CPAR

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

MANAGEMENT ADVISORY SERVICES APRIL 28, 2023

Final Pre-board Examination – Batch 93 8:00 am to 11:00 am

Instructions: Choose the BEST answer for each of the following items. Mark only one answer for each
item on the Special Answer Sheet provided. Strictly no erasure allowed. Use Pencil No. 1 only.

1. Which of the following performance measures is/are nonfinancial?

I. Gross margin
II. Number of days missed due to workplace accidents.
a. I only c. Both I and II
b. II only d. Neither I nor II

ITEMS 2 AND 3 ARE BASED ON THE FOLLOWING:

A company manufactures and sells products. The master budget and the actual results for
July are as follows:

Actual July Sales Master Budget

Unit sales 12,000 10,000
Sales ₱132,000 ₱100,000
Variable costs 70,800 60,000
Contribution margin 61,200 40,000
Fixed costs 30,000 25,000
Operating income 31,200 15,000

2. If flexible budgeting is used, how much is contribution margin per unit based on actual sales
of 12,000 units?
a. ₱4.00 c. ₱4.55
b. ₱5.10 d. ₱3.33

3. How much is the operating income for the company using a flexible budget for July?
a. ₱31,200 c. ₱23,000
b. ₱21,000 d. ₱15,000

4. Under variable costing, which of the following would be expensed in the period incurred?
I. Fixed selling, general, and administrative expenses
II. Fixed factory overhead
a. I only c. Both I and II
b. II only d. Neither I nor II

ITEMS 5 AND 6 ARE BASED ON THE FOLLOWING:

In Year 1, its first year of operations, a company had the following manufacturing costs
when it produced 100,000 units and sold 75,000 units of its only product:

Fixed costs ₱195,000

Variable costs ₱160,000

5. Under direct costing, how much fixed manufacturing costs will be expensed in Year 1?
a. ₱0 c. ₱146,250
b. ₱48,750 d. ₱195,000

6. Under full absorption costing, how much fixed manufacturing costs will be expensed in Year
1?
a. ₱0 c. ₱146,250
b. ₱48,750 d. ₱195,000
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7. Management accounting and cost accounting

a. are required for recordkeeping as are financial accounting and tax accounting.
b. provide cost information about products and services, as well as information for
internal decision making.
c. require an entirely separate group of accounts than financial accounting.
d. focus solely on the determination of costs to produce a product or provide a service.

8. A manufacturer’s product has the following financial structure per unit in Year 1:
Selling price ₱160
Direct materials 20
Direct labor 15
Variable manufacturing overhead 12
Fixed manufacturing overhead 30
Shipping and handling – freight out 3
Fixed selling and administrative costs 10
Total costs ₱90

If total sales are 18,000 units and sales returns are ₱80,000, what is the total contribution
margin for Year 1?
a. ₱2,000,000 c. ₱1,900,000
b. ₱1,980,000 d. ₱ 900,000

9. A manufacturer has the following information for Year 1:

Sales ₱200,000
Contribution margin 120,000
Fixed costs 70,000
Income taxes 10,000

How much is the margin of safety?

a. ₱50,000 c. ₱82,667
b. ₱70,000 d. ₱83,333

10. A company is offered a one-time special order for its product and has the capacity to take
this order without losing current business. Variable costs per unit and total fixed costs will
be the same. The gross profit for the special order will be 20%, which is 10% less than the
usual gross profit. What impact will this order have on total fixed costs and operating
income?
a. Total fixed costs increase, and operating income increases.
b. Total fixed costs do not change, and operating income increases.
c. Total fixed costs decrease, and fixed costs per unit increase.
d. Total fixed costs do not change, and operating income does not change.

11. A corporation has a sales goal of ₱500,000 for the coming year. Based on this level of
activity, the corporation budgets its total expenses at ₱450,000. Actual sales are ₱480,000
and actual costs are ₱460,000. The corporation’s operations were
a. both efficient and effective. c. efficient but not effective.
b. neither efficient nor effective. d. effective but not efficient.

12. A company had an opportunity to use its capacity to produce an extra 4,000 units with a
contribution margin of ₱5 per unit or to rent out the space for ₱15,000. What was the
opportunity cost using the capacity?
a. ₱20,000 c. ₱15,000
b. ₱ 5,000 d. ₱35,000
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13. Inventoriable costs include

I. Product costs
II. Period costs
a. I only c. Both I and II
b. II only d. Neither I nor II

14. A company applied the high-low estimation for its costs data from July 1 through December
31 of the previous year:

Month Volume Costs

July 420 ₱7,260
August 470 7,840
September 370 6,820
October 364 6,834
November 410 7,110
December 520 8,350

If the cost behavior will remain the same next year, how many units must be sold if the
company plans to sell its product for ₱15 per unit and earn profit of ₱2 per unit?
a. 625 c. 453
b. 1,005 d. 1,018

15. A company has the following relationships:

Annual sales ₱1,200,000.00
Current liabilities ₱ 375,000.00
Days sales outstanding (DSO) (365-day year) 40.00
Inventory turnover ratio 4.80
Current ratio 1.20

The company’s current assets consist of cash, inventories, and accounts receivable. How
much cash does the company have on its balance sheet?
a. ₱ 8,333 c. ₱125,000
b. ₱ 68,493 d. ₱200,000

16. A company’s controller is adjusting next year’s budget to reflect the impact of an expected
4% inflation rate. Listed are selected items from next year’s budget before the adjustment:

Salaries expense ₱210,000

Insurance expense 120,000
Supplies expense 60,000
Depreciation expense 25,000
Interest expense on a ten-year
fixed rate bonds 27,000

After adjusting for the 4% inflation rate, what is the company’s total budget for the selected
items before taxes for next year?
a. ₱459,680 c. ₱458,350
b. ₱458,680 d. ₱457,600

17. In the relevant range, fixed costs are:

a. constant in total but decrease per unit as production levels increase.
b. constant in total but increase per unit as production levels increase.
c. constant in total but decrease per unit as production levels decrease.
d. constant per unit but increase in total as production levels increase.
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18. A company is preparing a Year 1 cash budget for the purchase of merchandise. Budgeted
data for Year 1 are:

Cost of goods sold ₱200,000

Accounts payable, January 1 20,000
Inventory, January 1 30,000
Inventory, December 31 43,000

Purchases will be made in 12 monthly equal amounts and paid for in the following month.
What is the company’s Year I budgeted cash payment for purchases of merchandise?
a. ₱210,750 c. ₱226,250
b. ₱215,250 d. ₱245,000

19. Management should implement a different or more expensive accounting system only when
a. The cost of the system exceeds the benefits.
b. Management thinks it appropriate.
c. The board of directors dictate a change.
d. The benefits of the system exceed the cost

ITEMS 20 AND 21 ARE BASED ON THE FOLLOWING:

A company manufactures backup generators and uses a standard cost system. The
following information is available for the month of September:

Budgeted direct labor hours 80,000 hours

Actual direct labor hours worked 84,000 hours
Actual direct labor cost incurred ₱840,000
Standard direct labor rate per hour ₱9
Standard direct labor per unit 4 hours

20. The direct labor price variance for September was:

a. ₱84,000 favorable c. ₱79,000 unfavorable
b. ₱84,000 unfavorable d. ₱79,000 favorable

21. The company planned on producing 25,000 generators, but only 20,000 units were actually
produced. What was the direct labor efficiency variance for September?
a. ₱36,000 unfavorable c. ₱40,000 unfavorable
b. ₱36,000 favorable d. ₱40,000 favorable

22. The purchase of higher than standard quality materials would likely result in:
a. an unfavorable material price variance and a favorable material usage variance.
b. a favorable material price variance but an unfavorable material efficiency variance.
c. an unfavorable material price variance and an unfavorable material usage variance.
d. a favorable material price variance and a favorable material usage variance.

23. The balanced scorecard reports management information regarding organizational

performance as defined by “critical success factors”. These critical success factors are often
classified as:
I. human resources
II. business process
III. customer satisfaction
IV. financial performance

a. I, III, and IV c. I, II, and IV

b. II, III, and IV d. I, II, III, and IV

24. Sales less variable costs less controllable fixed costs is referred to as the
a. contribution margin c. overhead efficiency variance
b. controllable margin d. volume variance
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25. How does responsibility accounting define and describe an investment center?
I. An investment center is responsible revenues, expenses, and invested
capital.
II. An investment center is similar to an independent business.
a. I only c. Both I and II
b. II only d. Neither I nor II

ITEMS 26 TO 29 ARE BASED ON THE FOLLOWING:

A corporation is considering the acquisition of a new machine. The machine can be

purchased for ₱100,000; it will cost ₱4,000 to install and ₱7,000 to transport to the
corporation’s plant. It is estimated that the machine will last 10 years, and it is expected to
be worth ₱4,000 after it is fully depreciated. Over its 10-year life, the machine is expected
to produce 3,000 units per year with a selling price of ₱300 and combined material and
labor costs of ₱250 per unit. Tax regulations permit machines of this type to be depreciated
using straight-line method over seven years with no consideration for salvage value. The
company has a marginal tax rate of 30%.

26. What is the net cash outflow at the beginning of the first year that the corporation should
use in a capital budgeting analysis?
a. ₱100,000 c. ₱111,000
b. ₱107,000 d. ₱ 97,500

27. How much depreciation should the company include in the calculation of after-tax cash flow
in its capital budgeting analysis for year 2?
a. ₱15,857 c. ₱11,500
b. ₱13,059 d. ₱11,100

28. What is the net cash flow for the second year that the company should use in a capital
budgeting analysis?
a. ₱150,000 c. ₱134,143
b. ₱109,757 d. ₱ 40,243

29. What is the net cash flow for Year 10 of the project that the company should use in a capital
budgeting analysis?
a. ₱105,000 c. ₱109,800
b. ₱107,800 d. ₱109,000

30. In equipment replacement decisions, which of the following costs are relevant?
I. Original fair market value of the old equipment
II. Current salvage value of the old equipment
III. Operating costs of the new equipment
IV. Cost of the new equipment

a. I, II, III, and IV c. I, III, and IV

b. II and III d. II, III, and IV

31. Which of the following methods of capital budgeting would require managers to evaluate
the peso amount of return?
a. Net present value c. Payback method
b. Internal rate of return d. Payback reciprocal
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32. The discounted cash flow model is considered the best for long-term decisions. Which of
the following are discounted cash flow models?
I. Net present value
II. Internal rate of return
III. Profitability index

a. I, II, and III c. I and III

b. I and II d. II and III

33. A corporation purchased an equipment for ₱46,000. The salvage value of the equipment is
₱6,000. Pertinent information follows:

Year Net Cash Flows Present Value Factor

1 ₱ 9,000 0.943
2 15,000 0.841
3 19,000 0.776
4 25,000 0.719

What is the discounted payback period in years?

a. 3.484 years c. 3.692 years
b. 3.217 years d. 3.564 years

34. A company has a degree of operating leverage of 4 after experiencing a 24% increase in
earnings before interest and taxes (EBIT) as a result of earning additional revenue. What
percentage of additional revenue did the company earn in order to experience a 24%
increase in earnings before interest and taxes?
a. 20% c. 4%
b. 96% d. 6%

35. A corporation’s debt is 30% of its capital structure, its preferred stock is 10%, and common
stock is the remainder. The cost of common stock is 10%, preferred stock and debt have
a cost of 10% each. The corporation pays a tax rate of 25%.

What is the corporation’s weighted average cost of capital?

a. 7% c. 9.25%
b. 8.25% d. 12%

36. Mr. X is the divisional manager of a corporation. Mr. X receives a bonus based on 25% of
the residual income from the division. The results of the division include: divisional
revenues, ₱1,000,000; divisional expenses, ₱600,000; and divisional assets, ₱2,000,000.
The required rate of return is 15%. How much is Mr. X’s bonus?
a. ₱25,000 c. ₱ 75,000
b. ₱30,000 d. ₱100,000

37. A company sells 20,000 high-quality refractor telescopes on credit, per annum, for ₱25,000
each. The company’s average accounts receivables and average inventory are ₱30,000,000
and ₱40,000,000, respectively.

The company’s average accounts receivable collection period (using 365-day year)
approximates:
a. 61 days c. 22 days
b. 29 days d. 17 days

38. Production of a special order will increase gross profit when the additional revenue from
the special order is greater than
a. The direct materials and labor costs in producing the order.
b. The fixed costs incurred in producing the order.
c. The indirect costs of producing the order.
d. The marginal cost of producing the order.
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39. A company is considering forgoing discounts in order to delay using its cash. Supplier credit
terms are 3/10 net 30. Assuming a 360-day year, what is the annual cost of credit if the
cash discount is not taken and the company pays net 30?
a. 18.00% c. 35.50%
b. 20.25% d. 55.62%

40. A company needs to determine its reorder point. What is the reorder point if the company’s
sales are 50,000 units per year, lead time is four weeks, and a safety stock of 750 units is
maintained? Assume that the company is closed for two weeks during the month of August.
a. 1,750 c. 4,250
b. 4,596 d. 4,750

41. The sale of property, plant, and equipment for an amount of cash less than net book value
would result in which of the following?
a. An increase in working capital and an increase in net income.
b. An increase in working capital and a decrease in net income.
c. A decrease in working capital and a decrease in net income.
d. A decrease in working capital and an increase in net income.

42. Which of the following are correct regarding a switch from a traditional inventory system to
a just-in-time inventory system?
I. Just-in-time systems maintain a much smaller level of inventory when
compared to traditional systems.
II. Inventory turnover increases with a switch from traditional to just-in-time
inventory system.
III. Inventory as a percentage of total assets increases with a switch to just-
in-time inventory system.

a. II and III c. I and II

b. I and III d. I, II, and III

43. A company has ending accounts receivable of ₱13,000, sales of ₱105,000, and beginning
accounts receivable of ₱15,000. Cash decreased in the period by ₱1,900. If total expenses
are ₱20,000, what is the accounts receivable turnover ratio?
a. 7.50 c. 7.00
b. 8.80 d. 7.05

44. An increase in wealth and an increase in overall confidence about the economic outlook will
cause:
a. an increase in the cost of capital.
b. a shift in the aggregate demand curve to the left.
c. a shift in the aggregate demand curve to the right.
d. Both A and B

45. Which section of the balanced scorecard would focus on results of operations and utilization
of assets?
I. Customer
II. Financial
III. Learning and innovation

a. II only c. II and III

b. I and II d. I, II, and III

ITEMS 46 TO 48 ARE BASED ON THE FOLLOWING:

X Company produces and sells a single product called Product. Annual production capacity
is 100,000 machine hours. It takes one machine hour to produce one unit of Product. Annual
demand for the product is expected to remain at 80,000 units. The selling price is expected
to remain at ₱10 per unit.
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Cost data for producing and selling the product are:

Variable costs (per unit):

Direct materials ₱1.50
Direct labor 2.50
Variable overhead 0.80
Variable selling 2.00

Fixed costs (per year):

Fixed overhead ₱100,000
Selling and administrative 50,000

46. X Company has 2,000 units of the product that were partially damaged in storage. It can
sell these units through regular channels at reduced prices. These 2,000 units will be
valueless unless sold this way. Sale of these units will not affect regular sales of the Product.
The relevant unit cost for determining the minimum selling price for these units is
a. ₱6.80 c. ₱4.00
b. ₱6.00 d. ₱2.00

47. Y Company offers to make and ship 25,000 units of Product directly to X Company’s
customers. If X Company accepts this offer, it will continue to produce and ship the
remaining 55,000 units. X Company’s fixed manufacturing overhead will drop to ₱90,000.
Its fixed selling and administrative expenses will remain unchanged. Variable selling
expenses will drop to ₱0.80 per unit for the 25,000 units produced and shipped by Y
Company.

What is the maximum amount per unit that X Company should pay Y Company for producing
and shipping the 25,000 units?
a. ₱6.80 c. ₱5.60
b. ₱6.40 d. ₱5.20

48. X Company receives a one-time special order for 5,000 units of Product. Acceptance of this
order will not affect the regular sales of 80,000 units. Variable selling costs for each of these
5,000 units will be ₱1.00.

What is the differential cost to X Company for accepting this special order?
a. ₱39,000 c. ₱30,250
b. ₱34,000 d. ₱29,000

49. To measure inventory management performance, a company monitors its inventory

turnover ratio. Listed are selected data from the company’s accounting records:

Current Year Prior Year

Sales ₱2,375,000 ₱2,455,000
Cost of goods sold 1,500,000 Not given
Ending inventory 350,500 259,100

If short-term interest rates are 4%, what was the company’s inventory turnover at the end
of the current period?
a. 5.45 c. 7.93
b. 4.92 d. 6.31
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50. A company developed its business plan based on the assumption that units would sell at a
price of ₱400 each. The variable costs for each unit were projected at ₱200, and the annual
fixed costs were budgeted at ₱80,000. The company’s after-tax profit objective was
₱160,000; the company’s effective tax rate is 30%. If no changes are made to the selling
price or cost structure, how many units must the company sell to break even?
a. 400 c. 350
b. 367 d. 250

51. There is a market for both Product X and Product Y. Which of the following costs and
revenues would be most relevant in deciding whether to sell Product X or process it further
to make Product Y?
a. Total cost of making X and the revenue from sale of X and Y.
b. Total cost of making Y and the revenue from sale of Y.
c. Additional cost of making Y, given the cost of making X, and additional revenue
from Y.
d. Additional cost of making X, given the cost of making Y, and additional revenue
from Y.

52. A company has a quick (acid test) ratio of 2.0, current assets of ₱5,000, and inventory of
₱2,000. What is the amount of current liabilities?
a. ₱6,000 c. ₱2,500
b. ₱3,500 d. ₱1,500

53. An oil well has been drilled. The cost of site preparation was ₱10,000. Drilling costs were
₱90,000. Once drilled, the well may or may not be completed. If completed, the costs are
₱40,000 to fracture the underground formation (enabling the oil to flow freely) and ₱30,000
for production casing pipe and other costs to put the well into production. If the well is
completed, the present value of recoverable oil is ₱130,000.

The well should be

a. completed because the net benefit is ₱50,000.
b. completed because the net benefit is ₱60,000.
c. not completed because the overall loss will be ₱40,000.
d. not completed because the overall loss will be ₱30,000.

54. The primary reason for adopting total quality management is to achieve
a. greater customer satisfaction.
b. reduced delivery time.
c. reduced delivery charges.
d. greater employee participation.

55. Management accounting differs from financial accounting in that financial accounting is
a. more oriented toward the future.
b. heavily involved with decision analysis and implementation of decisions.
c. primarily concerned with nonquantitative information.
d. primarily concerned with external financial reporting.

56. One of the purposes of standard costs is to

a. simplify costing procedures and expedite cost reports.
b. eliminate accounting for under- or overapplied manufacturing overhead at the end
of the period.
c. replace budgets and budgeting.
d. serve as a basis for product costing for external reporting purposes.
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57. The following information is available for the Wholesale Products Division of A Corporation:

Operating profit before interest and taxes ₱30,000,000

Depreciation expense 10,000,000
Change in working capital 5,000,000
Capital expenditures 4,000,000
Invested capital (total assets – current liabilities) 50,000,000
Weighted average cost of capital 10%
Tax rate 40%

What is the amount of economic value added (EVA) for the division?
a. ₱30,000,000 c. ₱25,000,000
b. ₱13,000,000 d. ₱ 5,000,000

58. A significant cost of quality that is not recorded in the accounting records is the
a. failure cost for a customer complaint center.
b. cost of reworking products to bring them up to specification.
c. opportunity costs of forgone future sales.
d. appraisal cost for product equipment.

59. A Company, which has three departments, recently reported the following results:

A B C
Sales revenue ₱12,000 ₱ 48,000 ₱ 40,000
Less operating costs 11,400 59,800 50,500
Operating income (loss) ₱ 600 ₱(11,800) ₱(10,500)

The company incurred variable operating costs as well as ₱25,000 of fixed operating costs.
The ₱25,000 amount was allocated to A, B, and C on the basis of sales revenue and is
included in the cost figures noted above.

Which department(s), if any, should be closed if none of the fixed operating costs can be
avoided?
a. Department A. c. Department C.
b. Department B. d. Departments B and C.

60. In a decentralized company in which divisions may buy goods from one another, the transfer
pricing system should be designed primarily to
a. increase the consolidated value of inventory.
b. allow division managers to buy from outsiders.
c. minimize the degree of autonomy of division managers.
d. aid in the appraisal and motivation of managerial performance.

61. At full capacity, relevant costs of accepting a special order include which of the following?
I. Contribution margin in pesos that will be forfeited to produce the special
order.
II. Variable costs
a. I only c. Both I and II
b. II only d. Neither I nor II

62. A company is considering an investment in a machine that would reduce annual labor costs
by ₱30,000. The machine has an expected life of 10 years with no salvage value. The
machine would be depreciated according to the straight-line method over its useful life. The
company's marginal tax rate is 30 percent.

Assume that the company will invest in the machine if it generates an internal rate of return
of 16 percent. What is the maximum amount the company can pay for the machine and
still meet the internal rate of return criterion?
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a. P118,700 c. P187,500
b. P210,000 d. P144,990

63. A company uses direct costing. At the end of its first year of operations, 2,000 units of
inventory are on hand. Fixed manufacturing costs are ₱40 per unit. Which of the following
statements is/are correct?

I. The use of absorption costing, rather than variable costing, would result in
higher net income.
II. The use of absorption costing, rather than variable costing, would result in
higher ending inventory.

a. I only c. Both I and II

b. II only d. Neither I nor II

64. A company has ₱2.5 million in inventory and ₱2 million in accounts receivable. Its average
daily sales are ₱100,000. The firm’s payables deferral period is 30 days and average daily
cost of sales are ₱50,000. What is the length of the firm’s cash conversion period?
a. 100 days. c. 50 days.
b. 60 days. d. 40 days.

65. A company has the following characteristics:

Sales ₱1,000
Total assets ₱1,000
Total debt/Total assets 35.00%
Basic earning power (BEP) ratio 20.00%
Tax rate 40.00%
Interest rate on total debt 4.57%

What is the company’s ROE?

a. 11.04% c. 16.99%
b. 12.31% d. 28.31%

66. Which of the following statements represents a similarity between financial and managerial
accounting?
a. Both are useful in providing information for external users.
b. Both are governed by GAAP.
c. Both rely heavily on published financial statements.
d. Both draw upon data from an organization’s accounting system.

67. When the level of disposable income is P40,000, the level of consumption is P38,000. When
the level of disposable income increases to P48,000, the level of consumption increase by
P6,000. What is the marginal propensity to consume?
a. 1.33 c. 0.95
b. 1.16 d. 0.75

68. A company manufactures computer tables. The tabletops are produced by the company,
but the keyboard draw is purchased from an outside supplier. The assembly department
takes a manufactured table and attaches the keyboard draw. It takes 30 minutes of labor
to assemble a keyboard draw to a table.

The company follows a policy of producing enough tables to ensure that 30% of next
month’s sales are in the finished goods inventory. The company also purchases sufficient
raw materials to ensure that raw materials inventory is 55% of the following month’s
scheduled production. The company’s sales budget in units for the fourth quarter of Year 1
follows:
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October 2,400
November 3,000
December 2,100

The company’s ending inventory in units for September 30, Year 1, are:

Finished goods 1,600

Raw materials (keyboard draws) 3,800

What is the number of computer tables to be produced during November in Year 1?

a. 1,825 tables c. 2,340 tables
b. 2,210 tables d. 2,730 tables

69. A company uses the coefficient of correlation to measure the strength of the cost volume
relationships used in planning. Which of the following would be correct regarding costs and
volume with respect to the coefficient of correlation?

I. Cost volume profit relationships are not only positive but also assumed to
be proportional.
II. A coefficient of correlation of zero would not be expected for fixed costs.

a. I only c. Both I and II

b. II only d. Neither I nor II

70. Which of the following budgets is prepared independently of the Sales Budget?
a. Production budget c. Cash budget
b. Capital expenditure budget d. Selling and administrative budget

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