Chapter 22-25 T/F – Flashcards
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A budget can be an effective means of communicating management's plans to the employees of a business.
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True
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The process of evaluating performance can be improved by using budgets.
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True
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The merchandise purchases budget depends on information provided by the sales budget.
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True
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The merchandise purchases budget is the starting point for preparing the master budget.
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False
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The sales budget is derived from the production budget.
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False
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The selling expenses budget is normally prepared before the sales budget because selling expenses affect the amount of sales.
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False
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A company's history indicates that 20% of its sales are for cash and the remaining 80% are on credit. Collections on credit sales are 30% in the month of the sale and 70% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts are $80,500.
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False
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A cash budget shows the expected cash receipts and cash expenditures during the budget period.
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True
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Production budgets always show both budgeted units of product and total costs for the budgeted units.
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False
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Standard Costs can be used by management to assess the reasonableness of actual costs incurred
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True
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Standard costs are preset costs for delivering a product or service under normal conditions
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True
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When computing a price variance, the price is held constant
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False
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Fixed budgets are also known as flexible budgets
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False
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The total sales variance can be divided into the sales price varianc and the sales volume variance
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True
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A flexible budget expresses all coasts on a per unit basis regardless of cost behavior
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False
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The purchasing department is usually responsible for the price paid for materials
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True
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A favorable direct materials price variance might lead to an unfavorable direct materials quantity variance because the company purchased inferior materials
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True
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One possible explanation for DL rate and efficiency variances is the use of workers with different skill levels
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True
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A volume variance is the difference between overhead at maximum volume of production and the standard volume of production
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False
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Profit center managers are evaluated on their ability to generate revenues in excess of costs.
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true
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Investment center is another name for profit center.
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false
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An example of a controllable cost is equipment depreciation expense.
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false
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A responsibility accounting performance report usually compares actual costs to budgeted costs amounts by management level
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true
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Return on investment is a useful measure to evaluate the performance of a cost center manager.
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False
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A useful measure used to evaluate the performance of an investment center is investment center residual income.
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True
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In a decentralized organization, decisions are made by managers throughout the company rather than by a few top executives.
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True
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Capital budgeting is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell.
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True
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If the internal rate of return (IRR) of an investment is lower than the hurdle rate, the project should be accepted.
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False
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Neither the payback period nor the accounting rate of return methods of evaluating investments considers the time value of money.
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True
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A sunk cost will change with a future course of action.
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False
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Additional business in the form of a special order of goods or services should be accepted when the incremental revenue equals the incremental costs
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False
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If a company has the capacity to produce either 10,000 units of Product A or 10,000 units of Product B; assuming fixed costs are the same, production restrictions are the same for both products, and the markets for both products are unlimited; the company should commit 100% of its capacity to the product that has the higher contribution margin. (T/F)
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True
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An advantage of the break-even time (BET) method over the payback period method is that it recognizes the time value of money.
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True
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The accounting rate of return is based on cash flows rather than net income in its calculation.
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False
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If net present values are used to evaluate two investments that have equal costs and equal total cash flows, the one with more cash flows in the early years has the higher net present value.
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True
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The internal rate of return equals the rate that yields a net present value of zero for an investment.
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True
