Exam 3 Accounting
Which of the following statements is true
The fixed cost spending variance is the difference between the amount of fixed cost shown on the flexible budget and the actual amount of fixed cost
A decision to open a new restaurant would be made by a manager of a(n)
investment center
When the actual amount of sales is greater thatn the budgeted amount of sales, the variance
is classified as favorable
Residual income is calculated by
operating income- (operating assets X desired ROI)
The static budget is based on an estimated level of sales volume that was determined at
the beginning of an accounting period
Return on investment is equal to
(operating income/sales) X (sales/operating assets)
ROI may be calculated for investments made for
- a particular investment opportunity - a particular division of a company - a company taken as a whole
Which of the following statements is true?
-a higher margin suggests better performances -a higher turnover suggests better performances -the margin times the turnover is equal to the ROI
A manager of an investment center is responsible for
-cost control -profitability -investment decisions
A flexible budget is prepared using
-the sames sales price per unit that was used to prepare the static budget -a different amount of expected sales volume than was used to prepare the static budget -the same variable cost per unit that was used to prepare the master budget
Which items are likely to be the responsibility of the home furnishings department manager?
-travel expenses for the housewares buyer -seasonal decorations for the furniture section -revenues for the home furnishings department -delivery expenses for the furniture purchases -salaries for the sales staff in the lamp section
Chi Company had budgeted sales of $243,000. Actual sales amounted to $262,000. Which of the following items could have caused this result?
Chi increased the number of units of product sold
A static budget is a different term for the master budget
True
Which of the following types of business is most likely to have a low margin and high turnover?
a discount retail company like walmart
A grocery store that is part of a national chain of grocery stores is most likely to be classified as
a profit center
The predetermined overhead rate is
equal to the amount of fixed cost estimated at the beginning of the accounting period divided by the number of units a company estimates it will produce at the beginning of the accounting period
Cost variances are always unfavorable
false
Management by exception is a strategy that maximizes profitability by rewarding managers who demonstrate exceptional performance
false- directs management attention to areas that are underperforming
The return on investment(ROI) is measured by dividing the amount of operating income by the amount of the return
false- dividing the return (operating income) by the investment (operating assets)
The central concept in decentralization is that the people at the top of the organization should have the primary decision making role because they know what is best for the organization as a whole
false- people closest to the work being done are better informed
Measuring performances on the basis of residual income is likely to lead to suboptimization
false- residual income is a technique designed to avoid the suboptimization that frequently occurs when ROI is used as the sole measure of performance
The difference between the flexible budget and the actual results are called
flexible budget variances
Kahns Company static budget was based on sales volume of 12,000 units. Its flexible budget was based on sales volume of 14,000 units. Based on this information
the labor cost volume variance is expected to be unfavorable
An ROI of 15% means that a company received fifteen cents for every dollar invested
true
Suboptimization is likely to occur when there is a conflict between what is in the best interest of the company and what is in the best interest of one of its managers
true
The analysis of the fixed cost volume variance focuses on how volume affects fixed cost per unit.
true
The difference between budget data and actual results is called a variance.
true
The fixed cost flexible budget variance is also called the fixed cost spending variance. This statement is
true
A manager of a cost center is evaluated using
variance analysis
The difference between the static budget and the flexible budget is called the
volume variance