Question

1. Which of the following statements concerning zero-based budgeting is true?

A.Zero-based budgeting specifies that every line item must be rounded to the nearest thousand dollar increment.

B.Zero-based budgeting specifies that every expenditure must be justified.

C.Zero-based budgeting is a variation of the incremental approach.

D.Zero-based budgeting is mainly used to assess research and development departments and similar departments where the relationship between inputs and outputs is weakest.

2.The Mighty Manufacturing Company expects to incur the following per unit costs for 1,000 units of production:

  

Direct materials	2 lb. @ $40 = $80
Direct labor	1 hr. @ $48 = $48
Variable overhead	75% of direct labor costs
Fixed overhead	50% of direct labor costs

What is the total cost reported in the manufacturing cost budget?

A)	$128,000
B)	$ 47,000
C)	$ 94,000
D)	$ 80,000

Answer 1

1.Option B (Zero-based budgeting specifies that every expenditure must be justified.)

Zero-based budgeting is a method of budgeting in which all expenses must be justified for each new period.Therefore option b i.e.,Zero-based budgeting specifies that every expenditure must be justified is true about zero based budgeting.

2.Option C($94000)

Direct materials			1000/2*80	40000
Direct labor			500*48	24000
Variable overhead			24000*75%	18000
Fixed overhead			24000*50%	12000
				94000