
125. Question ID: ICMA 10.P1.032 (Topic: Forecasting Techniques - Probability)

Denton Inc. manufactures industrial machinery and requires 100,000 switches per year in its
assembly process. When switches are received from a vendor they are installed in the specific
machine and tested. If the switches fail, they are scrapped and the associated labor cost of $25 is
considered lost productivity. Denton purchases "off the shelf" switches as opposed to custom-made
switches and experiences quality problems with some vendors' products. A decision must be made
as to which vendor to buy from during the next year based on the following information.
Percentage expected
Vendor Price per switch
to pass the test
P $35 90%
Q $37 94%
R $39 97%
S $40 99%
Which vendor should Denton's controller recommend to management?
 A. Vendor R.
 B. Vendor P.
Hock 2020 Part 1
Questions
 C. Vendor S.
 D. Vendor Q.

Which one of the following four probability distributions provides the highest expected monetary
value?
Alternative #1 Alternative #2 Alternative #3 Alternative #4

Prob. Cash Inflows Prob. Cash Inflows Prob. Cash Inflows Prob. Cash Inflows
10% $50,000 10% $50,000 10% $50,000 10% $150,000
20% 75,000 20% 75,000 20% 75,000 20% 100,000
40% 100,000 45% 100,000 40% 100,000 40% 75,000
30% 150,000 25% 150,000 30% 125,000 30% 50,000
 A. Alternative #1.
 B. Alternative #2.
 C. Alternative #3.
 D. Alternative #4.
Stan Berry is considering selling peanuts at the Keefer High School football games. The peanuts
would cost $.50 per bag and could be sold for $1.50 per bag. No other costs would be incurred to
sell the peanuts. All unsold bags can be returned to the supplier for $.30 each. Berry estimated the
demand for peanuts at each football game and constructed the payoff table that follows.
Payoffs at each supply level:

Demand Probability
20 30 40 50
(bags) of Demand
20 .2 $20 $18 $16 $14
30 .4 $20 $30 $28 $26
40 .3 $20 $30 $40 $38
50 .1 $20 $30 $40 $50
Expected value of action: $20 $27.60 $30.40 $29.60
The optimum number of bags of peanuts to stock is
 A. 30.
 B. 50.
 C. 20.

Hock 2020 Part 1
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 D. 40.
The College Honor Society sells hot pretzels at the home football games.
The frequency distribution of the demand for pretzels per game is presented as follows:
Sales Volume Probability

2,000 pretzels 0.10
3,000 pretzels 0.15
4,000 pretzels 0.20
5,000 pretzels 0.35
6,000 pretzels 0.20
The pretzels are sold for $1.00 each, and the cost per pretzel is $0.30. Any unsold pretzels are
discarded because they will be stale before the next home game.
The conditional profit (loss) per game of having 4,000 pretzels available but being able to sell 5,000
pretzels if they had been available is
 A. $2,800.
 B. $3,500.
 C. $4,025.
 D. $(1,225).

Hock 2020 Part 1
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Scarf Corporation's controller has decided to use a decision model to cope with uncertainty. With a
particular proposal, currently under consideration, Scarf has two possible actions, invest or not
invest in a joint venture with an international firm. The controller has determined the following.
Action 1: Invest in the Joint Venture
Events and Probabilities:
Probability of success = 60%.
Cost of investment = $9.5 million.
Cash flow if investment is successful = $15 million.
Cash flow if investment is unsuccessful = $2.0 million.
Additional costs to be paid = $0
Costs incurred up to this point = $650,000
Action 2: Do Not Invest in the Joint Venture
Events:
Costs incurred up to this point = $650,000
Additional costs to be paid = $100,000.
Which one of the following alternatives correctly reflects the respective expected values of investing
versus not investing?
 A. $(350,000) and $(100,000).

 B. $(350,000) and $(750,000).
 C. $300,000 and $(750,000).
 D. $300,000 and $(100,000).

Ryotel is conducting market research to determine whether or not to launch a new product.
Management believes there is a 60% probability the research will yield favorable results with a 40%
probability the results will be unfavorable. If the results are favorable, there is a 70% probability the
product will be successful; if the results are unfavorable, the probability the product will be
unsuccessful is 75%. If the product is successful, Ryotel anticipates annual profits of $10,000,000,
but if the product is unsuccessful, Ryotel will lose $4,000,000 each year. The expected value of the
new product's annual profit is
 A. $3,000,000.
 B. $3,280,000.
 C. $5,300,000.
 D. $4,000,000.
The expected monetary value of an event
 A. Is equal to the payoff of the event times the probability the event will occur.
 B. Cannot be computed when there is uncertainty associated with the event.
 C. Is the absolute profit from a particular event.
 D. Is the profit forgone by not choosing the best alternative.

Hock 2020 Part 1
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A company is considering three alternative machines to produce a new product. The cost structures
(unit variable costs plus avoidable fixed costs) for the three machines are shown as follows. The
selling price is unaffected by the machine used.
Single purpose machine $0.60x + $20,000

Semi-automatic machine $0.40x + $50,000
Automatic machine $0.20x + $120,000
The demand for units of the new product is described by the following probability distribution.
Demand Probability
200,000 0.4
300,000 0.3
400,000 0.2
500,000 0.1
Ignoring the time value of money, the expected cost of using the semi-automatic machine is
 A. $210,000.
 B. $130,000.
 C. $250,000.
 D. $170,000.
A car rental agency has a policy of replacing the tires on its car fleet as the tires wear out.
Management wonders if there would be any cost savings if the tires are periodically replaced at one
time on its fleet of 500 cars. The technique the car rental agency would find most useful is
 A. Learning curve techniques.

 B. Statistical sampling.
 C. Probability analysis.
 D. Linear programming.

Hock 2020 Part 1
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The sales manager of Serito Doll Company has suggested that an expanded advertising campaign
costing $40,000 would increase the sales and profits of the company. He has developed the
following probability distribution for the effect of the advertising campaign on company sales.
Sales increase (units) Probability

15,000 0.10
30,000 0.35
45,000 0.10
60,000 0.25
75,000 0.20
The company sells the dolls at $5.20 each. The cost of each doll is $3.20. Serito's expected
incremental profit, if the advertising campaign is adopted, would be
 A. $46,500.
 B. $53,000.
 C. $93,000.
 D. $6,500.
Expected value in decision analysis is
 A. A standard deviation using the probabilities as weights.

 B. An arithmetic mean using the probabilities as weights.
 C. The square root of the squared deviations.
 D. A measure of the difference between the best possible outcome and the outcome of the original
decision.

Hock 2020 Part 1
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Stock X has the following probability distribution of expected future returns.
Probability Expected Return

.10 −20%
.20 5%
.40 15%
.20 20%
.10 30%
The expected rate of return on Stock X would be
 A. 10%.
 B. 19%.
 C. 16%.
 D. 12%.

Hock 2020 Part 1
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The Lions Club is planning to sell pretzels at a local football game and has estimated sales demand
as follows.
Sales demand 8,000 10,000 12,000 15,000

Probability 10% 40% 30% 20%
The cost of the pretzels varies with the quantity purchased as follows.
Purchase quantity 8,000 10,000 12,000 15,000

Cost per unit $1.25 $1.20 $1.15 $1.10
Any unsold pretzels would be donated to the local food bank. The calculated profits at the various
sales demand levels and purchase quantities are as follows.
Expected Profits at Various Purchase Quantity Levels

Sales Demand 8,000 10,000 12,000 15,000
8,000 $6,000 $4,000 $ 2,200 $ (500)
10,000 6,000 8,000 6,200 3,500
12,000 6,000 8,000 10,200 7,500
15,000 6,000 8,000 10,200 13,500
Which of the following purchase quantities would you recommend to the Lions Club?
 A. 15,000
 B. 12,000
 C. 8,000
 D. 10,000
Decisions are frequently classified as those made under certainty and those made under
uncertainty. Certainty exists when
 A. There is absolutely no doubt that an event will occur.

 B. There is more than one outcome for each possible action.
 C. The probability of the event is less than 1.0.
 D. The standard deviation of an event is greater than zero.

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Hayden Ross has four booth rental options at the county fair where he plans to sell his new product
for $37.50 per unit with a cost of $12.50.
Assuming there is a 40% probability that 70 units will be sold and a 60% probability that 40 units will
be sold, which of the following booth rental options would maximize income?
 A. $200 fixed fee + 16% of all revenues generated at the fair.

 B. $750 fixed fee + 5% of all revenues generated at the fair.
 C. 20% of all revenues generated at the fair.
 D. $1,000 fixed fee.
A company is simulating the actions of a government agency in which 50% of the time a recall of a
product is required, 40% of the time only notification of the buyer about a potential defect is required,
and 10% of the time no action on its part is required. Random numbers of 1 to 100 are being used.
An appropriate assignment of random numbers for the recall category would be
 A. 61-100.
 B. 1-40.
 C. 11-60.
 D. 40-90.

2,000 pretzels 0.10
3,000 pretzels 0.15
4,000 pretzels 0.20
5,000 pretzels 0.35
6,000 pretzels 0.20
The conditional profit per game of having 4,000 pretzels available and selling all 4,000 pretzels is
 A. $2,100.
 B. $1,200.
 C. Some amount other than those given.
 D. $2,800.

Hock 2020 Part 1
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CLT Company has three sales departments. Department A processes about 50% of CLT's sales,
Department B about 30%, and Department C about 20%. In the past, Departments A, B, and C had
error rates of about 2%, 5%, and 2.5%, respectively. A random audit of the sales records yields a
recording error of sufficient magnitude to distort the company's results. The probability that
Department A is responsible for this error is
 A. 2%
 B. 33%
 C. 50%
 D. 17%
A beverage stand can sell either soft drinks or coffee on any given day. If the stand sells soft drinks
and the weather is hot, it will make $2,500; if the weather is cold, the profit will be $1,000. If the
stand sells coffee and the weather is hot, it will make $1,900; if the weather is cold, the profit will be
$2,000. The probability of cold weather on a given day at this time is 60%.
The expected payoff for selling coffee is
 A. $1,960.
 B. $2,200.
 C. $3,900.
 D. $1,360.
A computer store sells four computer models designated as P104, X104, A104 and S104. The store
manager has made random number assignments to represent customer choices based on past
sales data. The assignments are:
Model Random Numbers

P104 0-1
X104 2-6
A104 7-8
S104 9
The probability that a customer will select model P104 is
 A. Some probability other than those given.

 B. 10 percent.
 C. 50 percent.
 D. 20 percent.

Hock 2020 Part 1
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The Booster Club at Blair College sells hot dogs at home basketball games. The group has a
frequency distribution of the demand for hot dogs per game and plans to apply the expected value
decision rule to determine the number of hot dogs to stock.
The expected monetary value of an act is the:
 A. Sum of the conditional profit (loss) for each event.

 B. Conditional profit (loss) for the best event times the probability of each event's occurrence.
 C. Sum of the products of the conditional profit (loss) for each event multiplied by the probability of
each event's occurrence.
 D. Sum of the conditional opportunity loss of each event times the probability of each event
occurring.

According to recent focus sessions, Norton Corporation has a "can't miss" consumer product on its
hands. Sales forecasts indicate either excellent or good results, with Norton's sales manager
assigning a probability of .6 to a good results outcome. The company is now studying various sales
compensation plans for the product and has determined the following contribution margin data.
Contribution
Margin
If sales are excellent and
Plan 1 is adopted $300,000
Plan 2 is adopted 370,000
If sales are good and

On the basis of this information, which of the following statements is correct?
 A. Plan 1 should be adopted because it is $8,000 more attractive than Plan 2.

 B. Plan 1 should be adopted because of the sales manager's higher confidence in good results.
 C. Plan 2 should be adopted because it is $10,000 more attractive than Plan 1.
 D. Either Plan should be adopted, the decision being dependent on the probability of excellent sales
results.

Hock 2020 Part 1
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The Madison Company has decided to introduce a new product. The company estimates that there
is a 30 percent probability that the product will contribute $700,000 to profits, a 30 percent probability
that it will contribute $200,000, and a 40 percent probability that the contribution will be a negative
$400,000. The expected contribution of the new product is
 A. $110,000.
 B. $500,000.
 C. $380,000.
 D. $166,667.
Refer to the profit payoff table below.
Demand in Units
0 2 4 6
Probability of Demand
Supply in Units 0.1 0.3 0.4 0.2
0 $ 0 $ 0 $ 0 $ 0
2 (80) 40 40 40
4 (160) (40) 80 80
6 (240) (120) 0 120
The expected profit when supply equals 4 units, is
 A. $(10)
 B. $(40)
 C. $20
 D. $80

Hock 2020 Part 1
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2,000 pretzels .10
3,000 pretzels .15
4,000 pretzels .20
5,000 pretzels .35
6,000 pretzels .20
The pretzels are sold for $1.00 each, and the cost per pretzel is $.30. Any unsold pretzels are
The estimated demand for pretzels at the next home football game using an expected value
approach is
 A. Some amount other than those given.

 B. 5,000 pretzels.
 C. 4,000 pretzels.
 D. 4,400 pretzels.

Johnson Software has developed a new software package. Johnson's sales manager has prepared
the following probability distribution describing the relative likelihood of monthly sales levels and
relative income (loss) for the company's new software package.
Monthly Sales
Probability Income (Loss)
In Units
10,000 0.2 $(4,000)
20,000 0.3 10,000
30,000 0.3 30,000
40,000 0.2 60,000
If Johnson decides to market its new software package, the expected value of the additional monthly
income will be
 A. $40,000
 B. $23,200
 C. $24,800
 D. $24,000

Hock 2020 Part 1
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Philip Enterprises, distributor of compact disks (CDs), is developing its budgeted cost of goods sold
for 2013. Philip has developed the following range of sales estimates and associated probabilities for
the year:
Sales Estimated Probability

$60,000 25%
85,000 40%
100,000 35%
Philip's cost of goods sold averages 80% of sales. What is the expected value of Philip's 2013
budgeted cost of goods sold?
 A. $84,000
 B. $85,000
 C. $67,200
 D. $68,000

A manager is reviewing a potential investment, which has significant uncertainty related to its
ultimate financial outcome. The manager has estimated the following probabilities for the various
levels of net cash flows that may result from the investment.
Likelihood of Net Cash

Outcome Flows
10% $(300,000)
20% 0
50% 100,000
20% 600,000
What is the expected value of net cash flows that the manager should use in evaluating the
investment?
 A. $400,000.
 B. $140,000.
 C. $100,000.
 D. $137,000.

Hock 2020 Part 1
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In decision making under conditions of uncertainty, expected value refers to the
 A. Weighted average of probable outcomes of an action.

 B. Likely outcome of a proposed action.
 C. Probability of a given outcome from a proposed action.
 D. Present value of alternative actions.

2,000 pretzels 0.10
3,000 pretzels 0.15
4,000 pretzels 0.20
5,000 pretzels 0.35
6,000 pretzels 0.20
The conditional profit per game of having 4,000 pretzels available but only selling 3,000 pretzels is
 A. $2,800.
 B. $2,100.
 C. $1,800.
 D. Some amount other than those given.

Hock 2020 Part 1
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Allbee Company has three possible investment opportunities. The controller calculated the payoffs
and probabilities, as follows.
Probabilities
Payoffs Investment A Investment B Investment C
$(20,000) 0.3 0.2 0.3
(10,000) 0.1 0.2 0.1
30,000 0.3 0.2 0.2
70,000 0.2 0.2 0.3
100,000 0.1 0.2 0.1
The cost of investments A, B and C are the same. Using the expected-value criterion, which one of
the following rankings of these investments, from highest payoff to lowest payoff, is correct?
 A. C, A, B.
 B. B, A, C.
 C. A, B, C.
 D. B, C, A.

Hock 2020 Part 1
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A company is considering three alternative machines to produce a new product. The cost structures
(unit variable costs plus avoidable fixed costs) for the three machines are shown as follows. The
selling price is unaffected by the machine used.
Single purpose machine $0.60x + $20,000

Semi-automatic machine $0.40x + $50,000
Automatic machine $0.20x + $120,000
The demand for units of the new product is described by the following probability distribution.
Demand Probability
200,000 0.4
300,000 0.3
400,000 0.2
500,000 0.1
Using the expected value criterion,
 A. The single purpose machine should be used because of the low expected demand.
 B. The automatic machine has the lowest expected cost.
 C. The automatic machine should be used because of the high expected demand.
 D. The semi-automatic machine should be used because it has the lowest expected cost.

Hock 2020 Part 1
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Budget Methodologies
157. Question ID: ICMA 19.P1.026 (Topic: Budget Methodologies)
The type of budget that is continually updated to add a new budget period as the most recent budget
period is completed is called a(n)
 A. activity-based budget.
 B. flexible budget.
 C. zero-based budget.
 D. rolling budget.

A company prepared a master budget based on 100 budgeted sales units with a $100 sales price
per unit, a variable cost per unit of $50, and $2,000 in total fixed cost. The actual sales quantity was
70 units. When preparing a flexible budget, the operating income is
 A. $5,000.
 B. $1,500.
 C. $3,000.
 D. $3,500.

A construction company has an annual master budget that shows straight-line depreciation expense
of $516,000 for the year. The master budget shows a production volume of 206,400 units and
production is expected to occur uniformly throughout the year. The capacity for the facility is 215,000
units. During February, the company produced 16,340 units of product and actual depreciation
expense recorded was $40,500. The company controls manufacturing costs with a flexible budget.
The flexible budget amount for depreciation expense for March would be
 A. $40,500.
 B. $40,850.
 C. $39,216.
 D. $43,000.

A company’s board of directors has requested a full in-depth review of all budgeted items for next
fiscal year’s operating budget. The controller of the company subsequently advised all business unit
heads that the company will not automatically approve operating budget items for next fiscal year
simply because they were approved in the past, and that all operating budget items for next fiscal
year will need to be justified. Based on the above information, which one of the following budgeting
systems is the company most likely using?
 A. Flexible budgeting.
 B. Project budgeting.
 C. Activity-based budgeting.
 D. Zero-based budgeting.

Hock 2020 Part 1
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Devin’s Custom Construction designs and builds custom houses for consumers. Customers have
several base plans to choose from and modifications can be made from those plans. The
modifications can range from being very minor to significant. The houses generally take from 3
months to one year to design and build depending upon the amount of customization. What is the
best type of budgeting for this business situation?
 A. Activity-based budgeting.
 B. Rolling/continuous budgeting.
 C. Flexible budgeting.
 D. Project budgeting.

A company’s master budget for the year planned that the company would manufacture and sell
2,000 units for €500,000 in sales, €350,000 in variable expenses, and €45,000 in fixed expenses. If
the company manufactured and sold only 1,750 units during the year, how much is the company’s
flexible budget operating income?
 A. €86,250.
 B. €91,875.
 C. €42,500.
 D. €105,000.
163. Question ID: CMA 1291 3.13 (Topic: Budget Methodologies)

A flexible budget is appropriate for
 A. Any level of activity.

 B. Control of fixed factory overhead but not direct materials and direct labor.
 C. Control of direct labor and direct materials but not fixed factory overhead.
 D. Control of direct materials and direct labor but not selling and administrative expenses.

The use of the master budget throughout the year as a constant comparison with actual results
signifies that the master budget is also a
 A. Flexible budget.
 B. Static budget.
 C. Zero-base budget.
 D. Capital budget.

Hock 2020 Part 1
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Country Ovens is a family restaurant chain. Due to an unexpected road construction project, traffic
passing by the Country Ovens restaurant in Newtown has significantly increased. As a result,
restaurant volume has similarly increased well beyond the level expected. Which type of budget
would be most appropriate in helping the restaurant manager plan for restaurant labor costs?
 A. Flexible budget.
 B. Rolling budget.
 C. Zero-based budget.
 D. Activity-based budget.
166. Question ID: CMA 1295 H2 (Topic: Budget Methodologies)

Based on past experience, a company has developed the following budget formula for estimating its
shipping expenses. The company's shipments average 12 lbs. per shipment:
Shipping costs = $16,000 + ($0.50 x lbs. shipped)
The planned activity and actual activity regarding orders and shipments for the current month are
given in the following schedule:
Planned Actual
Sales orders 800 780
Shipments 800 820
Units shipped 8,000 9,000
Sales $120,000 $144,000
Total pounds shipped 9,600 12,300
The actual shipping costs for the month amounted to $21,000. The appropriate monthly flexible
budget allowance for shipping costs for the purpose of performance evaluation would be
 A. $20,800
 B. $20,680
 C. $20,920
 D. $22,150

RedRock Company uses flexible budgeting for cost control. RedRock produced 10,800 units of
product during October, incurring indirect materials costs of $13,000. Its master budget for the year
reflected indirect materials costs of $180,000 at a production volume of 144,000 units. A flexible
budget for October production would reflect indirect materials costs of
 A. $13,500.
 B. $13,975.
 C. $13,000.
Hock 2020 Part 1
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 D. $11,700.

A systemized approach known as zero-base budgeting (ZBB)
 A. Divides the activities of individual responsibility centers into a series of packages that are
prioritized.
 B. Presents the plan for only one level of activity and does not adjust to changes in the level of
activity.
 C. Presents a statement of expectations for a period of time but does not present a firm commitment.
 D. Classifies budget requests by activity and estimates the benefits arising from each activity.

Which one of the following statements regarding the difference between a flexible budget and a
static budget is correct?
 A. A flexible budget provides cost allowances for different levels of activity, whereas a static budget
provides costs for one level of activity.
 B. A flexible budget is established by operating management, while a static budget is determined by
top management.
 C. A flexible budget includes only variable costs, whereas a static budget includes only fixed costs.
 D. A flexible budget primarily is prepared for planning purposes, while a static budget is prepared for
performance evaluation.
170. Question ID: CIA 598 3.21 (Topic: Budget Methodologies)

A flexible budget is a quantitative expression of a plan that
 A. is developed for the actual level of output achieved for the budget period.
 B. projects costs on the basis of future improvements in existing practices and procedures during a
budget period.
 C. is comprised of the budgeted income statement and its supporting schedules for a budget period.
 D. focuses on the costs of activities necessary to produce and sell products and services for a
budget period.

Flexible budgets
 A. Are used to evaluate capacity use.

 B. Accommodate changes in the inflation rate.
 C. Are static budgets that have been revised for changes in prices.
 D. Accommodate changes in activity levels.

Hock 2020 Part 1
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172. Question ID: CIA 585 III.20 (Topic: Budget Methodologies)
The major feature of zero-based budgeting (ZBB) is that it
 A. assumes all activities are legitimate and worthy of receiving budget increases to cover any
increased costs.
 B. focuses on planned capital outlays for property, plant, and equipment.
 C. questions each activity and determines whether it should be maintained as it is, reduced, or
eliminated.
 D. takes the previous year's budgets and adjusts them for inflation.

Simson Company's master budget shows straight-line depreciation on factory equipment of
$258,000. The master budget was prepared at an annual production volume of 103,200 units of
product. This production volume is expected to occur uniformly throughout the year. During
September, Simson produced 8,170 units of product, and the accounts reflected actual depreciation
on factory machinery of $20,500. Simson controls manufacturing costs with a flexible budget. The
flexible budget amount for depreciation on factory machinery for September would be
 A. $21,500.
 B. $19,475.
 C. $20,425.
 D. $20,500.
174. Question ID: CIA 1193 IV.14 (Topic: Budget Methodologies)

A municipal government requires each department supervisor to submit an annual budget request
stating the specific goals of the department and listing a series of "decision packages" relating to
each goal. Each decision package describes a set of desired activities, the benefits of these
activities, and the potential consequences of not performing the activities. Funds are allocated based
on the estimated costs and benefits of each package. This is an example of
 A. an imposed budget.
 B. a static budget.
 C. incremental budgeting.
 D. zero-base budgeting.

Which one of the following statements is correct concerning a flexible budget cost formula? Variable
costs are stated
 A. per unit and fixed costs are stated per unit.

 B. in total and fixed costs are stated in total.
 C. in total and fixed costs are stated per unit.
 D. per unit and fixed costs are stated in total.

Hock 2020 Part 1
Questions
Barnes Corporation expected to sell 150,000 board games during the month of November, and the
company's master budget contained the following data related to the sale and production of these
games:
Revenue $2,400,000
Direct materials 675,000
Direct labor 300,000
Variable overhead 450,000
Contribution $ 975,000
Fixed overhead 250,000
Fixed selling/administration 500,000
Operating income $ 225,000
Actual sales during November were 180,000 games. Using a flexible budget, the company expects
the operating income for the month of November to be
 A. $420,000.
 B. $270,000.
 C. $225,000.
 D. $510,000.

A company reported the following cost information for the last fiscal year when it produced 100,000
units.
Direct labor $200,000

Direct materials 100,000
Manufacturing overhead 200,000
Selling and administrative expenses 150,000
All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and
administrative expenses. Using flexible budgeting, what are the total costs associated with producing
and selling 110,000 units?
 A. $715,000.
 B. $695,000.
 C. $650,000.
 D. $450,000.

Hock 2020 Part 1
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A continuous (rolling) budget
 A. Presents planned activities for a period but does not present a firm commitment.
 B. Drops the current month or quarter and adds a future month or quarter as the current month or
quarter is completed.
 C. Presents the plan for a range of activity so that the plan can be adjusted for changes in activity.
 D. Presents the plan for only one level of activity and does not adjust to changes in the level of
activity.

A continuous profit plan
 A. Is an annual plan that is part of a 5-year plan.

 B. Works best for a company that can reliably forecast events a year or more into the future.
 C. Is a plan devised by a full-time planning staff.
 D. Is a plan that is revised monthly or quarterly.

Hock 2020 Part 1
Questions
Kelly Company is a retail sporting goods store that uses accrual accounting for its records. Facts
regarding Kelly's operations are as follows:
 Sales are budgeted at $220,000 for December year 1 and $200,000 for January year 2.
 Collections are expected to be 60% in the month of sale and 38% in the month following the
sale.
 Gross margin is 25% of sales.
 A total of 80% of the merchandise held for resale is purchased in the month prior to the
month of sale and 20% is purchased in the month of sale. Payment for merchandise is made
in the month following the purchase.
 Other expected monthly expenses to be paid in cash are $22,600.
 Annual depreciation is $216,000.
Below is Kelly Company's statement of financial position at November 30, year 1.
Assets
Cash $22,000
Accounts receivable
(net of $4,000 allowance for uncollectible accounts) 76,000
Inventory 132,000
Property, plant, and equipment
(net of $680,000 accumulated depreciation) 870,000
Total assets $1,100,000
Liabilities and Stockholders' Equity
Accounts payable $162,000
Common stock 800,000
Retained earnings 138,000
Total liabilities and stockholders' equity $1,100,000
The budgeted income (loss) before income taxes for December year 1 is
 A. $28,000.
 B. $10,000.
 D. $32,400.

Hock 2020 Part 1
Questions
The major feature of zero-based budgeting is that it
 A. assumes all activities are legitimate and worthy of receiving budget increases to cover any
increased costs.
 B. uses the previous year's budget and adjusts it for inflation.
 C. focuses on planned capital outlays for property, plant, and equipment.
 D. evaluates each activity and determines whether it should be maintained as it is, reduced, or
eliminated.
182. Question ID: 3B2 CMA (Topic: Budget Methodologies)

Flexible budgets
 A. Are budgets that project costs based on anticipated future improvements.

 B. Accommodate changes in activity levels.
 C. Provide for external factors affecting company profitability.
 D. Are used to evaluate capacity use.

An organization that specializes in reviewing and editing technical magazine articles sets the
following standards for evaluating the performance of the professional staff:
 Annual budgeted fixed costs for normal capacity level of 10,000 articles reviewed and edited:
$600,000
 Standard professional hours per 10 articles: 200 hours
 Flexible budget of standard labor costs to process 10,000 articles: $10,000,000
The following data apply to the 9,500 articles that were actually reviewed and edited during the
current year:
 Total hours used by professional staff: 192,000 hours

 Variable costs: $9,120,000
 Total cost: 9,738,000
Using a flexible budget, the total cost planned for the review and editing of 9,500 articles should be
 A. $10,570,000.
 B. $9,500,000.
 C. $10,100,000.
 D. $10,070,000.

Hock 2020 Part 1
Questions
A budgeting approach that requires a manager to justify the entire budget for each budget period is
known as:
 A. Incremental budgeting.
 B. Zero-base budgeting.
 C. Program budgeting.
 D. Performance budgeting.

An advantage of incremental budgeting when compared with zero-base budgeting is that
incremental budgeting
 A. Encourages adopting new projects quickly.

 B. Eliminates the need to review all functions periodically to obtain optimum use of resources.
 C. Eliminates functions and duties that have outlived their usefulness.
 D. Accepts the existing base as being satisfactory.
186. Question ID: CIA 1192 IV.19 (Topic: Budget Methodologies)

There are many different budget techniques or processes that business organizations can employ.
One of these techniques or processes is zero-base budgeting, which is:
 A. Budgeting from the ground up as though the budget process were being initiated for the first time.
 B. Developing budgeted costs from clear-cut measured relationships between inputs and outputs.
 C. Using the prior year's budget as a base year and adjusting it based on the experiences of the
prior year and the expectations for the coming year.
 D. Budgeting for cash inflows and outflows to time investments and borrowings in a way to maintain
a bank account with a minimum balance.

Hock 2020 Part 1
Questions
Annual Profit Plan and Supporting Schedules

187. Question ID: ICMA 19.P1.034 (Topic: Annual Profit Plan and Supporting Schedules)
Consider the following data for a company for the month just ended.
Sales $4,000,000
Gross margin (based on sales) 25%
Decrease in inventories $160,000
Decrease in accounts payable for inventories $275,000
The estimated cash disbursements for inventories were
 A. $3,115,000.
 B. $2,565,000.
 C. $3,275,000.
 D. $2,840,000.
A company is developing its budget for the upcoming month. The financial planning department has
developed the following range of sales activity and the associated probabilities for each level of
budgeted sales.
Sales Estimate Probability

$120,000 25%
170,000 40%
200,000 35%
The company’s cost of goods sold averages 80% of sales, and the relationship is expected to
remain consistent in the next fiscal year. What is the expected value of the company’s budgeted cost
of goods sold?
 A. $168,000
 B. $134,400
 C. $136,000
 D. $170,000

Hock 2020 Part 1
Questions
Data regarding Johnsen Inc.'s forecasted dollar sales for the last seven months of the year and
Johnsen's projected collection patterns are as follows.
Forecasted Sales
June $700,000
July 600,000
August 650,000
September 800,000
October 850,000
November 900,000
December 840,000
Types of Sales
Cash sales 30%
Credit sales 70%
Collection pattern on credit sales
(5% determined to be uncollectible)
During the month of sale 20%
During the first month following the sale 50%
During the second month following the sale 25%
Johnsen's budgeted cash receipts from sales and collections on account for September are
 A. $827,000.
 B. $635,000.
 C. $684,500.
 D. $807,000.

Hock 2020 Part 1
Questions
190. Question ID: CMA 1294 3.19 (Topic: Annual Profit Plan and Supporting Schedules)
Superior Industries' sales budget shows quarterly sales for the next year as follows:
Quarter Units
1 10,000
2 8,000
3 12,000
4 14,000
Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the
next quarter's sales. Budgeted production for the second quarter of the next year would be:
 A. 7,200 units.
 B. 8,800 units.
 C. 8,000 units.
 D. 8,400 units.
When budgeting, the items to be considered by a manufacturing firm in going from a sales quantity
budget to a production budget would be the
 A. Expected change in the quantity of work-in-process inventories.

 B. Expected change in the availability of raw material without regard to inventory levels.
 C. Expected change in the quantity of finished goods and work-in-process inventories.
 D. Expected change in the quantity of finished goods and raw material inventories.
Monroe Products is preparing a cash forecast based on the following information.
 Monthly sales: December $200,000; January $200,000; February $350,000; March

$400,000.
 All sales are on credit and collected the month following the sale.
 Purchases are 60% of next month's sales and are paid for in the month of purchase.
 Other monthly expenses are $25,000, including $5,000 of depreciation.
If the January beginning cash balance is $30,000, and Monroe is required to maintain a minimum
cash balance of $10,000, how much short-term borrowing will be required at the end of February?
 A. $75,000.
 B. $60,000.
 C. $70,000.
 D. $80,000.

Hock 2020 Part 1
Questions
193. Question ID: CMA 1295 H3 (Topic: Annual Profit Plan and Supporting Schedules)
All of the following are considered operating budgets except the
 B. Production budget.
 C. Materials budget.
 D. Sales budget.
Esplanade Company has the following historical pattern for its credit sales:
 70% collected in month of sale

 15% collected in the first month after sale
 10% collected in the second month after sale
 4% collected in the third month after sale
 1% uncollectible
The sales on open account have been budgeted for the last 6 months of the year as shown below.
July $60,000
August 70,000
September 80,000
October 90,000
November 100,000
December 85,000
The estimated total cash collections during October from accounts receivable would be
 A. $63,000.
 B. $21,400.
 C. $84,400.
 D. $86,700.

Hock 2020 Part 1
Questions
ANNCO sells products on account, and experiences the following collection schedule.
In the month of sale 10%

In the month after sale 60%
In the second month after sale 30%
At December 31, ANNCO reports accounts receivable of $211,500. Of that amount, $162,000 is
due from December sales, and $49,500 from November sales. ANNCO is budgeting $170,000 of
sales for January. If so, what amount of cash should be collected in January?
 A. $174,500.
 B. $228,500.
 C. $129,050.
 D. $211,500.
196. Question ID: CIA 1190 IV.15 (Topic: Annual Profit Plan and Supporting Schedules)
A company has budgeted sales of 24,000 finished units for the forthcoming 6-month period. It takes
4 pounds of direct materials to make one finished unit. Given the following:
Direct Materials
Finished Units (pounds)
Beginning inventory 14,000 44,000
Target ending inventory 12,000 48,000
How many pounds of direct materials should be budgeted for purchase during the 6-month period?
 A. 88,000
 B. 92,000
 C. 48,000
 D. 100,000

Hock 2020 Part 1
Questions
Superflite expects April sales of its deluxe model airplane, the C-14, to be 402,000 units at $11 each.
Each C-14 requires three purchased components shown below.
Purchase Number Needed

Cost for each C-14 Unit
A-9 $0.50 1
B-6 0.25 2
D-28 1.00 3
Factory direct labor and variable overhead per unit of C-14 totals $3.00. Fixed factory overhead is
$1.00 per unit at a production level of 500,000 units. Superflite plans the following beginning and
ending inventories for the month of April and uses standard absorption costing for valuing inventory.
Units at Units at
Part No.
April 1 April 30
C-14 12,000 10,000
A-9 21,000 9,000
B-6 32,000 10,000
D-28 14,000 6,000
The C-14 production budget for April should be based on the manufacture of
 A. 400,000 units.
 B. 424,000 units.
 C. 390,000 units.
 D. 402,000 units.
The production budget process usually begins with the
 A. Direct materials budget.

 B. Sales budget.
 C. Direct labor budget.
 D. Manufacturing overhead budget.

Hock 2020 Part 1
Questions
Birch Corporation has the following historical pattern on its credit sales.

The sales on open account have been budgeted for the first 6 months of the year are as follows:
Sales On
Month
Open Account
January $70,000
February 90,000
March 100,000
April 120,000
May 100,000
June 90,000
The estimated total cash collections during April from accounts receivable would be
 A. $118,800
 B. $84,000
 C. $108,000
 D. $110,800
200. Question ID: CIA 594 III.69 (Topic: Annual Profit Plan and Supporting Schedules)
A company produces a product that requires 2 pounds of a raw material. The company forecasts
that there will be 6,000 pounds of raw material on hand at the end of June. At the end of any given
month the company wishes to have 30% of next month's raw material requirements on hand. The
company has budgeted production of the product for July, August, September, and October to be
10,000, 12,000, 13,000, and 11,000 units, respectively. As of June 1, the raw material sells for $1.00
per pound.
In the month of September, raw material purchases and ending inventory, respectively, will be (in
pounds):
 A. 13,000 and 3,900 pounds.

 B. 24,800 and 6,600 pounds.
 C. 28,600 and 6,600 pounds.
 D. 32,600 and 6,600 pounds.

Hock 2020 Part 1
Questions
Rock Industries has four divisions. In the quest to develop a more achievable budget for the coming
year, the chief executive officer has elected to develop the company's budget by using a
decentralized bottom-up budget approach. Chip Jones is production manager in one of the divisions.
Jones’ involvement in the budget process this year will probably
 A. Require development of a production budget after receiving the division's projected sales
forecast.
 B. Be negligible.
 C. Require development of a production budget that is forwarded to the Budget Department.
 D. Require development of a production budget based on the prior year's manufacturing activity.
Tut Company's selling and administrative costs for the month of August, when it sold 20,000 units,
were as follows.
Costs
Per Unit Total
Variable costs $18.60 $372,000
Step costs 4.25 85,000
Fixed costs 8.80 176,000
Total selling and administrative costs $31.65 $633,000
The variable costs represent sales commissions paid at the rate of 6.2% of sales. The step costs
depend on the number of salespersons employed by the company. In August there were 17 persons
on the sales force. However, two members have taken early retirement effective August 31. It is
anticipated that these positions will remain vacant for several months. Total fixed costs are
unchanged within a relevant range of 15,000 to 30,000 units per month. Tut is planning a sales price
cut of 10%, which it expects will increase sales volume to 24,000 units per month. If Tut implements
the sales price reduction, the total budgeted selling and administrative costs for the month of
September would be
 A. $652,760.
 B. $714,960.
 C. $759,600.
 D. $679,760.

Hock 2020 Part 1
Questions
Projected monthly sales of Wallstead Corporation for January, February, March and April are as
follows.
January $300,000
February 340,000
March 370,000
April 390,000
 The company bills each month's sales on the last day of the month.
 Receivables are booked gross and credit terms of sale are: 2/10, n/30.
 50% of the billings are collected within the discount period, 30% are collected by the end of
the month, 15% are collected by the end of the second month, and 5% become uncollectible.
Budgeted cash collections for Wallstead company during April would be
 A. $347,000.
 B. $349,300
 C. $353,000.
 D. $343,300.

Hock 2020 Part 1
Questions
Birch Corporation has the following historical pattern on its credit sales.

The sales on open account have been budgeted for the first 6 months of the year are as follows:
Sales On
Month Open Account
January $70,000
February 90,000
March 100,000
April 120,000
May 100,000
June 90,000
The estimated total cash collections during the second calendar quarter from sales made on open
account during the second calendar quarter would be
 A. $288,800
 B. $306,900
 C. $310,000
 D. $262,000

Hock 2020 Part 1
Questions
Krouse Company is in the process of developing its operating budget for the coming year. Given
below are selected data regarding the company's two products, laminated putter heads and forged
putter heads, that are sold through specialty golf shops.
Putter Heads
Forged Laminated
Raw materials:
Steel 2 pounds @ $5/pound 1 pound @ $5/pound
Copper None 1 pound @ $15/pound
Direct labor 1/4 hour @ $20/hour 1 hour @ $22/hour
Expected sales (units) 8,200 2,000
Selling price per unit $30 $80
Ending inventory target (units) 100 60
Beginning inventory (units) 300 60
Beginning inventory (cost) $5,250 $3,120
Manufacturing overhead is applied to units produced on the basis of direct labor hours. Variable
manufacturing overhead is projected to be $25,000, and fixed manufacturing overhead is expected
to be $15,000.
The estimated cost to produce one unit of the laminated putter head is
 A. $46.
 B. $52.
 C. $42.
 D. $62.
A company operates on a calendar year but maintains four continuous quarterly budgets for up-to-
date budget information. After completing its five-year long-term plan, the company’s management
decided to make a capital investment in new equipment. The equipment is expected to have a useful
life of nine years. Which one of the following is the most appropriate time period for the capital
budget for the evaluation of the capital investment?
 A. Four continuous quarters.

 B. One year.
 C. Five years.
 D. Nine years.

Hock 2020 Part 1
Questions
The Jung Corporation's budget calls for the following production:
Qtr 1 : 45,000 units
Each unit of product requires three pounds of direct material. The company's policy is to begin each
quarter with an inventory of direct materials equal to 30% of that quarter's direct material
requirements. Budgeted direct materials purchases for the third quarter would be
 A. 38,200 pounds.
 B. 114,600 pounds.
 C. 43,200 pounds.
 D. 30,600 pounds.
Information pertaining to Noskey Corporation's sales revenue is presented in the following table.
November December January

Year 1 Year 1 Year 2
(Actual) (Budget) (Budget)
Cash sales $80,000 $100,000 $60,000
Credit sales 240,000 360,000 180,000
Total sales $320,000 $460,000 $240,000
Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are
collectible, 60% are collected in the month of sale and the remainder in the month following the sale.
Purchases of inventory are equal to next month's sales and gross profit margin is 30%. All
purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder
are paid in the month following the purchase.
Noskey Corporation's budgeted total cash receipts in January Year 2 are
 A. $239,400.
 B. $299,400.
 C. $294,000.
 D. $240,000.

Hock 2020 Part 1
Questions
A firm develops an annual cash budget in order to
 A. Ascertain which capital expenditure projects are feasible and which capital expenditure projects
should be deferred.
 B. Avoid the opportunity costs of non-invested excess cash and minimize the cost of interim
financing.
 C. Support the preparation of its cash flow statement for the annual report.
 D. Determine the opportunity costs of alternative sales and production strategies.

A-9 $0.50 1
B-6 0.25 2
D-28 1.00 3
Units at Units at
Part No.
April 1 April 30
C-14 12,000 10,000
A-9 21,000 9,000
B-6 32,000 10,000
D-28 14,000 6,000
Assume Superflite plans to manufacture 400,000 units in April. Superflite's April budget for the
purchase of A-9 should be
 A. 388,000 units.
 B. 402,000 units.
 C. 412,000 units.
 D. 379,000 units.

Hock 2020 Part 1
Questions
Which one of the following best describes the order in which budgets should be prepared when
developing the annual master operating budget?
 A. Revenue budget, direct material budget, production budget.

 B. Revenue budget, production budget, direct material budget.
 C. Production budget, direct material budget, revenue budget.
 D. Production budget, revenue budget, direct material budget.
Manoli Gift Shop maintains a 35% gross profit margin percentage and carries an ending inventory
balance each month sufficient to support 30% of the next month's expected sales. Anticipated sales
for the fourth quarter are as follows.
October $42,000
November 58,000
December 74,000
What amount of goods should Manoli Gift Shop plan to purchase during the month of November?
 A. $52,130.
 B. $40,820.
 C. $51,220.
 D. $62,800.

Hock 2020 Part 1
Questions
sale.
Assets
Cash $22,000
Accounts receivable
Inventory 132,000
The projected balance in inventory on December 31, year 1 is
 A. $150,000.
 B. $120,000.
 C. $153,000.
 D. $160,000.

Hock 2020 Part 1
Questions
Bootstrap Corporation anticipates the following sales during the last six months of the year.
July $460,000
August 500,000
September 525,000
October 500,000
November 480,000
December 450,000
20% of Bootstrap's sales are for cash. The balance is subject to the collection pattern shown below.
Percentage of balance collected in the month of sale 40%

Percentage of balance collected in the month following sale 30%
Percentage of balance collected in the second month following sale 25%
Percentage of balance uncollectible 5%
What is the planned net accounts receivable balance as of December 31?
 A. $279,300.
 B. $367,500.
 C. $360,000
 D. $294,000.
Which one of the following would cause a company’s production budget to decrease?
 A. An increase in beginning direct labor inventory.

 B. An increase in direct labor costs per unit.
 C. A decrease in required ending inventory.
 D. A decrease in units produced per direct labor hour.

Hock 2020 Part 1
Questions
Tidwell Corporation sells a single product for $20 per unit. All sales are on account, with 60%
collected in the month of sale and 40% collected in the following month. A schedule of cash
collections for January through March of the coming year reveals the following receipts for the
period.
Cash Receipts
January February March
December receivables $32,000
From January sales 54,000 $36,000
From February sales 66,000 $44,000
From March sales 72,000
Other information includes the following:
 Inventories are maintained at 30% of the following month's sales.

 Tidwell desires to keep a minimum cash balance of $15,000. Total payments in January are
expected to be $106,500, which excludes $12,000 of depreciation expense. Any required
borrowings are in multiples of $1,000.
 The December 31 balance sheet for the preceding year revealed a cash balance of $24,900.
Ignoring income taxes, the financing needed in January to maintain the firm's minimum cash balance
is
 A. $23,000.
 B. $8,000.
 C. $10,600.
 D. $11,000.

Hock 2020 Part 1
Questions
A company has budgeted sales for the upcoming quarter as follows:

Units 15,000 18,000 16,500
The ending finished goods inventory for each month equals 50% of the next month's budgeted sales.
Additionally, 3 pounds of raw materials are required for each finished unit produced. The ending raw
materials inventory for each month equals 200% of the next month's production requirements. If the
raw materials cost $4.00 per pound and must be paid for in the month purchased, the budgeted raw
materials purchases for January are:
 A. $198,000
 B. $216,000
 C. $207,000
 D. $180,000
A company has $10,000 in cash and $150,000 in merchandise inventory on March 31. The desired
cash and merchandise inventory balances on June 30 are $20,000 and $250,000, respectively.
Sales for the quarter are expected to be $300,000, all in cash. Gross margin is 40% of sales. Cash
operating expenses are expected to be $50,000. All merchandise inventory purchases are paid for in
cash at the time of purchase. What amount of financing will the company need during the quarter?
 A. $30,000
 B. $40,000
 C. $50,000
 D. $20,000

Hock 2020 Part 1
Questions
sale.
Assets
Cash $22,000
Accounts receivable
Inventory 132,000
The budgeted cash collections for December year 1 are
 A. $203,600.
 B. $212,000.
 C. $208,000.
 D. $132,000.

Hock 2020 Part 1
Questions
Rokat Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other
institutions. The table tops are manufactured by Rokat, but the table legs are purchased from an
outside supplier. The Assembly Department takes a manufactured table top and attaches the four
purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a policy
of producing enough tables to ensure that 40% of next month's sales are in the finished goods
inventory. Rokat also purchases sufficient raw materials to ensure that raw materials inventory is
60% of the following month's scheduled production. Rokat's sales budget in units for the next quarter
is as follows:
July 2,300
August 2,500
September 2,100
Rokat's ending inventories in units for June 30 are
Finished goods 1,900

Raw materials (legs) 4,000
Assume the required production for August and September is 1,600 and 1,800 units, respectively,
and the July 31 raw materials inventory is 4,200 units. The number of table legs to be purchased in
August is
 A. 9,400 legs.
 B. 2,200 legs.
 C. 6,400 legs.
 D. 6,520 legs.

Hock 2020 Part 1
Questions
Daffy Tunes manufactures a toy rabbit with moving parts and a built-in voice box. Projected sales in
units for the next 5 months are as follows:
Month Sales in Units

January 30,000
February 36,000
March 33,000
April 40,000
May 29,000
Each rabbit requires basic materials that Daffy purchases from a single supplier at $3.50 per rabbit.
Voice boxes are purchased from another supplier at $1.00 each. Assembly labor cost is $2.00 per
rabbit, and variable overhead cost is $0.50 per rabbit. Fixed manufacturing overhead applicable to
rabbit production is $12,000 per month. Daffy's policy is to manufacture 1.5 times the coming
month's projected sales every other month, starting with January (i.e., odd-numbered months) for
February sales, and to manufacture 0.5 times the coming month's projected sales in alternate
months (i.e., even-numbered months). This allows Daffy to allocate limited manufacturing resources
to other products as needed during the even-numbered months.
The dollar production budget for toy rabbits for February is
 A. $127,500
 B. $327,000
 C. $113,500
 D. $390,000

Hock 2020 Part 1
Questions
Karmee Company has been accumulating operating data in order to prepare an annual profit plan.
Details regarding Karmee's sales for the first 6 months of the coming year are as follows:
Estimated Type of
Month
Monthly Sales Monthly Sale
January $600,000
February 650,000
March 700,000 All Months:
Cash sales 20%
April 625,000 Credit sales 80%
May 720,000
June 800,000
Collection Pattern for Credit Sales
Month of sale 30%

One month following sale 40%
Second month following sale 25%
Karmee's cost of goods sold averages 40% of the sales value. Karmee's objective is to maintain a
target inventory equal to 30% of the next month's sales in units. Purchases of merchandise for
resale are paid for in the month following the sale. The variable operating expenses (other than cost
of goods sold) for Karmee are 10% of sales and are paid for in the month following the sale. The
annual fixed operating expenses are presented below. All of these are incurred uniformly throughout
the year and paid monthly except for insurance and property taxes. Insurance is paid quarterly in
January, April, July, and October. Property taxes are paid twice a year in April and October.
Annual Fixed Operating Costs
Advertising $720,000
Depreciation 420,000
Insurance 180,000
Property taxes 240,000
Salaries 1,080,000
The amount for cost of goods sold that will appear on Karmee Company's budgeted income
statement for the month of February will be
 A. $260,000
 B. $195,000
 C. $272,000
 D. $254,000

Hock 2020 Part 1
Questions
sale.
Assets
Cash $22,000
Accounts receivable
Inventory 132,000
The projected balance in accounts payable on December 31, year 1 is
 A. $162,000.
 B. $204,000.
 D. $153,000.

Hock 2020 Part 1
Questions
The Raymar Company is preparing its cash budget for the months of April and May. The firm has
established a $200,000 line of credit with its bank at a 12% annual rate of interest on which
borrowings for cash deficits must be made in $10,000 increments. There is no outstanding balance
on the line of credit loan on April 1. Principal repayments are to be made in any month in which there
is a surplus of cash. Interest is to be paid monthly. If there are no outstanding balances on the loans,
Raymar will invest any cash in excess of its desired end-of-month cash balance in U.S. Treasury
bills. Raymar intends to maintain a minimum balance of $100,000 at the end of each month by either
borrowing for deficits below the minimum balance or investing any excess cash from operations.
Monthly collection and disbursement patterns are expected to be:
 Collections. 50% of the current month's sales budget and 50% of the previous month's sales
budget.
 Accounts Payable Disbursements. 75% of the current month's accounts payable budget and
25% of the previous month's accounts payable budget.
 All other disbursements occur in the month in which they are budgeted.
Budget Information
March April May

Sales $40,000 $50,000 $100,000
Accounts payable 30,000 40,000 40,000
Payroll 60,000 70,000 50,000
Other disbursements 25,000 30,000 10,000
In April, Raymar's budget will result in
 A. A need to borrow $50,000 on its line of credit for the cash deficit.
 B. A need to borrow $100,000 on its line of credit for the cash deficit.
 C. A need to borrow $90,000 on its line of credit for the cash deficit.
 D. $45,000 in excess cash.
The most direct way to prepare a cash budget for a manufacturing firm is to include
 A. Projected sales, credit terms, and net income.

 B. Projected net income, depreciation, and goodwill impairment.
 C. Projected purchases, percentages of purchases paid, and net income.
 D. Projected sales and purchases, percentages of collections, and terms of payments.

Hock 2020 Part 1
Questions
A firm desires a finished goods ending inventory equal to 25% of the following month's budgeted
sales. January sales are budgeted at 10,000 units and February at 12,000 units. Each unit requires
2 pounds of Material X, which costs $4 per pound. The company has a just-in-time system and
materials are delivered daily just prior to use, so no raw materials inventories are maintained.
Materials are paid for in the month following purchase. The January 1 finished goods inventory is
2,500 units. In February, what amount should the company expect to pay as a cash outflow for raw
materials?
 A. $40,000
 B. $21,000
 C. $84,000
 D. $42,000
When sales volume is seasonal in nature, certain items in the budget must be coordinated. The
three most significant items to coordinate in budgeting seasonal sales volume are
 A. Raw material inventory, work-in-process inventory, and production volume.

 B. Production volume, finished goods inventory, and sales volume.
 C. Direct labor hours, work-in-process inventory, and sales volume.
 D. Raw material inventory, direct labor hours, and manufacturing overhead costs.

Hock 2020 Part 1
Questions
Super Drive, a computer disk storage and back-up company, uses accrual accounting. The
company's Statement of Financial Position for the year ended November 30, is as follows:
Super Drive
Statement of Financial Position
November 30
Assets
Cash $ 52,000
Accounts receivable, net. 150,000
Inventory 315,000
Property, plant and equipment 1,000,000
Liabilities and Equity
Accounts payable $ 175,000
Total liabilities and shareholders equity $1,517,000
Additional information regarding Super Drive's operations include the following:
 Sales are budgeted at $520,000 for December and $500,000 for January of the next year.
sale.
 80% of the disk drive components are purchased in the month prior to the month of sale, and
20% are purchased in the month of sale. Purchased components are 40% of the cost of
goods sold.
 Payment for the components is made in the month following the purchase.
 Cost of goods sold is 80% of sales.
The projected balance in accounts payable on December 31 is
 A. $416,000
 B. $161,280
 C. $166,400
 D. $326,400

Hock 2020 Part 1
Questions
Daffy Tunes manufactures a toy rabbit with moving parts and a built-in voice box. Projected sales in
units for the next 5 months are as follows:
Month Sales in Units

January 30,000
February 36,000
March 33,000
April 40,000
May 29,000
Each rabbit requires basic materials that Daffy purchases from a single supplier at $3.50 per rabbit.
Voice boxes are purchased from another supplier at $1.00 each. Assembly labor cost is $2.00 per
rabbit, and variable overhead cost is $.50 per rabbit. Fixed manufacturing overhead applicable to
rabbit production is $12,000 per month. Daffy's policy is to manufacture 1.5 times the coming
month's projected sales every other month, starting with January (i.e., odd-numbered months) for
February sales, and to manufacture 0.5 times the coming month's projected sales in alternate
months (i.e., even-numbered months). This allows Daffy to allocate limited manufacturing resources
to other products as needed during the even-numbered months.
The unit production budget for toy rabbits for January is
 A. 14,500 units.
 B. 16,500 units.
 C. 54,000 units.
 D. 45,000 units.

Hock 2020 Part 1
Questions
Super Drive
November 30
Assets
Cash $ 52,000
Inventory 315,000
sale.
goods sold.
The budgeted cash collections for the month of December are
 A. $208,000
 B. $462,000
 C. $520,000
 D. $402,000

Hock 2020 Part 1
Questions
Swan Company is a maker of men's slacks. The company would like to maintain 20,000 yards of
fabric in ending inventory. The beginning fabric inventory is expected to contain 25,000 yards. The
expected yards of fabric needed for sales is 90,000. Compute the yards of fabric that Swan needs to
purchase.
 A. 95,000.
 B. 90,000.
 C. 85,000.
 D. 135,000.
Which one of the following is in a company’s cash budget?
 A. Depreciation of plant equipment.

 B. Conversion of debt for equity.
 C. Disposal of land.
 D. Amortization of patent costs.
In developing a comprehensive annual budget for a manufacturing company, which one of the
following items should be done first?
 A. Development of the capital budget.

 B. Determination of manufacturing capacity.
 C. Determination of the advertising budget.
 D. Development of a sales plan.
Hannon Retailing Company prices its products by adding 30% to its cost. Hannon anticipates sales
of $715,000 in July, $728,000 in August, and $624,000 in September. Hannon's policy is to have on
hand enough inventory at the end of the month to cover 25% of the next month's sales. What will be
the cost of the inventory that Hannon should budget for purchase in August?
 A. $680,000
 B. $560,000
 C. $540,000
 D. $509,600

Hock 2020 Part 1
Questions
Ward Corporation's current year-end sales totaled $240 million and its ending cash balance was $20
million. Ward anticipates its sales for the upcoming year will be $260 million. On average, 10% of a
year's sales will be collected during the following year. Assume Ward has no uncollectIble accounts.
Ward also anticipates cash expenses of $240 million and depreciation of $5 million. During the next
year, Ward intends to spend $30 million cash for capital improvements. If Ward's policy is to have a
minimum of $10 million cash available at the beginning of each year, its budgeted cash flow
projections indicate that it will need outside financing of
 A. $7 million.
 B. $0.
 C. $2 million.
 D. $26 million.
Jordan Auto has developed the following production plan:
Month
January 10,000
February 8,000
March 9,000
April 12,000
Each unit contains 3 pounds of raw material. The desired raw material ending inventory each month
is 120% of the next month's production, plus 500 pounds. (The beginning inventory meets this
requirement.) Jordan has developed the following direct labor standards for production of these
units:
Department 1 Department 2
Hours per unit 2.0 0.5
Hourly rate $6.75 $12.00
How much raw material should Jordan Auto purchase in March?
 A. 27,000 pounds.
 B. 36,000 pounds.
 C. 32,900 pounds.
 D. 37,800 pounds.

Hock 2020 Part 1
Questions
Of the following items, the one item that would not be considered in evaluating the adequacy of the
budgeted annual operating income for a company is
 A. Industry average for earnings on sales.

 B. Price-earnings ratio.
 C. Earnings per share.
 D. Internal rate of return.

Hock 2020 Part 1
Questions
Estimated Type of
Month
January $600,000
February 650,000
Cash sales 20%
May 720,000
June 800,000
Month of sale 30%

Insurance 180,000
Salaries 1,080,000
The purchase of merchandise that Karmee Company will need to make during February will be
 A. $254,000
 B. $338,000
 C. $266,000
 D. $260,000

Hock 2020 Part 1
Questions
Health Foods Inc. has decided to start a cash budgeting program to improve overall cash
management. Information gathered from the past year reveals the following cash collection trends.
 40% of sales are on credit

 50% of credit sales are collected in month of sale
 30% of credit sales are collected first month after sale
 15% of credit sales are collected second month after sale
 5% of credit sales result in bad debts
Gross sales for the last five months were as follows.
January $220,000
February 240,000
March 250,000
April 230,000
May 260,000
Sales for June are projected to be $255,000. Based on this information, the expected cash receipts
for March would be
 A. $242,000.
 B. $237,400.
 C. $243,200.
 D. $230,000.
Prudent Corporation's budget for the upcoming accounting period reveals total sales of $700,000 in
April and $750,000 in May. The sales cash collection pattern is
20% of each month's sales are cash sales.

5% of a month's credit sales are uncollectible.
70% of a month's credit sales are collected in the month of sale.
25% of a month's credit sales are collected in the month following the sale.
If Prudent anticipates the cash sale of a piece of old equipment in May for $25,000, May's total
budgeted cash receipts would be
 A. $737,500.
 B. $702,500.
 C. $560,000.
 D. $735,000.

Hock 2020 Part 1
Questions
Cooper Company's management team is preparing a cash budget for the coming quarter. The
following budgeted information is under review

Revenue $700,000 $800,000 $500,000
Inventory purchases 350,000 425,000 225,000
Other Expenses 150,000 175,000 175,000
The company expects to collect 40% of its monthly sales in the month of sale and 60% in the
following month. 50% of inventory purchases are paid in the month of purchase, and the other 50%
in the following month. All payments for other expenses are made in the month incurred.
Cooper forecasts the following account balances at the beginning of the quarter.
Cash $100,000
Accounts receivable 300,000
Accounts payable (Inventory) 500,000
Given the above information, the projected change in cash during the coming quarter will be
 A. $300,000.
 B. $112,500.
 C. $412,500.
 D. $ -0-
Berol Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in
sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of
the next month's estimated sales. There are 150,000 finished units in inventory on June 30. Each
unit of finished product requires 4 pounds of direct materials at a cost of $1.20 per pound. There are
800,000 pounds of direct materials in inventory on June 30.
Assume Berol Company plans to produce 600,000 units of finished product in the 3-month period
ending September 30, and to have direct materials inventory on hand at the end of the 3-month
period equal to 25% of the use in that period. The estimated cost of direct materials purchases for
the 3-month period ending September 30 is
 A. $2,200,000.
 B. $2,640,000.
 C. $2,880,000.
 D. $2,400,000.

Hock 2020 Part 1
Questions
Super Drive
November 30
Assets
Cash $ 52,000
Inventory 315,000
sale.
goods sold.
The projected gross profit for the month ending December 31 is
 A. $536,000
 B. $104,000
 C. $416,000
 D. $134,000

Hock 2020 Part 1
Questions
A budget manual, which enhances the operation of a budget system, is most likely to include
 A. Documentation of the accounting system software.

 B. A chart of accounts.
 C. Employee hiring policies.
 D. Distribution instructions for budget schedules.
The budget that is usually the most difficult to forecast is the
 A. Sales budget.
 B. Manufacturing overhead budget.
 C. Production budget.
 D. Expense budget.
Trumbull Company budgeted sales on account of $120,000 for July, $211,000 for August, and
$198,000 for September. Collection experience indicates that 60% of the budgeted sales will be
collected the month after the sale, 36% will be collected the second month, and 4% will be
uncollectible. The cash receipts from accounts receivable that should be budgeted for September
would be
 A. $197,880
 B. $147,960
 C. $194,760
 D. $169,800

Hock 2020 Part 1
Questions
Estimated Type of
Month
January $600,000
February 650,000
Cash sales 20%
May 720,000
June 800,000
Month of sale 30%

Insurance 180,000
Salaries 1,080,000
The total cash disbursements that Karmee Company will make for the operating expenses
(expenses other than the cost of goods sold) during the month of April will be
 A. $290,000
 B. $385,000
 C. $255,000

Hock 2020 Part 1
Questions
 D. $420,000
Over the past several years, McFadden Industries has experienced the following regarding the
company's shipping expenses.
Fixed costs $16,000

Average shipment 15 pounds
Cost per pound $0.50
Shown below are McFadden's budget data for the coming year.
Number of units shipped 8,000

Number of sales orders 800
Number of shipments 800
Total sales $1,200,000
Total pounds shipped 9,600
McFadden's expected shipping costs for the coming year are
 A. $20,000.
 B. $20,800.
 C. $4,800.
 D. $16,000.
Savior Corporation assembles backup tape drive systems for home microcomputers. For the first
quarter, the budget for sales is 67,500 units. Savior will finish the fourth quarter of last year with an
inventory of 3,500 units, of which 200 are obsolete. The target ending inventory is 10 days of sales
(based upon 360 days). What is the budgeted production for the first quarter?
 A. 71,500
 B. 71,700
 C. 64,350
 D. 75,000

Hock 2020 Part 1
Questions

Cash sales $80,000 $100,000 $60,000
Credit sales 240,000 360,000 180,000
Total sales $320,000 $460,000 $240,000
Noskey Corporation's budgeted total cash payments in December Year 1 for inventory purchases
are
 A. $168,000
 B. $405,000
 C. $283,500
 D. $220,500

Hock 2020 Part 1
Questions
Rokat Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other
institutions. The table tops are manufactured by Rokat, but the table legs are purchased from an
outside supplier. The Assembly Department takes a manufactured table top and attaches the four
purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a policy
of producing enough tables to ensure that 40% of next month's sales are in the finished goods
inventory. Rokat also purchases sufficient raw materials to ensure that raw materials inventory is
60% of the following month's scheduled production. Rokat's sales budget in units for the next quarter
is as follows:
July 2,300
August 2,500
September 2,100
Rokat's ending inventories in units for June 30 are
Finished goods 1,900

Raw materials (legs) 4,000
The number of tables to be produced during August is
 A. 1,440 tables.
 B. 2,340 tables.
 C. 1,900 tables.
 D. 1,400 tables.

Hock 2020 Part 1
Questions
Data regarding Rombus Company's budget are shown below.
Planned sales 4,000 units

Material cost $2.50 per pound
Direct labor 3 hours per unit
Direct labor rate $7 per hour
Finished goods beginning inventory 900 units
Finished goods ending inventory 600 units
Direct materials beginning inventory 4,300 units
Direct materials ending inventory 4,500 units
Materials used per unit 6 pounds
Rombus Company's production budget will show total units to be produced of
 A. 4,000
 B. 4,300
 C. 3,700
 D. 4,600
The Yummy Dog Bone Company is anticipating that a major supplier might experience a strike this
year. Because of the nature of the product and emphasis on quality, extra production cannot be
stored as finished goods inventory. When developing a contingency budget that would anticipate a
raw material buildup, the two most significant items that will be affected are
 A. Sales and ending inventory.

 B. Production volume and raw material.
 C. Production and cash flow.
 D. Raw material and cash flow.
Which one of the following items is the last schedule to be prepared in the normal budget
preparation process?
 A. Cash budget.
 B. Manufacturing overhead budget.
 C. Cost of goods sold budget.
 D. Selling expense budget.

Hock 2020 Part 1
Questions
The operating budget process usually begins with the
 A. Financial budget.
 B. Income statement.
 C. Balance sheet.
 D. Sales budget.
A planning calendar in budgeting is the
 A. Sales forecast by months in the annual budget period.

 B. Calendar period covered by the annual budget and the long-range plan.
 C. Schedule of activities for the development and adoption of the budget.
 D. Calendar period covered by the budget.
Simpson Inc. is in the process of preparing its annual budget. The following beginning and ending
inventory levels (in units) are planned for the year ending December 31.
Beginning Ending
Inventory Inventory
Raw material* 40,000 50,000
Work-in-process 10,000 10,000
Finished goods 80,000 50,000
*Two units of raw material are needed to produce each unit of finished product.
If 500,000 finished units were to be manufactured for the year by Simpson Inc., the units of raw
material that must be purchased would be
 A. 1,010,000 units.
 B. 1,000,000 units.
 C. 1,020,000 units.
 D. 990,000 units.

Hock 2020 Part 1
Questions
DeBerg Company has developed the following sales projections for the calendar year.
May $100,000
June 120,000
July 140,000
August 160,000
September 150,000
October 130,000
Normal cash collection experience has been that 50% of sales are collected during the month of sale
and 45% in the month following sale. The remaining 5% of sales is never collected. DeBerg's
budgeted cash collections for the third calendar quarter are
 A. $414,000
 B. $450,000
 C. $427,500
 D. $422,500

Hock 2020 Part 1
Questions
Estimated Type of
Month
January $600,000
February 650,000
Cash sales 20%
May 720,000
June 800,000
Month of sale 30%

Insurance 180,000
Salaries 1,080,000
The amount of cash collected in March for Karmee Company from the sales made during March will
be
 A. $140,000
 B. $168,000
 C. $636,000

Hock 2020 Part 1
Questions
 D. $308,000
The foundation of a profit plan is the
 A. Production plan.
 B. Capital budget.
 C. Sales forecast.
 D. Cost and expense budget.
What would be the correct chronological order of preparation for the following budgets?
I. Cost of goods sold budget.

II. Production budget.
III. Purchases budget.
IV. Administrative (nonmanufacturing) budget.
 A. II, III, I, IV
 B. I, II, III, IV
 C. III, II, IV, I
 D. IV, II, III, I
Maker Distributors has a policy of maintaining inventory at 15% of the next month's forecasted sales.
The cost of Maker's merchandise averages 60% of the selling price. The inventory balance as of
May 31 is $63,000, and the forecasted dollar sales for the last seven months of the year are as
follows:
June $700,000
July 600,000
August 650,000
September 800,000
October 850,000
November 900,000
December 840,000
What is the budgeted dollar amount of Maker's purchases for July?
 A. $364,500.
 B. $355,500.

Hock 2020 Part 1
Questions
 C. $399,000.
 D. $360,000.
Which one of following budgets is regarded as the foundation of the master budget?
 A. Sales.
 B. Operating.
 C. Production.
 D. Cash.
The Raymar Company is preparing its cash budget for the months of April and May. The firm has
established a $200,000 line of credit with its bank at a 12% annual rate of interest on which
borrowings for cash deficits must be made in $10,000 increments. There is no outstanding balance
on the line of credit loan on April 1. Principal repayments are to be made in any month in which there
is a surplus of cash. Interest is to be paid monthly. If there are no outstanding balances on the loans,
Raymar will invest any cash in excess of its desired end-of-month cash balance in U.S. Treasury
bills. Raymar intends to maintain a minimum balance of $100,000 at the end of each month by either
borrowing for deficits below the minimum balance or investing any excess cash from operations.
Monthly collection and disbursement patterns are expected to be:
 Collections. 50% of the current month's sales budget and 50% of the previous month's sales
budget.
 Accounts Payable Disbursements. 75% of the current month's accounts payable budget and
25% of the previous month's accounts payable budget.
 All other disbursements occur in the month in which they are budgeted.
Budget Information
March April May

Sales $40,000 $50,000 $100,000
Accounts payable 30,000 40,000 40,000
Payroll 60,000 70,000 50,000
Other disbursements 25,000 30,000 10,000
In May, Raymar will be required to
 A. Repay $90,000 principal and pay $100 interest.

 B. Borrow an additional $20,000 and pay $1,000 interest.
 C. Repay $20,000 principal and pay $1,000 interest.
 D. Pay $900 interest.

Hock 2020 Part 1
Questions
Tyler Company produces one product and budgeted 220,000 units for the month of August with the
following budgeted manufacturing costs.
Total Costs Cost Per Unit

Variable costs $1,408,000 $ 6.40
Batch set-up cost 880,000 4.00
Fixed costs 1,210,000 5.50
Total $3,498,000 $15.90
The variable cost per unit and the total fixed costs are unchanged within a production range of
200,000 to 300,000 units per month. The total for the batch set-up cost in any month depends on the
number of production batches that Tyler runs. A normal batch consists of 50,000 units unless
production requires less volume. In the prior year, Tyler experienced a mixture of monthly batch
sizes of 42,000 units, 45,000 units, and 50,000 units. Tyler consistently plans production each month
in order to minimize the number of batches. For the month of September, Tyler plans to manufacture
260,000 units. What will be Tyler's total budgeted production costs for September?
 A. $4,134,000
 B. $3,754,000.
 C. $3,974,000
 D. $3,930,000
Which one of the following may be considered an independent item in the preparation of the master
budget?
 A. Budgeted statement of financial position.

 B. Capital investment budget.
 C. Ending inventory budget.
 D. Budgeted income statement.

Hock 2020 Part 1
Questions
Estimated Type of
Month
January $600,000
February 650,000
Cash sales 20%
May 720,000
June 800,000
Month of sale 30%

Insurance 180,000
Salaries 1,080,000
Karmee Company's total cash receipts for the month of April will be
 A. $707,400
 B. $653,000
 C. $629,000
 D. $504,000

Hock 2020 Part 1
Questions
In preparing the direct material purchases budget for next quarter, the plant controller has the
following information available.
Budgeted unit sales 2,000

Pounds of materials per unit 4
Cost of materials per pound $3
Pounds of materials on hand 400
Finished units on hand 250
Target ending units inventory 325
Target ending inventory of pounds of materials 800
How many pounds of materials must be purchased?
 A. 7,900.
 B. 9,300.
 C. 8,700.
 D. 2,475.
The Mountain Mule Glove Company is in its first year of business. Mountain Mule had a beginning
cash balance of $85,000 for the quarter. The company has a $50,000 short-term line of credit. The
budgeted information for the first quarter is shown below.

Sales $60,000 $40,000 $50,000
Purchases 35,000 40,000 75,000
Operating costs 25,000 25,000 25,000
All sales are made on credit and are collected in the second month following the sale. Purchases are
paid in the month following the purchase, while operating costs are paid in the month that they are
incurred. How much will Mountain Mule need to borrow at the end of the quarter if the company
needs to maintain a minimum cash balance of $5,000 as required by a loan covenant agreement?
 A. $10,000.
 B. $0.
 C. $45,000.
 D. $5,000.

Hock 2020 Part 1
Questions
Brown Company estimates that monthly sales will be as follows.
January $100,000
February 150,000
March 180,000
Historical trends indicate that 40% of sales are collected during the month of sale, 50% are collected
in the month following the sale, and 10% are collected two months after the sale. Brown's accounts
receivable balance as of December 31 totals $80,000 ($72,000 from December's sales and $8,000
from November's sales.) The amount of cash Brown can expect to collect during the month of
January is
 A. $133,000
 B. $84,000
 C. $76,800.
 D. $108,000
Streeter Company produces microwave turntables. Sales for the next year are expected to be
65,000 units in the first quarter, 72,000 units in the second quarter, 84,000 units in the third quarter,
and 66,000 units in the fourth quarter. Streeter maintains a finished goods inventory at the end of
each quarter equal to one half of the units expected to be sold in the next quarter. How many units
should Streeter produce in the second quarter?
 A. 72,000 units
 B. 84,000 units
 C. 75,000 units
 D. 78,000 units
Playtime Toys estimates that it will sell 200,000 dolls during the coming year. The beginning
inventory is 12,000 dolls; the target ending inventory is 15,000 dolls. Each doll requires two shoes
which are purchased from an outside supplier. The beginning inventory of shoes is 20,000; the
target ending inventory is 18,000 shoes. The number of shoes that should be purchased during the
year is
 A. 404,000 shoes.
 B. 402,000 shoes.
 C. 396,000 shoes.
 D. 398,000 shoes.

Hock 2020 Part 1
Questions
A company has the following budget data:
Beginning finished goods inventory 40,000 units

Sales 70,000 units
Ending finished goods inventory 30,000 units
Direct materials $10 per unit
Direct labor $20 per unit
Variable factory overhead $5 per unit
Selling costs $2 per unit
Fixed factory overhead $80,000
What will be the total budgeted production costs?
 A. $2,100,000
 B. $2,180,000
 C. $2,220,000
 D. $2,300,000
Ming Company has budgeted sales at 6,300 units for the next fiscal year and desires to have 590
good units on hand at the end of that year. Beginning inventory is 470 units. Ming has found from
past experience that 10% of all units produced do not pass final inspection and must therefore be
destroyed. How many units should Ming plan to produce in the next fiscal year?
 A. 6,890.
 B. 7,133.
 C. 7,186.
 D. 7,062.

Hock 2020 Part 1
Questions
Jordan Auto has developed the following production plan:
Month
January 10,000
February 8,000
March 9,000
April 12,000
Each unit contains 3 pounds of raw material. The desired raw material ending inventory each month
is 120% of the next month's production, plus 500 pounds. (The beginning inventory meets this
requirement.) Jordan has developed the following direct labor standards for production of these
units:
Department 1 Department 2
Hours per unit 2.0 0.5
Hourly rate $6.75 $12.00
Jordan Auto's total budgeted direct labor dollars for February usage should be
 A. $175,500
 B. $156,000
 C. $165,750
 D. $210,600
Myers Company uses a calendar-year and prepares a cash budget for each month of the year.
Which one of the following items should be considered when developing July's cash budget?
 A. Property taxes levied in the last calendar year scheduled to be paid quarterly in the coming year
during the last month of each calendar quarter.
 B. Federal income tax and social security tax withheld from employees' June paychecks to be
remitted to the Internal Revenue Service in July.
 C. Quarterly cash dividends scheduled to be declared on July 15 and paid on August 6 to
shareholders of record as of July 25.
 D. Recognition that 0.5% of the July sales on account will be uncollectible.

Hock 2020 Part 1
Questions
Individual budget schedules are prepared to develop an annual comprehensive or master budget.
The budget schedule that would provide the necessary input data for the direct labor budget would
be the
 A. Production budget.
 B. Raw materials purchases budget.
 C. Schedule of cash receipts and disbursements.
 D. Sales forecast.
Netco's sales budget for the coming year is as follows.
Volume Sales Sales

Item in Units Prices Revenue
1 200,000 $50 $10,000,000
2 150,000 $10 1,500,000
3 300,000 $30 9,000,000
Total Sales Revenue $20,500,000
Items 1 and 3 are different models of the same product. Item 2 is a complement to Item 1. Past
experience indicates that the sales volume of Item 2 relative to the sales volume of Item 1 is fairly
constant. Netco is considering a 10% price increase for the coming year for Item 1, which will cause
sales of Item 1 to decline by 20%, while simultaneously causing sales of Item 3 to increase by 5%. If
Netco institutes the price increase for Item 1, total sales revenue will decrease by
 A. $550,000
 B. $750,000
 C. $850,000
 D. $1,050,000
Wilson Company uses a comprehensive planning and budgeting system. The proper order for
Wilson to prepare certain budget schedules would be:
 A. Statement of cash flows, cost of goods sold, income statement, and balance sheet.
 B. Cost of goods sold, balance sheet, income statement, and statement of cash flows.
 C. Cost of goods sold, income statement, balance sheet, and statement of cash flows.
 D. Income statement, balance sheet, statement of cash flows, and cost of goods sold.

Hock 2020 Part 1
Questions

Cash sales $80,000 $100,000 $60,000
Credit sales 240,000 360,000 180,000
Total sales $320,000 $460,000 $240,000
Noskey Corporation's budgeted cash collections in December Year 1 from November Year 1 credit
sales are
 A. $84,000
 B. $136,800
 C. $91,200
 D. $228,000
Tidwell Corporation sells a single product for $20 per unit. All sales are on account, with 60%
collected in the month of sale and 40% collected in the following month. A partial schedule of cash
collections for January through March of the coming year reveals the following receipts for the
period.
Cash Receipts
December receivables $32,000
From January sales 54,000 $36,000
From February sales 66,000 $44,000
Other information includes the following:
 Inventories are maintained at 30% of the following month's sales.

 Assume that March sales total $150,000.
The number of units to be purchased in February is
 A. 3,850 units.

Hock 2020 Part 1
Questions
 B. 6,100 units.
 C. 7,750 units.
 D. 4,900 units.
Pardise Company budgets on an annual basis for its fiscal year. The following beginning and ending
inventory levels (in units) are planned for the fiscal year of July 1 through June 30:
July 1 June 30
Raw material* 40,000 50,000
Work-in-process 10,000 20,000
Finished goods 80,000 50,000
*Two units of raw materials are needed to produce each unit of finished product.
If Pardise Company plans to sell 480,000 units during the fiscal year, the number of units it will have
to manufacture during the year is
 A. 440,000 units.
 B. 450,000 units.
 C. 480,000 units.
 D. 510,000 units.
Granite Company sells products exclusively on account and has experienced the following collection
pattern: 60% in the month of sale, 25% in the month after the sale, and 15% in the second month
after the sale. Uncollectible accounts are negligible. Customers who pay in the month of the sale are
given a 2% discount. If sales are $220,000 in January, $200,000 in February, $280,000 in March,
and $260,000 in April, Granite's accounts receivable balance on May 1 will be
 A. $146,000.
 B. $107,120.
 C. $204,000.
 D. $143,920.
Streeter Company produces microwave turntables. Sales for the next year are expected to be
65,000 units in the first quarter, 72,000 units in the second quarter, 84,000 units in the third quarter,
and 66,000 units in the fourth quarter. Streeter maintains a finished goods inventory at the end of
each quarter equal to one half of the units expected to be sold in the next quarter. However, due to a
work stoppage, the finished goods inventory at the end of the first quarter is 8,000 units less than it
should be. How many units should Streeter produce in the second quarter?
 A. 80,000 units.
 B. 78,000 units.
 C. 75,000 units.
Hock 2020 Part 1
Questions
 D. 86,000 units.
Berol Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in
sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of
the next month's estimated sales. There are 150,000 finished units in inventory on June 30. Each
unit of finished product requires 4 pounds of direct materials at a cost of $1.20 per pound. There are
800,000 pounds of direct materials in inventory on June 30.
Berol Company's production requirement in units of finished product for the 3-month period ending
September 30 is
 A. 630,500 units.
 B. 638,000 units.
 C. 712,025 units.
 D. 665,720 units.
Which one of the following schedules would be the last item to be prepared in the normal budget
preparation process?
 A. Cost of goods sold budget.

 B. Cash budget.
 C. Manufacturing overhead budget.
 D. Direct labor budget.
287. Question ID: CIA 594 III.68 (Topic: Annual Profit Plan and Supporting Schedules)
A company produces a product that requires 2 pounds of a raw material. The company forecasts
that there will be 6,000 pounds of raw material on hand at the end of June. At the end of any given
month the company wishes to have 30% of next month's raw material requirements on hand. The
company has budgeted production of the product for July, August, September, and October to be
10,000, 12,000, 13,000, and 11,000 units, respectively. As of June 1, the raw material sells for $1.00
per pound.
The cost of inventory is determined using the last-in-first-out (LIFO) method. If the price of raw
material increases 10% as of June 30, what will be the effect of this increase on the cost of
purchases from July to September?
 A. $600 increase.
 B. $3,230 increase.
 C. $7,060 increase.
 D. $60 increase.

Hock 2020 Part 1
Questions
Brooke Company's management team is preparing a cash budget for the coming quarter. The
following budgeted information is under review.

Revenue $700,000 $800,000 $500,000
Inventory purchases 350,000 425,000 225,000
Other expenses 150,000 175,000 175,000
The company expects to collect 40% of its monthly sales in the month of sale and 60% in the
following month. 50% of inventory purchases are paid in the month of purchase and 50% in the
following month. Payments for all other expenses are made in the month incurred.
Brooke forecasts the following account balances at the beginning of the quarter.
Cash $200,000
Accounts payable (inventory) 400,000
Given the above information, the projected ending cash balance for February will be
 A. $120,000.
 B. $712,500.
 C. $500,000.
 D. $232,500.
The master budget
 A. shows forecasted and actual results.

 B. can be used to determine manufacturing cost variances.
 C. reflects controllable costs only.
 D. contains the operating budgets.

Hock 2020 Part 1
Questions

A-9 $0.50 1
B-6 0.25 2
D-28 1.00 3
Units at Units at
Part No.
April 1 April 30
C-14 12,000 10,000
A-9 21,000 9,000
B-6 32,000 10,000
D-28 14,000 6,000
Assume Superflite plans to manufacture 400,000 units in April. The total April budget for all
purchased components should be
 A. $1,608,500.
 B. $1,596,500.
 C. $1,580,500.
 D. $1,600,000.

Hock 2020 Part 1
Questions
Tip-Top Cleaning Supply carries a large number of different items in its inventory, giving the firm a
competitive advantage in its industry. Below is part of Tip-Top's budget for the first quarter of next
year.
Sales $855,000
Cost of goods sold 425,000
Rent and salary expenses 375,000
Historically, all of the sales are on account and are made evenly over the quarter. 5% of all sales are
determined to be uncollectible and written off. The balance of the receivables is collected in 50 days.
This sales and collection experience is expected to continue in the first quarter. The projected
balance sheet for the first day of the quarter includes the following account balances.
Cash $ 10,000
Accounts receivable (net) 450,000
Inventory 900,000
Accounts payable 800,000
How much cash can Tip-Top anticipate collecting in the first quarter (based on a 360-day year)?
 A. $830,000.
 B. $811,000.
 C. $901,250.
 D. $902,500
When preparing the series of annual operating budgets, management usually starts the process with
the
 A. Balance sheet.
 B. Capital budget.
 C. Sales budget.
 D. Cash budget.

Hock 2020 Part 1
Questions
A company is preparing its cash budget for the coming month. All sales are made on account. Given
the following:
Beginning Budgeted
Balances Amounts
Cash $ 50,000
Sales $800,000
Cash disbursements 780,000
Depreciation 25,000
Ending accounts receivable balance 210,000
What is the budgeted cash balance of the company at the end of the coming month?
 A. $15,000
 B. $40,000
 C. $45,000
 D. $70,000
Stevens Company manufactures electronic components used in automobile manufacturing. Each
component uses two raw materials, Geo and Clio. Standard usage of the two materials required to
produce one finished electronic component, as well as the current inventory, are shown below.
Material Standard Per Unit Price Current Inventory

Geo 2.0 pounds $15/lb. 5,000 pounds
Clio 1.5 pounds $10/lb. 7,500 pounds
Stevens forecasts sales of 20,000 components for each of the next two production periods.
Company policy dictates that 25% of the raw materials needed to produce the next period's
projected sales be maintained in ending direct materials inventory.
Based on this information, the budgeted direct material purchases for the coming period would be
 A. $675,000 of Geo; $300,000 of Clio.

 B. $675,000 of Geo; $400,000 of Clio.
 C. $450,000 of Geo; $450,000 of Clio.
 D. $825,000 of Geo; $450,000 of Clio.

Hock 2020 Part 1
Questions
Top-Level Planning and Analysis

295. Question ID: ICMA 19.P1.033 (Topic: Top-Level Planning and Analysis)
A company operates 10 offices. In the prior year, the total cost of operating the offices was
$1,000,000 of which $140,000 consisted of fixed costs. All else remaining equal, what will be the
budgeted costs if the company were to operate 12 offices?
 A. $1,172,000.
 B. $1,028,000.
 C. $1,200,000.
 D. $1,032,000.
296. Question ID: ICMA 19.P1.029 (Topic: Top-Level Planning and Analysis)
Calculate the pro forma after-tax profit for next year based on the data below.
Results for last year Projections for next year

Sales $100,000 10% increase
Variable cost 60,000 10% increase
Salaries 15,000 5% increase
Other expenses 5,000 20% increase
Income tax rate 30% no change
 A. $15,000.
 B. $18,200.
 C. $16,100.
 D. $15,575.
297. Question ID: HOCK CMA.P1A5.06 (Topic: Top-Level Planning and Analysis)
Pro forma financial statements are used within a company for various purposes. They are not used
for
 A. comparison with actual results for performance reporting in order to determine employee
bonuses.
 B. "what if" analysis, to forecast the effect of a proposed change.
 C. determining whether the company will be in compliance with required covenants on its long-term
debt.
 D. determining the company's future needs for external financing.

Hock 2020 Part 1
Questions
Increases in sales generally cause spontaneous increases in some liability and net worth lines on
the balance sheet. The liability and net worth items that increase spontaneously with increases in
sales include all of the following except
 A. accounts payable.
 B. notes payable.
 C. accrued salaries and wages.
 D. retained earnings.
Which of the following events will cause a company's requirements for external financing to
increase?
I. The dividend payout ratio increases.

II. The company changes its credit terms, increasing the time it gives customers to pay.
III. The company negotiates a lower price and longer terms with a major supplier.
IV. The retention ratio increases.
V. Increased competition forces the company to lower its prices.
 A. II and V.
 B. II, IV and V.
 C. I, II, and V.
 D. III and IV.
A company's need for external financing depends on several factors. A factor that does not affect
the company's need for external financing is
 A. The company's retention ratio.

 B. Rapid sales growth.
 C. Holding gains and losses on the company's portfolio of available-for-sale securities.
 D. The company's profit margin.

Hock 2020 Part 1
Questions
The balance sheet and income statement of the Grow 'n' Glow Manufacturing Company for the past
year are as follows (000 omitted):
BALANCE SHEET
Assets Liabilities
Cash $ 9,700 Accounts payable $ 3,000
Accounts receivable 15,300 Notes payable 10,000
Inventory 18,500 Accrued liabilities 6,000
Total current assets $ 43,500 Total current liabilities $ 19,000
Held-to-maturity securities $ 45,600 Long-term debt $ 35,600

Net fixed assets 32,200 Total liabilities $ 54,600
Total long-term assets $ 77,800
Equity
Total assets $121,300 Common stock $ 10,000
Additional paid-in capital 30,000
Total equity $ 66,700
Total liabilities & equity $121,300
INCOME STATEMENT
Net sales $100,000
Gross profit $ 33,800
Selling expense $ 16,400

General & admin. expense 11,200

Hock 2020 Part 1
Questions
Net interest expense 1,200

Net income before tax $ 5,000
Taxes @ 35% 1,750
Net income $ 3,250
The company paid dividends during the past year of $975. During the past year, fixed assets were
being used at 85% of capacity. In all other respects, the company was operating at full capacity.
The company's dividend policy is that dividends will grow at a rate of 4% per year. The past year's
interest rate on debt was 5% on short-term debt and 7% on long-term debt. The held-to-maturity
securities earn 4% return and are not expected to change next year.
Sales for next year are projected to increase at the rate of 15%. Using the Forecasted Financial
Statement approach, how much additional financing will the company need next year? For the
interest expense calculations, use the beginning balance of outstanding loans and an interest rate
that is 0.5% higher than the past year's interest rates.
(Hint: Since the company is operating at 100% of capacity in all respects except for fixed assets, and
since held-to-maturity securities are not expected to change, all incomes and expenses and all
assets except for held-to-maturity securities and fixed assets will increase by the same amount for
the next year. To determine whether fixed assets will increase and if so, by how much, determine
how much sales could increase without requiring additional fixed asset purchases and then compare
that with forecasted sales for next year.)
 A. $5,175
 B. $2,462
 C. $455
 D. $1,448
302. Question ID: CIA 595 IV.52 (Topic: Top-Level Planning and Analysis)
A company had $500,000 of sales for the year just ended and is projecting sales of $600,000 for the
coming year. For every $1 increase in sales, 38 cents of additional financing is required for the
purchase of additional assets. The projected profit margin is 20%, and 60% of profits will be retained
for reinvestment in the company. The amount of additional external financing needed by the
company in the coming year is:
 A. $0.
 B. $120,000.
 C. $38,000.
 D. $72,000.

Hock 2020 Part 1
Questions
The balance sheet and income statement of the Grow 'n' Glow Manufacturing Company for the past
year are as follows (000 omitted):
BALANCE SHEET
Assets Liabilities
Held-to-maturity securities $ 45,600 Long-term debt $35,600

Net fixed assets 32,200 Total liabilities $54,600
Total long-term assets $77,800
Equity
Total assets $121,300 Common stock $10,000
INCOME STATEMENT
Net sales $100,000
Gross profit $33,800
Selling expense 16,400


Hock 2020 Part 1
Questions
Net interest expense $ 1,200

Net income before tax $ 5,000
Taxes @ 35% 1,750
Net income $ 3,250
The company paid dividends during the past year of $975. During the past year, fixed assets were
being used at 85% of capacity. In all other respects, the company was operating at full capacity.
Assuming the company's dividend policy is that dividends will grow at a rate of 4% per year, by what
percentage could next year's sales increase over the past year's sales without the company needing
to increase its fixed assets?
 A. 17.6%
 B. 67.8%
 C. 27.4%
 D. 15%
The management of the Grow 'n' Glow Manufacturing Company expects a 10% increase in sales for
the coming year and has prepared the following pro forma balance sheet and income statement (000
omitted) for the coming year:
BALANCE SHEET
Assets Liabilities
Held-to-maturity securities $ 45,600 Long-term debt $ 35,600

Net fixed assets 32,200 Total liabilities $ 55,500
Total long-term assets $ 77,800
Equity
Total assets $125,650 Common stock $ 10,000

Hock 2020 Part 1
Questions
Additional funds needed

(balancing figure) $ 938
INCOME STATEMENT
Net sales $110,000

EBIT $ 6,820
Net interest expense $ 1,396
EBT $ 5,424
Taxes @ 35% 1,898
Net income $ 3,526
Dividends 1,014
Addition to retained earnings $ 2,512
The additional funds needed, the balancing figure between total assets and total liabilities and
equity, is $938. The financial analysts have been comparing the company's forecasted operating
ratios with industry averages. The industry average for the inventory turnover ratio is 4 times. If Grow
'n' Glow's inventory turnover ratio next year were to match the industry average, what would the
company's position be with respect to additional funds needed or additional funds available?
 A. The company would have $1,207 additional funds available to use to either pay down its loans or
invest instead of needing to borrow.
 B. The company would have $2,145 additional funds available to use to either pay down its loans or
invest instead of needing to borrow.
 C. The company would need to borrow only $643 instead of $938.
 D. The company would need to borrow only $295 instead of $938.

Hock 2020 Part 1
Questions
A profitable firm that is experiencing rapid sales growth will find that its need for external financing
will
 A. decrease, because more inventory will be sold and the decrease in inventory will generate
additional cash.
 B. decrease, because the higher sales will lead to higher profits, and the added profits will provide
more cash.
 C. increase, because of its need for additional investment in working capital and fixed assets to
support the increased sales.
 D. increase, because in order to increase sales, the firm must decrease its prices, which will lead to
decreased profits and decreased cash.
Below are a year-end actual balance sheet for Year 1 and pro forma balance sheet and income
statement for Year 2 for the Grow 'n' Glow Manufacturing Company (000 omitted).
BALANCE SHEET BALANCE SHEET YR 2-

YEAR 1-ACTUAL PRO FORMA
Assets Assets
Cash $ 9,700 Cash $ 10,670
Accounts receivable 15,300 Accounts receivable 16,830
Inventory (incl. $820
18,500 Inventory (incl. $950 depr.) 20,350
depr.)
Total current assets $ 43,500 Total current assets $ 47,850
Held-to-maturity
$ 45,600 Held-to-maturity securities $ 45,600
securities
Net fixed assets 32,200 Net fixed assets 35,000
Total long-term assets $ 77,800 Total long-term assets $ 80,600
Total assets $121,300 Total assets $128,450
Liabilities Liabilities
Accounts payable $ 3,000 Accounts payable $ 3,300
Notes payable (incl. addtl.
Notes payable 10,000 13,738
fds. needed)

Hock 2020 Part 1
Questions
Accrued liabilities 6,000 Accrued liabilities 6,600
Total current liabilities $ 19,000 Total current liabilities $ 23,638
Long-term debt 35,600 Long-term debt 35,600

Total liabilities $ 54,600 Total liabilities $ 59,238
Equity Equity
Common stock $ 10,000 Common stock $ 10,000
Additional paid-in capital 30,000 Additional paid-in capital 30,000
Retained earnings 26,700 Retained earnings 29,212
Total equity $ 66,700 Total equity $ 69,212
Total liabilities & equity $121,300 Total liabilities & equity $128,450
INCOME STATEMENT YR
2-PRO FORMA
Net sales $110,000
COGS (incl. $3,200 depr.) 72,820

Gen & adm exp. (incl. $395
12,320
depr.)
EBIT $ 6,820
EBT $ 5,424
Taxes @ 35% 1,898
Net income $ 3,526
Hock 2020 Part 1
Questions
Dividends 1,014
On the pro forma Statement of Cash flows, what is the company's net cash flow used in investing
activities?
 A. $7,345
 B. $6,000
 C. $6,395
 D. $2,800

Assets Assets
Cash $ 9,700 Cash $ 10,670
depr.)
Held-to-maturity
securities
fds. needed)

Hock 2020 Part 1
Questions

Equity Equity
INCOME STATEMENT YR
2-PRO FORMA
Net sales $110,000
COGS (incl. $3,200 depr.) 72,820

12,320
depr.)
EBIT $ 6,820
EBT $ 5,424
Taxes @ 35% 1,898
Net income $ 3,526
Hock 2020 Part 1
Questions
Dividends 1,014
On the pro forma Statement of Cash flows, what is the company's net cash flow from operating
activities, using the indirect method?
 A. $5,591
 B. $4.641
 C. $4,771
 D. $6,541
A firm's capital intensity ratio is
 A. its assets that increase when sales increase divided by sales.

 B. its total long-term debt plus equity divided by total assets.
 C. its shareholders' equity divided by total assets.
 D. its common equity divided by total liabilities.

Assets Assets
Cash $ 9,700 Cash $ 10,670
depr.)
Held-to-maturity
securities

Hock 2020 Part 1
Questions
fds. needed)

Equity Equity
INCOME STATEMENT YR
2-PRO FORMA
Net sales $110,000
COGS (incl. $3,200 depr.) 72,820

12,320
depr.)

Hock 2020 Part 1
Questions
EBIT $ 6,820
EBT $ 5,424
Taxes @ 35% 1,898
Net income $ 3,526
Dividends 1,014
On the pro forma Statement of Cash flows, what is the company's net cash flow from financing
activities?
 A. $1,328
 B. $2,724
 C. $(1,014)
 D. $(2,410)


Hock Section B Questions

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Hock Section B Questions

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Hock 2020 Part 1

Section B - Planning, Budgeting, and Forecasting.

 A. Defining the purpose of the company.

2. Question ID: ICMA 19.P1.017 (Topic: Strategic Planning)

3. Question ID: ICMA 19.P1.018 (Topic: Strategic Planning)

 A. long-term profitability and the competitive intensity of the industry.

‫ﻛﻝ ﺍﻟﻛﺗﺏ ﻭﺍﻻﺳﺋﻠﻪ ﺍﻟﻠﻲ ﺗﺣﺗﺎﺟﻭﻫﺎ ﺣﺗﻼﻗﻭﻫﺎ ﻋﻠﻰ ﺍﻟﻘﻧﺎﺗﻳﻥ ﺩﻭﻝ‬

5. Question ID: ICMA 19.P1.015 (Topic: Strategic Planning)

 A. Technological changes in food-processing methods.

6. Question ID: HOCK CMA P3A H9 (Topic: Strategic Planning)

7. Question ID: HOCK CMA P3A H2 (Topic: Strategic Planning)

 A. Forcing managers to consider expected future trends and conditions.

8. Question ID: ICMA 1603.P1.025 (Topic: Strategic Planning)

 A. external factors that identify the company's strengths and threats.

9. Question ID: HOCK CMA P3A H28 (Topic: Strategic Planning)

 A. "Milking" the product.

 A. High profitability and sustained profit growth.

11. Question ID: ICMA 1603.P1.034 (Topic: Strategic Planning)

12. Question ID: HOCK CMA P3A H8 (Topic: Strategic Planning)

13. Question ID: CMA 692 H9 (Topic: Strategic Planning)

‫ﻛﻝ ﺍﻟﻛﺗﺏ ﻭﺍﻻﺳﺋﻠﻪ ﺍﻟﻠﻲ ﺗﺣﺗﺎﺟﻭﻫﺎ ﺣﺗﻼﻗﻭﻫﺎ ﻋﻠﻰ ﺍﻟﻘﻧﺎﺗﻳﻥ ﺩﻭﻝ‬

15. Question ID: HOCK CMA P3A H1 (Topic: Strategic Planning)

 A. The closeness of substitutes to a company's products.

 A. Identification and adoption of the best industrial practices.

18. Question ID: CMA 692 H4 (Topic: Strategic Planning)

‫ﻛﻝ ﺍﻟﻛﺗﺏ ﻭﺍﻻﺳﺋﻠﻪ ﺍﻟﻠﻲ ﺗﺣﺗﺎﺟﻭﻫﺎ ﺣﺗﻼﻗﻭﻫﺎ ﻋﻠﻰ ﺍﻟﻘﻧﺎﺗﻳﻥ ﺩﻭﻝ‬

 A. Porter's cost strategy.

20. Question ID: CMA 1290 3.16 (Topic: Strategic Planning)

 A. Analysis and review of departmental budgets.

21. Question ID: HOCK CMA P3A H7 (Topic: Strategic Planning)

 A. Overall objectives of the company.

 A. Increased bargaining power over supplier, providers and buyers.

23. Question ID: ICMA 1603.P1.027 (Topic: Strategic Planning)

‫ﻛﻝ ﺍﻟﻛﺗﺏ ﻭﺍﻻﺳﺋﻠﻪ ﺍﻟﻠﻲ ﺗﺣﺗﺎﺟﻭﻫﺎ ﺣﺗﻼﻗﻭﻫﺎ ﻋﻠﻰ ﺍﻟﻘﻧﺎﺗﻳﻥ ﺩﻭﻝ‬

 A. Choosing the company's organizational structure.

 A. Top management is responsible for development and overall implementation.

 A. superior efficiency, quality, innovation, and customer responsiveness.

‫ﻛﻝ ﺍﻟﻛﺗﺏ ﻭﺍﻻﺳﺋﻠﻪ ﺍﻟﻠﻲ ﺗﺣﺗﺎﺟﻭﻫﺎ ﺣﺗﻼﻗﻭﻫﺎ ﻋﻠﻰ ﺍﻟﻘﻧﺎﺗﻳﻥ ﺩﻭﻝ‬

 A. high market share in a low growth market.

30. Question ID: HOCK CMA P3A H3 (Topic: Strategic Planning)

 A. The specific actions that the company should take.

32. Question ID: ICMA 1603.P1.016 (Topic: Strategic Planning)

 A. Low profitability due to low threat of substitutes and new entrants.

‫ﻛﻝ ﺍﻟﻛﺗﺏ ﻭﺍﻻﺳﺋﻠﻪ ﺍﻟﻠﻲ ﺗﺣﺗﺎﺟﻭﻫﺎ ﺣﺗﻼﻗﻭﻫﺎ ﻋﻠﻰ ﺍﻟﻘﻧﺎﺗﻳﻥ ﺩﻭﻝ‬

 A. Examination of the industry in which the company operates.

36. Question ID: ICMA 19.P1.022 (Topic: Budgeting Concepts)

 A. motivating employee effort.

 A. provide a structure for measuring performance.

38. Question ID: ICMA 19.P1.020 (Topic: Budgeting Concepts)

39. Question ID: ICMA 08.P2.08 (Topic: Budgeting Concepts)

 A. Coordination between departments.

40. Question ID: ICMA 08.P2.05 (Topic: Budgeting Concepts)

 A. Total justification of all activities by operating units.

41. Question ID: CMA 1293 H1 (Topic: Budgeting Concepts)

42. Question ID: ICMA 10.P1.010 (Topic: Budgeting Concepts)

 A. current actual cost plus the forecasted 10% price increase.

43. Question ID: ICMA 10.P1.006 (Topic: Budgeting Concepts)

 A. reduces the communication between employees and management.

44. Question ID: ICMA 10.P1.008 (Topic: Budgeting Concepts)

 A. Team development approach.

‫ﻛﻝ ﺍﻟﻛﺗﺏ ﻭﺍﻻﺳﺋﻠﻪ ﺍﻟﻠﻲ ﺗﺣﺗﺎﺟﻭﻫﺎ ﺣﺗﻼﻗﻭﻫﺎ ﻋﻠﻰ ﺍﻟﻘﻧﺎﺗﻳﻥ ﺩﻭﻝ‬

 A. A change to a decentralized management system.

46. Question ID: CMA 692 3.9 (Topic: Budgeting Concepts)

 A. Capital investment budget.