Accounting Exam 3/ Final exam

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variable overhead variance are

calculated using the same basic formulas as labor and material variances

a tool to help managers make decisions about investments in major assets such as new facilities, equipment, and products is called _____ ____

capital budgeting

investing in new technology to save on labor costs is an example of a ____ _____ decision

capital investment

one of the most important concepts in responsibility accounting is the ____ _____ which states that managers should only be held responsible for what they are in charge of

controllability principle

the manager of a ____ center does not have control over revenue or the use of investment funds

cost

The four groups of performance measures typically used in the balanced scorecard approach are financial, ___

customer, internal business processes, and learning and growth

to convert net income to net cash flow, add back _____ expense

depreciation

capital budgeting decisions include

determining which equipment to purchase among available alternatives deciding to replace old equipment choosing to lease or buy new equipment acquiring a new facility to increase capacity purchasing new equipment to reduce cost

the rate applied to future cash flows to reflect the time value of money is called the _____ rate

discount

the opposite of compounding is _____

discounting

when calculating ROI, net operating income

does not include interest expense includes income form normal operations

(SH-AH)xSR is the formula for the variable overhead _____ _____

efficiency variance

Which are true

favorable variances are not always good and unfavorable variances are not always bad Variances provide information that can help managers take corrective action if needed

measuring the value provided to shareholders is the ____ perspective of the balanced scorecard

financial

a budget that takes into account how costs are affected by changes in level of activity is a _______ budget

flexible

Which of the following shows how budgeted costs and revenues will change over different volumes?

flexible budget

financial performance measures

focus on past, not future performance may cause managers to make decisions that won't be optimal in the long run

if you have $1,000 now and want to know what it will be worth is 3 years, you are solving a _____ _____

future value problem

responsibility centers can be based on ____ regions, _____ lines, _____ characteristics or some combination of the three

geographic, product, fuctional

a performance evaluation system can create _____ ____ or a conflict of interest between what is best for a division and best for the company as a whole

goal incongruence

Standard cost systems

help managers budget and control costs help maintain consistency and quality are based on what managers think costs should be

the required rate of return is also known as the ____ rate

hurdle

Standards that do not allow for any work interruptions or machine breakdowns are called ____ standards

ideal

In order to increase return on investment, the company must ___ sales, or _____ operating expenses or _____ average operating assets

increase, decrease decrease

when projects are ______ or unrelated to one another, each project can be evaluated on its own merit

independent

when two projects are ____ investing in one of the projects does not preclude investing in the other

independent

net operating income is income before other income, _____, and ____

interest, taxes

The manager of a ____ center has control over costs, revenue and purchasing long-lived company's assents

investment

which type of manager have the authority to make purchase decisions regarding company assets

investment center managers only

sales revenue divided by average invested assets equals ___ ____

investment turnover

responsibilities of a profit center manager may include

involvement in strategic initiatives related to product success controlling division costs contract negotiations

SR(SH-AH) is the formula for the direct _____ variance

labor efficiency

evaluating how the company will sustain the ability to change and improve is part of the ____ perspective of the balance scorecard

learning and growth

a project's payback period is the

length of time it takes for the project to recover its initial cost from the net cash inflows generated

A variable overhead rate variance may be favorable because

less money was spent on supplies and other variable overhead items The relationship between variable overhead and direct labor may not be perfect

financial performance measures

may cause managers to make decisions that won't be optimal in the long run focus on past, not future performance

Which are true

money is more valuable today than it will be in the future the time value of money should be considered in capital budgeting decisions

deciding whether to purchase or lease a vehicle is an example of a ____ project decision

mutually exclusive

residual income is equal to

net operating income + minimum acceptable profit NOI - (average invested assets x hurdle rate)

the formula for return on investment is

net operating income /average invested assets

when a manager is evaluated on residual income, an investment is acceptable when

net operating income for the investment is above the minimum required return on average operating assets

the time that it take for a project to recoup its original investment is the _____ period

payback

managers are required to evaluate and compare more than one capital investment alternative when making a _____ decision

preference

How much should be paid for an input is specified by a ____ standard

price

the direct material ___ variance reflects the difference between the actual cost of a material and what the cost should have been according to the standard

price

The materials quantity variance is generally the responsibility of the _____

production manager

sales quotas are often given to ____ center managers

profit

net operating income / sales revenue=

profit margin

in order to fully evaluate ROI, managers should compute both _____ _____ and _____ turnover

profit margin investment

The materials price variance is generally the responsibility of the ____

purchasing manager

The difference between the amount of an input used and the amount that should have been used, all evaluated at the standard price for the input, is called a

quantity variance

the price variance for variable manufacturing overhead is called the variable overhead ____ variance, and the quantity variance is called the variable overhead _____ variance

rate efficiency

the variable overhead efficiency variance

really measures the efficiency of the underlying cost driver

how can a company increase its ROI

reduce operating expenses increase sales

the net operating income that an investment center earns above the amount required to earn the minimum required rate of return is

residual income

which of the following business segments would not be considered a cost center

retail outlet

investment turnover x profit margin=

return on investment

narrowing down a set of projects for further consideration is a ____ decision

screening

the two types of capital investment decisions are ____ decisions and ____ decisions

screening preference

the two types of capital investment decisions are _____ and _____ decisions

screening, preference

a _____ income statement is broken down by product line, region, or other area of a business

segmented

synonyms for the accounting rate of return are the ____ rate of return and the ___ rate of return

simple, unadjusted

unfavorable labor rate variance may occur as a result of

skilled workers being assigned to jobs requiring little skill overtime premiums being charged to the direct account

an unfavorable variance may be caused by ____ more than expected

spending

In decentralized organizations, decision-making authority is

spread throughout the organization

a system that records costs based on what managers think they should be rather than using actual costs is a _____ _____ system

standard costs

the amount a company should spend to produce a single unit of product based on expected production and sales is shown on a _____ _____

standard costs

Which are true

the variable overhead efficiency variance may depend on the efficiency of the cost driver

Which are true

the variance formulas only allow one factor to change at a time companies generally try to hold specific managers responsible for specific variances variances always compare actual results to budgeted or standard results

managers of cost centers are evaluated on

their ability to control costs and provide quality service

the principle that money is more valuable today than it will be in the future is referred to as the ____ _____ of _____

time value of money

If the actual cost is greater than budgeted cost, the variance is labeled as ____

unfavorable

The process of comparing actual and budgeted results is ____

variance analysis

The process of comparing actual and budgeted results is called _____ ____

variance analysis

Adda Inc has developed the following standards for one of its products: DL- 1/2 pound at $6.00 per pound. DL- 1/4 hour at $20.00 per hour Variable overhead- 20% of DL cost total fixed overhead is expected to be $15,000 and the company expects to produce 7,500 units. The standard cost card for this product would show a cost per unit of $_____

$11.00 (1/2 x $6.00) + (1/4 x $20.00) + ($5.00 x 20%) + ($15,000/7,500)

a company's sales for the year total $218,000. Cash expenses for the year were $92,000 and depreciation expense was $23,000. the company's net cash flow for they year is

$126,000 218,000-92,000

Calc. variable overhead rate variance Actual variable cost $15,500. Actual Hr. 4,200. Standard Hr. 4,000. Standard variable overhead rate $3.75/hr

$250 F (4,200x3.75)-15500=$250

Inc. requires a minimum rate of return of 10% on its average operating assets. the housewares department currently has average invested assets of $200,000 and a net operating income of $24,000. the department's residual income is

$4,000

Calc. direct materials quantity variance Standard price: $3.00 per pound Actual price: $3.20/pound Actual quantity used: $5,200 Standard quantity allowed: 5,000 pounds

$600 U SP(AQ-SQ)= 3.00(5200-5000)

valley mfg. reported sales of $800,000, net operating income of $40,000 and average invested assets of $400,000. based on this, valley investment turnover is ___, profit margin ____, and its ROI is _____

2%, 5%, 10%

Inc. had invested assets at the beginning of the year of $300,000. Ending invested assets totaled $400,000. Total revenue for the year was $1,050,000 and net operating income was $70,000. ROI was

20% 70,000/350,000

given beginning operating assets of $140,000, ending oper. assets of $180,000, net oper. income of $40,000, and tax expense of $8,000 return on investment is equal to ___

25%

Dentistry is considering the purchase of a new x-ray machine. the machine cost $2,400 and has a useful life of 10 yrs. the new machine is expected to reduce operating costs by $400 per year. the payback period for the x-ray machine is ___

6 years

Central is considering the purchase of a larger combine to increase productivity. Combine A cost $210,000 and has a useful life of 10 years. the combine will reduce labor costs by $25,000 per year. the payback period of the combine is ____ years

8.4 years 210,000/25,000

T or F: cost centers have no impact on revenue

False

T or F: quantity standards refer to the price to be paid for each unit of the input

False

T or F: residual income can be broken down into profit margin and investment turnover

False

T or F: when two projects are mutually exclusive, investing in one does not eliminate the other one from consideration

False

when managers are evaluated on residual income, rather than on ROI, they will be _____ likely to pursue projects that will benefit the entire company

More

Which is true

The production manager is most often responsible for the materials quantity variance

T or F: for capital budgeting purpose, capital assets includes item research and development projects

True

T or F: preference decisions are made to prioritize and select from capital budgeting alternatives

True

a comprehensive performance measurement system that is derived from an organization's strategic vision is ____

a balanced scorecard

which is true

a manager might reject a proposal using ROI that the manager would accept residual income

Which is true

a manager might reject a proposal using ROI that the manager would accept using residual income

Revenue center managers are evaluated primarily on their

ability to meet sales goeals

how much net income a potential project is expected to generate as a required investment is told by the _____ ____ of return

accounting rate

The price variance is calculated using the ____ quantity of the input purchased

actual

A price variance is the difference between the

actual price and the standard price multiplied by the actual amount of the input

Direct labor variances

are computed in the same way as material variances


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