PM - Ch-10 Budgeting (2022 - 23)

Total production costs for 900 units of output are $58,200 and total production costs for 1,200 units are $66,600.

The variable cost per unit is constant up to a production level of 2,000 units per month, but a step up of $6,000 in the monthly total fixed cost occurs when production reaches 1,100 units per month.

What is the total cost for a month when 1,000 units are produced?

• $60,600

• $59,000

• $58,200

• $65,400

Which TWO of the following statements are true in the context of a just in time (JIT) inventory system?

(i) It can result in much reduced inventory holding costs

(ii) It inevitably increases the need for safety inventories

(iii) It requires suppliers to operate sound quality control procedures

(iii) It works best if supplies are obtained from a number of different suppliers

• (i) & (iii)

• (ii) & (iv)

• (iii) & (iv)

• (i) & (iv)

A company operates in export and import markets, and its operational cash flows are affected by movements in exchange rates, which are highly volatile. As a result, the company has great difficulty in establishing a budgeting system that is reliable for more than three months ahead.

Which of the following approaches to budgeting would be most appropriate for this company's situation?

• Flexible budget

• Incremental budget

• Rolling budget

• Zero-based budget

Tech World is a company which manufactures mobile phone handsets. From its past experiences, Tech World has realised that whenever a new design engineer is employed, there is a learning curve with a 75% learning rate which exists for the first 15 jobs.

A new design engineer has just completed their first job in five hours.

Note. At the learning rate of 75%, the learning factor (b) is equal to –0·415.

How long would it take the design engineer to complete the sixth job?

• 2.377 hours

• 1.442 hours

• 2.564 hours

• 5 hours

Which of the following provides the most suitable definition of the controllability principle in business?

• A fundamental principle of management is the responsibility to control the organisation

• Managers should be held accountable only for costs and revenues over which they have some influence or control

• Organisations should be divided into budget centers for the purpose of operational control

• Performance measures should be reported to managers to enable them to control operations

The following statements have been made about learning curves.

(1) Learning curves are easier to apply in companies with a high labour turnover than those with a lower rate of staff turnover.

(2) Learning rates are not affected by time gaps between the production of additional units of a product.

Which of the above statements is/are true?

• 1 only

• 2 only

• Neither 1 nor 2

• Both 1 and 2

In which TWO of the following ways might a budgetary control be a disincentive to management to achieve targeted performance?

(i) Control reports are provided too late

(ii) Targets are too easy

(iii) Targets are not communicated

(iv) Budgets are prepared on a bottom-up basis

• (ii) & (iv)

• (ii) & (iii)

• (i) & (iv)

• (i) & (iii)

Which TWO of the following points state why it is generally regarded to be more difficult to set standards for service function costs than for manufacturing costs? (i) There is often no measurable output from service functions

(ii) The activities of many service functions are of a non-standard nature

(iii) The costs of many service functions are predominantly variable

(iv) Tasks in many service industries are usually quick and simple

• (i) & (iii)

• (ii) & (iv)

• (i) & (ii)

• (i) & (v)

Which of the following correctly describes a standard hour?

• An hour during which only standard units are made

• An hour during which no machine breakdowns occur

• The quantity of work achievable at standard performance in an hour

• An hour for which standard labour rates are paid

A budget that is continuously updated by adding a further accounting period (a month or quarter) when the earlier accounting period has expired is known as which of the following?

Select...

• Flexible budget

• Periodic budget

• Rolling budget

• Zero-based budget