Chapter 10 ACCT Flashcards
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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
answer
The use of budgets in controlling operations
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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.
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the comparison of actual results with planned objectives.
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Budget reports should be prepared a. daily. b. monthly. c. weekly. d. as frequently as needed.
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as frequently as needed.
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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.
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All of these.
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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.
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control overhead costs.
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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.
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determine whether sales goals are being met.
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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.
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appears on periodic budget reports.
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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.
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shows planned results at the original budgeted activity level.
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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.
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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.
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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.
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actual activity closely approximates the master budget activity.
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When budgeted and actual results are not the same amount, there is a budget a. error. b. difference. c. anomaly. d. by-product.
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difference.
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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.
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the materiality of the difference.
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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.
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fixed.
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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.
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The year-to-date results will show a favorable difference.
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A static budget is appropriate for a. variable overhead costs. b. direct materials costs. c. fixed overhead costs. d. None of these.
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fixed overhead costs.
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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.
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The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
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Another name for the static budget is a. master budget. b. overhead budget. c. permanent budget. d. flexible budget.
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master budget.
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The master budget of Windy Co. 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 $720,000 Machine supplies 180,000 Indirect materials 210,000 Depreciation on factory building 150,000 Total manufacturing overhead $1,260,000 A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead costs ofa. $1,482,000. b. $1,260,000. c. $1,512,000. d. $1,362,000.
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master = 82 $1,482,000.
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Boland Manufacturing prepared a 2013 budget for 120,000 units of product. Actual production in 2013 was 130,000 units. To be most useful, what amounts should a performance report for this company compare? a. The actual results for 130,000 units with the original budget for 120,000 units. b. The actual results for 130,000 units with a new budget for 130,000 units. c. The actual results for 130,000 units with last year's actual results for 134,000 units. d. It doesn't matter. All of these choices are equally useful.
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The actual results for 130,000 units with a new budget for 130,000 units.
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A department has budgeted monthly manufacturing overhead cost of $540,000 plus $3 per direct labor hour. If a flexible budget report reflects $1,044,000 for total budgeted manufacturing cost for the month, the actual level of activity achieved during the month was a. 528,000 direct labor hours. b. 168,000 direct labor hours. c. 348,000 direct labor hours. d. Cannot be determined from the information provided.
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168,000 direct labor hours.
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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
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*two types of budgets* Fixed manufacturing overhead
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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.
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it is *necessary to relate* variable cost data to the activity index chosen.
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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
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Budgeted amounts for the actual activity level achieved
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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.
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is a series of static budgets at different levels of activity.
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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.
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All of these.
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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.
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projects budget data for various levels of activity.
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If a company plans to sell 48,000 units of product but sells 60,000, 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. 54,000 units of activity. c. 60,000 units of activity. d. 48,000 units of activity.
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60,000 units of activity.
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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.
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*line*ar and *up*ward sloping.
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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.
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both 1 and 2.
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The 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
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1 and 2
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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.
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means that material differences will be investigated.
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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
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*M C* Hammer Material and controllable
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Best Shingle's budgeted manufacturing costs for 50,000 squares of shingles are: Fixed manufacturing costs $12,000 Variable manufacturing costs $16.00 per square Best produced 40,000 squares of shingles during March. How much are budgeted total manufacturing costs in March? a. $640,000 b. $812,000 c. $800,000 d. $652,000
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$652,000
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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.
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differs from a CVP graph in that sales *revenue is not shown*.
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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
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should significantly influence the costs that are being budgeted
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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.
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substantial variable costs.
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Shane Industries prepared a fixed budget of 60,000 direct labor hours, with estimated overhead costs of $300,000 for variable overhead and $90,000 for fixed overhead. Shane then prepared a flexible budget at 57,000 labor hours. How much is total overhead costs at this level of activity? a. $285,000 b. $375,000 c. $370,500 d. $390,000
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$375,000
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For June, Gold Corp. estimated sales revenue at $600,000. It pays sales commissions that are 4% of sales. The sales manager's salary is $285,000, estimated shipping expenses total 1% of sales, and miscellaneous selling expenses are $15,000. How much are budgeted selling expenses for the month of July if sales are expected to be $540,000? a. $42,000 b. $327,000 c. $27,000 d. $330,000
answer
June is 32 or 27 $327,000
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Nikoto Steel Co. budgeted manufacturing costs for 50,000 tons of steel are: Fixed manufacturing costs $50,000 per month Variable manufacturing costs $12.00 per ton of steel Nikoto produced 40,000 tons of steel during March. How much is the flexible budget for total manufacturing costs for March? a. $520,000 b. $650,000 c. $480,000 d. $530,000
answer
Nikoto - 53 $530,000
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Smart Manufacturing budgeted costs for 50,000 linear feet of block are: Fixed manufacturing costs $24,000 per month Variable manufacturing costs $16.00 per linear foot Smart installed 40,000 linear feet of block during March. How much is budgeted total manufacturing costs in March? a. $640,000 b. $824,000 c. $800,000 d. $664,000
answer
Smart 664 $664,000
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In the Dichter Co., indirect labor is budgeted for $72,000 and factory supervision is budgeted for $24,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs is a. $96,000. b. $108,000. c. $105,000. d. $99,000.
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$105,000.
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Stone Industries uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $48,000 variable and $270,000 fixed. If Stone had actual overhead costs of $321,000 for 18,000 units produced, what is the difference between actual and budgeted costs? a. $3,000 unfavorable b. $3,000 favorable c. $9,000 unfavorable d. $12,000 favorable
answer
stone countertop is favorable $3,000 favorable
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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.
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$408,000.
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In the Goblette Manufacturing Company, indirect labor is budgeted for $108,000 and factory supervision is budgeted for $36,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs is: a. $144,000. b. $162,000. c. $157,500. d. $148,500.
answer
Goble*tt*e $1*5*7,*5*00.
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Chambers, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $64,000 variable and $180,000 fixed. If Chambers had actual overhead costs of $250,000 for 18,000 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.
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having your own chambers is favorable $2,000 favorable.
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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.
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$370,000.
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Kevin Jarvis Industries produced 192,000 units in 90,000 direct labor hours. Production for the period was estimated at 198,000 units and 99,000 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at a. 96,000 hours and 99,000 hours. b. 99,000 hours and 90,000 hours. c. 96,000 hours and 90,000 hours. d. 90,000 hours and 90,000 hours.
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90,000 hours and 90,000 hours.
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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.
answer
$277,500.
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Kathleen Corp. produced 320,000 units in 150,000 direct labor hours. Production for the period was estimated at 330,000 units and 165,000 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at a. 160,000 hours and 165,000 hours. b. 165,000 hours and 150,000 hours. c. 160,000 hours and 150,000 hours. d. 150,000 hours and 150,000 hours.
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150,000 hours and 150,000 hours.
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At zero direct labor hours in a flexible budget graph, the total budgeted cost line intersects the vertical axis at $30,000. At 15,000 direct labor hours, a horizontal line drawn from the total budgeted cost line intersects the vertical axis at $90,000. Fixed and variable costs may be expressed as: a. $30,000 fixed plus $4 per direct labor hour variable. b. $30,000 fixed plus $6 per direct labor hour variable. c. $60,000 fixed plus $2 per direct labor hour variable. d. $60,000 fixed plus $4 per direct labor hour variable.
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$30,000 fixed plus $4 per direct labor hour variable.
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At 18,000 direct labor hours, the flexible budget for indirect materials is $36,000. If $37,400 are incurred at 18,400 direct labor hours, the flexible budget report should show the following difference for indirect materials: a. $1,400 unfavorable. b. $1,400 favorable. c. $600 favorable. d. $600 unfavorable.
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$600 unfavorable.
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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.
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responsibility accounting.
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Power Manufacturing recorded operating data for its shoe division for the year. Sales $1,500,000 Contribution margin 300,000 Controllable fixed costs 180,000 Average total operating assets 600,000 How much is controllable margin for the year? a. 20% b. 50% c. $300,000 d. $120,000
answer
$120,000
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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.
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the *manager has the power* to incur the cost within a given time period.
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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.
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a greater number of costs are controllable.
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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.
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show only those costs that a manager can control.
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Top management can control a. only controllable costs. b. only noncontrollable costs. c. all costs. d. some noncontrollable costs and all controllable costs.
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all costs.
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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.
answer
utilize responsibility accounting in trying to minimize the cost of providing services.
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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.
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Fewer costs are controllable as one moves up to each higher level of managerial responsibility.
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Costs incurred indirectly and allocated to a responsibility level are considered to be a. nonmaterial. b. mixed. c. controllable. d. noncontrollable.
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noncontrollable.
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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.
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can be implemented at each level of responsibility within an organization.
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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
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Investment and profit centers
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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.
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* large department * a profit center.
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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.
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*large corporation* an investment center.
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The maintenance department of a manufacturing company is a(n) a. segment. b. profit center. c. cost center. d. investment center.
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*manufacturing company* cost center.
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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.
answer
Profit Center 1, 2, 3
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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.
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only incurs costs and does not directly generate revenues.
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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.
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his or her ability to control costs.
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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.
answer
controllable costs with flexible budget data.
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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.
answer
no distinction is made between fixed and variable costs.
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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.
answer
Company personnel department costs and timekeeping costs for a responsibility center's employees.
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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
answer
Profit center supervisory salaries
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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.
answer
a responsibility center that incurs costs and generates revenues.
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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.
answer
amount of *controllable* margin generated by the profit center.
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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.
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*con*tribution margin less *con*trollable fixed costs.
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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.
answer
performance evaluation of profit centers.
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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
answer
Sales exceeding budget; costs *under* budget
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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.
answer
is 20% *above* expectations.
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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
answer
1
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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.
answer
is 10% *below* expectations.
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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.
answer
not show *indirect* fixed costs.
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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.
answer
is usually *lower* than the contribution margin.
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Pippen Co. recorded operating data for its shoe division for the year. The company's desired return is 5%. Sales $1,000,000 Contribution margin 200,000 Total direct fixed costs 120,000 Average total operating assets 400,000 Which one of the following reflects the controllable margin for the year? a. 20% b. 50% c. $60,000 d. $80,000
answer
$80,000
question
Las Sendas, Inc. had average operating assets of $4,000,000 and sales of $2,000,000 in 2013. If the controllable margin was $600,000, the ROI was a. 60% b. 50% c. 30% d. 15%
answer
15%
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Trails and Paths, Inc. had average operating assets of $6,000,000 and sales of $3,000,000 in 2013. If the controllable margin was $600,000, the ROI was a. 50% b. 40% c. 20% d. 10%
answer
10%
question
The area manager of the Red, White, and Brew 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 Phoenix $120,000 $30,000 25% Chicago $540,000 $50,000 9.25% The Red, White, and Brew segment has currently $2,000,000 in invested capital and a controllable margin of $250,000. Which one of following projects will increase the Red, White, and Brew division's ROI? a. Both the Phoenix and Chicago options b. Only the Phoenix option c. Only the Chicago option d. Neither the Phoenix nor the Chicago options
answer
Only the Phoenix option
question
Bogey Co. recorded operating data for its Cheap division for the year. Bogey requires its return to be 10%. Sales $ 1,400,000 Controllable margin 160,000 Total average assets 4,000,000 Fixed costs 100,000 What is the ROI for the year? a. 4% b. 35% c. 6% d. 1.5%
answer
4%
question
Dingo Division's operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Dingo's required rate of return is 9%. Should Dingo accept this project? a. Yes, ROI will drop by 6.6% which is still above the minimum 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%.
answer
No, the return is less than the required rate of 9%.
question
Grown Industries reported the following items for 2013: Income tax expense $ 60,000 Contribution margin 200,000 Controllable fixed costs 80,000 Interest expense 40,000 Total operating assets 650,000 How much is controllable margin? a. $200,000 b. $120,000 c. $60,000 d. $20,000
answer
$120,000
question
Griffin Corp. is evaluating its Piquette division, an investment center. The division has a $60,000 controllable margin and $400,000 of sales. How much will Griffin's average operating assets be when its return on investment is 10%? a. $600,000 b. $660,000 c. $400,000 d. $340,000
answer
Griffin $600,000
question
An investment center generated a contribution margin of $400,000, fixed costs of $200,000 and sales of $2,000,000. The center's average operating assets were $800,000. How much is the return on investment? a. 25% b. 175% c. 50% d. 75%
answer
An investment center 25%
question
Rhein Manufacturing recorded operating data for its auto accessories division for the year. Sales $750,000 Contribution margin 150,000 Total direct fixed costs 90,000 Average total operating assets 400,000 How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant? a. 45.0% b. 22.5% c. 15.0% d. 12.0%
answer
22.5%
question
The current controllable margin for Henry Division is $93,000. Its current operating assets are $300,000. The division is considering purchasing equipment for $90,000 that will increase annual controllable margin by an estimated $15,000. If the equipment is purchased, what will happen to the return on investment for Henry 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%
answer
A decrease of 3.3%
question
Monte, Inc. recorded operating data for its Sandtrap division for the year. Monte requires its return to be 9%. Sales $1,000,000 Controllable margin 180,000 Total average assets 600,000 Fixed costs 60,000 How much is ROI for the year? a. 10% b. 17% c. 20% d. 30%
answer
Monte 30%
question
Betsy Union is the Pika Division manager and her performance is evaluated by executive management based on Division ROI. The current controllable margin for Pika 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.
answer
A decrease of 3.5%
question
Benet Division of United Refinery Company's operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Benet 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.
answer
No, since ROI will be lowered.
question
The Fulmar Division of Jayne Manufacturing had an ROI of 25% when sales were $3 million and controllable margin was $600,000. What were the average operating assets? a. $150,000 b. $750,000 c. $2,400,000 d. $12,000
answer
$2,400,000
question
Naples, Inc. recorded operating data for its shoe division for the year. Sales $750,000 Contribution margin 135,000 Total fixed costs 90,000 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 $30,000, assuming fixed costs are held constant? a. 25% b. 18% c. 45% d. 12%
answer
Naples 25%
question
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.
answer
the profitability of the center is related to the funds invested in the center.
question
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.
answer
the rate of return on funds invested in the center.
question
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.
answer
*controllable* margin by average operating assets.
question
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
answer
will not *increase* return Variable costs are *increased*
question
If an investment center has generated a controllable margin of $150,000 and sales of $600,000, what is the return on investment for the investment center if average operating assets were $1,000,000 during the period? a. 15% b. 25% c. 45% d. 60%
answer
15%
question
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.
answer
An *investment* center is responsible for revenues and expenses, as well as earning a return on *assets*.
question
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. investment center average operating assets. d. sales for the period.
answer
*investment* center average operating *assets*.
question
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.
answer
*excluded* in the *calculation* of operating assets.
question
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.
answer
is considered a nonoperating asset.
question
Le Sud Retailers 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
answer
Project B
question
If an investment center has a $90,000 controllable margin and $1,200,000 of sales, what average operating assets are needed to have a return on investment of 10%? a. $120,000 b. $210,000 c. $900,000 d. $1,200,000
answer
$900,000
question
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
answer
Market value
question
The following information is available for Halle Department Stores: Average operating assets $600,000 Controllable margin 60,000 Contribution margin 150,000 Minimum rate of return 8% How much is Halle's residual income? a. $102,000 b. $540,000 c. $12,000 d. $48,000
answer
*Halle* Department Stores: $12,000
question
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
answer
To maximize the total amount of *residual* income
question
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.
answer
It *evaluates performance* by comparing the return of an investment center with the company's minimum rate of return.
question
Which one of the following does not impact the amount of residual income? a. Contribution margin b. Net income c. Sales d. Controllable costs
answer
Net *income*
question
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
answer
To *evaluate* management performance
question
Lew Co. 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
answer
$20,000
question
Quincy Corp. earned controllable margin of $500,000 on sales of $6,400,000. The division had average operating assets of $5,200,000. The company requires a return on investment of at least 8%. How much is residual income? a. $416,000 b. $84,000 c. $584,000 d. $512,000
answer
$84,000
question
The performance of the manager of Ottawa 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
answer
Increase in amount of return on investment *desired*
question
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.
answer
It provides a *guarantee* for favorable results.
question
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.
answer
*fixed* manufacturing costs and *fixed* selling and administrative expenses.
question
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
answer
both *fixed* manufacturing costs and *fixed* selling and administrative expenses
question
Sydney, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is $128,000 variable and $360,000 fixed. If Sydney had actual overhead costs of $500,000 for 18,000 units produced, what is the difference between actual and budgeted costs? a. $4,000 unfavorable b. $4,000 favorable c. $12,000 unfavorable d. $16,000 favorable
answer
Sydney favorable name $4,000 favorable
question
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.
answer
*fixed* costs and determine the budgeted *fixed* cost per unit.
question
A flexible budget is appropriate for Direct Labor Costs Manufacturing Overhead Costs a. No No b. Yes Yes c. Yes No d. No Yes
answer
Yes Yes
question
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.
answer
*m*eans that *m*anagement has to investigate every budget difference.
question
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.
answer
a given manager within a given period of time.
question
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.
answer
fewer costs are controllable as one moves up to each higher level of managerial responsibility.
question
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
answer
An increase in sales
question
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.
answer
direct fixed costs.
question
If controllable margin is $300,000 and the average investment center operating assets are $2,000,000, the return on investment is a. .67%. b. 6.66%. c. 20%. d. 15%.
answer
15%.
