Accounting Exam 3
With regard to a static budget instead of a flexible budget, which of the following is true?
A stative budget is prepared for only one level of sales activity
Variable Manufacturing Overhead Rate Variance
AH(AR-SR)
DR Rate Variance
Actual Hours(Actual Rate-Standard Rate)
Direct Materials Price Variance
Actual Quantity Purchased(Actual Price - Standard Price)
The variable manufacturing overhead efficiency variance is the difference between which of the following?
Actual hours and the standard hours.
The direct materials quantity variance assesses the efficiency with which materials were used, therefore the calculation includes which of the following?
Actual quantity used
In which of the follow company types does a manager use an operating expense budget?
All of the above
In which of the following company types does a manager use a sales budget?
All of the above
In which of the following company types does the manager use a capital expenditures budget?
All of the above
In which of the following company types foes a manager use a sales budget?
All of the above
The manager of the corporate division of Anthropologie, a large retail clothing chain, may be in charge of a(n)
Investment Center
With regard to flexible budgets, which of the following statements is true?
Managers use them to help plan for uncertainties.
In which of the following company types does the manager use a "cost of goods sold, inventory and purchases" budget?
Merchandising
In which of the following company types would the manager combine cost of goods sold, inventory, and purchases into one budget?
Merchandising
Residual Income(RI) Equation
Operating Income- Targeted Income Targeted Income= target rate of return X Investment capital
Sales Margin Equation
Operating Income/ Sales
Return on Investments(ROI) Equation
Operating Income/ Total Assets
Which of the following budgets usually shows separate sections for fixed and variable costs?
Operating expenses budget and manufacturing overhead budget
Most companies use ____ when the lower level management develops budgets each year
Participative budgeting
When a management team is in the process of setting a standard or benchmark they need to consider which of the following?
Prior, current and future costs.
The entire product line of PepsiCo may be classified as a(n)
Profit Center
When setting a standard cost for direct marvels using the practical standard approach, which of following issues will be included in the calculation?
Quantity, price, and waste
If a company must decrease its sales price of a product while all of the company's expenses remain constant, what will happen to return on investment (ROI)?
ROI will decrease
If selling and administrative expenses decrease while all of the company's expenses remain constant, what will happen to return on investment (ROI)?
ROI will increase
What will happen to return on investment (ROI) if current assents decrease while everything else remains the same?
ROI will increase over time
Which term below best fits "a part, segment, or subunit of a company whose manager is accountable for specified activities?
Responsibility center
The manager of the Northeast sales region at General Mills may be in charge of a(n)
Revenue Center
The reservations department that has self-contained sales operations at a car rental chain may be classified as a(n)
Revenue Center
Variable Manufacturing Overhead Efficiency Variance
SR (AH-SHA)
Which of the following budgets is the cornerstone of the master budget?
Sales
Capital Turnover Equation
Sales/Total Assets
Which of the following is the operating income an investment center generates before subtracting common fixed costs that are allocated to the center?
Segment margin
_______ is a what-if technique that asks what a result will be if a predicted amount of NOT achieved or if an underlying assumption changes
Sensitivity Analysis
Management by exception would dictate that the manager investigates which of the following variances?
Variances which are greater than a budget and actual dollar amount or percentage
Which of the following is not included in the operating budget?
Budgeted balance sheet
The fixing overhead volume variance is the result of which of the following causes?
Viewing fixed costs as variable costs and incorrectly estimating activity levels
Financial budget is best described by which of the following?
a budget that projects cash inflows, cash outflows, and the end of period budgeted balance sheet
Which of the following is a benefit to an organization that implements a budget?
all of the above
A standard cost represents the budgeted or planned cost for one unit of a product. Standard costing is an effective way to identify the ________ for evaluating actual costs.
benchmark
The two fixed overhead variances are the
budget and volume variances
A performance report compares actual revenue and expenses with ________ revenues and expenses
budgeted
A management team will prepare three cash budgets which includes which of the following?
cash collections, cash payments, combined budget
The difference between the actual revenues and expenses and the comprehensive budget is known as a
comprehensive budget variance
A manager can increase return on investment (ROI) by doing which of the following
decrease operating expenses
All of the following budgets are prepared by merchandising companies except
direct materials
All of the following are responsibility centers expect
equity center
All costs incurred in the value chain, except production costs must be _____ as ______ expenses in the period they are incurred
expensed, operating
The variable overhead rate variance may be caused by variances in the following production inputs except
fixed manufacturing overhead
An favorable variance causes operating income to be _____ the budgeted operating income?
greater than
A company should ________ when projecting cash receipts for a given month.
include cash to be collected in that month regardless of when the sale was made
Frito-Lay, a stand-alone division of PepsiCo may be classified as a(n)
investment center
A cost benchmark is valid only if the standards are
kept up to date
An unfavorable variance causes operating income to be _____ the budgeted operating income?
lower than
When managers identify variances or differences they will want to implement _________ to determine which variances are _________ enough to warrant investigation
management by exception, significant
When calculated the direct materials quantity variance, if the quantity used is ________ than the standard quantity, the resulting variance will be ________.
more, unfavorable
In a budgeted income statement, we calculate the cost of goods by multiplying the _______ of unit sales and the _______ cost per unit
number, manufacturing
When attempting to evaluate an investment's center's financial performance, each investment manager will assess ________ in relationship to its ________.
operating income, assets
ON the direct materials budget, the total quantity of direct materials to purchase is computed as
quantity needed for production + desired end inventory of DM - beginning inventory of DM
The ________ "tells managers how much of the total direct materials variance is due to using more or less materials than anticipated the by standards."
quantity variance
In preparing the operating budget, the first step is preparing the
sales budget
A ______ is the operating income generated by a profit or investment center before deducting common _______
segment margin, fixed costs
A ________ is the operating income generated by a profit or investment center before deducting common ________
segment margin, fixed costs
The fixed overhead volume variance is the difference between the budgeted fixed overhead and
the standard fixed overhead cost allocated to production.
Disadvantages of using standard costs and variances include all of the following except
those manufacturing costs that enter Work in Process Inventory are recorded at standard cost, rather than actual cost.
Managers may intentionally build slack into the budget...
to gain the resources they need in the event of budget cuts
Unfortunately, standard costs can quickly become outdated reducing their usefulness as an effective decision-making tool, therefore a company needs to ___________ standards whenever a change in an input cost is identified as _________
update, permanent
Which of the following alternatives reflects the proper order of preparing components of the comprehensive budget? 1. Production budget 2. Sales budget 3. Direct materials budget
2,1,3
Capital expenditures budget is best described by which of the following concepts?
A company's plan to purchase property, plant, equipment and other long-term assets
As companies embark on a decentralization strategy, top management will no longer be involved in many day-to-day operations. In order for management to determine if the company-wide goals are being achieved, they will need to implement what?
A performance evaluation system
Which of the following items is a component of a cash payments budget?
Cash Dividends
"The comprehensive budget" is best described by which of the following terms?
Comprehensive Budget
The manager of the truck maintenance department at FedEx may be in charge of a(n)
Cost Center
A manager can increase return on investment (ROI) by doing which of the following?
Decrease operating expenses
"Combined cash budget" is best defined by which of the following?
Details about how the company expects to move out of the beginning cash balance into the desired ending cash balance
All of the following budgets are prepared by merchandising companies except...
Direct Materials
Which variance is directly impacted if the employees who build the product go no strike and temporary workers whoa re slower and not as skilled are hired?
Direct labor efficiency variance
TTU's purchasing department negotiates all the purchasing contracts for raw materials. Which variance is most useful in assessing the performance of the purchasing department?
Direct materials price variance
A potential disadvantage of decentralization is which of the following?
Duplication of costs
When deciding whether or not to adopt standard costs and perform variance analysis, management should do which of the following?
Examine the costs and benefits of a standard costing system
An unfavorable variance causes operating income to be higher than budgeted
False
Companies evaluate investment center performance the way they evaluate profit center performance.
False
Ideal standards allow for a normal amount of waste and inefficiency
False
The difference between actual results and budgeted results is known as decentralization
False
The direct labor rate variance is calculated by multiplying the standard hours that should have been worked for the actual output by the difference between the standard labor rate and the actual labor rate
False
The standard for the first labor rate per hour does NOT include fringe benefit such as health care insurance and vacations
False
Which type of variance causes operating income to be greater than the budgeted operating income?
Favorable variance
Which of the following budget project cash inflows, cash outflows, and budget balance sheet?
Financial budget
The _______ is a budget based on multiple levels of projected sales or production
Flexible budget
An unfavorable direct labor rate variance indicates which of the following?
The actual direct labor cost per hour exceeded the standard direct labor cost per hour for Actual Quantity (AQ) of direct labor hours.
The direct materials price variance is calculated as
The actual quantity purchases (AQP) multiplied by the difference between the Actual Price and the Standard Price of the input purchased
How is the fixed overhead budget variance calculated?
The difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs
How is the variable manufacturing overhead efficiency variance calculated?
The difference between the standard hours allowed and the actual hours used multiplied by the standard overhead rate
How is the direct labor efficiency variance calculated?
The difference between the standard labor hours allowed and the actual labor hours used multiplied by the standard labor rate
Which of the following may cause a favorable sales volume variance of the revenues?
The flexible budget sales in dollars are greater than the static budget sales in dollars.
The primary causes of large unfavorable direct labor variances are due to which of the following?
The labor rate was higher and the efficiency level was lower
A direct materials flexible budget variance can be broken down into a price variance and a quantity variance
True
Decentralization allows top management to hire workers with expert knowledge in each business unit
True
Raw material, ruined through mistakes during production, results in a materials quantity variance.
True
The cash budget is prepared before the budgeted balance sheet is prepared.
True
The duties of an investment center manager are similar to those of a CEO
True
The variable overhead rate variance may be affected by both indirect labor and indirect materials
True
Total assets is the denominator in the formula manager use to compute ROI
True
If the production volume variance is less than budgeted, the fixed overhead has been ________ and the fixed overhead volume variance is _________
Underallocated, unfavorable
Which type of variance causes operating income to be lower than the budgeted operating income?
Unfavorable Variance