ACC exam 3

The annual master budget file includes the ________ from last year because it is needed for the schedule of expected cash collections.

balance sheet

how to avoid budgetary slack

have the budgets ratified by higher level managers

in the overhead budget, where do the remaining overhead items go

pooled into fixed overhead

Stewart company has decided to put much more emphasis on planning and controlling its costs. Accordingly, the company's controller has suggested initiating a formal budgeting process. which of the following steps will not help the company gain maximum acceptance by employees of the proposed budgeting system

implementing the change quickly

cash budget

includes cash receipts, disbursements, any excess or deficiency of cash, and financing

A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budgeted

income statement

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative

income statement

which might be included as a disbursement on a cash budget

income taxes to be paid

When there is a constrained resource, the best way to increase profits is to:

increase the capacity of the bottleneck

what does relaxing the bottleneck do

increases the capacity of a bottleneck

An increase in cost between two alternatives is a

incremental cost

A joint product should be processed after split-off if the

incremental revenue after split-off exceeds the incremental processing cost after split-off

budgeted balance sheet depends on...

info contained in the current balance sheet and in the other budgets in the master budget

Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.

irrelevant

When deciding whether to drive your car or take a train to a destination, the costs for your car insurance and driver's license are

irrelevant

When deciding whether to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) ______ cost.

irrelevant

if wages will be paid whether or not the special order is accepted, is the direct labor cost relevant or irrelevant

irrelevant, labor would then be a fixed cost

budgeted production requirements are determined by:

adding budgeted sales in units to the desired ending inventory in units and deducting the beginning inventory in units from this total

Required borrowings on a cash budget is calculated by

adding the desired ending cash balance to the amount of the cash deficiency

responsibility accounting does NOT include

all items like a budget would

qualitative factors that should be considered when evaluating a make or buy decision are

all of these

utilization of a constrained resource is an

allocation of resources decision

master budget schedules:

answer several key questions for a company and are based on estimates and assumptions

average costs...

are often misleading and contain sunk costs

costs that can be eliminated, either in whole or in part, if a particular business segment is discontinued are called

avoidable costs

in a make or buy decision relevant costs include

avoidable fixed costs

If some products must be cut back because of a constraint, produce the products with the highest

contribution margin per unit of constrained resource

examples of relevant costs

cost of direct materials used and resale value of machine

The ending finished goods inventory budget computes the

cost of unsold units

financing section

details the borrowings and repayments projected to take place during the budget period

first step in creating sales budget

develop sales forecast

Working hours required to satisfy the production budget are shown on the _______ budget.

direct labor

In a manufacturing company, the ______ budget details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories

direct materials

The section on the cash budget that summarizes all cash payments that are planned for the budget period is the cash

disbursements

an important qualitative factor to consider regarding a special order is the

effect the sale of special order units will have on the perceptions of regular customers

The cost of unsold units is computed on the

ending finished goods inventory budget

True or false: Control involves developing goals and preparing various budgets to achieve those goals.

false

True or false: Depreciation of existing assets is relevant to decisions.

false

True or false: Opportunity costs are not found in accounting records because they are not relevant to decisions

false

True or false: Some decisions only have one alternative.

false

True or false: The definition of responsibility accounting states that senior management is directly responsible for every decision made by lower level managers.

false

the cash budget must be prepared prior to the sales budget because managers want to know the expected cash collection on sales made to customers in prior periods before projecting sales for the current period

false

the manufacturing overhead budget shows only the variable portion of manufacturing overhead

false

the production budget is prepared in units and dollars

false, only in units

The cash budget includes four major sections: receipts, disbursements, the cash excess or deficiency, and

financing

A business segment should only be dropped if a company can save more in ______ costs than it loses in contribution margin

fixed

One of the great dangers in allocating common...costs is that such allocations can make a product line look less profitable than it really is

fixed

When making a volume-trade off decision, managers should ignore

fixed costs

When is it profitable to continue processing a joint product after the split-off point?

it is profitable when the incremental revenue exceeds the incremental processing cost

what do budgets do

force managers to think about and plan for the future and the budgeting process can uncover potential bottlenecks before they occur and they provide each department with the same amount of money to spend, so that all departments are treated fairly

Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called

joint

The split-off point is the point in the manufacturing process at which the ... products can be recognized as separate products

joint

Hal currently works as the fry guy at Burger Haven but is thinking of quitting his job to attend college full time next semester. Which of the following would be considered an opportunity cost of attending college?

hal's lost wages at burger haven

Two or more products that are produced from a common input are known as

joint

Two or more products produced from a common input are called

joint products

To maximize total contribution margin when a constrained resource exists, produce the products with the:

highest contribution margin per unit of the constrained resource

If, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should _____ the product line

keep, because if the contribution margin is greater than the avoidable fixed costs, dropping the product line will reduce overall operating income

The number of working hours required to satisfy the production budget is shown on the

labor hours budget

A decision to carry out one of the activities in the value chain internally, rather than to buy externally from a supplier, is called a

make or buy

Determining whether to carry out an activity in the value chain internally or use a supplier is a ________ decision

make or buy

a decision involving a choice between internal and external production is what kind of decision

make or buy

Using budget assumptions when preparing the master budget:

makes it easier to answer the "what if" questions

what is not relevant to the sell or rework decision

manufacturing cost (sunk)

All costs of production other than direct materials and direct labor are shown on the

manufacturing overhead budget

A number of separate but interdependent budgets that formally lay out a company's sales, production, and financial goals is contained in the

master budget

The amount of goods for resale to be purchased from suppliers during the period is shown on the

merchandise purchases

The amount of goods to be purchased from suppliers during the period is shown on the _______ budget.

merchandise purchases

A company must make a volume trade-off decision when they

must trade off units of one product for units of anohter due to limited production capacity or do not have enough capacity to satisfy the demand for all its products

are the budgeted income statement or direct labor budget prepared before the sales budget

no

is the product line's traceable fixed costs plus its allocated common corporate costs being less than its contribution margin reason to eliminate a product line

no

when considering accepting a special order...

normal sales must not be affected and there must be idle capacity

managers should be responsible for...

only the items they can actually control, responsibility accounting allows organizations to react quickly to deviations from their plans and to learn from feedback

If a company has a resource that could be used for something else, the ... cost is the profit that could be derived from the best alternative use of the resource.

opportunity

selling and administrative expenses budget

outlines planned expenditures for nonmanufacturing activities

More accurate estimates and higher motivation are generally the result of using a

participative budget

which of the following is not an effective way of dealing with a production constraint

pay overtime to workers associated with work stations that are subsequent to the bottleneck in the production process

A budget that keeps managers focused at least one year ahead is a continuous or

perpetual

a budget is used for what 2 purposes

planning and control

The costs provided by a well-designed activity-based costing system are _____ relevant to a decision

potentially

In a manufacturing company, the budget is prepared right after the sales budget

production

ex of irrelevant cost

purchase price of existing machine

how to calculate the cost of the direct materials to be purchased

quantity of direct materials to be purchased x expected cost per unit of direct material

when preparing a direct materials budget, the required purchases of raw materials in units equals:

raw materials needed to meet the production schedule + desired ending inventory of raw materials - beginning inventory of raw materials

When making a decision only ______ costs and benefits should to be included in the analysis

relevant

are expected costs relevant or irrelevant

relevant

for decision making purposes, future costs that differ across alternatives are

relevant

basis for all of the other operating budgets and most financial budgets

sales budget

the first step in creating the master budget is the creation of the

sales budget

ex of selling and administrative expenses

sales commissions, freight, and supplies

To calculate total sales on the sales budget, multiply budgeted sales in units by:

sales per unit

cash disbursements

section consists of all cash payments excluding repayments of principal and interest

cash excess or deficiency

section determines if the company will need to borrow money or if it will be able to repay funds previously borrowed

cash receipts

section lists all cash inflows excluding cash received from financing

A manager cannot complain that the budget was unrealistic and impossible to meet when a

self-imposed budget is in place

Deciding what to do with a joint product at the split-off point is a

sell or process further decision

In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the

selling and administrative budget

correct order in which the indicated budget documents for a manufacturing company would be prepared

selling and administrative expense budget, cash budget, budgeted income statement, budgeted balance sheet

depreciation expense on sales equipment appears in a seperate line on which of hte following budgets

selling and administrative expenses budget

Ex of relevant costs

selling price and variable cost of processing

overhead budget

shows the expected cost of all production costs other than direct materials and direct labor

self imposed budgets typically are

subject to review by higher levels of management in order to prevent the budgets from becoming too loose

A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n)

sunk cost

for short-term decision making purposes, depreciation of an existing equipment is an example of a

sunk cost

irrelevant costs include

sunk costs and future costs that do not differ between alternatives

Which of the following should not be included in the analysis when making a decision?

sunk costs and non-differential future costs

Which of the following is needed to prepare a sales budget?

the budgeted number of units to be sold

A company can consider making investments or repay outstanding principal and interest when

the cash excess is greater than the minimum required cash balance

Which of the following are ways in which to calculate the benefit of selecting one alternative over another?

the difference between the net operating income for the two alternatives, an analysis that looks at all costs and benefits and identifies those that are differential, and an analysis that just looks at the relevant costs and benefits

when there is a product constraint, a company should emphasize the product with

the highest contribution margin per unit of the constrained resource

accepting a special order will improve overall net operating income if the revenue from the special order exceeds:

the incremental costs associated with the order

True or false: When deciding whether to take a train or drive for a weekend trip to visit an out-of-town friend, the monthly fee a student pays to park at school is not relevant to the decision.

true

the manufacturing overhead budget provides a schedule of all costs of production other than direct materials and labor costs

true

the manufacturing overhead budget shows the expected cash disbursements for manufacturing overhead

true

the master budget is the comprehensive plan for the organization as a whole

true

the sales budget generally is accompanied or followed by a computation of expected cash receipts for the budget period

true

the sales budget is constructed by multiplying the expected sales in units by the price

true

the sales budget is the starting point in preparing the master budget

true

the sales forecast is done before the sales budget

true

how to calculate unit cost of producing finished goods

using information from the direct materials, direct labor, and overhead budgets

time frame of operating budget

usually one year

Less dependence on suppliers is an advantage of

vertical integration

When should a special order be accepted?

when the incremental revenue from the special order exceeds the incremental costs of the order

The total cost approach and the differential approach methods of decision analysis ______ provide the same correct answer.

will always

is the product line's contribution margin being negative reason to eliminate a product line

yes

When a resource, such as space in the factory, has no alternative use, its opportunity cost is

zero

the opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is:

zero

Stewart Inc. has some material that originally cost 68,400 . The material has a scrap value of 30,100 as is, but if reworked at a cost of 1,400, it could be sold for 30,800. what would be the incremental effect on the company's over-all profit of reworking and then selling the material rather than selling it as scrap, without further processing.

-700

the success of a budget program depends on three things

1. enthusiasm 2.no pressure or blame 3. achievable budget targets

Gathering feedback to ensure that the plan is being followed is referred to as

control

Which of the following statements is NOT correct concerning the manufacturing overhead budget

the manufacturing overhead budget shows only the variable portion of manufacturing overhead

If a company is using a resource that could be used for some other purpose, the opportunity cost of that resource is

the profit from the best alternative use of the resource

direct labor budget is based on

the required production for the period

control involves

the steps taken by management to increase the likelihood that all parts of the organization are working to achieve the goals set down in the planning stage

Borrowing money is required whenever

there is a cash deficiency or the cash excess is less than the minimum required cash balance

which of the following is not an objective of the budgeting process

to ensure that the company continues to grow

When a constraint exists, companies need to focus on maximizing

total contribution margin

True or false: Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.

true

the manufacturing overhead budget is prepared after the sales budget

true

is salvage value relevant

yes

ending finished goods inventory budget

a budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet

The budget method that maintains a constant twelve-month planning horizon by adding a new month on the end as the current month is completed is called:

a continuous budget

direct materials budget

a detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories

production budget

a detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs

direct labor budget

a detailed plan that shows the direct labor-hours required to fulfill the production budget

sales budget

a detailed schedule showing expected sales expressed in both dollars and units

underlying idea behind responsibility accounting

a manager should be held accountable for only those items the manager can actually control.

what is a special order

a one time order outside or normal business

Recognizing individuals at all levels of the organization as team members whose views and judgments are valued by top management is an advantage of

a self imposed budget

Which of the following may be an advantage of making a part rather than buying it?

a smoother flow of parts and materials for production and less dependence on outside suppliers

To prepare a budgeted balance sheet as of December 31, 2016, data is needed from the

balance sheet as of December 31,2015

A budgeted balance sheet is developed using data from the ______ of the budget period and data contained in the various schedules

beginning

A detailed plan for the future that is usually expressed in formal quantitative terms is a

budget

a detailed plan for the future that is usually expressed in formal quantitative terms is

budget

what occurs when a manager deliberately underestimates revenues or overestimates costs

budgetary slack

Which of the following budgets shows the company's planned profit and serves as a benchmark against which subsequent company performance can be measured?

budgeted income statement

The receipts, disbursements, excess or deficiency, and financing section are all parts of the

cash budget

bank loan officers would find which of the following budgets to be one of the most important in determining whether or not to give a company a loan

cash budget

Which of the following is not found in the financing section of the cash budget

cash deficiency

A limited resource of some type that restricts the company's ability to satisfy demand is a

constraint

A 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed is called a

continuous

A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in

contribution margin