Annual demand is 10,000 units, ordering cost is Rs. 50 per order and holding cost is Rs. 4 per unit per year. The Economic Order Quantity (EOQ) is:
EOQ = square root of (2 x 10,000 x 50 / 4) = square root of 250,000 = 500.
Accounting and Finance MCQs
The basic accounting equation is:
Resources owned by a business (assets) are financed by outsiders (liabilities) and owners (equity).
In double-entry bookkeeping, every transaction:
Each transaction has a dual effect so debits always equal credits.
The normal balance of an asset account is:
Assets increase with debits and normally have debit balances.
The four perspectives of the Balanced Scorecard are:
The Balanced Scorecard by Kaplan and Norton uses these four perspectives.
A cash budget shows:
Cash budgets help plan borrowing and surplus investment.
A manager who is responsible for both revenues and costs of a division is in charge of a:
A profit center is responsible for revenues and costs; an investment center is also responsible for invested capital.
Operating income is Rs. 150,000 and average invested assets are Rs. 1,000,000. Return on investment (ROI) is:
ROI = 150,000 / 1,000,000 = 15%.
Operating income is Rs. 200,000, invested assets are Rs. 1,000,000 and the required rate of return is 12%. Residual income is:
RI = 200,000 - (12% x 1,000,000) = 200,000 - 120,000 = Rs. 80,000.
A transfer price is:
Transfer pricing affects divisional performance measurement.
Actual labor rate is Rs. 22 per hour, standard rate is Rs. 20 and actual hours are 100. The labor rate variance is:
LRV = (AR - SR) x AH = (22 - 20) x 100 = Rs. 200 adverse.
Actual hours are 90, standard hours allowed are 100 and the standard rate is Rs. 20. The labor efficiency variance is:
LEV = (SH - AH) x SR = (100 - 90) x 20 = Rs. 200 favorable.
A favorable cost variance means that:
A favorable variance increases profit relative to standard; it does not automatically mean good performance.
A master budget is:
The master budget combines operating and financial budgets.
A flexible budget is a budget that:
Flexible budgets allow fair comparison of actual costs with costs allowed at the actual activity level.
In zero-based budgeting, managers must:
ZBB requires each activity to be justified afresh rather than relying on the previous year.
The principal budget factor is:
Also called the limiting factor; it is usually sales demand, but may be materials, labor or capacity.
A cost driver is:
Examples include number of set-ups, machine hours and number of orders.
Standard costing is a technique in which:
Standard costs act as benchmarks for control through variance analysis.
Actual price is Rs. 12, standard price is Rs. 10 and 500 units were purchased. The material price variance is:
MPV = (AP - SP) x AQ = (12 - 10) x 500 = Rs. 1,000 adverse.
Actual quantity used is 480 units, standard quantity allowed is 500 units and the standard price is Rs. 10. The material usage variance is:
MUV = (SQ - AQ) x SP = (500 - 480) x 10 = Rs. 200 favorable.
Overhead is under-absorbed when:
Under-absorption means too little overhead was charged to production compared with the actual amount.
Activity-based costing (ABC) assigns overhead costs to products on the basis of:
ABC traces costs to activities and then to products using cost drivers.
In process costing, the weighted average method:
Weighted average pools opening WIP cost and current cost to compute the average cost per equivalent unit.
Normal loss in a process is:
Normal loss is inherent in the process and its cost is included in the cost of good output.