Accounting Exam 3/ Final exam
variable overhead variance are
calculated using the same basic formulas as labor and material variances
a tool to help managers make decisions about investments in major assets such as new facilities, equipment, and products is called _____ ____
capital budgeting
investing in new technology to save on labor costs is an example of a ____ _____ decision
capital investment
one of the most important concepts in responsibility accounting is the ____ _____ which states that managers should only be held responsible for what they are in charge of
controllability principle
the manager of a ____ center does not have control over revenue or the use of investment funds
cost
The four groups of performance measures typically used in the balanced scorecard approach are financial, ___
customer, internal business processes, and learning and growth
to convert net income to net cash flow, add back _____ expense
depreciation
capital budgeting decisions include
determining which equipment to purchase among available alternatives deciding to replace old equipment choosing to lease or buy new equipment acquiring a new facility to increase capacity purchasing new equipment to reduce cost
the rate applied to future cash flows to reflect the time value of money is called the _____ rate
discount
the opposite of compounding is _____
discounting
when calculating ROI, net operating income
does not include interest expense includes income form normal operations
(SH-AH)xSR is the formula for the variable overhead _____ _____
efficiency variance
Which are true
favorable variances are not always good and unfavorable variances are not always bad Variances provide information that can help managers take corrective action if needed
measuring the value provided to shareholders is the ____ perspective of the balanced scorecard
financial
a budget that takes into account how costs are affected by changes in level of activity is a _______ budget
flexible
Which of the following shows how budgeted costs and revenues will change over different volumes?
flexible budget
financial performance measures
focus on past, not future performance may cause managers to make decisions that won't be optimal in the long run
if you have $1,000 now and want to know what it will be worth is 3 years, you are solving a _____ _____
future value problem
responsibility centers can be based on ____ regions, _____ lines, _____ characteristics or some combination of the three
geographic, product, fuctional
a performance evaluation system can create _____ ____ or a conflict of interest between what is best for a division and best for the company as a whole
goal incongruence
Standard cost systems
help managers budget and control costs help maintain consistency and quality are based on what managers think costs should be
the required rate of return is also known as the ____ rate
hurdle
Standards that do not allow for any work interruptions or machine breakdowns are called ____ standards
ideal
In order to increase return on investment, the company must ___ sales, or _____ operating expenses or _____ average operating assets
increase, decrease decrease
when projects are ______ or unrelated to one another, each project can be evaluated on its own merit
independent
when two projects are ____ investing in one of the projects does not preclude investing in the other
independent
net operating income is income before other income, _____, and ____
interest, taxes
The manager of a ____ center has control over costs, revenue and purchasing long-lived company's assents
investment
which type of manager have the authority to make purchase decisions regarding company assets
investment center managers only
sales revenue divided by average invested assets equals ___ ____
investment turnover
responsibilities of a profit center manager may include
involvement in strategic initiatives related to product success controlling division costs contract negotiations
SR(SH-AH) is the formula for the direct _____ variance
labor efficiency
evaluating how the company will sustain the ability to change and improve is part of the ____ perspective of the balance scorecard
learning and growth
a project's payback period is the
length of time it takes for the project to recover its initial cost from the net cash inflows generated
A variable overhead rate variance may be favorable because
less money was spent on supplies and other variable overhead items The relationship between variable overhead and direct labor may not be perfect
financial performance measures
may cause managers to make decisions that won't be optimal in the long run focus on past, not future performance
Which are true
money is more valuable today than it will be in the future the time value of money should be considered in capital budgeting decisions
deciding whether to purchase or lease a vehicle is an example of a ____ project decision
mutually exclusive
residual income is equal to
net operating income + minimum acceptable profit NOI - (average invested assets x hurdle rate)
the formula for return on investment is
net operating income /average invested assets
when a manager is evaluated on residual income, an investment is acceptable when
net operating income for the investment is above the minimum required return on average operating assets
the time that it take for a project to recoup its original investment is the _____ period
payback
managers are required to evaluate and compare more than one capital investment alternative when making a _____ decision
preference
How much should be paid for an input is specified by a ____ standard
price
the direct material ___ variance reflects the difference between the actual cost of a material and what the cost should have been according to the standard
price
The materials quantity variance is generally the responsibility of the _____
production manager
sales quotas are often given to ____ center managers
profit
net operating income / sales revenue=
profit margin
in order to fully evaluate ROI, managers should compute both _____ _____ and _____ turnover
profit margin investment
The materials price variance is generally the responsibility of the ____
purchasing manager
The difference between the amount of an input used and the amount that should have been used, all evaluated at the standard price for the input, is called a
quantity variance
the price variance for variable manufacturing overhead is called the variable overhead ____ variance, and the quantity variance is called the variable overhead _____ variance
rate efficiency
the variable overhead efficiency variance
really measures the efficiency of the underlying cost driver
how can a company increase its ROI
reduce operating expenses increase sales
the net operating income that an investment center earns above the amount required to earn the minimum required rate of return is
residual income
which of the following business segments would not be considered a cost center
retail outlet
investment turnover x profit margin=
return on investment
narrowing down a set of projects for further consideration is a ____ decision
screening
the two types of capital investment decisions are ____ decisions and ____ decisions
screening preference
the two types of capital investment decisions are _____ and _____ decisions
screening, preference
a _____ income statement is broken down by product line, region, or other area of a business
segmented
synonyms for the accounting rate of return are the ____ rate of return and the ___ rate of return
simple, unadjusted
unfavorable labor rate variance may occur as a result of
skilled workers being assigned to jobs requiring little skill overtime premiums being charged to the direct account
an unfavorable variance may be caused by ____ more than expected
spending
In decentralized organizations, decision-making authority is
spread throughout the organization
a system that records costs based on what managers think they should be rather than using actual costs is a _____ _____ system
standard costs
the amount a company should spend to produce a single unit of product based on expected production and sales is shown on a _____ _____
standard costs
Which are true
the variable overhead efficiency variance may depend on the efficiency of the cost driver
Which are true
the variance formulas only allow one factor to change at a time companies generally try to hold specific managers responsible for specific variances variances always compare actual results to budgeted or standard results
managers of cost centers are evaluated on
their ability to control costs and provide quality service
the principle that money is more valuable today than it will be in the future is referred to as the ____ _____ of _____
time value of money
If the actual cost is greater than budgeted cost, the variance is labeled as ____
unfavorable
The process of comparing actual and budgeted results is ____
variance analysis
The process of comparing actual and budgeted results is called _____ ____
variance analysis
Adda Inc has developed the following standards for one of its products: DL- 1/2 pound at $6.00 per pound. DL- 1/4 hour at $20.00 per hour Variable overhead- 20% of DL cost total fixed overhead is expected to be $15,000 and the company expects to produce 7,500 units. The standard cost card for this product would show a cost per unit of $_____
$11.00 (1/2 x $6.00) + (1/4 x $20.00) + ($5.00 x 20%) + ($15,000/7,500)
a company's sales for the year total $218,000. Cash expenses for the year were $92,000 and depreciation expense was $23,000. the company's net cash flow for they year is
$126,000 218,000-92,000
Calc. variable overhead rate variance Actual variable cost $15,500. Actual Hr. 4,200. Standard Hr. 4,000. Standard variable overhead rate $3.75/hr
$250 F (4,200x3.75)-15500=$250
Inc. requires a minimum rate of return of 10% on its average operating assets. the housewares department currently has average invested assets of $200,000 and a net operating income of $24,000. the department's residual income is
$4,000
Calc. direct materials quantity variance Standard price: $3.00 per pound Actual price: $3.20/pound Actual quantity used: $5,200 Standard quantity allowed: 5,000 pounds
$600 U SP(AQ-SQ)= 3.00(5200-5000)
valley mfg. reported sales of $800,000, net operating income of $40,000 and average invested assets of $400,000. based on this, valley investment turnover is ___, profit margin ____, and its ROI is _____
2%, 5%, 10%
Inc. had invested assets at the beginning of the year of $300,000. Ending invested assets totaled $400,000. Total revenue for the year was $1,050,000 and net operating income was $70,000. ROI was
20% 70,000/350,000
given beginning operating assets of $140,000, ending oper. assets of $180,000, net oper. income of $40,000, and tax expense of $8,000 return on investment is equal to ___
25%
Dentistry is considering the purchase of a new x-ray machine. the machine cost $2,400 and has a useful life of 10 yrs. the new machine is expected to reduce operating costs by $400 per year. the payback period for the x-ray machine is ___
6 years
Central is considering the purchase of a larger combine to increase productivity. Combine A cost $210,000 and has a useful life of 10 years. the combine will reduce labor costs by $25,000 per year. the payback period of the combine is ____ years
8.4 years 210,000/25,000
T or F: cost centers have no impact on revenue
False
T or F: quantity standards refer to the price to be paid for each unit of the input
False
T or F: residual income can be broken down into profit margin and investment turnover
False
T or F: when two projects are mutually exclusive, investing in one does not eliminate the other one from consideration
False
when managers are evaluated on residual income, rather than on ROI, they will be _____ likely to pursue projects that will benefit the entire company
More
Which is true
The production manager is most often responsible for the materials quantity variance
T or F: for capital budgeting purpose, capital assets includes item research and development projects
True
T or F: preference decisions are made to prioritize and select from capital budgeting alternatives
True
a comprehensive performance measurement system that is derived from an organization's strategic vision is ____
a balanced scorecard
which is true
a manager might reject a proposal using ROI that the manager would accept residual income
Which is true
a manager might reject a proposal using ROI that the manager would accept using residual income
Revenue center managers are evaluated primarily on their
ability to meet sales goeals
how much net income a potential project is expected to generate as a required investment is told by the _____ ____ of return
accounting rate
The price variance is calculated using the ____ quantity of the input purchased
actual
A price variance is the difference between the
actual price and the standard price multiplied by the actual amount of the input
Direct labor variances
are computed in the same way as material variances
