MA test
Companies use the _____ ____cycle to evaluate and improve performance.
Blank 1: variance Blank 2: analysis
Which of the following is not a characteristic of decentralization?
Decentralization reduces how accountable lower-level managers are for the outcomes of their decisions.
True or false: A static budget is being compared to actual activity. The variance is F for net income but U for most expenses. This suggests that actual activity was lower than budgeted.
False
EBIT is another term for Blank______.
net operating income
A cost center's performance report does not include Blank______.
net operating income revenue
Comparing actual net income to budgeted net income is often done to evaluate the manager of a(n)
profit
The manager of a(n) ____ center has control over both costs and revenues, but not over the use of investment funds.
profit
A flexible budget performance report combines the Blank______.
activity variances with the revenue and spending variances
The same basic formulas used for materials and labor are used to analyze Blank______ portion of manufacturing overhead.
the variable
Managers of cost centers are evaluated on ______ in their responsibility center.
their ability to control costs
When the actual cost incurred exceeds the standard cost allowed for the actual level of output, the spending variance is Blank______.
unfavorable
he materials price variance is calculated using the Blank______ quantity of the input purchased.
actual
Graphic analysis of fixed overhead offers insight into the fixed overhead Blank______.
budget and volume variances
The difference between the actual fixed overhead and the planned fixed overhead is called the
budget variance.
An organization in which decision-making authority is spread throughout the organization is Blank______.
decentralized
Operating assets include ______.
equipment accounts receivable inventory
If overhead is overapplied, the total of the standard cost overhead variances is
favorable
Revenues and costs are adjusted as the level of activity changes on a(n)
flexible
A favorable activity variance may not indicate good performance because a favorable activity variance Blank______.
for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity
The prominent difference between performance reports in nonprofit and for-profit organizations is that nonprofit organizations Blank______.
usually receive significant funding from sources other than sales
The same basic formulas used for materials and labor are used to analyze the ____ portion of manufacturing overhead.
variable
Budgeted fixed overhead - Fixed overhead applied to work in process is the calculation of the
volume
The materials price variance is the difference between the actual price of materials Blank______.
and the standard price for materials with the difference multiplied by the actual quantity of materials
The percentage change in net income in the flexible budget is greater than the percentage change in activity due to
fixed costs
The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost is a(n)
spending
In decentralized organizations, decision-making authority is Blank______.
spread throughout the organization
The amount of direct-labor hours that should be used to produce one unit of finished goods is the ____ hours per unit
standard
In a decentralized organization ______.
top management can concentrate on issues such as overall strategy lower-level managers are trained for higher positions. changes in the operating environment can be responded to rapidly
If the actual cost is greater than what the cost should have been, the variance is labeled as
unfavorable,
Most companies compute the material price variance when materials are Blank______ and the material quantity variance when materials are Blank______.
purchased, used
The ROI formula typically uses Blank______.
average operating assets for the year
Options to generate favorable revenue and spending variances include Blank______.
increasing operating efficiency reducing the prices of inputs protecting the selling price
Because of fixed costs, net operating income does not change in proportion to changes in the level of activity which is called the
leverage
When managers are evaluated on residual income, rather than on return on investment (ROI), they will be Blank______ likely to pursue projects that will benefit the entire company.
more
Fancy Nail's monthly rent is $2,500. The company's static budget for March was based on the activity level of 2,000 manicures. Total sales was budgeted at $40,000 and nail technician wages (a variable cost based on the number of manicures) was budgeted at $20,000. Actual manicures in March totaled 2,200. Assuming no other expenses, Fancy Nails' flexible budget will show Blank______.
net operating income of $19,500 sales of $44,000
ROI can be calculated as ______.
net operating income ÷ average operating assets margin × turnover
The flexible budget ____ report combines activity and revenue and spending variances.
performance
(Actual cost per unit - standard cost per unit) × actual quantity = the materials
price variance.
The difference between the standard and the actual direct labor wages per hour is reflected in the labor
rate
Lower-level managers' decision-making authority can be linked to the outcomes of those decisions through ____ accounting systems.
responsibility
The difference between what the total sales should have been, given the actual level of activity for the period, and the actual total sales is a(n)
revenue
In a standard costing system, variable and fixed overhead are applied to production using the Blank______ hours allowed for the Blank______ production.
standard, actual
Advantages to using a standard cost system include Blank______.
standards provide benchmarks to evaluate and improve performance standard costs can simplify bookkeeping
An unchanged planning budget is known as a(n) ____ planning budget.
static
Planning budgets are sometimes called Blank______ budgets.
static
Budgeted fixed overhead - Fixed overhead applied to work in process is the calculation of the Blank______ variance.
volume
Which of the following statements are true?
Fixed costs are applied to work in process like they are variable costs. Treating fixed costs as variable is necessary for product costing.
Which of the following statements is true?
Fixed costs are often more controllable than variable costs.
A price variance is the difference between the Blank______.
actual price and the standard price multiplied by the actual amount of the input
Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n)
favorable
The net operating income that an investment center earns above the minimum required return on its average operating assets is Blank______.
residual income
To understand why actual net operating income differs from what it should have been at the actual level of activity, the Blank______ variances should be analyzed.
revenue and spending
If the planned budget revenue for 5,000 units is $120,000, the flexible budget revenue for 4,500 units is Blank______.
$108,000
One option to generate a favorable Blank______ variance for net operating income is to increase the number of clients
activity
The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is a(n)
activity
Nonprofit organizations Blank______.
have significant funding sources besides sales may have revenue sources that are fixed
Unfavorable activity variances may not indicate bad performance because Blank______.
increased activity should result in higher variable costs
Marcos Co. is considering a project that will increase residual income by $15,000. The project has a 12% return on investment (ROI) which exceeds the company's 10% required rate of return. Marcos Co. currently has an overall 15% ROI in the department where this project would be implemented. Which of the following statements regarding this potential investment are true?
The project should be accepted by the company because it increases overall residual income. The department manager may not want to accept the project because it will lower the overall ROI for the department.
The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is a(n) Blank______ variance.
activity
Activity variances help managers understand why actual net income differs from what it should have been at the actual level of activity.
False
The spending variance is labeled as favorable when the Blank______
actual cost is less than what the cost should have been at the actual level of activity
The spending variance is labeled as favorable when the Blank______.
actual cost is less than what the cost should have been at the actual level of activity
Commission expense is budgeted to be $16,000 at a planned sales level of 4,000 units. If only 2,900 units are sold, how much commission expense will appear on the flexible budget, and is the activity variance favorable or unfavorable?
$11,600 and favorable
A company's budgeted cost of supplies when 5,000 units are sold is $7,500 of fixed costs plus $1.25 variable cost per unit. What is the increase in the total cost of supplies if 350 more units are sold than expected?
$437.50
The planning budget, based on 1,000 units, shows revenue of $24,000 and $6,250 for supplies. A total of 1,200 units were actually produced and sold. The flexible budget will show Blank______.
$7,500 for supplies $28,800 revenue
Based on the following information, the amount of overhead applied when using a standard cost system equals $ Budgeted variable overhead $100,000 Budgeted fixed overhead $50,000 Estimated total machine-hours 20,000 Standard machine-hours for actual production 18,000 Actual machine-hours used 17,500
135,000
Which of the following statements is correct?
A manager might reject a proposal using ROI that the manager would accept using residual income.
When calculating the labor rate variance, multiply the actual hours worked times the ____ labor rate and compare it to the actual hours worked times the ____ labor rate.
Blank 1: actual Blank 2: standard
The variable overhead ____ variance measures activity differences and the variable overhead ____ variance measures cost differences.
Blank 1: efficiency Blank 2: rate
Net operating income is income before ____ and ____
Blank 1: interest or interests Blank 2: taxes or tax
Standard costs are a key element in the ____ by ____ approach utilized by some companies.
Blank 1: management Blank 2: exception
In order to fully understand how a manager's decisions can affect ROI, both ____ and ____ should be computed.
Blank 1: margin Blank 2: turnover
Which of the following statements are true?
Managers should not use standards to assign blame. Standard cost reports may be too outdated to be useful.
Residual income = ______.
NOI - (Average operating assets × Minimum rate of return)
Return on investment = ______.
Net operating income ÷ Average operating assets
Which of the following statements is not a weakness of using return on investment (ROI) to evaluate performance?
ROI does not include the investment in nonoperating assets, such as land held for investment or stock in other companies.
Which of the following evaluation measures are used for investment center managers only—not for cost or profit center managers?
Residual income Return on investment (ROI)
Which of the following statements is incorrect regarding responsibility accounting?
Responsibility accounting refers to the process of evaluating top management on the decisions made by lower-level managers.
Which of the following ratios are part of the ROI formula?
Sales ÷ Average operating assets Net operating income ÷ Sales
Which of the following statements are true?
Standards provide information for measuring performance. When actual results depart significantly from the standard, the reasons why should be investigated.
Fixed costs are often more controllable than variable costs.
True
standards are Blank______.
compared to the actual quantities and costs of inputs set for each major production input or task benchmarks for measuring performance
The manager of a(n) ___ center does not have control over revenue or the use of investment funds.
cost
Lower-level managers are empowered to make decisions in a ______ organization, which can ________ motivation and job satisfaction.
decentralized, increase
A spending variance is the Blank______.
difference between what a cost should have been at the actual level of activity and the actual amount of the cost
A revenue variance is the Blank______.
difference between what revenue should have been at the actual level of activity and the actual revenue
Performance reports for cost centers Blank______.
do not include revenues or net income
The difference between the actual level of activity and the standard activity allowed for the actual output x the variable part of the predetermined overhead rate is the variable overhead
efficiency
Fancy Nails has an estimated cost for supplies of $0.75 per manicure. June's budget was based on 2,400 manicures and a total cost for supplies of $1,800. June's actual activity was 2,500 manicures. The actual cost of supplies in June was $2,000. Calculate the spending variance for June.
$125 U
performance report shows that the planning revenue was $240,000, the flexible budget revenue was $225,000, and actual revenue was $230,000. The activity variance is $
$15,000 U
Fancy Nails' budgeted revenue is $20 per manicure. The planning budget for June was based on 2,400 manicures. During June, the actual revenue was $49,750 for 2,500 manicures. The revenue variance for June is Blank______.
$250 U
Given the following, compute the standard cost per widget Direct materials per unit- 4 pounds Direct material cost- $1.25 per pound Direct labor per unit- 1.5 hours Direct labor rate- $10.00 per hour Variable overhead rate- $4.00 per hour
$26.00
planning budget called for 500 units to be produced and total direct labor cost of $7,500. Actual production was 600 units and actual direct labor cost was $9,300. The spending variance is Blank______.
$300 U
Actual hours used 5,500; Standard hours allowed 5,800; Actual labor rate $14.75 per hour; and Standard labor rate $14.00 per hour. The labor rate variance is Blank______.
$4,125 U
Based on the following information, the amount of overhead applied when using a standard cost system equals $ Budgeted variable overhead- $100,000 Budgeted fixed overhead- $50,000 Estimated total machine-hours- 20,000 Standard machine-hours for actual production- 18,000 Actual machine-hours used- 17,500
135,000
iven the following, the standard cost of this item is $ Direct materials per unit- 2 pounds Direct material cost- $2.50 per pound Direct labor per unit- .75 hours Direct labor rate- $16.00 per hour Variable overhead rate- $8.00 per hour
23
Fill in the blank question. Net operating income - (Average operating assets × Minimum required rate of return) =
Blank 1: residual Blank 2: income
Which of the following are used to calculate the standard quantity per unit of direct materials?
Direct materials requirements per unit of finished product. Allowance for normal scrap and spoilage.
The labor rate variance measures the productivity of direct labor.
False
When preparing a flexible budget, the level of activity Blank______.
affects variable costs only
he difference between the actual fixed overhead and the planned fixed overhead is called the
budget variance.
Volume variance =
budgeted fixed overhead - fixed overhead applied to work in process
The difference between the actual hours used and the standard hours allowed for the actual output is used in the calculation of the labor
efficiency variance.
When using a standard cost system, Blank______.
employees make take unfavorable actions to ensure favorable variances an undue emphasis on labor efficiency can create pressure to build excess inventory
A flexible budget shows what budgeted amounts should have been at the actual level of activity. As a result of this change in activity, the flexible budget will show a change in total Blank______.
variable cost revenue
A performance report shows that the planning revenue was $240,000, the flexible budget revenue was $225,000, and actual revenue was $230,000. The activity variance is $
Blank 1: 15,000 Blank 2: U, unfavorable, or unfavourable
A performance report shows that the planning revenue was $200,000, the flexible budget revenue was $225,000, and actual revenue was $223,000. Which of the following statements are true?
The revenue variance is $2,000 Unfavorable. The activity variance is $25,000 Favorable.
Toys, Trinkets and More requires a minimum rate of return of 12% on its average operating assets. The toy department currently has average operating assets of $300,000 and a net operating income of $42,000. The department's residual income is $
6,000
Which of the following statements are true?
A fixed overhead volume variance results from treating fixed manufacturing costs as if they are variable. Changes in activity have no impact on actual fixed costs within the relevant range. Treating fixed costs as if they are variable can lead to bad decisions.
The material quantity variance reflects the difference between the ____ quantity of materials used in production and the ____ quantity of materials allowed for the actual output.
Blank 1: actual Blank 2: standard
The standard hours per unit includes both direct and indirect labor hours.
False
Garnett, Inc. has a required rate of return on new projects of 12%. The Western division of Garnett is currently earning a combined return on investment (ROI) of 14.5% on the projects in its division. Western's manager is considering a project that is projected to earn 13.25%. Which of the following statements regarding the manager's decision are correct?
The manager may decide to reject the project because it will lower the current ROI earned by his division. Accepting the project is in the best interest of the company as a whole.
The calculation of the budget variance uses Blank______ overhead.
actual fixed budgeted fixed
The variance analysis cycle Blank______.
begins with the preparation of performance reports
Using net book value (instead of gross cost) to calculate average operating assets Blank______.
increases ROI over time
The manager of a(n) ____ center has control over costs, revenue, and investments in operating assets.
investment
Valid criticisms of evaluating performance based on return on investment (ROI) include managers may Blank______.
take actions that increase ROI in the short-run at the expense of long-term performance reject investment opportunities that are profitable for the company but have a negative impact on a manager's ROI be put in charge of a business segment that includes committed costs over which a manager has no control
The difference between the actual amount of materials used in production and the standard amount of materials allowed for the actual output, multiplied by the standard price per unit of materials is the materials
usage variance.
STP Inc. has a variable overhead rate variance of $4,000 U, a variable overhead efficiency variance of $1,500 F, a fixed overhead budget variance of $2,000 F and a fixed overhead volume variance of $10,000 U. From the information, it can be determined that overhead was Blank______.
underapplied
Macey, Inc.'s investment center had average operating assets of $350,000, revenues of $1,050,000 and net operating income of $70,000. Return on investment is Blank______.
20%
Computing ROI using the expanded model provides additional insights. ROI can be lowered by excessive operating expenses which can depress ____ and excessive operating assets which can depress ____
Blank 1: margin Blank 2: turnover
The terms price and quantity are used when computing direct ____ variance, while the terms rate and hours are used when computing direct ____variances.
Blank 1: material or materials Blank 2: labor or labour
The material variance terms price and quantity are replaced with the terms ____ and ____ when computing direct labor variances.
Blank 1: rate Blank 2: hours
In a standard cost system, overhead is applied on the basis of the ____ hours allowed for the ____ output of the period.
Blank 1: standard Blank 2: actual
Material requirements plus an allowance for normal inefficiencies are added together to determine the ____ ____ per unit of output for direct materials.
Blank 1: standard Blank 2: quantity
Adams, Inc. has found that their managers are reluctant to replace old equipment with new, updated equipment. To stop this practice, Adams should compute ROI using assets' net book values.
False
In an standard cost system overhead is applied using the standard hours allowed for the actual production.
True
Based on the following information, calculate the amount of overhead applied when using a standard costing system Budgeted variable overhead $200,000 Budgeted fixed overhead $150,000 Estimated total machine-hours 25,000 Standard machine-hours for actual production 20,000 Actual machine-hours used 20,500
$280,000
Based on the following information, calculate the amount of overhead applied when using a standard costing system. Budgeted variable overhead $200,000 Budgeted fixed overhead $150,000 Estimated total machine-hours 25,000 Standard machine-hours for actual production 20,000 Actual machine-hours used 20,500
$280,000
A normal cost system applies overhead to production on the basis of the ____ level of activity, while a standard costing system applies overhead on the basis of ____ hours allowed for the actual output.
Blank 1: actual Blank 2: standard
Net operating income ÷ Average operating assets = ______.
Return on investment
The net operating income that an investment center earns above the minimum required return on its average operating assets is its
residual
The materials price variance is generally calculated at the time materials are purchased because Blank______.
management can generate more timely variance reports it allows materials to be carried in the inventory accounts at standard cost it simplifies bookkeeping
ROI can be calculated as ______
net operating income ÷ average operating assets margin × turnover
The labor efficiency variance is the difference between actual hours used and standard hours allowed multiplied by the Blank______ hourly rate.
standard
Carlos, Inc. requires a minimum rate of return of 10% on its average operating assets. The housewares department currently has average operating assets of $200,000 and a net operating income of $24,000. The department's residual income is $
4,000
he materials price variance is the difference between the actual price of materials Blank______.
and the standard price for materials with the difference multiplied by the actual quantity of materials
When actual revenue Blank______ what the revenue should have been, the variance is labeled favorable.
exceeds
