accounting exam 2

Bendel Inc. has an operating leverage of 4.5. If the company's sales increase by 10%, its net operating income should increase by about:

45%

There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget?

It is calculated based on the sales budget and the desired ending inventory.

An unfavorable materials quantity variance indicates that:

actual usage of material exceeds the standard material allowed for output.

When using a flexible budget, a decrease in activity within the relevant range:

decreases total cost

A favorable spending variance occurs when the actual cost is less than the amount of the cost in the static planning budget.

false

If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in:

net operating income

The usual starting point for a master budget is:

the sales forecast or sales budget

A favorable labor rate variance indicates that

the standard rate exceeds the actual rate

A benefit from budgeting is that it forces managers to think about and plan for the future.

true

An unfavorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period.

false

If skilled workers with high hourly rates of pay are given duties that require little skill and call for lower hourly rates of pay, this will result in a favorable labor rate variance.

false

The degree of operating leverage is computed by dividing sales by the contribution margin.

false

The margin of safety percentage is equal to the margin of safety in dollars divided by total contribution margin.

false

Waste on the production line will result in an unfavorable materials price variance.

false

A budget that is based on the actual activity of a period is known as a:

flexible budget

A company with high operating leverage will experience a larger reduction in net operating income in a period of declining sales than a company with low operating leverage.

true

An unfavorable activity variance for revenue indicates that activity was less than expected when the static planning budget was developed.

true

Differences between the static planning budget and the flexible budget show what should have happened because the actual level of activity differed from what had been planned.

true

Fawn Company's margin of safety is $90,000. If the company's sales drop by $80,000, it will still have positive net operating income.

true

If the actual hourly rate is greater than the standard hourly rate, the labor rate variance is labeled unfavorable (U).

true

The basic idea underlying responsibility accounting is that a manager should be held responsible for those items—and only those items—that the manager can actually control to a significant extent.

true

The break-even point in units can be obtained by dividing total fixed expenses by the unit contribution margin.

true

The labor efficiency variance is labeled favorable (F) if the actual hours used is less than the standard hours allowed for the actual output.

true

The main difference between a flexible budget and a static budget is that the static budget is not adjusted for changes in the level of activity.

true

The margin of safety is the amount by which sales can decrease before losses are incurred by the company.

true

The standard quantity or standard hours allowed refers to the amount of the input that should have been used to produce the actual output of the period.

true

When more hours of labor time are necessary to complete a job than the standard allows, the labor efficiency variance is unfavorable.

true

When the activity measure is the number of units sold, the revenue variance is favorable if the average actual selling price is greater than expected.

true