Shared Flashcard Set

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MGT5
Chapter 9-12 Final Exam Review
638
Management
07/24/2011

Additional Management Flashcards

 


 

Cards

Term
A budget can be a means of communicating a company's objectives to external parties. (T/F)
Definition
False
Term
A benefit of budgeting is that it provides objectives for evaluating performance (T/F)
Definition
True
Term
A budget can be used as a basis for evaluating performance (T/F)
Definition
True
Term
A well-developed budget can operate and enforce itself. (T/F)
Definition
False
Term
The budget itself and the administration of the budget are the responsibility of the accounting department. (T/F)
Definition
False
Term
The flow of input data for budgeting should be from the highest levels of responsibility to the lowest. (T/F)
Definition
False
Term
Effective budgeting requires clearly defined lines of authority and responsibility. (T/F)
Definition
True
Term
Budgets can have a positive or negative effect on human behavior depending on the manner in which the budget is developed and administered. (T/F)
Definition
True
Term
A budget can facilitate the coordination of activities among the segments of a large company. (T/F)
Definition
True
Term
The longer the budget period, the more reliable the estimates of future outcomes. (T/F)
Definition
False
Term
The budget committee has the responsibility for coordinating the preparation of the budget. (T/F)
Definition
True
Term
The budget is developed within the framework of a sales forecast. (T/F)
Definition
True
Term
Budgeting and long-range planning are two terms that describe the same process. (T/F)
Definition
False
Term
Long-range plans are used more as a review of progress toward long-term goals rather than an evaluation of specific results to be achieved. (T/F)
Definition
True
Term
The master budget reflects management's long-term plans encompassing five years or more. (T/F)
Definition
False
Term
The master budget consists of operating and financial budgets. (T/F)
Definition
True
Term
Financial budgets must be completed before the operating budgets can be prepared. (T/F)
Definition
False
Term
The direct materials budget must be completed before the production budget because the quantity of materials available for production must be known. (T/F)
Definition
False
Term
The number of direct labor hours needed for production is obtained from the production budget. (T/F)
Definition
True
Term
A manufacturing overhead budget is not needed if the company develops a predetermined overhead rate to apply overhead. (T/F)
Definition
False
Term
The manufacturing overhead budget generally has separate sections for variable, mixed, and fixed costs. (T/F)
Definition
False
Term
A production budget should be prepared before the sales budget. (T/F)
Definition
False
Term
The direct materials budget contains both quantity and cost data. (T/F)
Definition
True
Term
The budgeted income statement indicates the expected profitability of operations for the next year. (T/F)
Definition
True
Term
If a monthly cash budget is prepared properly, there will never be a cash deficiency at the end of any month. (T/F)
Definition
False
Term
The budgeted balance sheet is prepared entirely from the budgets for the current year. (T/F)
Definition
False
Term
The starting point when budgeting for a not-for-profit organization is generally to budget expenditures first. (T/F)
Definition
True
Term
A merchandiser has a merchandise purchases budget rather than a production budget. (T/F)
Definition
True
Term
A critical factor in budgeting for a service firm is to determine the amount of products to purchase. (T/F)
Definition
False
Term
The budget itself and the administration of the budget are entirely accounting responsibilities. (T/F)
Definition
False
Term
Financial planning models and statistical and mathematical techniques may be used in forecasting sales. (T/F)
Definition
True
Term
The direct materials budget is derived from the direct materials units required for production plus desired ending direct materials units less beginning direct materials units. (T/F)
Definition
True
Term
The manufacturing overhead budget shows the expected manufacturing overhead costs. (T/F)
Definition
True
Term
In order to develop a budgeted balance sheet, the previous year's balance sheet is needed. (T/F)
Definition
True
Term
In service enterprises, the critical factor in budgeting is coordinating materials and equipment with anticipated services. (T/F)
Definition
False
Term
Budgets are statements of management's plans in financial terms (T/F)
Definition
True
Term

 

Why are budgets useful in the planning process?

a.   They provide management with information about the company's past performance.

b.   They help communicate goals and provide a basis for evaluation.

c.   They guarantee the company will be profitable if it meets its objectives.

d.   They enable the budget committee to earn their paycheck.

 

Definition
B
Term

A budget

a.   is a substitute for management.

b.   is an aid to management.

c.   can operate or enforce itself.

d.   is the responsibility of the accounting department.

Definition
B
Term

Accounting generally has the responsibility for

a.   setting company goals.

b.   expressing the budget in financial terms.

c.   enforcing the budget.

d.   administration of the budget.

Definition
B
Term

 

Which one of the following is not a benefit of budgeting?

a.   It facilitates the coordination of activities.

b.   It provides definite objectives for evaluating performance.

c.   It provides assurance that the company will achieve its objectives.

d.   It requires all levels of management to plan ahead on a recurring basis.

 

Definition
C
Term

Budgeting is usually most closely associated with which management function?

a.   Planning

b.   Directing

c.   Motivating

d.   Controlling

Definition
A
Term

Which of the following items does not follow from the adoption of a budget?

a.   Promote efficiency

b.   Deterrent to waste

c.   Basis for performance evaluation

d.   Guarantee of accomplishing the profit objective

Definition
D
Term

Which is true of budgets?

a.   They are voted on and approved by stockholders.

b.   They are used in the planning, but not in the control, process.

c.   There is a standard form and structure for budgets.

d.   They are used in performance evaluation.

Definition
D
Term

A common starting point in the budgeting process is

a.   expected future net income.

b.   past performance.

c.   to motivate the sales force.

d.   a clean slate, with no expectations.

Definition
B
Term

If budgets are to be effective, all of the following must be present except

a.   acceptance at all levels of management.

b.   research and analysis in setting realistic goals.

c.   stockholders' approval of the budget.

d.   sound organizational structure.

Definition
C
Term

If budgets are to be effective, there must be

a.   a history of successful operations.

b.   independent verification of budget goals.

c.   an organizational structure with clearly defined lines of authority and responsibility.

d.   excess plant capacity.

Definition
C
Term

It is important that budgets be accepted by

a.   division managers.

b.   department heads.

c.   supervisors.

d.   all of these.

Definition
D
Term

Which of the following statements about budget acceptance in an organization is true?

a.   The most widely accepted budget by the organization is the one prepared by top management.

b.   The most widely accepted budget by the organization is the one prepared by the department heads.

c.   Budgets are hardly ever accepted by anyone except top management.

d.   Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process.

Definition
D
Term

Top management notices a variation from budget and an investigation of the difference reveals that the department manager could not be expected to have controlled the variation. Which of the following statements is applicable?

a.   Department managers should be held accountable for all variances from budgets for their departments.

b.   Department managers should only be held accountable for controllable variances for their departments.

c.   Department managers should be credited for favorable variances even if they are beyond their control.

d.   Department managers' performances should not be evaluated based on actual results to budgeted results.

Definition
B
Term

An unrealistic budget is more likely to result when it

a.   has been developed in a top down fashion.

b.   has been developed in a bottom up fashion.

c.   has been developed by all levels of management.

d.   is developed with performance appraisal usages in mind.

Definition
A
Term

A budget is most likely to be effective if

a.   it is used to assess blame when things do not occur according to plans.

b.   it is not used to evaluate a manager's performance.

c.   employees and managers at the lower levels do not get involved in the budgeting process.

d.   it has top management support.

Definition
D
Term

In many companies, responsibility for coordinating the preparation of the budget is assigned to

a.   the company's independent certified public accountants.

b.   the company's internal auditors.

c.   the company's board of directors.

d.   a budget committee.

Definition
D
Term

A budget period should be

a.   monthly.

b.   for a year or more.

c.   long-term.

d.   long enough to provide an obtainable goal under normal business conditions.

Definition
D
Term

If a company has adopted continuous budgeting, the budget will show plans for

a.   every day.

b.   a full year ahead.

c.   the current year and the next year.

d.   at least five years.

Definition
B
Term

The most common budget period is

a.   one month.

b.   three months.

c.   six months.

d.   one year.

Definition
D
Term

Budget development for the coming year usually starts

a.   a year in advance.

b.   the first month of the year to be budgeted.

c.   several months before the end of the current year.

d.   the last month of the previous year.

Definition
C
Term

The budget committee would not normally include the

a.   research director.

b.   treasurer.

c.   sales manager.

d.   external auditor.

Definition
D
Term

The budget committee in a company is often headed by the

a.   president.

b.   controller.

c.   treasurer.

d.   budget director.

Definition
D
Term

Long-range planning

a.   generally presents more detailed information than an annual budget.

b.   generally encompasses a longer period of time than an annual budget.

c.   is usually more accurate than an annual budget.

d.   is prepared on a quarterly basis if the budget is prepared on a quarterly basis.

Definition
B
Term

Long-range planning usually encompasses a period of at least

a.   six months.

b.   1 year.

c.   5 years.

d.   10 years.

Definition
C
Term

Which of the following is not a proper match-up?

a.   Long range planning ¬® Strategies

b.   Budgeting ¬® Short-term goals

c.   Long-range planning ¬® 5 years

d.   Budgeting ¬® Long-term goals

Definition
D
Term

Which is the last step in developing the master budget?

a.   Preparing the budgeted balance sheet

b.   Preparing the cost of goods manufactured budget

c.   Preparing the budgeted income statement

d.   Preparing the cash budget

Definition
A
Term

If there were 60,000 pounds of raw materials on hand on January 1, 120,000 pounds are desired for inventory at January 31, and 360,000 pounds are required for January production, how many pounds of raw materials should be purchased in January?

a.   300,000 pounds

b.   480,000 pounds

c.   240,000 pounds

d.   420,000 pounds

Definition
D
Term

The total direct labor hours required in preparing a direct labor budget are calculated using the

a.   sales forecast.

b.   production budget.

c.   direct materials budget.

d.   sales budget.

Definition
B
Term

The direct materials and direct labor budgets provide information for preparing the

a.   sales budget.

b.   production budget.

c.   manufacturing overhead budget.

d.   cash budget.

Definition
D
Term

A sales forecast

a.   shows a forecast for the firm only.

b.   shows a forecast for the industry only.

c.   shows forecasts for the industry and for the firm.

d.   plays a minor role in the development of the master budget.

Definition
C
Term

Which of the following is not an operating budget?

a.   Direct labor budget

b.   Sales budget

c.   Production budget

d.   Cash budget

Definition
D
Term

Which of the following is not a financial budget?

a.   Capital expenditure budget

b.   Cash budget

c.   Manufacturing overhead budget

d.   Budgeted balance sheet

Definition
C
Term

Which of the following is done to improve the reliability of the sales forecast?

a.   Employ financial planning models

b.   Lengthen the planning horizon to more than a year

c.   Rely solely on outside consultants

d.   Use the sales forecasts from the previous year

Definition
A
Term

The financial budgets include the

a.   cash budget and the selling and administrative expense budget.

b.   cash budget and the budgeted balance sheet.

c.   budgeted balance sheet and the budgeted income statement.

d.   cash budget and the production budget.

Definition
B
Term

The culmination of preparing operating budgets is the

a.   budgeted balance sheet.

b.   production budget.

c.   cash budget.

d.   budgeted income statement.

Definition
D
Term

The following information is taken from the production budget for the first quarter:

Beginning inventory in units                                             1,200

Sales budgeted for the quarter                                     456,000

Capacity in units of production facility                            472,000

How many finished goods units should be produced during the quarter if the company desires 3,200 units available to start the next quarter?

a.   458,000

b.   454,000

c.   474,000

d.   459,200

Definition
A
Term

An overly optimistic sales budget may result in

a.   increases in selling prices late in the year.

b.   insufficient inventories.

c.   increased sales during the year.

d.   excessive inventories.

Definition
D
Term

In a production budget, total required production units are the budgeted sales units plus

a.   beginning finished goods units.

b.   desired ending finished goods units.

c.   desired ending finished goods units plus beginning finished goods units.

d.   desired ending finished goods units minus beginning finished goods units.

Definition
D
Term

The direct materials budget details

1.    the quantity of direct materials to be purchased.

2.    the cost of direct materials to be purchased.

a.   1

b.   2

c.   both 1 and 2

d.   neither 1 nor 2

Definition
C
Term

The production budget shows expected unit sales of 32,000. Beginning finished goods units are 5,600. Required production units are 33,600. What are the desired ending finished goods units?

a.   4,000

b.   5,600

c.   6,400

d.   7,200

Definition
D
Term

The production budget shows expected unit sales are 50,000. The required production units are 52,000. What are the beginning and desired ending finished goods units, respectively?

        Beginning Units            Ending Units

a.            5,000                                 3,000

b.            3,000                                 5,000

c.             2,000                                 5,000

d.            5,000                                 2,000

Definition
B
Term

The production budget shows that expected unit sales are 48,000. The total required units are 54,000. What are the required production units?

a.   6,000

b.   9,000

c.   12,000

d.   Cannot be determined from the data provided.

Definition
D
Term

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?

a.   .44 pounds

b.   4.0 pounds

c.   4.4 pounds

d.   Cannot be determined from the data provided.

Definition
B
Term

The direct materials budget shows:

Desired ending direct materials                      48,000 pounds

Total materials required                                72,000 pounds

Direct materials purchases                             63,200 pounds

The total direct materials needed for production is

a.   24,000 pounds.

b.   8,800 pounds.

c.   15,200 pounds.

d.   135,200 pounds.

Definition
A
Term

If the required direct materials purchases are 18,000 pounds, the direct materials required for production is three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct materials in pounds?

a.   45,000

b.   9,000

c.   27,000

d.   18,000

Definition
C
Term

Cromwell Company makes and sells umbrellas. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available:

                                                                               Variable Cost Per Unit Sold             Monthly Fixed Cost

Sales commissions                                                        $0.60                                             $  3,000

Shipping                                                                              1.20

Advertising                                                                         0.30

Executive salaries                                                                                                                   20,000

Depreciation on office equipment                                                                                     4,000

Other                                                                                    0.35                                               14,000

Expenses are paid in the month incurred. If the company has budgeted to sell 6,000 umbrellas in October, how much is the total budgeted variable selling and administrative expenses for October?

a.   $12,600

b.   $13,800

c.   $76,200

d.   $14,700

Definition
D
Term

Which of the following expenses would not appear on a selling and administrative expense budget?

a.   Sales commissions

b.   Depreciation

c.   Property taxes

d.   Indirect labor

Definition
D
Term

Which of the following would not appear as a fixed expense on a selling and administrative expense budget?

a.   Freight-out

b.   Office salaries

c.   Property taxes

d.   Depreciation

Definition
A
Term

A master budget consists of

a.   an interrelated long-term plan and operating budgets.

b.   financial budgets and a long-term plan.

c.   interrelated financial budgets and operating budgets.

d.   all the accounting journals and ledgers used by a company.

Definition
C
Term

The starting point in preparing a master budget is the preparation of the

a.   production budget.

b.   sales budget.

c.   purchasing budget.

d.   personnel budget.

Definition
B
Term

Which one of the following is not needed in preparing a production budget?

a.   Budgeted unit sales

b.   Budgeted raw materials

c.   Beginning finished goods units

d.   Ending finished goods units

Definition
B
Term

A company budgeted unit sales of 136,000 units for January, 2011 and 160,000 units for February, 2011. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 40,800 units of inventory on hand on December 31, 2010, how many units should be produced in January, 2011 in order for the company to meet its goals?

a.   143,200 units

b.   136,000 units

c.   128,800 units

d.   184,000 units

Definition
A
Term

At January 1, 2011, Estrada, Inc. has beginning inventory of 2,000 surfboards. Estrada estimates it will sell 5,000 units during the first quarter of 2011 with a 12% increase in sales each quarter. Estrada’s policy is to maintain an ending inventory equal to 25% of the next quarter’s sales. Each surfboard costs $100 and is sold for $150. How much is budgeted sales revenue for the third quarter of 2011?

a.   $225,000

b.   $975,000

c.   $940,800

d.   $6,272

Definition
C
Term

Grayson.Com plans to sell 4,000 purple lawn chairs during May, 3,800 in June, and 4,000 during July. The company keeps 15% of the next month’s sales as ending inventory. How many units should Grayson.Com produce during June?

a.   3,830

b.   4,400

c.   3,770

d.   Not enough information to determine. 

Definition
A
Term

Jacobsen, Inc. is planning to sell 200 buckets and produce 190 buckets during March. Each bucket requires 500 grams of plastic and one-half hour of direct labor. Plastic costs $10 per 500 grams and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Jacobsen has 300 kilos of plastic in beginning inventory and wants to have 200 kilos in ending inventory. How much is the total amount of budgeted direct labor for March?

a.   $1,500

b.   $3,000

c.   $1,425

d.   $2,850

Definition
C
Term

Lester Production is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Lester has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory.

 

What is the total amount to be budgeted for manufacturing overhead for the month?

a.   $1,914

b.   $1,980

c.   $7,656

d.   $7,920

Definition
A
Term

Lester Production is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Lester has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory.

 

What is the total amount to be budgeted for direct labor for the month?

a.   $1,740

b.   $6,960

c.   $1,800

d.   $27,840

Definition
A
Term

Lester Production is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Lester has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory.

 

What is the total amount to be budgeted in pounds for direct materials to be purchased for the month?

a.   25,520

b.   25,120

c.   25,920

d.   26,800

Definition
C
Term

Davies Nursery plans to sell 160 potted plants during April and 120 units in May. Davies Nursery keeps 15% of the next month’s sales as ending inventory. How many units should Davies Nursery produce during April?

a.   154

b.   166

c.   160

d.   178

Definition
A
Term

Neufeld Company makes and sells widgets. The company is in the process of preparing its Selling and Administrative Expense Budget for the month. The following budget data are available:

Item                                                               Variable Cost Per Unit Sold             Monthly Fixed Cost

Sales commissions                                                            $1                                                  $7,500

Shipping                                                                                $3

Advertising                                                                          $4

Executive salaries                                                                                                                   $90,000

Depreciation on office equipment                                                                                    $3,000

Other                                                                                     $2                                                   $4,500

Expenses are paid in the month incurred. If the company has budgeted to sell 60,000 widgets in October, how much is the total budgeted selling and administrative expenses for October?

a.   $705,000

b.   $105,000

c.   $697,500

d.   $600,000

Definition
A
Term

DeVito Exports, Inc. budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels are planned for the fiscal year of July 1, 2010 to June 30, 2011:

                                           June 30, 2011             June 30, 2010

Raw Materials                   3,000 kilos                   2,000 kilos

Three kilos of raw materials are needed to produce each unit of finished product. If DeVito Exports plans to produce 280,000 units during the 2010-2011 fiscal year, how many kilos of materials will the company need to purchase for its production during the year?

a.   841,000

b.   843,000

c.   840,000

d.   839,000

Definition
A
Term

The following information is taken from the production budget for the first quarter:

Beginning inventory in units                                     900

Sales budgeted for the quarter                      342,000

Production capacity in units                             354,000

How many finished goods units should be produced during the quarter if the company desires 2,400 units available to start the next quarter?

a.   343,500

b.   340,500

c.   355,500

d.   344,400

Definition
A
Term

Sandler Company has 6,000 units in beginning finished goods. The sales budget shows expected sales to be 24,000 units. If the production budget shows that 28,000 units are required for production, what was the desired ending finished goods?

a.   2,000.

b.   6,000.

c.   10,000.

d.   18,000.

Definition
C
Term

Andersen Company required production for June is 66,000 units. To make one unit of finished product, three pounds of direct material Z are required. Actual beginning and desired ending inventories of direct material Z are 150,000 and 165,000 pounds, respectively. How many pounds of direct material Z must be purchased?

a.   189,000.

b.   198,000.

c.   204,000.

d.   213,000.

Definition
D
Term

Walton Company determines that 27,000 pounds of direct materials are needed for production in July. There are 1,600 pounds of direct materials on hand at July 1 and the desired ending inventory is 1,400 pounds. If the cost per unit of direct materials is $3, what is the budgeted total cost of direct materials purchases?

a.   79,200.

b.   80,400.

c.   81,600.

d.   82,800.

Definition
B
Term

Giles Company is preparing its direct labor budget for May. Projections for the month are that 16,700 units are to be produced and that direct labor time is three hours per unit. If the labor cost per hour is $12, what is the total budgeted direct labor cost for May?

a.   579,600.

b.   590,400.

c.   601,200.

d.   648,000.

Definition
C
Term

Flint Company estimates its sales at 120,000 units in the first quarter and that sales will increase by 12,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale.

 

Production in units for the third quarter should be budgeted at

a.   147,000.

b.   138,000.

c.   183,000.

d.   144,000.

Definition
A
Term

Flint Company estimates its sales at 120,000 units in the first quarter and that sales will increase by 12,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale.

 

Cash collections for the third quarter are budgeted at

a.   $2,034,000.

b.   $2,952,000.

c.   $3,546,000.

d.   $4,104,000.

Definition
C
Term

Haley Company estimates its sales at 100,000 units in the first quarter and that sales will increase by 10,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $35. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale.

 

Production in units for the third quarter should be budgeted at

a.   122,500.

b.   115,000.

c.   152,500.

d.   120,000.

Definition
A
Term

Haley Company estimates its sales at 100,000 units in the first quarter and that sales will increase by 10,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $35. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale.

 

Cash collections for the third quarter are budgeted at

a.   $2,373,000.

b.   $3,444,000.

c.   $4,137,000.

d.   $4,788,000.

Definition
C
Term

A company determined that the budgeted cost of producing a product is $30 per unit. On June 1, there were 60,000 units on hand, the sales department budgeted sales of 225,000 units in June, and the company desires to have 90,000 units on hand on June 30. The budgeted cost of goods manufactured for June would be

a.   $5,850,000.

b.   $8,550,000.

c.   $6,750,000.

d.   $7,650,000.

Definition
D
Term

Of the following items, which one is not obtained from an individual operating budget?

a.   Selling and administrative expenses

b.   Accounts receivable

c.   Cost of goods sold

d.   Sales

Definition
B
Term

Which of the following statements about a budgeted income statement is not true?

a.   The budgeted income statement is prepared after the financial budgets are prepared.

b.   The budgeted income statement is prepared on the accrual basis of accounting.

c.   The budgeted income statement can be prepared in a multiple-step format.

d.   The budgeted income statement is prepared using the individual operating budgets.

Definition
A
Term

A company has budgeted direct materials purchases of $200,000 in March and $320,000 in April. Past experience indicates that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month. During April, the following items were budgeted:

Wages Expense                                                      $100,000

Purchase of office equipment                               48,000

Selling and Administrative Expenses                   32,000

Depreciation Expense                                               24,000

The budgeted cash disbursements for April are

a.   $432,000.

b.   $284,000.

c.   $464,000.

d.   $488,000.

Definition
C
Term

Morrison Company has the following budgeted sales: January $80,000, February $120,000, and March $100,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 50% are collected in the month of sale, and 50% the next month. The total expected cash receipts during March are:

a.   $112,000.

b.   $106,000.

c.   $105,000.

d.   $100,000.

Definition
B
Term

Neal Merchandising Company expects to purchase $90,000 of materials in July and $105,000 of materials in August. Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August's cash disbursements for materials purchases be?

a.   $67,500

b.   $78,750

c.   $101,250

d.   $105,000

Definition
C
Term

The single most important output in preparing financial budgets is the

a.   sales forecast.

b.   determination of the unit cost of the product.

c.   cash budget.

d.   budgeted income statement.

Definition
C
Term

Which of the following does not appear as a separate section on the cash budget?

a.   Cash receipts

b.   Cash disbursements

c.   Capital expenditures

d.   Financing

Definition
C
Term

The financing section of a cash budget is needed if there is a cash deficiency or if the ending cash balance is less than

a.   the prior years.

b.   management's minimum required balance.

c.   the amount needed to avoid a service charge at the bank.

d.   the industry average.

Definition
B
Term

Beginning cash balance plus total receipts

a.   equals ending cash balance.

b.   must equal total disbursements.

c.   equals total available cash.

d.   is the excess of available cash over disbursements.

Definition
C
Term

The projection of financial position at the end of the budget period is found on the

a.   budgeted income statement.

b.   cash budget.

c.   budgeted balance sheet.

d.   sales budget.

Definition
C
Term

What is the proper preparation sequencing of the following budgets?

1.    Budgeted Balance Sheet

2.    Sales Budget

3.    Selling and Administrative Budget

4.    Budgeted Income Statement

a.   1, 2, 3, 4

b.   2, 3, 1, 4

c.   2, 3, 4, 1

d.   2, 4, 1, 3

Definition
C
Term

Munson Company reported the following information for 2011:

                                          October                   November              December

Budgeted sales           $930,000                  $870,000               $1,080,000

·         All sales are on credit.

·         Customer amounts on account are collected 50% in the month of sale and 50% in the following month.

How much cash will Munson receive in November?

a.   $435,000

b.   $975,000

c.   $900,000

d.   $870,000

Definition
C
Term

The following information was taken from Noble Company’s cash budget for the month of July:

Beginning cash balance                                $300,000

Cash receipts                                                      190,000

Cash disbursements                                        340,000

If the company has a policy of maintaining a minimum end of the month cash balance of $250,000, the amount the company would have to borrow is

a.   $100,000.

b.   $50,000.

c.   $150,000.

d.   $60,000.

Definition
A
Term

The cash budget reflects

a.   all revenues and all expenses for a period.

b.   expected cash receipts and cash disbursements from all sources.

c.   all the items that appear on a budgeted income statement.

d.   all the items that appear on a budgeted balance sheet.

Definition
B
Term

The following credit sales are budgeted by Peckman Company:

January                                           $136,000

February                                          200,000

March                                                280,000

April                                                   240,000

The company's past experience indicates that 70% of the accounts receivable are collected in the month of sale, 20% in the month following the sale, and 8% in the second month following the sale. The anticipated cash inflow for the month of April is

a.   $246,880.

b.   $224,000.

c.   $240,000.

d.   $235,200.

Definition
C
Term

Owens Company's cash budget showed total available cash less cash disbursements. What does this amount equal?

a.   Ending cash balance

b.   Total cash receipts

c.   The excess of available cash over cash disbursements

d.   The amount of financing required

Definition
C
Term

Which one of the following sections would not appear on a cash budget?

a.   Cash receipts

b.   Financing

c.   Investing

d.   Cash disbursements

Definition
C
Term

A company's past experience indicates that 60% of its credit sales are collected in the month of sale, 30% in the next month, and 5% in the second month after the sale; the remainder is never collected. Budgeted credit sales were:

January                                   $240,000

February                                  144,000

March                                        360,000

The cash inflow in the month of March is expected to be

a.   $271,200.

b.   $205,200.

c.   $216,000.

d.   $259,200.

Definition
A
Term

Which one of the following items would never appear on a cash budget?

a.   Office salaries expense

b.   Interest expense

c.   Depreciation expense

d.   Travel expense

Definition
C
Term

Zimmer Company reported the following information for 2011:

                                                      October                 November              December

Budgeted sales                       $230,000                  $220,000                  $270,000

Budgeted purchases             $120,000                  $128,000                  $144,000

·         All sales are on credit.

·         Customer amounts on account are collected 50% in the month of sale and 50% in the following month.

·         Cost of goods sold is 35% of sales.

·         Zimmer purchases and pays for merchandise 60% in the month of acquisition and 40% in the following month.

·         Accounts payable is used only for inventory acquisitions.

How much cash will Zimmer receive during November?

a.   $110,000

b.   $245,000

c.   $225,000

d.   $220,000

Definition
C
Term

Zimmer Company reported the following information for 2011:

                                                      October                 November              December

Budgeted sales                       $230,000                  $220,000                  $270,000

Budgeted purchases             $120,000                  $128,000                  $144,000

·         Cost of goods sold is 35% of sales.

·         Zimmer purchases and pays for merchandise 60% in the month of acquisition and 40% in the following month.

·         Accounts payable is used only for inventory acquisitions.

How much is the budgeted balance for Accounts Payable at October 31, 2011?

a.   $48,000

b.   $72,000

c.   $102,000

d.   $51,200

Definition
A
Term

Wesley Company reported the following information for 2011:

                                                      October                 November              December

Budgeted sales                       $620,000                  $580,000                  $720,000

 

·         All sales are on credit.

·         Customer amounts on account are collected 50% in the month of sale and 50% in the following month.

How much is the November 30, 2011 budgeted Accounts Receivable?

a.   $600,000

b.   $360,000

c.   $310,000

d.   $290,000

Definition
D
Term

Troyer Company reported the following information for 2011:

                                                      October                 November              December

Budgeted purchases             $180,000                  $192,000                  $216,000

·         Operating expenses are: Salaries, $75,000; Depreciation, $30,000; Rent, $15,000; Utilities, $21,000

·         Operating expenses are paid during the month incurred.

·         Accounts payable is used only for inventory acquisitions.

How much is the budgeted amount of cash to be paid for operating expenses in November?

a.   $303,000

b.   $111,000

c.   $141,000

d.   $333,000

Definition
B
Term

During September, the capital expenditure budget indicates a $280,000 purchase of equipment. The ending September cash balance from operations is budgeted to be $40,000. The company wants to maintain a minimum cash balance of $20,000. What is the minimum cash loan that must be planned to be borrowed from the bank during September?

a.   $220,000

b.   $240,000

c.   $260,000

d.   $300,000

Definition
C
Term

Swift, Inc. has budgeted its activity for December according to the following information:

1.    Sales at $400,000, all for cash.

2.    Budgeted depreciation for December is $10,000.

4.    The cash balance at December 1 was $10,000.

5.    Selling and administrative expenses are budgeted at $40,000 for December and are paid for in cash.

6.    The planned merchandise inventory on December 31 and December 1 is $12,000.

7.    The invoice cost for merchandise purchases represents 75% of the sales price. All purchases are paid in cash.

How much are the budgeted cash disbursements for December?

a.    $230,000

b.    $340,000

c.     $350,000

d.    $328,000

Definition
B
Term

Pierce Merchandising Company expects to purchase $90,000 of materials in March and $105,000 of materials in April. Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. In addition, a 2% discount is received for payments made in the month of purchase. How much will April's cash disbursements for materials purchases be?

a.   $66,150

b.   $81,150

c.   $99,675

d.   $90,000

Definition
C
Term

On January 1, Matzke Company has a beginning cash balance of $84,000. During the year, the company expects cash disbursements of $680,000 and cash receipts of $580,000. If Matzke requires an ending cash balance of $80,000, Matzke Company must borrow

a.   $64,000.

b.   $80,000.

c.   $96,000.

d.   $184,000.

Definition
C
Term

Meyerhoff Company has the following budgeted sales: July $100,000, August $150,000, and September $125,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 50% are collected in the month of sale, and 50% the next month. The total expected cash receipts during September are

a.   $140,000.

b.   $132,500.

c.   $131,250.

d.   $125,000.

Definition
B
Term

Nunley Company's direct materials budget shows total cost of direct materials purchases for April $300,000, May $360,000 and June $420,000. Cash payments are 60% in the month of purchase and 40% in the following month. The budgeted cash payments for June are

a.   $396,000.

b.   $384,000.

c.   $360,000.

d.   $312,000.

Definition
A
Term

Which one of the following budgets would be prepared for a manufacturer but not for a merchandiser?

a.   Direct labor budget

b.   Cash budget

c.   Sales budget

d.   Budgeted income statement

Definition
A
Term

The formula for determining budgeted merchandise purchases is budgeted

a.   production + desired ending inventory – beginning inventory.

b.   sales + beginning inventory – desired ending inventory.

c.   cost of goods sold + desired ending inventory – beginning inventory.

d.   cost of goods sold + beginning inventory – desired ending inventory.

Definition
C
Term

Which one of the following is a problem resulting from a service company being overstaffed?

a.   Labor costs will be disproportionately low.

b.   Profits will be higher because of the additional salaries.

c.   Staff turnover may increase.

d.   Revenue may be lost.

Definition
C
Term

The master budget for a service enterprise

a.   will have the same types of budgets as a merchandiser.

b.   may include a sales budget for sales revenue.

c.   will not include a budgeted income statement.

d.   includes a service revenue budget based on expected client billings.

Definition
D
Term

Budgeting in not-for-profit organizations

a.   is not important because they are not profit-oriented.

b.   usually starts with budgeting expenditures, rather than receipts.

c.   is necessary only if some product is produced and sold.

d.   consists entirely of budgeted contributions.

Definition
B
Term

For a merchandiser, the starting point in the development of the master budget is the

a.   cash budget.

b.   sales budget.

c.   selling and administrative expenses budget.

d.   budgeted income statement.

Definition
B
Term

Instead of a production budget, a merchandiser will prepare a

a.   pseudo-production budget.

b.   merchandise purchases budget.

c.   master time sheet.

d.   sales forecast.

Definition
B
Term

Company A is a manufacturer and Company B is a merchandiser. What is the difference in the budgets the two entities will prepare?

a.   Company A will prepare a production budget, and Company B will prepare a merchandise purchases budget.

b.   Company A will prepare a sales forecast, and Company B will prepare a sales budget.

c.   Company B will prepare a production budget, and Company A will prepare a merchandise purchases budget.

d.   Both companies will prepare the same types of budgets.

Definition
A
Term

An appropriate activity index for a college or university for budgeting faculty positions would be the

a.   faculty hours worked.

b.   number of administrators.

c.   credit hours taught by a department.

d.   number of days in the school term.

Definition
C
Term

A critical factor in budgeting for a service firm is to

a.   hire professional staff to perform the budgeting work.

b.   coordinate professional staff needs with anticipated services.

c.   classify all personnel as either variable or fixed.

d.   budget expenditures before anticipated receipts.

Definition
B
Term

The primary benefits of budgeting include all of the following except it

a.   requires only top management to plan ahead and formalize their future goals.

b.   provides definite objectives for evaluating performance.

c.   creates an early warning system for potential problems.

d.   motivates personnel throughout the organization.

Definition
A
Term

The responsibility for expressing management's budgeting goals in financial terms is performed by the

a.   accounting department.

b.   top management.

c.   lower level of management.

d.   budget committee.

Definition
A
Term

Coordinating the preparation of the budget is the responsibility of the

a.   treasurer.

b.   president.

c.   chief accountant.

d.   budget committee.

Definition
D
Term

For better management acceptance, the flow of input data for budgeting should begin with the

a.   accounting department.

b.   top management.

c.   lower levels of management.

d.   budget committee.

Definition
C
Term

In the direct materials budget, the quantity of direct materials to be purchased is computed by adding direct materials required for production to

a.   desired ending direct materials.

b.   beginning direct materials.

c.   desired ending direct materials less beginning direct materials.

d.   beginning direct materials less desired ending direct materials.

Definition
C
Term

Unger Company has 12,000 units in beginning finished goods. If sales are expected to be 60,000 units for the year and Unger desires ending finished goods of 15,000 units, how many units must the company produce?

a.   57,000

b.   60,000

c.   63,000

d.   75,000

Definition
C
Term

The important end-product of the operating budgets is the

a.   budgeted income statement.

b.   cash budget.

c.   production budget.

d.   budgeted balance sheet.

Definition
A
Term

On January 1, Patel Company has a beginning cash balance of $21,000. During the year, the company expects cash disbursements of $170,000 and cash receipts of $145,000. If Patel requires an ending cash balance of $20,000, the company must borrow

a.   $16,000.

b.   $20,000.

c.   $24,000.

d.   $46,000.

Definition
C
Term

The budget that is often considered to be the most important financial budget is the

a.   cash budget.

b.   capital expenditure budget.

c.   budgeted income statement.

d.   budgeted balance sheet.

Definition
A
Term

Hendrix Company's direct materials budget shows total cost of direct materials purchases for January $125,000, February $150,000 and March $175,000. Cash payments are 60% in the month of purchase and 40% in the following month. The budgeted cash payments for March are

a.   $165,000.

b.   $160,000.

c.   $150,000.

d.   $130,000.

Definition
A
Term

A purchases budget is used instead of a production budget by

a.   merchandising companies.

b.   service enterprises.

c.   not-for-profit organizations.

d.   manufacturing companies.

Definition
A
Term

Which of the following statements is incorrect?

a.   A continuous twelve-month budget results from dropping the month just ended and adding a future month.

b.   The production budget is derived from the direct materials and direct labor budgets.

c.   The cash budget shows anticipated cash flows.

d.   In the budget process for not-for-profit organizations, the emphasis is on cash flow rather than on revenue and expenses.

Definition
B
Term
Budget reports comparing actual results with planned objectives should be prepared only once a year. (T/F)
Definition
False
Term
If actual results are different from planned results, the difference must always be investigated by management to achieve effective budgetary control. (T/F)
Definition
False
Term
Certain budget reports are prepared monthly, whereas others are prepared more frequently depending on the activities being monitored. (T/F)
Definition
True
Term
The master budget is not used in the budgetary control process. (T/F)
Definition
False
Term
A master budget is most useful in evaluating a manager's performance in controlling costs. (T/F)
Definition
False
Term
A static budget is one that is geared to one level of activity. (T/F)
Definition
True
Term
A static budget is changed only when actual activity is different from the level of activity expected. (T/F)
Definition
False
Term
A static budget is most useful for evaluating a manager's performance in controlling variable costs. (T/F)
Definition
False
Term
A flexible budget can be prepared for each of the types of budgets included in the master budget. (T/F)
Definition
True
Term
A flexible budget is a series of static budgets at different levels of activities. (T/F)
Definition
True
Term
Flexible budgeting relies on the assumption that unit variable costs will remain constant within the relevant range of activity. (T/F)
Definition
True
Term
Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master budget. (T/F)
Definition
True
Term
A flexible budget is prepared before the master budget. (T/F)
Definition
False
Term
The activity index used in preparing a flexible budget should not influence the variable costs that are being budgeted. (T/F)
Definition
False
Term
A formula used in developing a flexible budget is: Total budgeted cost = fixed cost + (total variable cost per unit × activity level). (T/F)
Definition
True
Term
Flexible budgets are widely used in production and service departments. (T/F)
Definition
True
Term
A flexible budget report will show both actual and budget cost based on the actual activity level achieved. (T/F)
Definition
True
Term
Management by exception means that management will investigate areas where actual results differ from planned results if the items are material and controllable. (T/F)
Definition
True
Term
Policies regarding when a difference between actual and planned results should be investigated are generally more restrictive for noncontrollable items than for controllable items. (T/F)
Definition
False
Term
A distinction should be made between controllable and noncontrollable costs when reporting information under responsibility accounting. (T/F)
Definition
True
Term
Cost centers, profit centers, and investment centers can all be classified as responsibility centers. (T/F)
Definition
True
Term
More costs become controllable as one moves down to each lower level of managerial responsibility. (T/F)
Definition
False
Term
In a responsibility accounting reporting system, as one moves up each level of responsibility in an organization, the responsibility reports become more summarized and show less detailed information. (T/F)
Definition
True
Term
A cost center incurs costs and generates revenues and cost center managers are evaluated on the profitability of their centers. (T/F)
Definition
False
Term
The terms "direct fixed costs" and "indirect fixed costs" are synonymous with "traceable costs" and "common costs," respectively. (T/F)
Definition
True
Term
Controllable margin is subtracted from controllable fixed costs to get net income for a profit center. (T/F)
Definition
False
Term
The denominator in the formula for calculating the return on investment includes operating and nonoperating assets. (T/F)
Definition
False
Term
The formula for computing return on investment is controllable margin divided by average operating assets. (T/F)
Definition
True
Term
When evaluating residual income, the calculation tells management what percentage return was generated by the particular division being evaluated. (T/F)
Definition
False
Term
Residual income generates a dollar amount which represents the increase in value to the company beyond the cost necessary to pay for the financing of assets. (T/F)
Definition
True
Term
Budget reports provide the feedback needed by management to see whether actual operations are on course. (T/F)
Definition
True
Term
A static budget is an effective means to evaluate a manager's ability to control costs, regardless of the actual activity level. (T/F)
Definition
False
Term
The flexible budget report evaluates a manager's performance in two areas: (1) production and (2) costs. (T/F)
Definition
True
Term
The terms controllable costs and noncontrollable costs are synonymous with variable costs and fixed costs, respectively. (T/F)
Definition
False
Term
Most direct fixed costs are not controllable by the profit center manager. (T/F)
Definition
False
Term
The manager of an investment center can improve ROI by reducing average operating assets. (T/F)
Definition
True
Term
Residual income and ROI are used as performance evaluation methods for profit center performance (T/F)
Definition
False
Term

What is budgetary control?

a.   Another name for a flexible budget

b.   The degree to which the CFO controls the budget

c.   The use of budgets in controlling operations

d.   The process of providing information on budget differences to lower level managers

Definition
C
Term

A major element in budgetary control is

a.   the preparation of long-term plans.

b.   the comparison of actual results with planned objectives.

c.   the valuation of inventories.

d.   approval of the budget by the stockholders.

Definition
B
Term

Budget reports should be prepared

a.   daily.

b.   monthly.

c.   weekly.

d.   as frequently as needed.

Definition
D
Term

On the basis of the budget reports,

a.   management analyzes differences between actual and planned results.

b.   management may take corrective action.

c.   management may modify the future plans.

d.   all of these.

Definition
D
Term

The purpose of the departmental overhead cost report is to

a.   control indirect labor costs.

b.   control selling expense.

c.   determine the efficient use of materials.

d.   control overhead costs.

Definition
D
Term

The purpose of the sales budget report is to

a.   control selling expenses.

b.   determine whether income objectives are being met.

c.   determine whether sales goals are being met.

d.   control sales commissions.

Definition
C
Term

The comparison of differences between actual and planned results

a.   is done by the external auditors.

b.   appears on the company's external financial statements.

c.   is usually done orally in departmental meetings.

d.   appears on periodic budget reports.

Definition
D
Term

A static budget

a.   should not be prepared in a company.

b.   is useful in evaluating a manager's performance by comparing actual variable costs and planned variable costs.

c.   shows planned results at the original budgeted activity level.

d.   is changed only if the actual level of activity is different than originally budgeted.

Definition
C
Term

A static budget report

a.   shows costs at only 2 or 3 different levels of activity.

b.   is appropriate in evaluating a manager's effectiveness in controlling variable costs.

c.   should be used when the actual level of activity is materially different from the master budget activity level.

d.   may be appropriate in evaluating a manager's effectiveness in controlling costs when the behavior of the costs in response to changes in activity is fixed.

Definition
D
Term

A static budget is appropriate in evaluating a manager's performance if

a.   actual activity closely approximates the master budget activity.

b.   actual activity is less than the master budget activity.

c.   the company prepares reports on an annual basis.

d.   the company is a not-for-profit organization

Definition
A
Term

When budgeted and actual results are not the same amount, there is a budget

a.   error.

b.   difference.

c.   anomaly.

d.   by-product.

Definition
B
Term

Top management's reaction to a difference between budgeted and actual sales often depends on

a.   whether the difference is favorable or unfavorable.

b.   whether management anticipated the difference.

c.   the materiality of the difference.

d.   the personality of the top managers.

Definition
C
Term

If costs are not responsive to changes in activity level, then these costs can be best described as

a.   mixed.

b.   flexible.

c.   variable.

d.   fixed.

Definition
D
Term

Assume that actual sales results exceed the planned results for the second quarter. This favorable difference is greater than the unfavorable difference reported for the first quarter sales. Which of the following statements about the sales budget report on June 30 is true?

a.   The year-to-date results will show a favorable difference.

b.   The year-to-date results will show an unfavorable difference.

c.   The difference for the first quarter can be ignored.

d.   The sales report is not useful if it shows a favorable and unfavorable difference for the two quarters.

Definition
A
Term

A static budget is appropriate for

a.   variable overhead costs.

b.   direct materials costs.

c.   fixed overhead costs.

d.   none of these.

Definition
C
Term

What is the primary difference between a static budget and a flexible budget?

a.   The static budget contains only fixed costs, while the flexible budget contains only variable costs.

b.   The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.

c.   The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management.

d.   The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold.

Definition
B
Term

A flexible budget

a.   is prepared when management cannot agree on objectives for the company.

b.   projects budget data for various levels of activity.

c.   is only useful in controlling fixed costs.

d.   cannot be used for evaluation purposes because budgeted data are adjusted to reflect actual results.

Definition
B
Term

The master budget of Rondelli Company shows that the planned activity level for next year is expected to be 50,000 machine hours. At this level of activity, the following manufacturing overhead costs are expected:

Indirect labor                                                               $480,000

Machine supplies                                                         120,000

Indirect materials                                                         140,000

Depreciation on factory building                            100,000

Total manufacturing overhead                             $840,000

A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead costs of

a.   $988,000

b.   $840,000.

c.   $1,008,000.

d.   $908,000.

 

 

Definition
A
Term

Ashcroft, Inc. prepared a 2011 budget for 60,000 units of product. Actual production in 2011 was 65,000 units. To be most useful, what amounts should a performance report for this company compare?

a.   The actual results for 65,000 units with the original budget for 60,000 units

b.   The actual results for 65,000 units with a new budget for 65,000 units.

c.   The actual results for 65,000 units with last year's actual results for 67,000 units

d.   It doesn't matter. All of these choices are equally useful.

Definition
B
Term

A department has budgeted monthly manufacturing overhead cost of $180,000 plus $3 per direct labor hour. If a flexible budget report reflects $348,000 for total budgeted manu-facturing cost for the month, the actual level of activity achieved during the month was

a.   176,000 direct labor hours.

b.   56,000 direct labor hours.

c.   116,000 direct labor hours.

d.   Cannot be determined from the information provided.

Definition
B
Term

Which one of the following would be the same total amount on a flexible budget and a static budget if the activity level is different for the two types of budgets?

a.   Direct materials cost

b.   Direct labor cost

c.   Variable manufacturing overhead

d.   Fixed manufacturing overhead

Definition
D
Term

In developing a flexible budget within a relevant range of activity,

a.   only fixed costs are included.

b.   it is necessary to relate variable cost data to the activity index chosen.

c.   it is necessary to prepare a budget at 1,000 unit increments.

d.   variable and fixed costs are combined and are reported as a total cost.

Definition
B
Term

What budgeted amounts appear on the flexible budget?

a.   Original budgeted amounts at the static budget activity level

b.   Actual costs for the budgeted activity level

c.   Budgeted amounts for the actual activity level achieved

d.   Actual costs for the estimated activity level

Definition
C
Term

The flexible budget

a.   is prepared before the master budget.

b.   is relevant both within and outside the relevant range.

c.   eliminates the need for a master budget.

d.   is a series of static budgets at different levels of activity.

Definition
D
Term

A flexible budget can be prepared for which of the following budgets comprising the master budget?

a.   Sales

b.   Overhead

c.   Direct materials

d.   All of these

Definition
D
Term

Another name for the static budget is

a.   master budget.

b.   overhead budget.

c.   permanent budget.

d.   flexible budget.

Definition
A
Term

If a company plans to sell 24,000 units of product but sells 30,000, the most appropriate comparison of the cost data associated with the sales will be by a budget based on

a.   the original planned level of activity.

b.   27,000 units of activity.

c.   30,000 units of activity.

d.   24,000 units of activity.

Definition
C
Term

Within the relevant range of activity, the behavior of total costs is assumed to be

a.   linear and upward sloping.

b.   linear and downward sloping.

c.   curvilinear and upward sloping.

d.   linear to a point and then level off.

Definition
A
Term

Sales results that are evaluated by a static budget might show

1.    favorable differences that are not justified.

2.    unfavorable differences that are not justified.

a.   1

b.   2

c.   both 1 and 2.

d.   neither 1 nor 2.

Definition
C
Term

he selection of levels of activity to depict a flexible budget

1.    will be within the relevant range.

2.    is largely a matter of expediency.

3.    is governed by generally accepted accounting principles.

a.   1

b.   2

c.   3

d.   1 and 2

Definition
D
Term

Management by exception

a.   causes managers to be buried under voluminous paperwork.

b.   means that all differences will be investigated.

c.   means that only unfavorable differences will be investigated.

d.   means that material differences will be investigated.

Definition
D
Term

Under management by exception, which differences between planned and actual results should be investigated?

a.   Material and noncontrollable

b.   Controllable and noncontrollable

c.   Material and controllable

d.   All differences should be investigated

Definition
C
Term

Hudson Roofing's budgeted manufacturing costs for 25,000 squares of shingles are:

Fixed manufacturing costs               $12,000

Variable manufacturing costs         $16.00 per square

Hudsonproduced 20,000 squares of shingles during March. How much are budgeted total manufacturing costs in March?

a.   $320,000

b.   $412,000

c.   $400,000

d.   $332,000

Definition
D
Term

A flexible budget depicted graphically

a.   is identical to a CVP graph.

b.   differs from a CVP graph in the way that fixed costs are shown.

c.   differs from a CVP graph in the way that variable costs are shown.

d.   differs from a CVP graph in that sales revenue is not shown.

Definition
D
Term

The activity index used in preparing the flexible budget

a.   is prescribed by generally accepted accounting principles.

b.   is only applicable to fixed manufacturing costs.

c.   is the same for all departments.

d.   should significantly influence the costs that are being budgeted.

Definition
D
Term

A static budget is not appropriate in evaluating a manager's effectiveness if a company has

a.   substantial fixed costs.

b.   substantial variable costs.

c.   planned activity levels that match actual activity levels.

d.   no variable costs.

Definition
B
Term

Dryden Manufacturing Company prepared a fixed budget of 40,000 direct labor hours, with estimated overhead costs of $200,000 for variable overhead and $60,000 for fixed overhead. Dryden then prepared a flexible budget at 38,000 labor hours. How much is total overhead costs at this level of activity?

a.   $190,000

b.   $250,000

c.   $247,000

d.   $260,000

Definition
B
Term

For June, Wynn Manufacturing estimated sales revenue at $400,000. It pays sales commissions that are 4% of sales. The sales manager's salary is $190,000, estimated shipping expenses total 1% of sales, and miscellaneous selling expenses are $10,000. How much are budgeted selling expenses for the month of July if sales are expected to be $360,000?

a.   $28,000

b.   $218,000

c.   $18,000

d.   $220,000

Definition
B
Term

Yancey’s Sipit Company budgeted manufacturing costs for 25,000 sipits are:

Fixed manufacturing costs                               $25,000 per month

Variable manufacturing costs                         $12.00 per sipit

Yancey’s produced 20,000 sipits during March. How much is the flexible budget for total manufacturing costs for March?

a.   $260,000

b.   $325,000

c.   $240,000

d.   $265,000

Definition
D
Term

True Masons budgeted costs for 25,000 linear feet of block are:

Fixed manufacturing costs                                 $15,000 per month

Variable manufacturing costs                           $20.00 per linear

True Masons installed 20,000 linear feet of block during March. How much is budgeted total manufacturing costs in March?

a.   $400,000

b.   $515,000

c.   $500,000

d.   $415,000

Definition
D
Term

In the Harrelson Company, indirect labor is budgeted for $36,000 and factory supervision is budgeted for $12,000 at normal capacity of 80,000 direct labor hours. If 90,000 direct labor hours are worked, flexible budget total for these costs is

a.   $48,000.

b.   $54,000.

c.   $52,500.

d.   $49,500.

Definition
C
Term

Cannon Company uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing overhead is:  $64,000 variable and $180,000 fixed. If Cannon had actual overhead costs of $250,000 for 9,000 units produced, what is the difference between actual and budgeted costs?

a.   $2,000 unfavorable

b.   $2,000 favorable

c.   $6,000 unfavorable

d.   $8,000 favorable

Definition
B
Term

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs:

                            Variable                                                                               Fixed                                

Indirect materials                   $140,000                    Depreciation                          $60,000

Indirect labor                              200,000                 Taxes                                        10,000

Factory supplies                          20,000                Supervision                                   50,000

A flexible budget prepared at the 80,000 machine hours level of activity would show total manufacturing overhead costs of

a.   $288,000.

b.   $360,000.

c.   $384,000.

d.   $408,000.

Definition
D
Term

In the Klugman Company, indirect labor is budgeted for $54,000 and factory supervision is budgeted for $18,000 at normal capacity of 80,000 direct labor hours. If 90,000 direct labor hours are worked, flexible budget total for these costs is:

a.   $72,000.

b.   $81,000.

c.   $78,750.

d.   $74,250.

Definition
C
Term

Wilson Company uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing overhead is: $32,000 variable and $90,000 fixed. If Wilson had actual overhead costs of $125,000 for 9,000 units produced, what is the difference between actual and budgeted costs?

a.   $1,000 unfavorable.

b.   $1,000 favorable.

c.   $3,000 unfavorable.

d.   $4,000 favorable.

Definition
B
Term

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs:

                            Variable                                                 Fixed                                

Indirect materials         $120,000           Depreciation           $50,000

Indirect labor                 160,000           Taxes                     10,000

Factory supplies             20,000             Supervision             40,000

A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of

a.   $270,000.

b.   $360,000.

c.   $370,000.

d.   $300,000.

Definition
C
Term

Pine Company produced 128,000 units in 60,000 direct labor hours. Production for the period was estimated at 132,000 units and 66,000 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at

a.   64,000 hours and 66,000 hours.

b.   66,000 hours and 60,000 hours.

c.   64,000 hours and 60,000 hours.

d.   60,000 hours and 60,000 hours.

Definition
D
Term

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs:

                            Variable                                                                               Fixed                                

Indirect materials                     $90,000                        Depreciation                 $37,500

Indirect labor                              120,000                        Taxes                          7,500

Factory supplies                          15,000                        Supervision                30,000

A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of

a.   $202,500.

b.   $270,000.

c.   $277,500.

d.   $225,000.

Definition
C
Term

Reed Company produced 160,000 units in 75,000 direct labor hours. Production for the period was estimated at 165,000 units and 82,500 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at

a.   80,000 hours and 82,500 hours.

b.   82,500 hours and 75,000 hours.

c.   80,000 hours and 75,000 hours.

d.   75,000 hours and 75,000 hours.

Definition
D
Term

At zero direct labor hours in a flexible budget graph, the total budgeted cost line intersects the vertical axis at $20,000. At 10,000 direct labor hours, a horizontal line drawn from the total budgeted cost line intersects the vertical axis at $60,000. Fixed and variable costs may be expressed as:

a.   $20,000 fixed plus $4 per direct labor hour variable.

b.   $20,000 fixed plus $6 per direct labor hour variable.

c.   $40,000 fixed plus $2 per direct labor hour variable.

d.   $40,000 fixed plus $4 per direct labor hour variable.

Definition
A
Term

At 9,000 direct labor hours, the flexible budget for indirect materials is $18,000. If $18,700 are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials:

a.   $700 unfavorable.

b.   $700 favorable.

c.   $300 favorable.

d.   $300 unfavorable.

Definition
D
Term

The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called

a.   static reporting.

b.   flexible accounting.

c.   responsibility accounting.

d.   master budgeting.

Definition
C
Term

Dobson Company recorded operating data for its shoe division for the year.

Sales                                                                    $1,000,000

Contribution margin                                            200,000

Controllable fixed costs                                     120,000

Average total operating assets                       400,000

How much is controllable margin for the year?

a.   20%

b.   50%

c.   $200,000

d.   $80,000

Definition
D
Term

A cost is considered controllable at a given level of managerial responsibility if

a.   the manager has the power to incur the cost within a given time period.

b.   the cost has not exceeded the budget amount in the master budget.

c.   it is a variable cost, but it is uncontrollable if it is a fixed cost.

d.   it changes in magnitude in a flexible budget.

Definition
A
Term

As one moves up to each higher level of managerial responsibility,

a.   fewer costs are controllable.

b.   the responsibility for cost incurrence diminishes.

c.   a greater number of costs are controllable.

d.   performance evaluation becomes less important.

Definition
C
Term

A responsibility report should

a.   be prepared in accordance with generally accepted accounting principles.

b.   show only those costs that a manager can control.

c.   only show variable costs.

d.   only be prepared at the highest level of managerial responsibility.

Definition
B
Term

Top management can control

a.   only controllable costs.

b.   only noncontrollable costs.

c.   all costs.

d.   some noncontrollable costs and all controllable costs.

Definition
C
Term

Not-for-profit entities

a.   do not use responsibility accounting.

b.   utilize responsibility accounting in trying to maximize net income.

c.   utilize responsibility accounting in trying to minimize the cost of providing services.

d.   have only noncontrollable costs.

Definition
C
Term

Which of the following is not a true statement?

a.   All costs are controllable at some level within a company.

b.   Responsibility accounting applies to both profit and not-for-profit entities.

c.   Fewer costs are controllable as one moves up to each higher level of managerial responsibility.

d.   The term segment is sometimes used to identify areas of responsibility in decentralized operations.

Definition
C
Term

Costs incurred indirectly and allocated to a responsibility level are considered to be

a.   nonmaterial.

b.   mixed.

c.   controllable.

d.   noncontrollable.

Definition
D
Term

Management by exception

a.   is most effective at top levels of management.

b.   can be implemented at each level of responsibility within an organization.

c.   can only be applied when comparing actual results with the master budget.

d.   is the opposite of goal congruence.

Definition
B
Term

Which responsibility centers generate both revenues and costs?

a.   Investment and profit centers

b.   Profit and cost centers

c.   Cost and investment centers

d.   Only profit centers

Definition
A
Term

The linens department of a large department store is

a.   not a responsibility center.

b.   a profit center.

c.   a cost center.

d.   an investment center.

Definition
B
Term

The foreign subsidiary of a large corporation is

a.   not a responsibility center.

b.   a profit center.

c.   a cost center.

d.   an investment center.

Definition
D
Term

The maintenance department of a manufacturing company is a(n)

a.   segment.

b.   profit center.

c.   cost center.

d.   investment center.

Definition
C
Term

Which of the following is not a correct match?

1.    Incurs costs

2.    Generates revenue

3.    Controls investment funds

a.   Investment Center            1, 2, 3

b.   Cost Center                       1

c.   Profit Center                     1, 2, 3

d.   All are correct matches.

Definition
C
Term

A cost center

a.   only incurs costs and does not directly generate revenues.

b.   incurs costs and generates revenues.

c.   is a responsibility center of a company which incurs losses.

d.   is a responsibility center which generates profits and evaluates the investment cost of earning the profit.

Definition
A
Term

A manager of a cost center is evaluated mainly on

a.   the profit that the center generates.

b.   his or her ability to control costs.

c.   the amount of investment it takes to support the cost center.

d.   the amount of revenue that can be generated.

Definition
B
Term

Performance reports for cost centers compare actual

a.   total costs with static budget data.

b.   total costs with flexible budget data.

c.   controllable costs with static budget data.

d.   controllable costs with flexible budget data.

Definition
D
Term

In the performance report for cost centers,

a.   controllable and noncontrollable costs are reported.

b.   fixed costs are not reported.

c.   no distinction is made between fixed and variable costs.

d.   only materials and controllable costs are reported.

Definition
C
Term

Of the following choices, which contain both a traceable fixed cost and a common fixed cost?

a.   Profit center manager's salary and timekeeping costs for a responsibility center's employees.

b.   Company president's salary and company personnel department costs.

c.   Company personnel department costs and timekeeping costs for a responsibility center's employees.

d.   Depreciation on a responsibility center's equipment and supervisory salaries for the center.

Definition
C
Term

Which of the following is not an indirect fixed cost?

a.   Company president's salary

b.   Depreciation on the company building housing several profit centers

c.   Company personnel department costs

d.   Profit center supervisory salaries

Definition
D
Term

A profit center is

a.   a responsibility center that always reports a profit.

b.   a responsibility center that incurs costs and generates revenues.

c.   evaluated by the rate of return earned on the investment allocated to the center.

d.   referred to as a loss center when operations do not meet the company's objectives.

Definition
B
Term

The best measure of the performance of the manager of a profit center is the

a.   rate of return on investment.

b.   success in meeting budgeted goals for controllable costs.

c.   amount of controllable margin generated by the profit center.

d.   amount of contribution margin generated by the profit center.

Definition
C
Term

Controllable margin is defined as

a.   sales minus variable costs.

b.   sales minus contribution margin.

c.   contribution margin less controllable fixed costs.

d.   contribution margin less noncontrollable fixed costs.

Definition
C
Term

Controllable margin is most useful for

a.   external financial reporting.

b.   preparing the master budget.

c.   performance evaluation of profit centers.

d.   break-even analysis.

Definition
C
Term

Which of the following will not result in an unfavorable controllable margin difference?

a.   Sales exceeding budget; costs under budget

b.   Sales exceeding budget; costs over budget

c.   Sales under budget; costs under budget

d.   Sales under budget; costs over budget

Definition
A
Term

Given below is an excerpt from a management performance report:

                                                       Budget                      Actual                       Difference

Contribution margin                          $1,000,000               $1,050,000                     $50,000

Controllable fixed costs                    $   500,000               $   450,000                     $50,000

The manager's overall performance

a.   is 20% below expectations.

b.   is 20% above expectations.

c.   is equal to expectations.

d.   cannot be determined from information given.

Definition
B
Term

Which of the following are financial measures of performance?

1.    Controllable margin

2.    Product quality

3.    Labor productivity

a.   1

b.   2

c.   3

d.   1 and 3

Definition
A
Term

Given below is an excerpt from a management performance report:

                                                           Budget                     Actual                 Difference  

Contribution margin                              $600,000                  $580,000               $20,000  U

Controllable fixed costs                       $200,000                  $220,000               $20,000  U

The manager's overall performance

a.   is 10% above expectations.

b.   is 10% below expectations.

c.   is equal to expectations.

d.   cannot be determined from the information provided.

Definition
B
Term

A responsibility report for a profit center will

a.   not show controllable fixed costs.

b.   not show indirect fixed costs.

c.   show noncontrollable fixed costs.

d.   not show cumulative year-to-date results.

Definition
B
Term

The dollar amount of the controllable margin

a.   is usually higher than the contribution margin.

b.   is usually lower than the contribution margin.

c.   is always equal to the contribution margin.

d.   cannot be a negative figure.

Definition
B
Term

Harbaugh Company recorded operating data for its shoe division for the year. The company’s desired return is 5%.

Sales                                                                        $750,000

Contribution margin                                                150,000

Total direct fixed costs                                             90,000

Average total operating assets                                300,000

Which one of the following reflects the controllable margin for the year?

a.   20%

b.   50%

c.   $45,000

d.   $60,000

Definition
D
Term

Powers Company had average operating assets of $2,000,000 and sales of $1,000,000 in 2011. If the controllable margin was $300,000, the ROI was

a.   60%

b.   50%

c.   30%

d.   15%

Definition
D
Term

Miles Company had average operating assets of $4,000,000 and sales of $2,000,000 in 2011. If the controllable margin was $400,000, the ROI was

a.   50%

b.   40%

c.   20%

d.   10%

Definition
D
Term

The area manager of the Little Italy Restaurants is considering two possible expansion alternatives. The required investments, expected controllable margins, and the ROIs of each are as follows:

Project                       Investment                  Controllable Margin                ROI

Charlotte               $120,000                         $30,000                      25%

Richmond              $540,000                         $50,000                   9.25%

The Little Italy segment has currently $2,000,000 in invested capital and a controllable margin of $250,000. Which one of following projects will increase the Little Italy division’s ROI?

a.   Both the Charlotte and Richmond options

b.   Only the Charlotte option

c.   Only the Richmond option

d.   Neither the Charlotte nor the Richmond options

Definition
 B
Term

Janes Corporation recorded operating data for its Cheap division for the year. Janes requires its return to be 10%.

Sales                                                    $ 700,000

Controllable margin                               80,000

Total average assets                            1,000,000

Fixed costs                                              50,000

What is the ROI for the year?

a.   8%

b.   70%

c.   5%

d.   3%

Definition
A
Term

Edmunds Division’s operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Edmunds is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Edmunds’s required rate of return is 9%. Should Edmunds accept this project?

a.   Yes, ROI will drop by 6.6% which is still above the required rate of return.

b.   No, the return is less than the required rate of 9%.

c.   Yes, ROI still exceeds the cost of capital.

d.   No, ROI will decrease to 7%.

Definition
B
Term

Neill Manufacturing reported the following items for 2011:

Income tax expense                           $  45,000

Contribution margin                              150,000

Controllable fixed costs                          60,000

Interest expense                                      30,000

Total operating assets                          325,000

How much is controllable margin?

a.   $150,000

b.   $90,000

c.   $45,000

d.   $15,000

Definition
B
Term

Kenco Pharmaceuticals is evaluating its Brown division, an investment center. The division has a $45,000 controllable margin and $300,000 of sales. How much will Kenco’s average operating assets be when its return on investment is 10%?

a.   $450,000

b.   $495,000

c.   $300,000

d.   $255,000

Definition
A
Term

An investment center generated a contribution margin of $200,000, fixed costs of $100,000 and sales of $1,000,000. The center’s average operating assets were $500,000. How much is the return on investment?

a.   20%

b.   140%

c.   40%

d.   60%

Definition
A
Term

Michaelson Company recorded operating data for its auto accessories division for the year.

Sales                                                                        $375,000

Contribution margin                                              75,000

Total direct fixed costs                                          45,000

Average total operating assets                       300,000

How much is ROI for the year if management is able to identify a way to improve the contribution margin by $15,000, assuming fixed costs are held constant?

a.   30%

b.   15%

c.   10%

d.   8%

Definition
B
Term

The current controllable margin for Frederick Division is $62,000. Its current operating assets are $200,000. The division is considering purchasing equipment for $60,000 that will increase annual controllable margin by an estimated $10,000. If the equipment is purchased, what will happen to the return on investment for Frederick Division?

a.   An increase of 16.1%

b.   A decrease of 13.3%

c.   A decrease of 3.3%

d.   A decrease of 7.2%

Definition
C
Term

DeLong Corporation recorded operating data for its Waterhole division for the year. DeLong requires its return to be 9%.

Sales                                                        $500,000

Controllable margin                               90,000

Total average assets                            450,000

Fixed costs                                                 30,000

How much is ROI for the year?

a.    6.7%

b.   11.1%

c.   13.3%

d.   20.0%

 

 

 

 

 

 

 

 

 

 

Definition
D
Term

Rob Haughton is the North Division manager and his performance is evaluated by executive management based on Division ROI. The current controllable margin for North Division is $46,000. Its current operating assets total $210,000. The division is considering purchasing equipment for $40,000 that will increase sales by an estimated $10,000, with annual depreciation of $10,000. If the equipment is purchased, what will happen to the return on investment for the division?

a.   An increase of 0.5%

b.   A decrease of 0.5%

c.   A decrease of 3.5%

d.   It will remain unchanged.

Definition
C
Term

Olathe Division of Hartley Company’s operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Olathe Division’s ROI is 25%. Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000. Should management accept this new project?

a.   No, since ROI will be lowered.

b.   Yes, since ROI will increase.

c.   Yes, since additional sales always mean more customers.

d.   No, since a loss will be incurred.

Definition
A
Term

The Western Division of Guinn Corp. had an ROI of 25% when sales were $2 million and controllable margin was $400,000.  What were the average operating assets?

a.   $100,000

b.   $500,000

c.   $1,600,000

d.   $8,000

Definition
C
Term

Burk Company recorded operating data for its shoe division for the year.

Sales                                                                        $500,000

Contribution margin                                              90,000

Total fixed costs                                                      60,000

Average total operating assets                               200,000

How much is ROI for the year if management is able to identify a way to improve the contribution margin by $20,000, assuming fixed costs are held constant?

a.   25%

b.   18%

c.   45%

d.   12%

Definition
A
Term

A distinguishing characteristic of an investment center is that

a.   revenues are generated by selling and buying stocks and bonds.

b.   interest revenue is the major source of revenues.

c.   the profitability of the center is related to the funds invested in the center.

d.   it is a responsibility center which only generates revenues.

Definition
C
Term

A measure frequently used to evaluate the performance of the manager of an investment center is

a.   the amount of profit generated.

b.   the rate of return on funds invested in the center.

c.   the percentage increase in profit over the previous year.

d.   departmental gross profit.

Definition
B
Term

Return on investment is calculated by dividing

a.   contribution margin by sales.

b.   controllable margin by sales.

c.   contribution margin by average operating assets.

d.   controllable margin by average operating assets.

Definition
D
Term

Which one of the following will not increase return on investment?

a.   Variable costs are increased

b.   An increase in sales

c.   Average operating assets are decreased

d.   Variable costs are decreased

Definition
A
Term

If an investment center has generated a controllable margin of $90,000 and sales of $450,000, what is the return on investment for the investment center if average operating assets were $750,000 during the period?

a.   12%

b.   20%

c.   48%

d.   60%

Definition
A
Term

Which statement is true?

a.   An investment center is responsible for revenues and expenses, as well as earning a return on assets.

b.   An investment center is only responsible for its investments.

c.   An investment center is only responsible for revenues and expenses.

d.   A profit center is evaluated using contribution margin, while an investment center is evaluated using ROI.

Definition
A
Term

The denominator in the formula for return on investment calculation is

a.   investment center controllable margin.

b.   dependent on the specific type of profit center.

c.   average investment center operating assets.

d.   sales for the period.

Definition
C
Term

In the formula for ROI, idle plant assets are

a.   included in the calculation of controllable margin.

b.   included in the calculation of operating assets.

c.   excluded in the calculation of operating assets.

d.   excluded from total assets.

Definition
C
Term

In computing ROI, land held for future use

a.   will hurt the performance measurement of an investment center's manager.

b.   is important in evaluating the performance of a profit center manager.

c.   is included in the calculation of operating assets.

d.   is considered a nonoperating asset.

Definition
D
Term

Lounsbury Parts has a current return on investment of 10% and the company has established an 8% minimum rate of return for the division. The division manager has two investment projects available, for which the following estimates have been made:

    Project A - Annual controllable margin = $24,000, operating assets = $400,000

    Project B - Annual controllable margin = $60,000, operating assets = $550,000

Which project should be funded?

a.   Both projects

b.   Project A

c.   Project B

d.   Neither project

Definition
C
Term

If an investment center has a $30,000 controllable margin and $400,000 of sales, what average operating assets are needed to have a return on investment of 10%?

a.   $40,000

b.   $50,000

c.   $300,000

d.   $400,000

Definition
C
Term

Which of the following valuations of operating assets is not readily available from the accounting records?

a.   Cost

b.   Book value

c.   Market value

d.   Both cost and market value

Definition
C
Term

The following information is available for Aggie Auto Sales:

Average operating assets                               $500,000

Controllable margin                                               50,000

Contribution margin                                            125,000

Minimum rate of return                                              8%

How much is Aggie Auto’s residual income?

a.   $85,000

b.   $450,000

c.   $10,000

d.   $40,000

Definition
C
Term

What is the goal of residual income?

a.   To maximize the amount of costs which are controllable

b.   To maximize profits

c.   To maximize the total amount of residual income

d.   To maximize controllable margin

Definition
C
Term

Which one of the following is a correct statement about residual income?

a.   Its goal is to maximize profits of an investment center.

b.   It is less effective for evaluating investment centers than ROI.

c.   It is the ratio of controllable margin to the minimum rate of return on average operating assets.

d.   It evaluates performance by comparing the return of an investment center with the company’s minimum rate of return.

Definition
D
Term

Which one of the following does not impact the amount of residual income?

a.   Contribution margin

b.   Net income

c.   Sales

d.   Controllable costs

Definition
B
Term

For what purpose do companies calculate residual income?

a.   To determine whether decentralization is possible or not

b.   To motivate managers through possible termination

c.   To evaluate management performance

d.   To measure company profits

Definition
C
Term

Niceville Company had sales of $400,000, variable costs of $200,000, and direct fixed costs totaling $100,000. The company’s operating assets total $800,000, and its required return is 10%. How much is the residual income?

a.   $120,000

b.   $20,000

c.   $80,000

d.   $320,000

Definition
B
Term

Oxford Company earned controllable margin of $250,000 on sales of $3,200,000. The division had average operating assets of $2,600,000. The company requires a return on investment of at least 8%. How much is residual income?

a.   $208,000

b.   $42,000

c.   $292,000

d.   $256,000

Definition
B
Term

The performance of the manager of Purina Division is measured by residual income. Which of the following would decrease the manager’s performance measure?

a.   Decrease in required rate of return

b.   Increase in amount of return on investment desired

c.   Increase in sales

d.   Increase in contribution margin

Definition
B
Term

Which of the following would not be considered an aspect of budgetary control?

a.   It assists in the determination of differences between actual and planned results.

b.   It provides feedback value needed by management to see whether actual operations are on course.

c.   It assists management in controlling operations.

d.   It provides a guarantee for favorable results.

Definition
D
Term

A static budget is usually appropriate in evaluating a manager's effectiveness in controlling

a.   fixed manufacturing costs and fixed selling and administrative expenses.

b.   variable manufacturing costs and variable selling and administrative expenses.

c.   fixed manufacturing costs and variable selling and administrative expenses.

d.   variable manufacturing costs and fixed selling and administrative expenses.

Definition
A
Term

A static budget report is appropriate for

a.   fixed manufacturing costs.

b.   fixed selling and administrative expenses.

c.   variable selling and administrative expenses.

d.   both fixed manufacturing costs and fixed selling and administrative expenses.

Definition
D
Term

Lamont Company uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing overhead is $64,000 variable and $180,000 fixed. If Lamont had actual overhead costs of $250,000 for 9,000 units produced, what is the difference between actual and budgeted costs?

a.   $2,000 unfavorable

b.   $2,000 favorable

c.   $6,000 unfavorable

d.   $8,000 favorable

Definition
B
Term

To develop the flexible budget, management takes all of the following steps except identify the

a.   activity index and the relevant range of activity.

b.   variable costs and determine the budgeted variable cost per unit.

c.   fixed costs and determine the budgeted fixed cost per unit.

d.   All of these options are steps in developing the flexible budget.

Definition
C
Term

 

A flexible budget is appropriate for

          Direct Labor Costs              Manufacturing Overhead Costs

a.                    No                                                              No

b.                    Yes                                                             Yes

c.                     Yes                                                             No

d.                    No                                                              Yes

 

Definition
B
Term

All of the following statements are correct about management by exception except it

a.   enables top management to focus on problem areas that need attention.

b.   means that management has to investigate every budget difference.

c.   requires that there must be some guidelines for identifying an exception.

d.   means that top management's review of a budget report is focused primarily on differences between actual results and planned objectives.

Definition
B
Term

Controllable costs for responsibility accounting purposes are those costs that are directly influenced by

a.   a given manager within a given period of time.

b.   a change in activity.

c.   production volume.

d.   sales volume.

Definition
A
Term

All of the following statements are correct about controllable costs except

a.   all costs are controllable at some level of responsibility within a company.

b.   all costs are controllable by top management.

c.   fewer costs are controllable as one moves up to each higher level of managerial responsibility.

d.   costs incurred directly by a level of responsibility are controllable at that level.

Definition
C
Term

Which of the following will cause an increase in ROI?

a.   An increase in variable costs

b.   An increase in average operating assets

c.   An increase in sales

d.   An increase in controllable fixed costs

Definition
C
Term

Costs that relate specifically to one center and are incurred for the sole benefit of that center are

a.   common fixed costs.

b.   direct fixed costs.

c.   indirect fixed costs.

d.   noncontrollable fixed costs.

Definition
B
Term

If controllable margin is $300,000 and the average investment center operating assets are $1,000,000, the return on investment is

a.   .33%.

b.   3.33%.

c.   10%.

d.   30%.

Definition
D
Term
Inventories cannot be valued at standard cost in financial statements. (T/F)
Definition
False
Term
A standard cost is the industry average cost for a particular item. (T/F)
Definition
False
Term
A standard is a unit amount, whereas a budget is a total amount.
Definition
True
Term
Standard costs may be incorporated into the accounts in the general ledger. (T/F)
Definition
True
Term
An advantage of standard costs is that they simplify costing of inventories and reduce clerical costs. (T/F)
Definition
True
Term
Setting standard costs is relatively simple because it is done entirely by accountants. (T/F)
Definition
False
Term
Normal standards should be rigorous but attainable. (T/F)
Definition
True
Term
Actual costs that vary from standard costs always indicate inefficiencies. (T/F)
Definition
False
Term
Ideal standards will generally result in favorable variances for the company. (T/F)
Definition
False
Term
Normal standards incorporate normal contingencies of production into the standards. (T/F)
Definition
True
Term
Once set, normal standards should not be changed during the year. (T/F)
Definition
False
Term
In developing a standard cost for direct materials, a price factor and a quantity factor must be considered. (T/F)
Definition
True
Term
A direct labor price standard is frequently called the direct labor efficiency standard. (T/F)
Definition
False
Term
The standard predetermined overhead rate must be based on direct labor hours as the standard activity index. (T/F)
Definition
False
Term
Standard cost cards are the subsidiary ledger for the Work in Process account in a standard cost system. (T/F)
Definition
False
Term
A variance is the difference between actual costs and standard costs. (T/F)
Definition
True
Term
If actual costs are less than standard costs, the variance is favorable. (T/F)
Definition
True
Term
A materials quantity variance is calculated as the difference between the standard direct materials price and the actual direct materials price multiplied by the actual quantity of direct materials used. (T/F)
Definition
False
Term
An unfavorable labor quantity variance indicates that the actual number of direct labor hours worked was greater than the number of direct labor hours that should have been worked for the output attained. (T/F)
Definition
True
Term
Standard cost + price variance + quantity variance = Budgeted cost. (T/F)
Definition
False
Term
The overhead controllable variance relates primarily to fixed overhead costs. (T/F)
Definition
False
Term
The overhead volume variance relates only to fixed overhead costs. (T/F)
Definition
True
Term
If production exceeds normal capacity, the overhead volume variance will be favorable. (T/F)
Definition
True
Term
There could be instances where the production department is responsible for a direct materials price variance. (T/F)
Definition
True
Term
The starting point for determining the causes of an unfavorable materials price variance is the purchasing department. (T/F)
Definition
True
Term
The total overhead variance is the difference between actual overhead costs and overhead costs applied to work done. (T/F)
Definition
True
Term
Variance analysis facilitates the principle of "management by exception." (T/F)
Definition
True
Term
A credit to a Materials Quantity Variance account indicates that the actual quantity of direct materials used was greater than the standard quantity of direct materials allowed. (T/F)
Definition
False
Term
A standard cost system may be used with a job order cost system but not with a process cost system. (T/F)
Definition
False
Term
A debit to the Overhead Volume Variance account indicates that the standard hours allowed for the output produced was greater than the standard hours at normal capacity. (T/F)
Definition
False
Term
In concept, standards and budgets are essentially the same. (T/F)
Definition
True
Term
Standards may be useful in setting selling prices for finished goods. (T/F)
Definition
True
Term
The materials price standard is based on the purchasing department's best estimate of the cost of raw materials. (T/F)
Definition
True
Term
The materials price variance is normally caused by the production department. (T/F)
Definition
False
Term
The use of an inexperienced worker instead of an experienced employee can result in a favorable labor price variance but probably an unfavorable quantity variance. (T/F)
Definition
True
Term
In using variance reports, top management normally looks carefully at every variance. (T/F)
Definition
False
Term
The use of standard costs in inventory costing is prohibited in financial statements. (T/F)
Definition
False
Term
The overhead controllable variance is the difference between the actual overhead costs incurred and the budgeted costs for the standard hours allowed. (T/F)
Definition
True
Term

What is a standard cost?

a.   The total number of units times the budgeted amount expected

b.   Any amount that appears on a budget

c.   The total amount that appears on the budget for product costs

d.   The amount management thinks should be incurred to produce a good or service

Definition
D
Term

A standard cost is

a.   a cost which is paid for a group of similar products.

b.   the average cost in an industry.

c.   a predetermined cost.

d.   the historical cost of producing a product last year.

Definition
C
Term

The difference between a budget and a standard is that

a.   a budget expresses what costs were, while a standard expresses what costs should be.

b.   a budget expresses management's plans, while a standard reflects what actually happened.

c.   a budget expresses a total amount, while a standard expresses a unit amount.

d.   standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting system.

Definition
C
Term

Standard costs may be used by

a.   universities.

b.   governmental agencies.

c.   charitable organizations.

d.   all of these.

Definition
D
Term

Which of the following statements is false?

a.   A standard cost is more accurate than a budgeted cost.

b.   A standard is a unit amount.

c.   In concept, standards and budgets are essentially the same.

d.   The standard cost of a product is equivalent to the budgeted cost per unit of product.

Definition
A
Term

Budget data are not journalized in cost accounting systems with the exception of

a.   the application of manufacturing overhead.

b.   direct labor budgets.

c.   direct materials budgets.

d.   cash budget data.

Definition
A
Term

It is possible that a company's financial statements may report inventories at

a.   budgeted costs.

b.   standard costs.

c.   both budgeted and standard costs.

d.   none of these.

Definition
B
Term

A standard differs from a budget because a standard

a.   is a predetermined cost.

b.   contributes to management planning and control.

c.   is a unit amount.

d.   none of the above; a standard does not differ from a budget.

Definition
C
Term

Donkey Company expects direct materials cost of $6 per unit for 100,000 units (a total of $600,000 of direct materials costs). Donkey’s standard direct materials cost and budgeted direct materials cost is

                 Standard                           Budgeted

a.             $6 per unit                   $600,000 per year

b.             $6 per unit                         $6 per unit

c.      $600,000 per year                   $6 per unit

d.      $600,000 per year             $600,000 per year

Definition
A
Term

Using standard costs

a.   makes employees less “cost-conscious.”

b.   provides a basis for evaluating cost control.

c.   makes management by exception more difficult.

d.   increases clerical costs.

Definition
B
Term

Using standard costs

a.   can make management planning more difficult.

b.   promotes greater economy.

c.   does not help in setting prices.

d.   weakens management control.

Definition
B
Term

If standard costs are incorporated into the accounting system,

a.   it may simplify the costing of inventories and reduce clerical costs.

b.   it can eliminate the need for the budgeting process.

c.   the accounting system will produce information which is less relevant than the historical cost accounting system.

d.   approval of the shareholders is required.

Definition
A
Term

Standard costs

a.   may show past cost experience.

b.   help establish expected future costs.

c.   are the budgeted cost per unit in the present.

d.   all of these.

Definition
D
Term

Which of the following statements about standard costs is false?

a.   Properly set standards should promote efficiency.

b.   Standard costs facilitate management planning.

c.   Standards should not be used in "management by exception."

d.   Standard costs can simplify the costing of inventories.

Definition
C
Term

Which of the following is not considered an advantage of using standard costs?

a.   Standard costs can reduce clerical costs.

b.   Standard costs can be useful in setting prices for finished goods.

c.   Standard costs can be used as a means of finding fault with performance.

d.   Standard costs can make employees "cost-conscious."

Definition
C
Term

If a company is concerned with the potential negative effects of establishing standards, it should

a.   set loose standards that are easy to fulfill.

b.   offer wage incentives to those meeting standards.

c.   not employ any standards.

d.   set tight standards in order to motivate people.

Definition
B
Term

A standard which represents an efficient level of performance that is attainable under expected operating conditions is called a(n)

a.   ideal standard.

b.   loose standard.

c.   tight standard.

d.   normal standard.

Definition
D
Term

Ideal standards

a.   are rigorous but attainable.

b.   are the standards generally used in a master budget.

c.   reflect optimal performance under perfect operating conditions.

d.   will always motivate employees to achieve the maximum output.

Definition
C
Term

The final decision as to what standard costs should be is the responsibility of

a.   the quality control engineer.

b.   the managerial accountants.

c.   the purchasing agent.

d.   management.

Definition
D
Term

The labor time requirements for standards may be determined by the

a.   sales manager.

b.   product manager.

c.   industrial engineers.

d.   payroll department manager.

Definition
C
Term

The two levels that standards may be set at are

a.   normal and fully efficient.

b.   normal and ideal.

c.   ideal and less efficient.

d.   fully efficient and fully effective.

Definition
B
Term

The most rigorous of all standards is the

a.   normal standard.

b.   realistic standard.

c.   ideal standard.

d.   conceivable standard.

Definition
C
Term

Most companies that use standards set them at

a.   the normal level.

b.   a conceivable level.

c.   the ideal level.

d.   last year's level.

Definition
A
Term

A managerial accountant

1.    does not participate in the standard setting process.

2.    provides knowledge of cost behaviors in the standard setting process.

3.    provides input of historical costs to the standard setting process.

a.   1

b.   2

c.   3

d.   2 and 3

Definition
D
Term

The cost of freight-in

a.   is to be included in the standard cost of direct materials.

b.   is considered a selling expense.

c.   should have a separate standard apart from direct materials.

d.   should not be included in a standard cost system.

Definition
A
Term

The direct materials quantity standard would not be expressed in

a.   pounds.

b.   barrels.

c.   dollars.

d.   board feet.

Definition
C
Term

The direct materials quantity standard should

a.   exclude unavoidable waste.

b.   exclude quality considerations.

c.   allow for normal spoilage.

d.   always be expressed as an ideal standard.

Definition
C
Term

The direct labor quantity standard is sometimes called the direct labor

a.   volume standard.

b.   effectiveness standard.

c.   efficiency standard.

d.   quality standard.

Definition
C
Term

A manufacturing company would include setup and downtime in their direct

a.   materials price standard.

b.   materials quantity standard.

c.   labor price standard.

d.   labor quantity standard.

Definition
D
Term

Allowance for spoilage is part of the direct

a.   materials price standard.

b.   materials quantity standard.

c.   labor price standard.

d.   labor quantity standard.

Definition
B
Term

The total standard cost to produce one unit of product is shown

a.   at the bottom of the income statement.

b.   at the bottom of the balance sheet.

c.   on the standard cost card.

d.   in the Work in Process Inventory account.

Definition
C
Term

An unfavorable materials quantity variance would occur if

a.   more materials were purchased than were used.

b.   actual pounds of materials used were less than the standard pounds allowed.

c.   actual labor hours used were greater than the standard labor hours allowed.

d.   actual pounds of materials used were greater than the standard pounds allowed.

Definition
D
Term

Breakmorning Corporation produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $3 per pound, but a 2% discount is usually taken. Freight costs are $.15 per pound, and receiving and handling costs are $.10 per pound. The hourly wage rate is $10.00 per hour, but a raise which will average $.25 will go into effect soon. Payroll taxes are $1.00 per hour, and fringe benefits average $2.00 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively.


The standard direct materials price per pound is

a.   $2.94.

b.   $3.00.

c.   $3.19

d.   $3.25


The standard direct materials quantity per unit is

a.   2.6 pounds.

b.   2.7 pounds.

c.   2.9 pounds.

d.   3.0 pounds.


The standard direct labor rate per hour is

a.   $ 10.00.

b.   $ 10.25.

c.   $13.00.

d.   $13.25.


The standard direct labor hours per unit is

a.   1 hour.

b.   1.1 hours.

c.   1.2 hours.

d.   1.3 hours.





Definition
C, D, D, D
Term

The standard direct materials quantity does not include allowances for

a.   unavoidable waste.

b.   normal spoilage.

c.   unexpected spoilage.

d.   all of the above are included.

Definition
C
Term

Allowances should not be made in the direct labor quantity standard for

a.   wasted time.

b.   rest periods.

c.   cleanup.

d.   machine downtime.

Definition
A
Term

The standard predetermined overhead rate used in setting the standard overhead cost is determined by dividing

a.   budgetedoverhead costs by an expected standard activity index.

b.   actualoverhead costs by an expected standard activity index.

c.   budgetedoverhead costs by actual activity.

d.   actualoverhead costs by actual activity.

Definition
A
Term

Fleck’s standard quantities for 1 unit of product include 2 pounds of materials and 1.5 labor hours. The standard rates are $4 per pound and $14 per hour. The standard overhead rate is $16 per direct labor hour. The total standard cost of Fleck’s product is

a.   $29.

b.   $34.

c.   $45.

d.   $53.

Definition
D
Term

Which of the following statements is true?

a.   Variances are the differences between total actual costs and total standard costs.

b.   When actual costs exceed standard costs, the variance is favorable.

c.   An unfavorable variance results when actual costs are decreasing but standards are not changed.

d.   All of the above are true.

Definition
D
Term

Unfavorable materials price and quantity variances are generally the responsibility of the

                          Price                                       Quantity

a.        Purchasing department           Purchasing Department

b.        Purchasing department            Production Department

c.         Production department            Production Department

d.        Production Department           Purchasing Department

Definition
B
Term

Fugate Company planned to use 1 yard of plastic per unit budgeted at $81 a yard. However, the plastic actually cost $80 per yard. The company actually made 1,300 units, although it had planned to make only 1,100 units. Total yards used for production were 1,320. How much is the total materials variance?

a.   $16,200 U

b.   $1,620 U

c.   $1,320 F

d.   $300 U

Definition
D
Term

If actual direct materials costs are greater than standard direct materials costs, it means that

a.   actual costs were calculated incorrectly.

b.   the actual unit price of direct materials was greater than the standard unit price of direct materials.

c.   the actual unit price of raw materials or the actual quantities of raw materials used was greater than the standard unit price or standard quantities of raw materials expected.

d.   the purchasing agent or the production foreman is inefficient.

Definition
C
Term

If actual costs are greater than standard costs, there is a(n)

a.   normal variance.

b.   unfavorable variance.

c.   favorable variance.

d.   error in the accounting system.

Definition
B
Term

 

A total materials variance is analyzed in terms of

a.   price and quantity variances.

b.   buy and sell variances.

c.   quantity and quality variances.

d.   tight and loose variances.

 

Definition
A
Term

A company developed the following per-unit standards for its product: 2 pounds of direct materials at $4 per pound. Last month, 1,000 pounds of direct materials were purchased for $3,800. The direct materials price variance for last month was

a.   $3,800 favorable.

b.   $200 favorable.

c.   $100 favorable.

d.   $200 unfavorable.

Definition
B
Term

The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 5,600 gallons of direct materials that actually cost $21,200 were used to produce 3,000 units of product. The direct materials quantity variance for last month was

a.   $1,600 favorable.

b.   $1,200 favorable.

c.   $1,600 unfavorable.

d.   $2,800 unfavorable.

Definition
A
Term

The purchasing agent of the Aldrich Company ordered materials of lower quality in an effort to economize on price. What variance will most likely result?

a.   Favorable materials quantity variance

b.   Favorable total materials variance

c.   Unfavorable materials price variance

d.   Unfavorable labor quantity variance

Definition
D
Term

The per-unit standards for direct labor are 2 direct labor hours at $12 per hour. If in producing 1,200 units, the actual direct labor cost was $25,600 for 2,000 direct labor hours worked, the total direct labor variance is

a.   $960 unfavorable.

b.   $3,200 favorable.

c.   $2,000 unfavorable.

d.   $3,200 unfavorable.

Definition
B
Term

The standard rate of pay is $10 per direct labor hour. If the actual direct labor payroll was $58,800 for 6,000 direct labor hours worked, the direct labor price (rate) variance is

a.   $1,200 unfavorable.

b.   $1,200 favorable.

c.   $1,500 unfavorable.

d.   $1,500 favorable.

Definition
Term

The standard number of hours that should have been worked for the output attained is 6,000 direct labor hours and the actual number of direct labor hours worked was 6,300. If the direct labor price variance was $3,150 unfavorable, and the standard rate of pay was $9 per direct labor hour, what was the actual rate of pay for direct labor?

a.   $8.50 per direct labor hour

b.   $7.50 per direct labor hour

c.   $9.50 per direct labor hour

d.   $9.00 per direct labor hour

Definition
C
Term

Which one of the following statements is true?

a.   If the materials price variance is unfavorable, then the materials quantity variance must also be unfavorable.

b.   If the materials price variance is unfavorable, then the materials quantity variance must be favorable.

c.   Price and quantity variances move in the same direction. If one is favorable, the others will be as well.

d.   There is no correlation of favorable or unfavorable for price and quantity variances.

Definition
D
Term

Variances from standards are

a.   expressed in total dollars.

b.   expressed on a per-unit basis.

c.   expressed on a percentage basis.

d.   all of these.

Definition
A
Term

A favorable variance

a.   is an indication that the company is not operating in an optimal manner.

b.   implies a positive result if quality control standards are met.

c.   implies a positive result if standards are flexible.

d.   means that standards are too loosely specified.

Definition
B
Term

The total materials variance is equal to the

a.   materials price variance.

b.   difference between the materials price variance and materials quantity variance.

c.   product of the materials price variance and the materials quantity variance.

d.   sum of the materials price variance and the materials quantity variance.

Definition
D
Term

Information on Francona's direct labor costs for the month of August is as follows:

Actual rate                                                                            $10

Standard hours                                                               11,000

Actual hours                                                                    10,000

Direct labor price varianceunfavorable                      $6,000

What was the standard rate for August?

a.   $9.94            c.   $10.60

b.   $9.40            d.   $10.06

Definition
B
Term

The total variance is $30,000. The total materials variance is $12,000. The total labor variance is twice the total overhead variance. What is the total overhead variance?

a.   $3,000

b.   $6,000

c.   $9,000

d.   $12,000

Definition
B
Term

The formula for the materials price variance is

a.   (AQ × SP) – (SQ × SP).

b.   (AQ × AP) – (AQ × SP).

c.   (AQ × AP) – (SQ × SP).

d.   (AQ × SP) – (SQ × AP).

Definition
B
Term

The formula for the materials quantity variance is

a.   (SQ × AP) – (SQ × SP).

b.   (AQ × AP) – (AQ × SP).

c.   (AQ × SP) – (SQ × SP).

d.   (AQ × AP) – (SQ × SP).

Definition
C
Term

A company uses 8,400 pounds of materials and exceeds the standard by 400 pounds. The quantity variance is $1,200 unfavorable. What is the standard price?

a.   $1.00

b.   $2.00

c.   $3.00

d.   Cannot be determined from the data provided.

Definition
C
Term

A company purchases 20,000 pounds of materials. The materials price variance is $3,000 favorable. What is the difference between the standard and actual price paid for the materials?

a.   $.75

b.   $.15

c.   $3.75

d.   Cannot be determined from the data provided.

Definition
B
Term

A company uses 20,000 pounds of materials for which it paid $4.00 a pound. The materials price variance was $30,000 unfavorable. What is the standard price per pound?

a.   $1.50

b.   $2.50

c.   $4.00

d.   $5.50

Definition
B
Term

If the materials price variance is $2,400 F and the materials quantity and labor variances are each $1,800 U, what is the total materials variance?

a.   $2,400 F

b.   $1,800 U

c.   $600 F

d.   $2,700 U

Definition
C
Term

Keller Company has a materials price standard of $2.00 per pound. Three thousand pounds of materials were purchased at $2.20 a pound. The actual quantity of materials used was 3,000 pounds, although the standard quantity allowed for the output was 2,700 pounds.

 

Keller Company's materials price variance is

a.   $60 U.

b.   $600 U.

c.   $540 U.

d.   $600 F.

Definition
B
Term

Keller Company has a materials price standard of $2.00 per pound. Three thousand pounds of materials were purchased at $2.20 a pound. The actual quantity of materials used was 3,000 pounds, although the standard quantity allowed for the output was 2,700 pounds.

 

Keller Company's materials quantity variance is

a.   $600 U.

b.   $600 F.

c.   $660 F.

d.   $660 U.

Definition
A
Term

Keller Company has a materials price standard of $2.00 per pound. Three thousand pounds of materials were purchased at $2.20 a pound. The actual quantity of materials used was 3,000 pounds, although the standard quantity allowed for the output was 2,700 pounds.

 

Keller Company's total materials variance is

a.   $1,200 U.

b.   $1,200 F.

c.   $1,260 U.

d.   $1,260 F.

Definition
A
Term

The standard quantity allowed for the units produced was 6,500 pounds, the standard price was $2.50 per pound, and the materials quantity variance was $375 favorable. Each unit uses 1 pound of materials. How many units were actually produced?

a.   6,350

b.   6,500

c.   15,875

d.   6,650

Definition
A
Term

The matrix approach to variance analysis

a.   will yield slightly different variances than the formula approach.

b.   is more accurate than the formula approach.

c.   does not separate the price and quantity variance calculations.

d.   provides a convenient structure for determining each variance.

Definition
D
Term

Labor efficiency is measured by the

a.   materials quantity variance.

b.   total labor variance.

c.   labor quantity variance.

d.   labor rate variance.

Definition
C
Term

An unfavorable labor quantity variance may be caused by

a.   paying workers higher wages than expected.

b.   misallocation of workers.

c.   worker fatigue or carelessness.

d.   higher pay rates mandated by union contracts.

Definition
C
Term

The investigation of materials price variance usually begins in the

a.   first production department.

b.   purchasing department.

c.   controller's office.

d.   accounts payable department.

Definition
B
Term

The investigation of a materials quantity variance usually begins in the

a.   production department.

b.   purchasing department.

c.   sales department.

d.   controller's department.

Definition
A
Term

If the labor quantity variance is unfavorable and the cause is inefficient use of direct labor, the responsibility rests with the

a.   sales department.

b.   production department.

c.   budget office.

d.   controller's department.

Definition
B
Term

Kitselman Inc. produces a product requiring 3 direct labor hours at $20.00 per hour. During January, 2,000 products are produced using 6,300 direct labor hours. Kitselman’s actual payroll during January was $122,850.  What is the labor quantity variance?

a.   $2,850 U

b.   $6,000 F

c.   $3,150 F

d.   $6,000 U

Definition
D
Term

A company developed the following per-unit standards for its product: 2 gallons of direct materials at $6 per gallon. Last month, 2,000 gallons of direct materials were purchased for $11,400.  The direct materials price variance for last month was

a.   $11,400 favorable.

b.   $300 favorable.

c.   $600 favorable.

d.   $600 unfavorable.

Definition
C
Term

The per-unit standards for direct materials are 2 pounds at $4 per pound. Last month, 11,200 pounds of direct materials that actually cost $42,400 were used to produce 6,000 units of product. The direct materials quantity variance for last month was

a.   $3,200 favorable.

b.   $2,400 favorable.

c.   $3,200 unfavorable.

d.   $5,600 unfavorable.

Definition
A
Term

The per-unit standards for direct labor are 2 direct labor hours at $9 per hour. If in producing 1,200 units, the actual direct labor cost was $19,200 for 2,000 direct labor hours worked, the total direct labor variance is

a.   $720 unfavorable.

b.   $2,400 favorable.

c.   $1,500 unfavorable.

d.   $2,400 unfavorable.

Definition
B
Term

The standard rate of pay is $10 per direct labor hour.  If the actual direct labor payroll was $39,200 for 4,000 direct labor hours worked, the direct labor price (rate) variance is

a.   $800 unfavorable.

b.   $800 favorable.

c.   $1,000 unfavorable.

d.   $1,000 favorable.

Definition
B
Term

The standard number of hours that should have been worked for the output attained is 8,000 direct labor hours and the actual number of direct labor hours worked was 8,400. If the direct labor price variance was $8,400 unfavorable, and the standard rate of pay was $18 per direct labor hour, what was the actual rate of pay for direct labor?

a.   $17 per direct labor hour

b.   $15 per direct labor hour

c.   $19 per direct labor hour

d.   $18 per direct labor hour

Definition
C
Term

A company purchases 15,000 pounds of materials. The materials price variance is $6,000 favorable. What is the difference between the standard and actual price paid for the materials?

a.   $2.00

b.   $.40

c.   $2.50

d.   $10.00

Definition
B
Term

A company uses 40,000 gallons of materials for which they paid $9.00 a gallon. The materials price variance was $80,000 favorable.  What is the standard price per gallon?

a.   $2.00

b.   $7.00

c.   $10.00

d.   $11.00

Definition
D
Term

LRF, Inc. produces a product requiring 4 pounds of material costing $3 per pound. During December, LRF purchased 4,200 pounds of material for $11,970 and used the material to produce 500 products. What was the materials price variance for December?

a.   $480 F

b.   $630 F

c.   $120 U

d.   $600 U

Definition
B
Term

Finney Co. manufactures a product requiring two pounds of direct material. During 2011, Finney purchases 24,000 pounds of material for $74,400 when the standard price per pound is $3.00. During 2011, Finney uses 22,000 pounds to make 12,000 products. The standard direct material cost per unit of finished product is

a.   $6.20.

b.   $6.76.

c.   $6.00.

d.   $6.40.

Definition
C
Term

Gant Co. manufactures a product with a standard direct labor cost of two hours at $12.00 per hour. During July, 2,000 units were produced using 4,200 hours at $12.20 per hour. The labor quantity variance was

a.   $2,440 F.

b.   $2,400 U.

c.   $1,640 U.

d.   $2,440 U.

Definition
B
Term

Gant Co. manufactures a product with a standard direct labor cost of two hours at $12.00 per hour. During July, 2,000 units were produced using 4,200 hours at $12.20 per hour. The labor price variance was

a.   $840 U.

b.   $3,240 U.

c.   $3,240 F.

d.   $2,400 U.

Definition
A
Term

A company developed the following per unit materials standards for its product:  3 pounds of direct materials at $4 per pound. If 12,000 units of product were produced last month and 37,500 pounds of direct materials were used, the direct materials quantity variance was

a.   $3,600 favorable.

b.   $6,000 unfavorable.

c.   $3,600 unfavorable.

d.   $6,000 favorable.

Definition
B
Term

The standard direct labor cost for producing one unit of product is 5 direct labor hours at a standard rate of pay of $16. Last month, 15,000 units were produced and 73,500 direct labor hours were actually worked at a total cost of $1,080,000. The direct labor quantity variance was

a.   $24,000 unfavorable.

b.   $36,000 unfavorable.

c.   $36,000 favorable.

d.   $24,000 favorable.

Definition
D
Term

Herrera Co. produces a product requiring 10 pounds of material at $1.50 per pound. Herrera produced 10,000 units of this product during 2011 resulting in a $30,000 unfavorable materials quantity variance. How many pounds of direct material did Herrera use during 2011?

a.   120,000 pounds

b.   100,000 pounds

c.   200,000 pounds

d.   145,000 pounds

Definition
A
Term

ToolTime has a standard of 1.5 pounds of materials per unit, at $2 per pound. In producing 2,000 units, ToolTime used 3,100 pounds of materials at a total cost of $6,045. ToolTime's total variance is

a.   $150 F.

b.   $45 U.

c.   $155 U.

d.   $200 U.

Definition
B
Term

ToolTime has a standard of 1.5 pounds of materials per unit, at $2 per pound. In producing 2,000 units, ToolTime used 3,100 pounds of materials at a total cost of $6,045. ToolTime's materials price variance is

a.   $45 U.

b.   $155 F.

c.   $200 F.

d.   $350 F.

Definition
B
Term

ToolTime has a standard of 1.5 pounds of materials per unit, at $2 per pound. In producing 2,000 units, ToolTime used 3,100 pounds of materials at a total cost of $6,045. ToolTime's materials quantity variance is

a.   $45 F.

b.   $155 U.

c.   $200 U.

d.   $350 U.

Definition
C
Term

ToolTime has a standard of 2 hours of labor per unit, at $18 per hour. In producing 2,000 units, ToolTime used 3,850 hours of labor at a total cost of $70,445. ToolTime's total labor variance is

a.   $1,155 U.

b.   $1,200 U.

c.   $1,555 F.

d.   $2,895 F.

Definition
C
Term

ToolTime has a standard of 2 hours of labor per unit, at $18 per hour. In producing 2,000 units, ToolTime used 3,850 hours of labor at a total cost of $70,455. ToolTime's labor price variance is

a.   $1,155 U.

b.   $1,200 U.

c.   $1,555 F.

d.   $2,895 F.

Definition
A
Term

ToolTime has a standard of 2 hours of labor per unit, at $18 per hour. In producing 2,000 units, ToolTime used 3,850 hours of labor at a total cost of $70,455. ToolTime's labor quantity variance is

a.   $1,155 U.

b.   $1,555 F.

c.   $2,700 F.

d.   $2,895 F.

Definition
C
Term

Which one of the following describes the total overhead variance?

a.   The difference between what was actually incurred and the flexible budget amount

b.   The difference between what was actually incurred and overhead applied

c.   The difference between the overhead applied and the flexible budget amount

d.   The difference between what was actually incurred and the total production budget

Definition
B
Term

Manufacturing overhead costs are applied to work in process on the basis of

a.   actual hours worked.

b.   standard hours allowed.

c.   ratio of actual variable to fixed costs.

d.   actual overhead costs incurred.

Definition
B
Term

The total overhead variance is the difference between the

a.   actual overhead costs and overhead costs applied based on standard hours allowed.

b.   actual overhead costs and overhead costs applied based on actual hours.

c.   overhead costs applied based on actual hoursand overhead costs applied based on standard hours allowed.

d.   the actual overhead costs and  the standard direct labor costs.

Definition
A
Term

The predetermined overhead rate for Weed-B-Gone is $10, comprised of a variable overhead rate of $6 and a fixed rate of $4. The amount of budgeted overhead costs at normal capacity of $300,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of $10. Actual overhead for June was $19,000 variable and $12,100 fixed, and standard hours allowed for the product produced in June was 3,000 hours. The total overhead variance is

a.   $6,100 F.

b.   $1,100 F.

c.   $1,100 U.

d.   $6,100 U.

Definition
C
Term

The predetermined overhead rate for Weed-B-Gone is $10, comprised of a variable overhead rate of $6 and a fixed rate of $4. The amount of budgeted overhead costs at normal capacity of $300,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of $10. Actual overhead for June was $17,800 variable and $10,800 fixed, and 1,500 units were produced. The direct labor standard is 2 hours per unit produced. The total overhead variance is

a.   $3,600 F.

b.   $1,400 F.

c.   $1,400 U.

d.   $3,600 U.

Definition
B
Term

Which of the following is true?

a.   The form, content, and frequency of variance reports vary considerably among companies.

b.   The form, content, and frequency of variance reports do not vary among companies.

c.   The form and content of variance reports vary considerably among companies, but the frequency is always weekly.

d.   The form and content of variance reports are consistent among companies, but the frequency varies.

Definition
A
Term

Sonic Corporation’s variance report for the purchasing department reports 500 units of material A purchased and 1,200 units of material B purchased. It also reports standard prices of $2 for Material A and $3 for Material B. Actual prices reported are $2.10 for Material A and $2.80 for Material B. Sonic should report a total price variance of

a.   $190 F.

b.   $20 F.

c.   $20 U.

d.   $190 U.

Definition
C
Term

When is a variance considered to be 'material'?

a.   When it is large compared to the actual cost

b.   When it is infrequent

c.   When it is unfavorable

d.   When it could have been controlled more effectively

Definition
A
Term

Variance reports are

a.   external financial reports.

b.   SEC financial reports.

c.   internal reports for management.

d.   all of these.

Definition
C
Term

In using variance reports, management looks for

a.   total assets invested.

b.   significant variances.

c.   competitors’ costs in comparison to the company's costs.

d.   more efficient ways of valuing inventories.

Definition
B
Term

Parnell Company prepared its income statement for internal use. How would amounts for cost of goods sold and variances appear?

a.   Cost of goods sold would be at actual costs, and variances would be reported separately.

b.   Cost of goods sold would be combined with the variances, and the net amount reported at standard cost.

c.   Cost of goods sold would be at standard costs, and variances would be reported separately.

d.   Cost of goods sold would be combined with the variances, and the net amount reported at actual cost.

Definition
C
Term

Colt Widgets prepared its income statement for management using a standard cost accounting system. Which of the following appears at the “standard” amount?

a.   Sales

b.   Selling expenses

c.   Gross profit

d.   Cost of goods sold

Definition
D
Term

The costing of inventories at standard cost for external financial statement reporting purposes is

a.   not permitted.

b.   preferable to reporting at actual costs.

c.   in accordance with generally accepted accounting principles if significant differences exist between actual and standard costs.

d.   in accordance with generally accepted accounting principles if significant differences do not exist between actual and standard costs.

Definition
D
Term

Income statements prepared internally for management often show cost of goods sold at standard cost and variances are

a.   separately disclosed.

b.   deducted as other expenses and revenues.

c.   added to cost of goods sold.

d.   closed directly to retained earnings.

Definition
A
Term

In Sonic Corporation’s income statement, they report gross profit of $45,000 at standard and the following variances:

Materials price                     $   420    F

Materials quantity                    600    F

Labor price                                   420    U

Labor quantity                        1,000    F

Overhead                                     900    F

                Sonic would report actual gross profit of

a.   $41,660.

b.   $42,500.

c.   $47,500.

d.   $48,340.

Definition
C
Term

In Sonic Corporation’s income statement, they report actual gross profit of $47,500 and the following variances:

Materials price                     $   420    F

Materials quantity                    600    F

Labor price                                   420    U

Labor quantity                        1,000    F

Overhead                                     900    F

                Sonic would report gross profit at standard of

a.   $41,660.

b.   $42,500.

c.   $45,000.

d.   $48,340.

Definition
C
Term

The balanced scorecard

a.   incorporates financial and nonfinancial measures in an integrated system.

b.   is based on financial measures.

c.   is based on nonfinancial measures.

d.   does not use financial or nonfinancial measures.

Definition
A
Term

Which is not one of the four most commonly used perspectives on a balanced scorecard?

a.   The financial perspective

b.   The customer perspective

c.   The external process perspective

d.   The learning and growth perspective

Definition
C
Term

The balanced scorecard approach

a.   uses only financial measures to evaluate performance.

b.   uses rather vague, open statements when setting objectives in order to allow managers and employees flexibility.

c.   normally sets the financial objectives first, and then sets the objectives in the other perspectives to accomplish the financial objectives.

d.   evaluates performance using about 10 different perspectives in order to effectively incorporate all areas of the organization.

Definition
C
Term

The customer perspective of the balanced scorecard approach

a.   is the most traditional view of the company.

b.   evaluates the internal operating processes critical to the success of the organization.

c.   evaluates how well the company develops and retains its employees.

d.   evaluates how well the company is performing from the viewpoint of those people who buy its products and services.

Definition
D
Term

The perspectives included in the balanced scorecard approach include all of the following except the

a.   internal process perspective.

b.   capacity utilization perspective.

c.   learning and growth perspective.

d.   customer perspective.

Definition
B
Term

If 20,000 pounds of direct materials are purchased for $14,400 on account and the standard cost is $.70 per pound, the journal entry to record the purchase is

a.    Raw Materials Inventory......................................            14,400

                    Accounts Payable..............................                                        14,400

b.    Work In Process Inventory.................................            14,400

                    Accounts Payable..............................                                        14,000

                    Materials Quantity Variance............                                              400

c.     Raw Materials Inventory.....................................            14,400

                    Accounts Payable..............................                                        14,000

                    Materials Price Variance...................                                              400

d.    Raw Materials Inventory..........................................................            14,000

        Materials Price Variance...........................................................                  400

                    Accounts Payable..............................                                        14,400

Definition
D
Term

Debit balances in variance accounts represent

a.   unfavorable variances.

b.   favorable variances.

c.   favorable for price variances; unfavorable for quantity variances.

d.   favorable for quantity variances; unfavorable for price variances.

Definition
A
Term

If a company purchases raw materials on account for $13,220 when the standard cost is $12,600, it will

a.   debit Materials Price Variance for $620.

b.   credit Materials Price Variance for $620.

c.   debit Materials Quantity Variance for $620.

d.   credit Material Quantity Variance for $620.

Definition
A
Term

If a company issues raw materials to production at a cost of $12,600 when the standard cost is $12,200, it will

a.   debit Materials Price Variance for $400.

b.   credit Materials Price Variance for $400.

c.   debit Materials Quantity Variance for $400.

d.   credit Material Quantity Variance for $400.

Definition
C
Term

If a company incurs direct labor cost of $41,000 when the standard cost is $42,000, it will

a.   debit Labor Price Variance for $1,000.

b.   credit Labor Price Variance for $1,000.

c.   debit Labor Quantity Variance for $1,000.

d.   credit Labor Quantity Variance for $1,000.

Definition
B
Term

If a company assigns factory labor to production at a cost of $42,000 when standard cost is $40,000, it will

a.   debit Labor Price Variance for $2,000.

b.   credit Labor Price Variance for $2,000.

c.   debit Labor Quantity Variance for $2,000.

d.   credit Labor Quantity Variance for $2,000.

Definition
C
Term

The overhead variances measure whether overhead costs

          Are Effectively Managed          Were Used Effectively

a.                  Controllable                   Controllable and Volume

b.                  Controllable                                Volume

c.       Controllable and Volume                   Controllable

d.                     Volume                                Controllable

Definition
B
Term

The overhead volume variance is

a.   actual overhead less overhead budgeted for actual hours.

b.   actual overhead less overhead budgeted for standard hours allowed.

c.   overhead budgeted for actual hours less applied overhead.

d.   the fixed overhead rate times the difference between normal capacity hours and standard hours allowed.

Definition
D
Term

Budgeted overhead for Harrington Company at normal capacity of 30,000 direct labor hours is $4.50 per hour variable and $3 per hour fixed. In May, $232,500 of overhead was incurred in working 31,500 hours when 32,000 standard hours were allowed.

 

The overhead controllable variance is

a.   $3,750 favorable.

b.   $1,500 favorable.

c.   $7,500 favorable.

d.   $7,500 unfavorable.

 

The overhead volume variance is

a.   $6,000 favorable.

b.   $8,250 favorable.

c.   $3,750 favorable.

d.   $7,500 favorable.

Definition
B, A
Term

Budgeted overhead for Mengotti Company at normal capacity of 30,000 direct labor hours is $3 per hour variable and $2 per hour fixed.  In May, $155,000 of overhead was incurred in working 31,500 hours when 32,000 standard hours were allowed.  The overhead controllable variance is

a.   $2,500 favorable.

b.   $1,000 favorable.

c.   $5,000 favorable.

d.   $5,000 unfavorable.

Definition
B
Term
The capital budgeting committee ultimately approves the capital expenditure budget for the year. (T/F)
Definition
False
Term
Capital budgeting decisions usually involve large investments and often have a significant impact on a company's future profitability. (T/F)
Definition
True
Term

An overhead volume variance is calculated as the difference between normal capacity hours and standard hours allowed

a.   times the total predetermined overhead rate.

b.   times the predetermined variable overhead rate.

c.   times the predetermined fixed overhead rate.

d.   divided by actual number of hours worked.

Definition
C
Term

Which of the following statements is false?

a.   The overhead volume variance indicates whether plant facilities were used efficiently during the period.

b.   The costs that cause the overhead volume variance are usually controllable costs.

c.   The overhead volume variance relates solely to fixed costs.

d.   The overhead volume variance is favorable if standard hours allowed for output are greater than the standard hours at normal capacity.

Definition
B
Term

If the standard hours allowed are less than the standard hours at normal capacity,

a.   the overhead volume variance will be unfavorable.

b.   variable overhead costs will be underapplied.

c.   the overhead controllable variance will be favorable.

d.   variable overhead costs will be overapplied.

Definition
A
Term

Which of the following statements about overhead variances is false?

a.   Standard hours allowed are used in calculating the controllable variance.

b.   Standard hours allowed are used in calculating the volume variance.

c.   The controllable variance pertains solely to fixed costs.

d.   The total overhead variance pertains to both variable and fixed costs.

Definition
C
Term

The overhead volume variance relates only to

a.   variable overhead costs.

b.   fixed overhead costs.

c.   both variable and fixed overhead costs.

d.   all manufacturing costs.

Definition
B
Term

What does the controllable variance measure?

a.   Whether a company incurred more or less fixed overhead costs compared to the amount of overhead applied

b.   Whether a company incurred more or less overhead costs than allowed

c.   The efficiency of using variable overhead resources

d.   Whether the production manager is able to control the production facility

Definition
B
Term

The overhead controllable variance is calculated as the difference between actual overhead costs incurred and the budgeted

a.   overhead costs for the standard hours allowed.

b.   overhead costs applied to the product.

c.   overhead costs at the normal level of activity.

d.   fixed overhead costs.

Definition
A
Term

If the standard hours allowed are less than the standard hours at normal capacity, the volume variance

a.   cannot be calculated.

b.   will be favorable.

c.   will be unfavorable.

d.   will be greater than the controllable variance.

Definition
C
Term

The following information was taken from the annual manufacturing overhead cost budget of Coen Company.

                                Variable manufacturing overhead costs                                 $69,300

                                Fixed manufacturing overhead costs                                       $41,580

                                Normal production level in labor hours                                     23,100

                                Normal production level in units                                                     5,775

                                Standard labor hours per unit                                                                  4

 

During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $113,400. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Coen's total overhead rate is

a.   $1.80.

b.   $3.00.

c.   $4.80.

d.   $4.90.

Definition
C
Term

The following information was taken from the annual manufacturing overhead cost budget of Coen Company.

                                Variable manufacturing overhead costs                                 $69,300

                                Fixed manufacturing overhead costs                                       $41,580

                                Normal production level in labor hours                                     23,100

                                Normal production level in units                                                     5,775

                                Standard labor hours per unit                                                                  4

 

During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $113,400. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Coen's total overhead variance is

 

a.   $1,260 U.

b.   $4,620 U.

c.   $5,880 U.

d.   $16,800 U.

Definition
C
Term

The following information was taken from the annual manufacturing overhead cost budget of Coen Company.

                                Variable manufacturing overhead costs                                 $69,300

                                Fixed manufacturing overhead costs                                       $41,580

                                Normal production level in labor hours                                     23,100

                                Normal production level in units                                                     5,775

                                Standard labor hours per unit                                                                  4

 

During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $113,400. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Coen's controllable overhead variance is

a.   $1,260 U.

b.   $4,620 U.

c.   $5,880 U.

d.   $16,800 U.

Definition
B
Term

The following information was taken from the annual manufacturing overhead cost budget of Coen Company.

                                Variable manufacturing overhead costs                                 $69,300

                                Fixed manufacturing overhead costs                                       $41,580

                                Normal production level in labor hours                                     23,100

                                Normal production level in units                                                     5,775

                                Standard labor hours per unit                                                                  4

 

During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $113,400. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Coen's volume overhead variance is

a.   $1,260 U.

b.   $4,620 U.

c.   $5,880 U.

d.   $16,800 U.

Definition
A
Term

All of the following are advantages of standard costs except they

a.   facilitate management planning.

b.   are useful in setting selling prices.

c.   simplify costing in inventories.

d.   increase net income.

Definition
D
Term

Standards based on the optimum level of performance under perfect operating conditions are

a.   attainable standards.

b.   ideal standards.

c.   normal standards.

d.   practical standards.

Definition
B
Term

The direct materials price standard should include an amount for all of the following except

a.   receiving costs.

b.   storing costs.

c.   handling costs.

d.   normal spoilage costs.

Definition
D
Term
For purposes of capital budgeting, estimated cash inflows and outflows are preferred for inputs into the capital budgeting decision tools. (T/F)
Definition
True
Term

The difference between the actual labor rate multiplied by the actual labor hours worked and the standard labor rate multiplied by the standard labor hours is the

a.   total labor variance.

b.   labor price variance.

c.   labor quantity variance.

d.   labor efficiency variance.

Definition
A
Term

The formula for the labor price variance is

a.   (AH) x (SR) less (SH) x (SR).

b.   (AH) x (AR) less (AH) x (SR).

c.   (AH) x (AR) less (SH) x (SR).

d.   (AH) x (SR) less (AH) x (SR).

Definition
B
Term
The cash payback technique is a quick way to calculate a project's net present value. (T/F)
Definition
False
Term
The cash payback period is computed by dividing the cost of the capital investment by the annual cash netflow. (T/F)
Definition
True
Term

A standard cost system may be used in

        Job Order Costing                    Process Costing

a.                     No                                            No

b.                     Yes                                           No

c.                      No                                            Yes

d.                     Yes                                           Yes

Definition
D
Term

The formula for computing the overhead volume variance is

a.   fixed overhead rate times (actual hours less standard hours allowed).

b.   variable overhead rate times (actual hours less standard hours allowed).

c.   fixed overhead rate times (normal capacity hours less standard hours allowed).

d.   variable overhead rate times (normal capacity hours less standard hours allowed).

Definition
C
Term
The cash payback method is frequently used as a screening tool but it does not take into consideration the profitability of a project. (T/F)
Definition
True
Term
The cost of capital is a weighted average of the rates paid on borrowed funds, as well as on funds provided by investors in the company's stock. (T/F)
Definition
True
Term
Using the net present value method, a net present value of zero indicates that the project would not be acceptable. (T/F)
Definition
False
Term

The capital budget for the year is approved by a company's

a.   board of directors.

b.   capital budgeting committee.

c.   officers.

d.   stockholders.

Definition
A
Term
The net present value method can only be used in capital budgeting if the expected cash flows from a project are an equal amount each year. (T/F)
Definition
False
Term
By ignoring intangible benefits, capital budgeting techniques might incorrectly eliminate projects that could be financially beneficial to the company. (T/F)
Definition
True
Term

The first step in the capital budgeting evaluation process is to

a.   request proposals for projects.

b.   screen proposals by a capital budgeting committee.

c.   determine which projects are worthy of funding.

d.   approve the capital budget.

Definition
A
Term

The capital budgeting decision depends in part on the

a.   availability of funds.

b.   relationships among proposed projects.

c.   risk associated with a particular project.

d.   all of these.

Definition
D
Term

Capital budgeting is the process

a.   used in sell or process further decisions.

b.   of determining how much capital stock to issue.

c.   of making capital expenditure decisions.

d.   of eliminating unprofitable product lines.

Definition
C
Term

Net annual cash flow can be estimated by

a.   deducting credit sales from net income.

b.   adding depreciation expense to net income.

c.   deducting credit purchases from net income.

d.   adding advertising expense to net income.

Definition
B
Term

Which of the following is not a typical cash flow related to equipment purchase and replacement decisions?

a.   Increased operating costs

b.   Overhaul of equipment

c.   Salvage value of equipment when project is complete

d.   Depreciation expense

Definition
D
Term

Capital expenditure proposals are initially screened by the

a.   board of directors.

b.   executive committee.

c.   capital budgeting committee.

d.   stockholders.

Definition
C
Term

Capital budgeting decisions depend in part on all of the following except the

a.   relationships among proposed projects.

b.   profitability of the company.

c.   company’s basic decision making approach.

d.   risks associated with a particular project.

Definition
B
Term
To avoid accepting projects that actually should be rejected, a company should ignore intangible benefits in calculating net present value. (T/F)
Definition
False
Term

Which of the following is not a capital budgeting decision?

a.   Constructing new studios

b.   Replacing old equipment

c.   Scrapping obsolete inventory

d.   Remodeling an office building

Definition
C
Term
One way of incorporating intangible benefits into the capital budgeting decision is to project conservative estimates of the value of the intangible benefits and include them in the NPV calculation. (T/F)
Definition
True
Term

The payback period is often compared to an asset’s

a.   estimated useful life.

b.   warranty period.

c.   net present value.

d.   internal rate of return.

Definition
A
Term

Which of the following ignores the time value of money?

a.   Internal rate of return

b.   Profitability index

c.   Net present value

d.   Cash payback

Definition
D
Term

Brady Corp. is considering the purchase of a piece of equipment that costs $23,000. Projected net annual cash flows over the project’s life are:

Year                 Net Annual Cash Flow

               1                                $  3,000

               2                                    8,000

               3                                  15,000

               4                                    9,000

The cash payback period is

a.   2.63 years.

b.   2.80 years.

c.   2.20 years.

d.   2.37 years.

Definition
B
Term

Bradshaw Inc. is contemplating a capital investment of $85,000. The cash flows over the project’s four years are:

                                                           Expected Annual                  Expected Annual

                            Year                           Cash Inflows                        Cash Outflows

                               1                                   $30,000                                   $12,000

                               2                                      45,000                                     20,000

                               3                                      60,000                                     25,000

                               4                                      50,000                                     30,000

The cash payback period is

a.   2.17 years.

b.   3.35 years.

c.   2.30 years.

d.   3.47 years.

Definition
B
Term

Jordan Company is considering the purchase of a machine with the following data:

Initial cost                                                              $130,000

One-time training cost                                          12,000

Annual maintenance costs                                  15,000

Annual cost savings                                                75,000

Salvage value                                                            20,000

The cash payback period is

a.   2.37 years.

b.   2.17 years.

c.   1.89 years.

d.   1.73 years.

Definition
A
Term
The profitability index is calculated by dividing the total cash flows by the initial investment. (T/F)
Definition
False
Term

Which of the following does not consider a company’s required rate of return?

a.   Net present value

b.   Internal rate of return

c.   Annual rate of return

d.   Cash payback

Definition
D
Term

The cash payback technique

a.   considers cash flows over the life of a project.

b.   cannot be used with uneven cash flows.

c.   is superior to the net present value method.

d.   may be useful as an initial screening device.

Definition
D
Term
The profitability index allows comparison of the relative desirability of projects that require differing initial investments. (T/F)
Definition
True
Term

If a payback period for a project is greater than its expected useful life, the

a.   project will always be profitable.

b.   entire initial investment will not be recovered.

c.   project would only be acceptable if the company's cost of capital was low.

d.   project's return will always exceed the company's cost of capital.

Definition
B
Term

The cash payback technique

a.   should be used as a final screening tool.

b.   can be the only basis for the capital budgeting decision.

c.   is relatively easy to compute and understand.

d.   considers the expected profitability of a project.

Definition
C
Term

The cash payback period is computed by dividing the cost of the capital investment by the

a.   annual net income.

b.   net annual cash inflow.

c.   present value of the cash inflow.

d.   present value of the net income.

Definition
B
Term

The cash payback period is computed by dividing the cost of the capital investment by the

a.   annual net income.

b.   net annual cash inflow.

c.   present value of the cash inflow.

d.   present value of the net income.

Definition
C
Term
Sensitivity analysis uses a number of outcome estimates to get a sense of the variability among potential returns. (T/F)
Definition
True
Term

Bark Company is considering buying a machine for $180,000 with an estimated life of ten years and no salvage value.  The straight-line method of depreciation will be used.  The machine is expected to generate net income of $12,000 each year.  The cash payback period on this investment is

a.   15 years.

b.   10 years.

c.   6 years.

d.   3 years.

Definition
C
Term

A company is considering purchasing a machine that costs $320,000 and is estimated to have no salvage value at the end of its 8-year useful life.  If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000. The straight-line method of depreciation would be used.

The cash payback period on the machine is

a.   8.0 years.

b.   7.3 years.

c.   5.2 years.

d.   2.6 years.

Definition
C
Term
A well-run organization should perform an evaluation, called a post-audit, of its investment projects before their completion. (T/F)
Definition
False
Term

Giraldi Company has identified that the cost of a new computer will be $60,000, but with the use of the new computer, net income will increase by $5,000 a year. If depreciation expense is $3,000 a year, the cash payback period is:

a.   30 years.

b.   20 years.

c.   12 years.

d.   7.5 years.

Definition
D
Term
Post-audits create an incentive for managers to make accurate estimates, since managers know that their results will be evaluated. (T/F)
Definition
True
Term

Use the following table,

                            Present Value of an Annuity of 1

Period                     8%                  9%                10%  

1                           .926                .917                .909

2                         1.783             1.759             1.736

3                         2.577             2.531             2.487

A company has a minimum required rate of return of 9%. It is considering investing in a project which costs $420,000 and is expected to generate cash inflows of $168,000 at the end of each year for three years. The net present value of this project is

a.   $425,208.

b.   $252,000.

c.   $42,516.

d.   $5,208.

Definition
D
Term
A post-audit is an evaluation of how well a project's actual performance matches the projections made when the project was proposed. (T/F)
Definition
True
Term

The rate that a company must pay to obtain funds from creditors and stockholders is known as the

a.   hurdle rate.

b.   cost of capital.

c.   cutoff rate.

d.   all of these.

Definition
B
Term

The higher the risk element in a project, the

a.   more attractive the investment.

b.   higher the net present value.

c.   higher the cost of capital.

d.   higher the discount rate.

Definition
D
Term

If a company's required rate of return is 10% and, in using the net present value method, a project's net present value is zero, this indicates that the

a.   project's rate of return exceeds 10%.

b.   project's rate of return is less than the minimum rate required.

c.   project earns a rate of return of 10%.

d.   project earns a rate of return of 0%.

Definition
C
Term

Using the profitability index method, the present value of cash inflows for Project Flower is $88,000 and the present value of cash inflows of Project Plant is $48,000. If Project Flower and Project Plant require initial investments of $90,000 and $40,000, respectively, and have the same useful life, the project that should be accepted is

a.   Project Flower.

b.   Project Plant.

c.   Either project may be accepted.

d.   Neither project should be accepted.

Definition
B
Term
The internal rate of return method is, like the NPV method, a discounted cash flow technique. (T/F)
Definition
True
Term

When the annual cash flows from an investment are unequal, the appropriate table to use is the

a.   future value of 1 table.

b.   future value of annuity table.

c.   present value of 1 table.

d.   present value of annuity table.

Definition
C
Term
The interest yield of a project is a rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected annual cash inflows. (T/F)
Definition
True
Term

When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the

a.   internal rate of return.

b.   annual rate of return.

c.   required rate of return.

d.   profitability index.

Definition
C
Term
Using the internal rate of return method, a project is rejected when the rate of return is greater than or equal to the required rate of return. (T/F)
Definition
False
Term
Using the annual rate of return method, a project is acceptable if its rate of return is greater than management's minimum rate of return. (T/F)
Definition
True
Term

The discount rate that will result in the lowest net present value for a project is

a.   any rate lower that the cost of capital.

b.   any rate higher than the cost of capital.

c.   the lowest rate used to evaluate the project.

d.   the highest rate used to evaluate the project.

Definition
D
Term
The annual rate of return method requires dividing a project's annual cash inflows by the economic life of the project. (T/F)
Definition
False
Term

Which of the following will increase the net present value of a project?

a.   An increase in the initial investment

b.   A decrease in annual cash inflows

c.   An increase in the discount rate

d.   A decrease in the discount rate

Definition
D
Term
A major advantage of the annual rate of return method is that it considers the time value of money. (T/F)
Definition
False
Term

Companies often assume that the risk element in the discount rate is

a.   zero.

b.   greater that zero.

c.   less than zero.

d.   known with certainty.

Definition
A
Term

If a project has a salvage value greater than zero, the salvage value will

a.   have no effect on the net present value.

b.   increase the net present value.

c.   increase the payback period.

d.   decrease the net present value.

Definition
B
Term

Sloan Inc. recently invested in a project with a 3-year life span. The net present value was $6,000 and annual cash inflows were $14,000 for year 1; $16,000 for year 2; and $18,000 for year 3. The initial investment for the project, assuming a 15% required rate of return, was

                                                                              Present Value                         PV of an Annuity

                                          Year                               of 1 at 15%                               of 1 at 15%      

1                                          .870                                                .870

2                                          .756                                             1.626

3                                          .658                                             2.283

a.   $30,528.

b.   $30,120.

c.   $19,488.

d.   $25,584.

Definition
B
Term
An advantage of the annual rate of return method is that it relies on accrual accounting numbers rather than actual cash flows. (T/F)
Definition
False
Term

Mini Inc. is contemplating a capital project costing $31,346. The project will provide annual cost savings of $12,000 for 3 years and have a salvage value of $2,000. The company’s required rate of return is 10%. The company uses straight-line depreciation.

                                                                              Present Value                         PV of an Annuity

                                          Year                               of 1 at 10%                               of 1 at 10%      

1                                          .909                                                .909

2                                          .826                                             1.736

3                                          .751                                             2.487

This project is

a.   unacceptable because it earns a rate less than 10%.

b.   acceptable because it has a positive NPV.

c.   unacceptable because it has a negative NPV.

d.   acceptable because it has a zero NPV.

Definition
D
Term

Johnson Corp. has an 8% required rate of return. It’s considering a project that would provide annual cost savings of $30,000 for 5 years. The most that Johnson would be willing to spend on this project is

                                                                              Present Value                         PV of an Annuity

                                          Year                                 of 1 at 8%                                 of 1 at 8%       

1                                          .926                                                .926

2                                          .857                                             1.783

3                                          .794                                             2.577

4                                          .735                                             3.312

5                                          .681                                             3.993

a.   $75,546.

b.   $99,360.

c.   $119,790.

d.   $20,430.

Definition
C
Term

Benaflek Co. purchased some equipment 3 years ago. The company’s required rate of return is 12%, and the net present value of the project was $(900). Annual cost savings were: $10,000 for year 1; $8,000 for year 2; and $6,000 for year 3. The amount of the initial investment was

                                                                              Present Value                         PV of an Annuity

                                          Year                               of 1 at 12%                               of 1 at 12%      

1                                          .893                                                .893

2                                          .797                                             1.690

3                                          .712                                             2.402

a.   $20,478.

b.   $18,316.

c.   $20,116.

d.   $18,678.

Definition
A
Term

In capital budgeting, intangible benefits should be

a.   excluded entirely.

b.   included using optimistic estimated values.

c.   included using conservative estimated values.

d.   included only when benefits are known with certainty.

Definition
C
Term

Miles, Inc. is considering the purchase of a new machine for $200,000 that has an estimated useful life of 5 years and no salvage value. The machine will generate net annual cash flows of $35,000. It is believed that the new machine will reduce downtime because of its reliability. Assume the discount rate is 8%. In order to make the project acceptable, the reduction in downtime must be worth

                                                                              Present Value                         PV of an Annuity

                                          Year                                 of 1 at 8%                                 of 1 at 8%       

1                                          .926                                                .926

2                                          .857                                             1.783

3                                          .794                                             2.577

4                                          .735                                             3.312

5                                          .681                                             3.993

a.   $7,986 per year.

b.   $16,554 per year.

c.   $6,088 per year.

d.   $15,088 per year.

Definition
D
Term

Intangible benefits in capital budgeting would include all of the following except increased

a.   product quality.

b.   employee loyalty.

c.   salvage value.

d.   product safety.

Definition
C
Term

Intangible benefits in capital budgeting

a.   should be ignored because they are difficult to determine.

b.   include increased quality or employee loyalty.

c.   are not considered because they are usually not relevant to the decision.

d.   have a rate of return in excess of the company’s cost of capital.

Definition
B
Term

To avoid rejecting projects that actually should be accepted,

1.    intangible benefits should be ignored.

2.    conservative estimates of the intangible benefits' value should be incorporated into the NPV calculation.

3.    calculate net present value ignoring intangible benefits and then, if the NPV is negative, estimate whether the intangible benefits are worth at least the amount of the negative NPV.

a.   1

b.   2

c.   3

d.   both 2 and 3 are correct.

Definition
D
Term

All of the following statements about intangible benefits in capital budgeting are correct except that they

a.   include increased quality and employee loyalty.

b.   are difficult to quantify.

c.   are often ignored in capital budgeting decisions.

d.   cannot be incorporated into the NPV calculation.

Definition
D
Term

In evaluating high-tech projects,

a.   only tangible benefits should be considered.

b.   only intangible benefits should be considered.

c.   both tangible and intangible benefits should be considered.

d.   neither tangible nor intangible benefits should be considered.

Definition
C
Term

Using a number of outcome estimates to get a sense of the variability among potential returns is

a.   financial analysis.

b.   post-audit analysis.

c.   sensitivity analysis.

d.   outcome analysis.

Definition
C
Term

If a company's required rate of return is 9%, and in using the profitability index method, a project's index is greater than 1, this indicates that the project's rate of return is

a.   equal to 9%.

b.   greater than 9%.

c.   less than 9%.

d.   unacceptable for investment purposes.

Definition
B
Term

The profitability index is computed by dividing the

a.   total cash flows by the initial investment.

b.   present value of cash flows by the initial investment.

c.   initial investment by the total cash flows.

d.   initial investment by the present value of cash flows.

Definition
B
Term

The capital budgeting method that takes into account both the size of the original investment and the discounted cash flows is the

a.   cash payback method.

b.   internal rate of return method.

c.   net present value method.

d.   profitability index.

Definition
D
Term

The profitability index

a.   does not take into account the discounted cash flows.

b.   is calculated by dividing total cash flows by the initial investment.

c.   allows comparison of the relative desirability of projects that require differing initial investments.

d.   will never be greater than 1.

Definition
C
Term

The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the

a.   cash payback method.

b.   internal rate of return method.

c.   net present value method.

d.   profitability index.

Definition
D
Term

The following information is available for a potential investment for Panda Company: