ACG 2071: Unit II Exam Review
an accounting report that presents predicted amounts of the company's assets, liabilities, and equity as of the end of the budget period
budgeted balance sheet
a plan that lists dollar amounts to be both spent on purchasing additional pant assets to carry out the budgeted business activities
capital expenditures budget
a plan that shows the expected cash inflows and outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans
cash budget
The excess of sales revenues over variable costs
contribution margin
compares actual performance against budgeted goals
controlling
Graphically shows costs, sales, and operating profit or loss at various levels of units sold
cost- volume profit chart
Which of the following is an example of a cost that varies in total as the number of units produced changes?
direct materials cost
actions to achieve budgeted goals
directing
A budget can be an effective means of communicating management's plans to the owners of a business.
false
A manager in a cost center also has responsibility and authority over the revenues.
false
A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.
false
A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center.
false
Budgets are normally used only by profit-making businesses.
false
Employees view budgeting more positively when goals are established for them by senior management.
false
If a business sells two products, it is not possible to estimate the break-even point.
false
One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions.
false
The budgeting process is used to effectively communicate planned expectations regarding profits and expenses to the entire organization.
false
The reliability of cost-volume-profit analysis does not depend on the assumption that costs can be accurately divided into fixed and variable components.
false
When budget goals are set too tight, the budget becomes less effective as a tool for planning and controlling operations.
false
Remain the same in total dollar amount as the level of activity changes
fixed costs
The three most common cost behavior classifications are
fixed costs, variable costs, and mixed costs
shows expected results at several activity levels
flexible budgeting
occurs when employee self-interests are different from company goals
goal conflict
Which of the graphs in Figure 21-1 illustrates the behavior of a total fixed cost?
graph 1
Most operating decisions of management focus on a narrow range of activity called the
relevant range of production
a plan showing the units of goods to be sold and the sales to be derived; usually the starting point in the budgeting process
sales budget
begins by estimating the quantity of sales
sales budget
The relative distribution of sales among products sold by a company
sales mix
The relative distribution of sales among the various products sold by a business is the
sales mix
shows expected results at only one activity level
static budget
When a business sells more than one product at varying selling prices, the business's break-even point can be determined as long as the number of products does not exceed
there is no limit
A centralized business organization is one in which all major planning and operating decisions are made by top management.
true
Companies with large amounts of fixed costs will generally have a high operating leverage.
true
Separation of businesses into more manageable operating units is termed decentralization.
true
The financial budgets of a business include the cash budget, the budgeted income statement, and the budgeted balance sheet.
true
Rusty Co. sells two products, X and Y. Last year, Rusty sold 5,000 units of X and 35,000 units of Y. Related data are: Unit SellingUnit VariableUnit ContributionProductPriceCostMarginX$110.00$70.00$40.00Y 70.00 50.00 20.00 What was Rusty Co.'s sales mix last year?
12.5% X, 87.5% Y
Where a business's revenues exactly equal costs
break even point
occurs when budgets are too loose
budget slack
Plots only the difference between total sales and total costs
profit volume chart
The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.
true
The primary accounting tool for controlling and reporting for cost centers is a budget.
true
The process of measuring and reporting operating data by responsibility centers is termed responsibility accounting.
true
The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers.
true
A capital expenditures budget is prepared before the operating budgets.
false
As production increases, the fixed cost per unit
decreases
Indicates the possible decrease in sales that may occur before operating loss results
margin of safety
Contribution margin divided by income from operations
operating leverage
setting goals
planning
Understanding how costs behave is useful to management for all the following reasons except
predicting customer demand
a plan showing the number of units to be produced each month
production budget
As production increases, variable costs per unit
stay the same
Costs that vary in total in direct proportion to changes in an activity level are called
variable costs
Vary in proportion to changes in activity levels
variable costs
Rusty Co. sells two products, X and Y. Last year, Rusty sold 5,000 units of X and 35,000 units of Y. Related data are: Unit SellingUnit VariableUnit ContributionProductPriceCostMarginX$110.00$70.00$40.00Y 70.00 50.00 20.00 What was Rusty Co.'s weighted average unit contribution margin?
22.50
Rusty Co. sells two products, X and Y. Last year, Rusty sold 5,000 units of X and 35,000 units of Y. Related data are: Unit SellingUnit VariableUnit ContributionProductPriceCostMarginX$110.00$70.00$40.00Y 70.00 50.00 20.00 Assuming that last year's fixed costs totaled $675,000. What was Rusty Co.'s break-even point in units?
30,000
Rusty Co. sells two products, X and Y. Last year, Rusty sold 5,000 units of X and 35,000 units of Y. Related data are: Unit SellingUnit VariableUnit ContributionProductPriceCostMarginX$110.00$70.00$40.00Y 70.00 50.00 20.00 What was Rusty Co.'s weighted average unit selling price?
75
Which of the following statements is true regarding fixed and variable costs?
Fixed costs are constant in total, and variable costs are constant per unit.
lans an important role for organizations in planning, directing, and controlling a company's future goals
budget
Which of the following is not an assumption underlying cost-volume-profit analysis?
The break-even point will be passed during the period.
Which of the graphs in Figure 21-1 illustrates the behavior of a total variable cost?
graph 3
If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would
increase
The difference between the current sales revenue and the sales at the break-even point is called the
margin of safety
integrated set of operating and financing budgets for a period of time
master budget
A cost that has characteristics of both a variable cost and a fixed cost is called a
mixed cost
estimates the number of units to be manufactured to meet sales and inventory levels
production budget
A specific activity range over which the cost changes are of interest.
relevant range
A formal written statement of management's plans for the future, expressed in financial terms, is called a budget.
true
Absorption costing is required for financial reporting under generally accepted accounting principles.
true
Cost-volume-profit analysis can be presented in both equation form and graphic form.
true
Developing and retaining quality managers are advantages of decentralization.
true
In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center.
true
Part of the cash budget is based on information drawn from the capital expenditures budget.
true
The objectives of budgeting are (1) establishing specific goals for future operations, (2) executing plans to achieve the goals, and (3) periodically comparing actual results with these goals.
true