Accounting Chapter 10 – Flashcards
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A major element in budgetary control is Entry field with correct answer the comparison of actual results with planned objectives. the valuation of inventories. approval of the budget by the stockholders. the preparation of long-term plans.
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the comparison of actual results with planned objectives.
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On the basis of the budget reports, Entry field with correct answer management analyzes differences between actual and planned results. management may take corrective action. management may modify the future plans. All of these answers are correct.
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all of these are correct
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Top management's reaction to a difference between budgeted and actual sales often depends on Entry field with correct answer the personality of the top managers. the materiality of the difference. whether management anticipated the difference. whether the difference is favorable or unfavorable
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the materiality of the difference.
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What is the primary difference between a static budget and a flexible budget? Entry field with correct answer The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels. The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management. The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold. The static budget contains only fixed costs, while the flexible budget contains only variable costs.
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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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Boland Manufacturing prepared a 2016 budget for 120,000 units of product. Actual production in 2016 was 130,000 units. To be most useful, what amounts should a performance report for this company compare? Entry field with correct answer The actual results for 130,000 units with last year's actual results for 134,000 units. It doesn't matter. All of these choices are equally useful. The actual results for 130,000 units with the original budget for 120,000 units. The actual results for 130,000 units with a new budget for 130,000 units.
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The actual results for 130,000 units with a new budget for 130,000 units.
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The flexible budget Entry field with correct answer eliminates the need for a master budget. is a series of static budgets at different levels of activity. is prepared before the master budget. is relevant both within and outside the relevant range.
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is a series of static budgets at different levels of activity.
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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? Entry field with correct answer $530,000 $480,000 $520,000 $650,000
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530000
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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? Entry field with correct answer $2,000 unfavorable. $2,000 favorable. $8,000 favorable. $6,000 unfavorable.
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2000 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 $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 Entry field with correct answer $225,000. $202,500. $270,000. $277,500.
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277500
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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? Entry field with correct answer $120,000 50% 20% $300,000
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120000
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As one moves up to each higher level of managerial responsibility, Entry field with incorrect answer fewer costs are controllable. the responsibility for cost incurrence diminishes. performance evaluation becomes less important. a greater number of costs are controllable.
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a greater number of costs are controllable.
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A responsibility report should Entry field with correct answer be prepared in accordance with generally accepted accounting principles. only be prepared at the highest level of managerial responsibility. show only those costs that a manager can control. only show variable costs.
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show only those costs that a manager can control.
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Costs incurred indirectly and allocated to a responsibility level are considered to be Entry field with correct answer nonmaterial. noncontrollable. controllable. mixed.
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noncontrollable
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The linens department of a large department store is Entry field with incorrect answer not a responsibility center. an investment center. a profit center. a cost center.
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profit center
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The foreign subsidiary of a large corporation is Entry field with correct answer a cost center. not a responsibility center. an investment center. a profit center.
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investment center
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The maintenance department of a manufacturing company is a(n) Entry field with correct answer cost center. profit center. investment center. segment.
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cost center
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A profit center is Entry field with correct answer a responsibility center that always reports a profit. a responsibility center that incurs costs and generates revenues. evaluated by the rate of return earned on the investment allocated to the center. referred to as a loss center when operations do not meet the company's objectives.
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a responsibility center that incurs costs and generates revenues.
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Controllable margin is most useful for Entry field with correct answer performance evaluation of profit centers. break-even analysis. external financial reporting. preparing the master budget.
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performance evaluation of profit centers.
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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 Entry field with correct answer is 10% below expectations. is 10% above expectations. cannot be determined from the information provided. is equal to expectations.
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10% below expectations
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Las Sendas, Inc. had average operating assets of $4,000,000 and sales of $2,000,000 in 2016. If the controllable margin was $600,000, the ROI was Entry field with correct answer 60% 30% 50% 15%
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15%
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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? Entry field with correct answer 12.0% 45.0% 22.5% 15.0%
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22.5%
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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? Entry field with correct answer $540,000 $12,000 $48,000 $102,000
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$12000
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What is the goal of residual income? Entry field with incorrect answer To maximize the total amount of residual income To maximize the amount of costs which are controllable To maximize controllable margin To maximize profits
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To maximize the amount of costs which are controllable
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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? Entry field with correct answer $320,000 $120,000 $20,000 $80,000
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$20000
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A production manager in a manufacturing company would most likely receive a: Entry field with correct answer scrap report. selling expenses report. income statement. sales report.
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scrap report
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A static budget is compared to a flexible budget in a budget report. never appropriate in evaluating a manager's effectiveness in controlling costs. a projection of budget data at several levels of activity within the relevant range of activity. a projection of budget data at a single level of activity.
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a projection of budget data at a single level of activity
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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 10,000 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 $60,000 fixed plus $3 per direct labor hour variable. $60,000 fixed plus $6 per direct labor hour variable. $30,000 fixed plus $6 per direct labor hour variable. $30,000 fixed plus $9 per direct labor hour variable.
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30000 fixed plus $6 per direct labor hour variable
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At 9,000 direct labor hours, the flexible budget for indirect materials is $27,000. If $28,000 of indirect materials costs are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials $1,000 unfavorable. $1,000 favorable. $400 unfavorable. $400 favorable.
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400 unfavorable
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Which one of the statements is correct about controllable costs? A cost is controllable if it is incurred directly in a manager's division or segment. More costs are controllable as one moves downward in management levels. Variable costs are controllable and fixed costs are not. Allocated costs are controllable.
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A cost is controllable if it is incurred directly in a manager's division or segment
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What type of center is the Human Resources department at a car dealership? Investment center. Segment. Cost center. Profit center.
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Cost center
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Boyce Manufacturing Co.'s operates 3 profit centers. The clothing center's static budget at 6,000 units of production includes $30,000 for direct labor, $6,000 for direct materials, $12,000 for variable factory overhead, and controllable fixed costs of $24,000. Actual activity was 5,800 units with actual costs of $29,500 for direct labor, $11,500 for variable factory overhead, controllable fixed costs of $24,200, and $6,100 for direct materials. All units produced were budgeted to be sold for $16 each. Actual sales totaled $93,960. What variance will appear on the performance report for controllable margin? $260F. $900U. $1,100F. $760F.
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260F
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Bajalia Company compiled the following information for the year: Average operating assets $6,400,000 Controllable margin $ 800,000 Bajalia's corporate office expects the division to earn a minimum return of 10%. If Bajalia buys a new machine costing $120,000 that is expected to generate additional controllable margin of $12,000, what happens to ROI? The new return will decrease because the return of the investment in the machine is only 10%, determined by $12,000/$120,000. Current ROI = $800,000/$6,400,000 = 12.5% New ROI = [$800,000 + $12,000] / [$6,400,000 + $120,000] = It will be 12.5%. It will increase to 12.69%. It will be 10%. It will decrease to 12.45%.
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It will decrease to 12.45%
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A manager of an investment center can improve ROI by reducing sales. increasing variable costs. increasing average operating assets. reducing variable and/or controllable fixed costs.
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reducing variable and/or controllable fixed costs
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A division of Cream, Inc. had average operating assets of $2,600,000. The company requires a return on investment of at least 8%. The division earned controllable margin of $250,000 on sales of $3,200,000. How much is residual income? The formula for Residual income = Controllable margin - (Minimum rate of return x Average operating assets). In this case, $250,000 - ($2,600,000 x 8%) $208,000 $42,000 $292,000 $256,000
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$42000
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Budgetary control involves all but one of the following: (a)modifying future plans. (b)analyzing differences. Budgetary control involves all but one of the following: (a)modifying future plans. (b)analyzing differences. (c)using static budgets but not flexible budgets. (d)determining differences between actual and planned results (d)determining differences between actual and planned results
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c)using static budgets but not flexible budgets.
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Budget reports are prepared: (a)daily. (b)weekly. (c)monthly. (d)All of the above.
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(d)All of the above.
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A production manager in a manufacturing company would most likely receive a: (a)sales report. (b)income statement. (c)scrap report. (d)shipping department overhead report.
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(c)scrap report.
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A static budget is: (a)a projection of budget data at several levels of activity within the relevant range of activity (b)a projection of budget data at a single level of activity. (c)compared to a flexible budget in a budget report. (d)never appropriate in evaluating a manager's effectiveness in controlling costs.
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(b)a projection of budget data at a single level of activity.
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A static budget is useful in controlling costs when cost behavior is: (a)mixed. (b)fixed. (c)variable. (d)linear.
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(b)fixed.
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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 10,000 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 $6 per direct labor hour variable. (b)$30,000 fixed plus $9 per direct labor hour variable. (c)$60,000 fixed plus $3 per direct labor hour variable. (d)$60,000 fixed plus $6 per direct labor hour variable.
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(a)$30,000 fixed plus $6 per direct labor hour variable.
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At 9,000 direct labor hours, the flexible budget for indirect materials is $27,000. If $28,000 of indirect materials costs are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials: (a)$1,000 unfavorable. (b)$1,000 favorable. (c)$400 favorable. (d)$400 unfavorable.
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(d)$400 unfavorable.
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Under responsibility accounting, the evaluation of a manager's performance is based on matters that the manager: (a)directly controls. (b)directly and indirectly controls. (c)indirectly controls. (d)has shared responsibility for with another manager.
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(a)directly controls.
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Responsibility centers include: (a)cost centers. (b)profit centers. (c)investment centers. (d)All of the above.
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(d)All of the above.
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Responsibility reports for cost centers: (a)distinguish between fixed and variable costs. (b)use static budget data. (c)include both controllable and noncontrollable costs. (d)include only controllable costs.
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(d)include only controllable costs.
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The accounting department of a manufacturing company is an example of: (a)a cost center. (b)a profit center. (c)an investment center. (d)a contribution center.
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(a)a cost center.
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To evaluate the performance of a profit center manager, upper management needs detailed information about: (a)controllable costs. (b)controllable revenues. (c)controllable costs and revenues. (d)controllable costs and revenues and average operating assets.
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(c)controllable costs and revenues
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In a responsibility report for a profit center, controllable fixed costs are deducted from contribution margin to show: (a)profit center margin. (b)controllable margin. (c)net income. (d)income from operations.
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(b)controllable margin.
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In the formula for return on investment (ROI), the factors for controllable margin and operating assets are, respectively: (a)controllable margin percentage and total operating assets. (b)controllable margin dollars and average operating assets. (c)controllable margin dollars and total assets. (d)controllable margin percentage and average operating assets.
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(b)controllable margin dollars and average operating assets.
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A manager of an investment center can improve ROI by: (a)increasing average operating assets. (b)reducing sales. (c)increasing variable costs. (d)reducing variable and/or controllable fixed costs.
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(d)reducing variable and/or controllable fixed costs.
