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Mid term question paper 2020

Q#1.    Encircle the best choice. Cutting and overwriting will earn zero marks.     10 Marks

  1. Which of the following is not a benefit of budgeting?
    1. Management can plan
    2. An early warning system is provided for potential
    3. It enables disciplinary action to be taken at every level of
    4. The coordination of activities is
  1. The term “inventory” indicates
a. merchandise held for sale in the normal course of business
b. materials in the process of production or held for production
c. supplies
d. both a and b

3. Use the contribution margin ratio formula to determine the amount of sales revenue ABC must have to break even. All information remains unchanged: fixed costs are Rs. 200,000; unit sales price is Rs. 5.00; and unit variable cost is Rs. 3.00.

  1. Rs. 200,000
  2. Rs. 300,000
  3. Rs. 400,000
  4. Rs. 500,000
  5. If Whisper Wings Airlines cuts its domestic fares by 30%,
    1. its fixed costs will
    2. profit will increase by 30%.
    3. a profit can only be earned by decreasing the number of
    4. a profit can be earned either by increasing the number of passengers or by decreasing variable
  6. When manufacturing overhead costs are assigned to production in a process cost system, they are debited to .
    1. the Finished Goods Inventory
    2. Cost of Goods Sold.
  7. the Work in Process
  8. a Manufacturing Overhead
  9. A process with no beginning work in process, completed and transferred out 75,000 units during a period and had 50,000 units in the ending work in process inventory that were 30% The equivalent units of production for the period were .
  10. 75,000 equivalent
  11. 125,000 equivalent
  12. 90,000 equivalent
  13. 37,500 equivalent
  14. The direct materials budget shows:

Units to be produced 3,000 Total pounds needed for production 12,000 Total materials required      13,200

What are the direct materials per unit?

  1. .44 pounds
  2. 0 pounds
  3. 4 pounds
  4. Cannot be determined from the data
  5. An appropriate activity index for COMSATS University for budgeting faculty positions would be the .
    1. faculty hours worked.
    2. number of
    3. credit hours taught by a department.
    4. number of days in the school
  6. Each of the following budgets is used in preparing the budgeted income statement except the:
    1. Sales
    2. Selling and administrative
    3. Capital expenditure
    4. Direct labor
  7. Which of the following would not appear as a fixed expense on a selling and administrative expense budget?
    1. Freight-out
    2. Office salaries
    3. Property taxes
    4. Depreciation
  8. Asad & Co. sells product at Rs. 5.00 per unit. If fixed costs are Rs. 200,000 and variable costs are 3.00 per unit, how many units must be sold to break even?
    1. 100,000 units
    2. 40,000 units
  9. 200,000 units
  10. 66,667 units
  11. At the high level of activity in November, 7,000 machine hours were run and power costs were

$12,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $6,000. Using the high-low method, the estimated fixed cost element of power costs is          .

  1. $12,000.
  2. $6,000.
  3. $3,600.
  4. $8,400.
  5. Which of the following statements is correct with respect to inventories?
    1. The FIFO method assumes that the costs of the earliest goods acquired are the last to be
    2. It is generally good business management to sell the most recently acquired goods
    3. Under FIFO, the ending inventory is based on the latest units purchased.
    4. FIFO seldom coincides with the actual physical flow of
  6. ABC sells product XYZ at Rs. 5.00 per unit. If fixed costs are Rs. 200,000 and variable costs are Rs. 3.00 per unit, how many units must be sold to earn income of Rs. 40,000?
    1. 100,000 units
    2. 120,000 units
    3. 80,000 units
    4. 200,000 units
  7. The increased use of automation and less use of the work force in companies has caused a trend towards an increase in .
    1. both variable and fixed
    2. fixed costs and a decrease in variable
    3. variable costs and a decrease in fixed
    4. variable costs and no change in fixed
  8. The essentials of effective budgeting do not include ?
    1. Top-down
    2. Management
    3. Research and analysis.
    4. Sound organizational structure
  9. A budget period should be
    1. for a year or
    2. long-term.
    3. long enough to provide an obtainable goal under normal business conditions.
  10. Which of the following statements about budget acceptance in an organization is true?
    1. The most widely accepted budget by the organization is the one prepared by top
  • The most widely accepted budget by the organization is the one prepared by the department
  1. Budgets are hardly ever accepted by anyone except top management.
  2. Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting
  3. Equivalent units are calculated by .
    1. multiplying the percentage of work done by the equivalent units of output.
    2. dividing physical units by the percentage of work done.
    3. multiplying the percentage of work done by the physical
    4. dividing equivalent units by the percentage of work done.
  4. A sales budget is:
    1. Derived from the production
  • Management’s best estimate of sales revenue for the
  1. Not the starting point for the master
  2. Prepared only for credit sales.

Q#2. Identify the following as True or False. Give your answer in “T” for true and “F” for false.  3 Marks

 The flow of input data for budgeting should be from the highest levels of responsibility to the


  1. Activity-based costing (ABC) can be used only with process cost systems.


  1. In a process cost system, costs are tracked through a series of connected manufacturing processes or departments, rather than by individual jobs.


  1. The budgeted income statement indicates the expected profitability of operations for the next


  1. If the ending work in process inventory is greater than the beginning work in process inventory, then the cost of goods manufactured will be less than total manufacturing costs for the


  1. Equivalent units of production must be calculated before the unit production costs can be


Final 2020

Q#3: Punjab & Company is considering buying a new machine that would increase monthly fixed costs from Rs. 30,000 to Rs. 40,000, but decrease unit variable costs from Rs. 70 to Rs. 50. The Rs. 100 per unit selling price would remain unchanged.                                                                                   4 Marks Requirements:    1. Calculate the revised Break-even sales revenue in Rupees to cover the cost?

  1. Calculate the revised Break-even units that must be sold to cover the cost?

Q#4: Distinguish between manufacturing costs and non-manufacturing costs also give the examples of each cost?                                                                                                                          5 Marks

 Q#5:    Star & Co’s Production Department Data for April is given below.                          10 Marks

Star & Co’s Production Department Department Production Data for April
Beginning Inventory:
Units of product 30,000
Percentage of completion – direct materials 100%
Percentage of completion – direct labor 33 1/3%
Units started in April 90,000
Units transferred from grinding to mixing 100,000
Ending Inventory:
Units of product 20,000
Percentage of completion – direct materials 100%
Percentage of completion – direct labor 25%


Star & Co’s Production Department Department Production Data for April
Beginning Inventory Costs:
Direct materials costs Rs.     2,780
Direct labor costs 700
Factory overhead costs 770 Rs.    4,250
Current Period Costs
Direct materials costs Rs.       9,900
Direct labor costs 5,700
Factory overhead costs 4,275 Rs. 19,875
Total Costs to Account for Rs. 24,125


Star & Co. uses a FIFO cost flow system. Find the below mention requirements for the Production department.

  1. Physical flow of
  2. Computing equivalent units of
  3. Computing cost per equivalent unit.
  4. Cost

Q#6:          4 Marks


Sales Units Cost
High activity level 50,000 Rs. 25,000
Low activity level 15,000 Rs. 20,000


Using these two levels of activity, compute:

  1. Variable cost per
  2. Total fixed cost

Q#7: Define the Sarbanes-Oxley Act?                                                                       3 Marks

 Q#8: Moderns Company is preparing its master budget for 2010. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

Sales: Sales expected for the first quarter 200,000 units and 50,000 units respectively will increase in followings Quarters. The sales price is expected to be $40 per unit for the first three quarters and $45 per unit beginning in the fourth quarter. Sales in the first quarter of 2011 are expected to be Rs.220,000.

Production: Management desires to maintain the ending finished goods inventories at 20% of the next quarter’s budgeted sales volume.

Direct materials: Each unit requires 2 pounds of raw materials at a cost of $10 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2011 are 500,000 pounds.

In addition, Oak Creek budgets 0.3 hours of direct labor per unit, labor costs at $14 per hour, and manufacturing overhead at $20 per direct labor hour. It’s budgeted selling and administrative expenses for 2010 are $7,000,000.


  • Prepare the sales Budget by quarters for
  • Prepare the Production Budget by quarters for
  • Prepare the Direct materials budgets by quarters for 2010.

(c) Calculate the budgeted total unit cost.

(b) Prepare the budgeted income statement for 2010.

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