Accounting 2: Module 3 Exam

T/F: In the merchandise purchases budget, the required purchases (in units) for a period can be determined by subtracting the beginning merchandise inventory (in units) from the budgeted sales (in units) and desired ending merchandise inventory (in units).

True

T/F: The direct labor budget begins with the required production in units from the production budget. The direct labor budget shows the direct labor-hours required to satisfy the production budget.

True

T/F: The main difference between a flexible budget and a static budget is that the static budget is not adjusted for changes in the level of activity. To help assess how well a manager has controlled costs, actual costs should be compared to what the costs should have been for the actual level of activity. Fixed costs should usually be included in performance reports because fixed costs are generally controllable.

True

Flexible budget performance report includes

Activity and spending variences

Performance Report Includes

Actual budget , revenue and spending variances, flexible budget, activity variances, planning budget

When asking for activity variance

Actual does not matter find flexible budget

Production budget is

Calculated based on the sales budget and desired ending inventory

Using residual income

Evaluates managers and lowers their ROI

Why use this Budget: Evaluating

Improve efficiency and effectiveness of organization. Evaluate and reward employees.

Why use this Budget: Planning

Managers think and plan for future. Communicate goals to company. Allocate less effectively. Make plans with department managers. Uncover bottlenecks.

Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of:

Return on Investment (ROI)

Budgeted income statement is made before

The budgeted balance sheet

T/F: Using a flexible budget, actual results can be compared to what costs should have been at the actual level of activity. Fixed costs should not be ignored when evaluating how well a manager has controlled costs.

True

T/F: When used in return on investment (ROI) calculations, turnover equals sales divided by average operating assets. An advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.

True