Accounting for P&C CH. 6 & 8
A company's flexible budget for 11,000 units of production showed sales, $42,900; variable costs, $16,500; and fixed costs, $10,000. The contribution margin expected if the company produces and sells 10,000 units is: a)16,500 b)24,000 c)42,900 d)52,900 e)15,000
24,000
Based on a predicted level of production and sales of 19,000 units, a company anticipates total variable costs of $85,500, fixed costs of $26,600, and operating income of $136,800. Based on this information, the budgeted amount of fixed costs for 17,000 units would be: Multiple Choice a)$76,500 b)$26,600. c)$163,400. d)$129,700. e)$85,500
26,600
A company's total goods available for sale is $750,000 and cost of goods sold is $720,000. If the total cost of goods processed during the period equals $710,000 then ending inventory is ______. Multiple choice question. a)$40,000 b)$30,000 c)$10,000
30,000 (750,000-720,000)
A company's budget shows a total of 37,500 units available for sale. Beginning inventory was budgeted at 2,000 units and ending inventory was budgeted at 4,500 units. Budgeted sales totals ______ units. Multiple choice question. a)33,000 b)35,500 c)42,000
33,000 (37,500-4,500)
Milltown Company specializes in selling used cars. During the month, the dealership sold 27 cars at an average price of $15,500 each. The budget for the month was to sell 25 cars at an average price of $16,500. Compute the dealership's sales volume variance for the month. Multiple Choice a)$27,000 favorable. b)$27,000 unfavorable. c)$33,000 unfavorable. d)$10,500 favorable. e)$33,000 favorable.
33,000 favorable
A company's budget shows a total of 37,500 units available for sale. Beginning inventory was budgeted at 2,000 units and ending inventory was budgeted at 4,500 units. Budgeted production totals ______ units. Multiple choice question. a)33,000 b)35,500 c)39,500
35,500 (37,500-2,000)
A company's total goods available for sale is $750,000 and cost of goods sold is $720,000. If the total cost of goods processed during the period equals $710,000 then beginning inventory was ______. Multiple choice question. a)$30,000 b)$40,000 c)$10,000
40,000 (750,000-710,000)
Rode Corporation's ending finished goods inventory this period was $43,000. The company projects a cost of goods manufactured for the next period to be $567,000 and expects to have $36,000 in ending finished goods. Given this information, what is the expected cost of goods sold for the next period? a)567,000 b)None of these c)556,000 d)574,000 e)582,000
574,000
Match Point, Inc. has the following overhead standards: Variable overhead: 5 hours at $9 per hour Fixed overhead: 5 hours at $11 per hour The standards were based on a planned activity of 17,500 machine hours when 3,500 units were scheduled for production. Actual data follow. Variable overhead incurred: $168,750 Fixed overhead incurred: $330,000 Machine hours worked: 17,300 Actual units produced: 3,600 Match Point's variable-overhead efficiency variance is: a)6,300 favorable b)6,300 unfavorable c)640 favorable d)640 unfavorable e) None of the answers is correct
6,300 favorable
Barrington Bears has developed the following sales forecasts for the next few months. January 500, February 600, March 720, April 800 and May 770. BB has 80 bears on hand on Dec. 31. Normal ending inventory policy is to hold 20% of next month's sales. Each bear needs 0.8 yards of fabric and two pounds of stuffing. Fabric is budgeted to cost $15 per yard and stuffing $4 per pound. Direct labor is paid $18 per hour. Each bear takes 40 minutes to hand-finish. Variable overhead totals $21 per direct labor hour. Fixed overhead amounts to $25,000 per month. Eighty yards of fabric and 100 pounds of stuffing were in stock at year-end. Ten percent and 25% of next month's stuffing and fabric needs respectively are planned for raw materials ending inventory each month. What quantities of fabric and/or stuffing must be purchased in March? a)1,248 pounds of stuffing b) 747.6 yards of fabric c) 1,630.8 pounds of stuffing d) 600.4 yards of fabric e) None of the choices are correct
600.4 yards of fabric
A company is preparing a flexible budget for the upcoming period. Electricity cost has been estimated at $4,000 for 1,500 hours based on a formula of $1,000 + $2 per hour. What is the expected electricity cost for a budget of 3,000 hours? Multiple choice question. a)$7,000 b)$4,000 c)$5,000 d)$6,000
7,000 (1,000 + 2(3,000))
A company's flexible budget for 19,000 units of production showed total contribution margin of $81,700 and fixed costs, $30,400. The operating income expected if the company produces and sells 24,000 units is: Multiple Choice a)$18,381. b)$90,600. c)$72,800. d)$51,300. e)$8,900.
72,800
Allocating joint costs using the net realizable value as the allocation base __ product line profitability. a)has no effect on b)distorts c)does not distort
does not distort
When there is excess capacity, excluding accounting depreciation of existing equipment from common costs being allocated should be considered ______. a)users will be encouraged not to use the common resources b)it can help avoid the death spiral c)the opportunity cost is zero
it can help avoid the death spiral the opportunity cost is zero
When considering whether or not a product should be processed beyond split-off ______. a)joint costs are sunk b)joint costs are relevant c)total joint costs will be increased if all products are processed d)total joint costs will be reduced if some products are not processed
joint costs are sunk
Joint cost allocation can cause a death spiral because ______. a)joint costs are sunk with respect to further processing b)it can make unprofitable products appear profitable c)it encourages production of all products beyond the split off point
joint costs are sunk with respect to further processing
T-bone steak and hamburger are examples of_______ _______ produced from a cow. (Enter only one word per blank.)
joint products
When allocating service department costs with the step-down method, using ratios ______ variation in the cost-based transfer price. a)leads to a large b)reduces the total c)has no effect on the
leads to a large
When a manager is authorized to spend a specific amount on office supplies and another specific amount on office equipment, the firm is using a(n) _______- _______ budget. (Enter only one word per blank.)
line-item
A study of profit center managers in a number of corporations determined that ______ budgets improved resource planning, control and motivation. Multiple choice question. a)imposed b)tight c)loose d)flexible
loose
Budgets serve to communicate specialized knowledge between areas of the organization as part of decision_________ and are part of the performance measurement system in decision ___________. (Enter only one word per blank.)
management, control
One approach to improving the budgeting process decouples decision _____from decision _____. (Enter only one word per blank.)
management, control
All other budgets provide the supporting details, including the key planning assumptions underlying the _______ budget. (Enter only one word per blank.)
master
A decline in average costs ______. a)only occurs when there is a reduction in cash outlays b)always leads to an increase in profits c)may be the result of shifting fixed costs to other products
may be the result of shifting fixed costs to other products
Focusing on the annual budget ______. Multiple choice question. a)may cause managers to ignore the long-term well being of the organization b)helps ensure that expenses will be in line with both current and future needs c)reveals the future effects of reducing costs in the short term
may cause managers to ignore the long-term well being of the organization
The budgeted income statement ______. Multiple select question. a)needs a benchmark for comparison b)is always the end of the budget process c)addresses the firm's cash needs d)includes various pieces from earlier budgets
needs a benchmark for comparison includes various pieces from earlier budgets
When the allocation base for allocating joint costs is the difference between sales revenue and the additional processing costs between the split-off point and sales, the allocation method being used is __. a)joint cost allocation b)relative sales value c)net realizable value
net realizable value
When the allocation base for allocating joint costs is the difference between sales revenue and the additional processing costs between the split-off point and sales, the allocation method being used is _______ ________ _______. (Enter only one word per blank.)
net realizable value
Zero-based budgeting ______. Multiple select question. a)often turns into incremental budgeting b)should help eliminate inefficiencies c)is used frequently in for-profit organizations d)requires each line item be reviewed and justified annually
often turns into incremental budgeting should help eliminate inefficiencies requires each line item be reviewed and justified annually
To take full advantage of the reciprocal method's ability to estimate marginal cost transfer prices ______. a)fixed and variable costs should not be separated when costs are allocated b)the system of equations should be used for fixed cost and variable costs should not be allocated c)only fixed service department cost should be allocated using the system of equations d)only variable service department costs should be allocated using the system of equations
only variable service department costs should be allocated using the system of equations
An allocated cost per unit of service that exceeds the external price indicates ______. a)operating inefficiencies in the service department b)an inaccurate allocation method is being used c)operating inefficiencies in the operating departments d)overuse of the service department by the operating departments
operating inefficiencies in the service department
In the two-step approach to budgeting, the first step is to define the budget in ______ terms. Multiple choice question. a)financial, not operational b)operational, not financial c)both financial and operational
operational, not financial
When the person responsible for meeting the target makes the initial budget forecast, the company is using bottom-up or ________budgeting. (Enter only one word per blank.)
participative
When lower-level managers have more knowledge than central management it is likely best to use ______. Multiple choice question. a)top-down budgeting b)participative budgeting c)budget ratcheting d)zero-based budgeting
participative budgeting
Using historical data based on past performance can lead to a perverse incentive called the _________ __________. (Enter only one word per blank.)
ratchet effect
A system of linear equations is constructed for each service department when using the ______ allocation method. a)step-down b)reciprocal c)direct
reciprocal
When service departments use the services of other service departments, the most precise allocation method is ______ allocation. a)direct b)step-down c)reciprocal
reciprocal
When a manager has some control over volume changes or its consequences, the benchmark to gauge performance should be a ______ budget. Multiple choice question. a)flexible b)zero-based c)static d)rolling
static
A company has three service departments. Service Department 2's costs contain an allocation from Service Department 1. Service Department 2's cost are allocated to Service Department 3 and the operating departments. This indicates that the ______ method is being used. a)direct allocation b)reciprocal c)step-down
step down
When costs are allocated by starting with one service department and allocating its costs to remaining service departments and operating divisions, the______ - ______ method is being used. (Enter only one word per blank.)
step down
Large differences in the amount of service department costs that are allocated to operating departments can result from using the ______ allocation method. a)direct b)reciprocal c)step-down
step-down
Questions involving the organization's future structure, R&D, and capital spending are addressed as part of _______ _______. (Enter only one word per blank.)
strategic planning
The process managers use to select the firm's overall objectives and tactics to achieve them is _____ _____.
strategic planning
By-product sales revenue is ______. a)subtracted from joint costs b)used to compute a product line profit margin c)ignored in joint product costing
subtracted from joint costs
Which of the following statements is correct? Multiple choice question. a)Organizations should always take steps to eliminate the ratcheting effect. b)The alternatives to the ratchet effect may increase overall costs. c)Reducing job rotation also reduces the budget ratcheting problem.
the alternatives to the ratchet effect may increase overall costs
The sequence of service departments in the step-down method can affect decision making because ______. a)the first service department in the sequence has a larger cost per unit of service b)the last service department in the sequence has a larger cost per unit of service c)using the step-down method treats cost allocations as an internal tax
the last service department in the sequence has a larger cost per unit of service
strategic planning
the process whereby managers select the firm's overall objectives and the tactics to achieve those objectives
Basing next year's budget on this year's actual performance is ______. Multiple choice question. a)the two-step approach b)zero-based budgeting c)participative budgeting d)the ratchet effect
the ratchet effect
A likely reason the reciprocal method is not widely used is ______. a)decision making is the primary function of cost allocation b)it can only be accomplished with very large computers c)it has several theoretical disadvantages d)the step-down allocation method produces similar results if the correct order is chosen
the step-down allocation method produces similar results if the correct order is chosen
In determining whether or not to process a product further, joint cost allocations ______ used to allocate costs. a)are only relevant if NRV is b)are always relevant, regardless of the method c)are never relevant, regardless of the method
are never relevant, regardless of the method
Budgets are used to ______. Multiple select question. a)assign decision rights b)set union salary schedules c)communicate and coordinate information d)measure performance
assign decision rights communicate and coordinate information measure performance
The reciprocal method is more accurate in assessing the opportunity cost of service departments than the other methods ______. a)regardless of whether service department costs are fixed or variable b)assuming all service department costs are variable c)assuming all service department costs are fixed
assuming all service department costs are variable
Budget lapsing ______. Multiple select question. a)assures optimum spending on activities b)can drive agency costs of the organization to zero c)assures substantial budget balances are not accumulated d)prevents risk-adverse managers from saving for a rainy day
assures substantial budget balances are not accumulated prevents risk-adverse managers from saving for a rainy day
Net realizable value allocates joint cost based on a products ______ split-off. a)sale value at b)contribution margin at c)contribution margin beyond d)sales value beyond
contribution margin beyond
Budget lapsing ______. Multiple select question. a)create incentives to spend all the budget b)reduces flexibility to adjust to changing conditions c)can increase warehousing costs d)usually results in more-efficient operations
creates incentives to spend all the budget reduces flexibility to adjust to changing conditions can increase warehousing costs
When utilization of a common resource with significant fixed cost falls, creating excess capacity, the ______ ______results. (Enter only one word per blank.)
death spiral
A likely reason the reciprocal method is not widely used is ______. a)decision making is not the primary function of cost allocation b)it has several theoretical disadvantages c)the step-down allocation method generally provides a more accurate allocation d)it leads to dysfunctional decision making
decision making is not the primary function of cost allocation
The opportunity cost per unit of service is likely wrong when using the ______ allocation method. a)direct b)step-down c)reciprocal
direct
If all service department costs are to be allocated to operating departments through recomputing each operating division's share of usage to equal one, the _______ _______method is being used to distribute costs. (Enter only one word per blank.)
direct allocation
When each service department's use of other service departments is ignored the ______ _______method is being used to distribute costs. (Enter only one word per blank.)
direct allocation
Which of the following budgets rely on the production budget? Multiple select question. a)Direct labor b)Factory overhead c)Cash flows d)Sales
direct labor factory overhead
Hours workers spend actually producing products are called ______labor hours, and hours spent maintaining machinery or when workers are idle are called ______ labor hours. (Enter only one word per blank.)
direct, indirect
Many experts believe that the best motivation is provided by a budget that is ______. Multiple choice question. a)unachievable b)easily achieved c)tight but achievable
tight but achievable
When central management has better knowledge than field salespeople it is likely best to use ______ budgeting. Multiple choice question. a)bottom-up b)participative c)top-down d)zero-based
top-down
Farrier Industries has two service departments (Administration and IT) and two operating departments (Op 1 and Op 2). Departmental costs before allocations are $950,000 for Administration and $1,650,000 for IT. The utilization of IT costs are: 15% in Administration, 45% in Op 1 and 40% in Op 2. Using the direct method, IT cost allocated to Administration totals ______. a)$198,000 b)$247,500 c)$0
$0 Reason: Costs are not allocated to other service departments under the direct method.
Barrington Bears has developed the following sales forecasts for the next few months. January 500, February 600, March 720, April 800 and May 770. BB has 80 bears on hand on Dec. 31. Normal ending inventory policy is to hold 20% of next month's sales .Each bear needs 0.8 yards of fabric and two pounds of stuffing. Fabric is budgeted to cost $15 per yard and stuffing $4 per pound. Direct labor is paid $18 per hour. Each bear takes 40 minutes to hand-finish. Variable overhead totals $21 per direct labor hour. Fixed overhead amounts to $25,000 per month. Eighty yards of fabric and 100 pounds of stuffing were in stock at year-end. Ten percent and 25% of next month's stuffing and fabric needs respectively are planned for raw materials ending inventory each month. What is the purchases budget for February? a)$12,205.60 b)$21,142.40 c)$11,571.20 d)12,480.00 e)None of the choices are correct
$12,905.60
Farrier Industries has two service departments (Administration and IT) and two operating departments (Op 1 and Op 2). Departmental costs before allocations are $950,000 for Administration and $1,650,000 for IT. The utilization of IT costs are: 15% in Administration, 45% in Op 1 and 40% in Op 2. Using the step-down method, IT cost allocated to Administration totals ______. a) $0 b) $198,000 c) $247,500
$247,500 Reason: Costs allocated = $1,650,000 × [15% ÷(15% + 40% + 45%)] = $247,500
Based on predicted production of 22,000 units, a company anticipates $385,000 of fixed costs and $335,500 of variable costs. The flexible budget amounts of fixed and variable costs for 20,000 units are (Do not round intermediate calculations): Multiple Choice a)$385,000 fixed and $305,000 variable. b)$305,000 fixed and $385,000 variable. c)$350,000 fixed and $335,500 variable. d)$350,000 fixed and $305,000 variable. e)$385,000 fixed and $335,500 variable.
$385,000 fixed and $305,000 variable.
A company's division has revenues of $76,000, controllable expenses of $72,000 and allocated common costs of $1,000. The division's controllable segment margin is $______ . (Enter your answer as a whole number.)
$4,000
Farrier Industries has two service departments (Administration and IT) and two operating departments (Op 1 and Op 2). Departmental costs before allocations are $950,000 for Administration and $1,650,000 for IT. The utilization of IT costs are: 15% in Administration, 45% in Op 1 and 40% in Op 2. Using the step-down method, IT cost allocated to Op 2 totals ______. a)$776,471 b) $660,000 c)742,500 d)$528,000
$660,000 Reason: Costs allocated = $1,650,000 × [40% ÷(15% + 40% + 45%)] = $660,000
Farrier Industries has two service departments (Administration and IT) and two operating departments (Op 1 and Op 2). Departmental costs before allocations are $950,000 for Administration and $1,650,000 for IT. The utilization of IT costs are: 15% in Administration, 45% in Op 1 and 40% in Op 2. Using the direct method, IT cost allocated to Op 1 totals ______. a)$776,471 b)$873,529 c)$594,000 d)$742,500
$873,529 Reason: Costs allocated = $1,650,000 × [45% ÷(45% + 40%)] = $873,529
A company is preparing a flexible budget for the upcoming period. Maintenance cost is estimated at $250 for every 500 machine hours used. If the budget calls for 2,000 machine hours, budgeted maintenance cost will be $______ . (Enter only one word per blank.)
1,000
Priority Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended: Actual units produced: 12,000Actual variable overhead incurred: $49,200Actual machine hours worked: 14,000Standard variable overhead cost per machine hour: $3.60If Priority estimates 1.40 hours to manufacture a completed unit, the company's variable-overhead efficiency variance is: a)$1,200 favorable b)$1,200 unfavorable c) $10,080 favorable d)$10,080 unfavorable e)None of the answers is correct
10,080 favorable
Based on a predicted level of production and sales of 29,000 units, a company anticipates total variable costs of $113,100, fixed costs of $52,200, and operating income of $147,030. Based on this information, the budgeted amount of operating income for 27,000 units would be: a)$290,790. b)$20,190. c)$105,300. d)$133,290. e)$185,490.
133,290
Campaign Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended: Actual units produced: 15,000 Actual fixed overhead incurred: $866,000 Actual machine hours worked: 64,000 Budgeted fixed overhead: $817,800 Planned level of machine-hour activity: 58,000 If Campaign estimates four hours to manufacture a completed unit, the company's standard fixed overhead rate per machine hour would be: a)12.78 b)14.10 c)14.93 d)13.63 e)None of the answers is correct
14.10
A firm is preparing a direct labor budget. It is estimated that a total of 10,000 labor hours will be worked during the upcoming budget period. A total of 9,700 hours will be used producing the product. Of the other 300 hours, 200 hours will be used maintaining machines and the other 100 hours will be idle time. The number of hours that will appear on the direct labor budget is ______. Multiple choice question. a)9,800 b)9,700 c)10,000 d)9,900
9,700- only hours used producing the product appear on the direct labor budget
A company's flexible budget for 12,000 units of production showed sales, $72,000; variable costs, $42,000; and fixed costs, $15,000. The sales expected if the company produces and sells 16,000 units is (Do not round intermediate calculations): a)96,000 b)15,000 c)37,500 d)5,000 e)20,000
96,000
Budgets that include a fixed amount for each line item and do not vary with volume are _______ budgets. (Enter only one word per blank.)
static
The usual budget period for most companies is: Multiple Choice a)An annual period separated into weekly budgets. b)An annual period of 250 working days. c)An annual period separated into quarterly and monthly budgets. d)A quarterly period separated into weekly budgets. e)A monthly period separated into daily budgets.
An annual period separated into quarterly and monthly budgets
Which of the following statements are correct? Multiple select question. a)Bottom-up budgets are submitted by lower-level organizational units to higher levels. b)With participative budgeting, the person responsible for meeting the target makes the initial budget forecast. c)Top-down budgets usually imply greater decision management. Top-down budgets provide better decision control. d)Having the marketing department forecast sales for the entire firm is an example of bottom-up budgeting. This is an example of top-down budgeting.
Bottom-up budgets are submitted by lower-level organizational units to higher levels. With participative budgeting, the person responsible for meeting the target makes the initial budget forecast.
Below are various statements about different budgeting techniques. Which is false? a) Budget ratcheting tightens targets when performance fails to meet the target by a predetermined percentage b) Budget lapsing prevents managers from hoarding funds c) Master(static) budgets are prepared for a single level of activity d) Budget lapsing encourages managers to spend money regardless of cost or value e) None of the choices are correct
Budget ratcheting tightens targets when performance fails to meet the target by a predetermined percentage
Which of the following statements about key planning assumptions are correct? Multiple select question. a)The process of assembling knowledge reinforces people's expectations of the assumptions. b)Budgets are built using them. c)They are widely dispersed throughout the firm. d)All affected managers are usually required to give approval.
Budgets are built using them. They are widely dispersed throughout the firm. All affected managers are usually required to give approval.
All of the following are steps in the budgetary control process except: Multiple Choice a)Take corrective and strategic actions. b)Compare actual results to budgeted amounts and analyze differences. c)Develop the budget from planned objectives. d)Establish new objectives and a new budget. e)Communicate differences to supervisors to facilitate promotion decisions.
Communicate differences to supervisors to facilitate promotion decisions
Which of the following statements are correct? Multiple select question. a)Cost allocations involve apportioning indirect costs to cost objects. b)It is more efficient to purchase common resources centrally and share them. c)Most common costs contain a significant amount of variable costs.
Cost allocations involve apportioning indirect costs to cost objects. It is more efficient to purchase common resources centrally and share them.
Which of the following statements are true? Multiple select question. Continual unfavorable variances may be grounds for dismissal. Budget variances are used in the performance reward system. Favorable budget variances always indicate superior performance. Budget variances are indicators of whether managers are meeting expectations.
Continual unfavorable variances may be grounds for dismissal. Budget variances are used in the performance reward system. Budget variances are indicators of whether managers are meeting expectations.
Which of the following statements is false? a)All of these b)Production budget c)Direct materials budget d)Merchandise purchases budget e)Direct Labor Budget
Direct labor budget
True or false: Future users who know they will be charged for the historical cost of a durable asset have a greater incentive to overstate their expected future utilization.
False
True or false: One benefit of budgeting is that it creates coordination and cooperation between decision management and decision control.
False
Which of the following statements are true? a)Joint cost allocations serve purposes such as inventory valuation. b)Some allocation methods distort incremental profitability of products. c)Cost allocations are required for decisions regarding joint products. d)Net realizable value is always the best way of allocating joint costs.
Joint cost allocations serve purposes such as inventory valuation. Some allocation methods distort incremental profitability of products.
Which of the following statements are correct? Multiple select question. a)Sales reps who are evaluated based on sales have an incentive to underforecast them. b)It is important not to put too much emphasis on the budget as a performance benchmark. c)In decision control, budgets serve to communicate specialized knowledge within the organization.
Sales reps who are evaluated based on sales have an incentive to underforecast them. It is important not to put too much emphasis on the budget as a performance benchmark.
Which of the following statements are correct? a)Divisions with positive segment margins should always be retained. b)Segment reporting is used to help reduce agency costs. c)Divisions with negative segment margins should always be discontinued. d)Firms with multiple segments generally have joint benefits difficult to quantify.
Segment reporting is used to help reduce agency costs. Firms with multiple segments generally have joint benefits difficult to quantify.
Net realizable value is analogous to __. a)sales revenue b)gross margin c)net operating income d)contribution margin
contribution margin
True or false: Budgets are a performance measurement system.
True
True or false: The proportion of joint products produced from a single input is usually fixed.
True
True or false: The direct allocation methods encourages service departments to overuse other service department services.
True Reason: Because service departments are not charged for use of other service departments there is no monetary incentive to limit use.
Criticisms of budgeting include they are ______. Multiple select question. a)the central coordinating mechanism within the firm b)a barrier to change c)time consuming to construct d)based on unsupported assumptions
a barrier to change time consuming to construct based on unsupported assumptions
A budget is best described as: Multiple Choice a)The minimum acceptable performance level. b)A formal statement of a company's future plans usually expressed in monetary terms. c)A master control device. d)An informal statement of company's future plans usually expressed in monetary terms. e)The most crucial component of a company's evaluation process.
a formal statement of a company's future plans usually expressed in monetary terms
Dysfunctional behaviors associated with budgeting include ______. Multiple select question. a)accelerating sales at year end b)overestimating sales targets c)deferring spending needs d)excess spending at year end
accelerating sales at year end deferring spending needs excess spending at year end
In order to prepare the budgeted ______, a budgeted statement of cash flows must be prepared. Multiple choice question. a)cost of goods sold b)balance sheet c)income statement d)sales forecast
balance sheet
Production + _______(beginning/ending) inventory = Sales + ________ (beginning/ending) inventory. (Enter either beginning or ending in each blank.)
beginning, ending
In most firms, lower-level manager have a significant role in ______ stage(s) of the budget's preparation. Multiple choice question. a)only the initial b)neither the initial or revision c)only the revision d)both the initial and revision
both the initial and revision
Many budgeting systems involve a ______ approach. Multiple choice question. a)only top-down b)bottom-up, top-down c)top-down, bottom-up
bottom-up, top-down
Managers are given decision rights to spend monies as specified in their __________.
budget
Many organizations create a group that seeks to facilitate the exchange of specialized knowledge and reach consensus on disputed issues and give approval. This group consists of the major functional executives and is called the _______ _______. (Enter only one word per blank.)
budget committee
The situation where unspent funds do not carry over to the next year is called ._______ _______ (Enter only one word per blank.)
budget lapsing
A managerial accounting report that presents predicted amounts of the company's assets, liabilities, and equity as of the end of the budget period is called a(n): Multiple Choice a)Rolling balance sheet. b)Budgeted balance sheet. c)Cash balance sheet. d)Operating balance sheet. e)Continuous balance sheet.
budgeted balance sheet
Once the budgeted statement of cash flows is prepared, the firm has information needed for the ______. Multiple choice question. a)direct labor budget b)sales budget c)budgeted income statement d)budgeted balance sheet
budgeted balance sheet
A managerial accounting report that presents predicted amounts of the company's revenues and expenses for the budget period is called a: Multiple Choice a)Budgeted balance sheet. b)Rolling income statement. c)Continuous profit statement. d)Budgeted income statement. e)Master plan.
budgeted income statement
Communicating and coordinating information both vertically and horizontally is one of the uses of __________in the organization. (Enter only one word per blank.)
budgeting
Plans for the next year are translated into financial terms by preparing ______________. (Enter only one word per blank.)
budgets
Setting goals through negotiation and internal contracts is one of the uses of _______in the organization. (Enter only one word per blank.)
budgets
When a firm uses a budget committee, the chair of the committee is the ______, Multiple choice question. a)chairman of the board of directors b)firm's outside auditor manager c)chief executive officer d)vice president of sales
chief executive officer
Costs that are incurred in both assembly and disassembly are ______ costs, but ______ costs are only incurred in disassembly processes. (Enter only one word per blank.)
common, joint
A company purchased a phone system to provide 2,000 phone lines. The annual depreciation expense for the system is $300,000 and the variable operating cost is $175 per line. Currently the company is only using 1,500 of the expected 2,000 lines. If costs are allocated using practical capacity ______. a)each line currently being used will be charged $175 of variable cost b)each line currently be used will be charged $200 of depreciation expense c)a total of $75,000 will be charged as a companywide expense d)a total of $162,500 will be charged as a companywide expense
each line currently being used will be charged $175 of variable cost a total of $75,000 will be charged as a companywide expense (Reason: Depreciation on the unused lines $300,000/2,000 = $150 x 500 = $75,000 will be charged as a companywide expense.) (Reason: Depreciation will be based on practical capacity making the charge $300,000/2,000 or $150 per line.)
Common costs often arise because of _______ of _______. (Enter only one word per blank.)
economies scale
Long-run budgets ______. Multiple select question. a)are often used for decision control and performance evaluation b)emphasize decision management c)reduce managers' focus on short-term performance d)are typically produced along with short-term budgets
emphasize decision management reduce managers' focus on short-term performance are typically produced along with short-term budgets
True or false: Using subjective performance evaluations helps prevent dysfunctional behaviors related to budgeting.
false
Most common costs contain significant ______ costs. a)variable and fixed b)variable c)fixed
fixed
If the individual being evaluated is not responsible for volume changes it is best to prepare a ______ budget. Multiple choice question. a)rolling b)flexible c)static d)zero-based
flexible
Managers are not held responsible for volume fluctuations when using performance evaluation is based on a(n) _______ budget. (Enter only one word per blank.)
flexible
budget
forecast of revenues and/or expenses expected to occur within a future time period. Budgets are an integral part of the organization performance evaluation and decision rights partitioning system.
The step-down method ______. a)eliminates the problems that can arise from the the death spiral b)gives users an incentive to use less of some service department resources c)ignores that early sequence departments use later sequence department services d)uses an arbitrary method to assign service department costs
gives users an incentive to use less of some service department resources ignores that early sequence departments use later sequence department services uses an arbitrary method to assign service department costs
Allocating depreciation on common resources ______. a)helps control overinvestment b)can lead to underutilization of assets c)gives users an incentive to overstate future use d)is a commitment device
helps control overinvestment can lead to underutilization of assets is a commitment device
Practical capacity ______. a)helps resolve the death spiral b)charges unused capacity to users c)is based on expected usage under normal circumstances
helps resolve the death spiral is based on expected usage under normal circumstances
When using the step-down method, the sequence of service departments ______. a)impacts decision making b)changes the cost per unit of goods c)should be set to ensure all departments are charged the same cost per unit of service
impacts decision making changes the cost per unit of goods
Using budgets for financial planning but not for performance evaluation ______. Multiple select question. a)improves decision management b)requires a peer benchmark group to be set for each budget unit c)removes the "gaming" aspect from from budgeting and performance evaluation
improves decision management requires a peer benchmark group to be set for each budget unit
Service department costs ______. a)should not be allocated to other service departments b)include costs for human resources and security c)must be allocated to operating departments
include costs for human resources and security must be allocated to operating departments
Some managers end their budgeting process with the budgeted _______ _______, but it does not address the firm's cash needs. (Enter only one word per blank.)
income statement
When a budget is prepared by starting with the current year's budget and adjusting each line item for expected changes, the firm is using ______ budgeting. Multiple choice question. a)zero-based b)rolling c)incremental d)flexible
incremental
Common costs are ______ processes. a)only incurred in assembly b)only incurred in disassembly c)incurred in both assembly and disassembly
incurred in both assembly and disassembly
Overhead allocation can affect the profitability of ______. a)individual product lines only b)the entire firm only c)both individual product lines and the entire firm d)neither individual product lines or the entire firm
individual product lines only
An important part of the budgeting process is sharing and assembling key ________ ________ such as unit placements and prices, which are generally shared and approved by all affected managers. (Enter only one word per blank.)
planning assumptions
The two-step budget approach ______. Multiple select question. a)provides a sophisticated model for balancing capacity b)is more representative of how the organization actually operates c)is less costly to prepare than traditional budgets d)couches lower-level managers knowledge in operational terms
provides a sophisticated model for balancing capacity is more representative of how the organization actually operates couches lower-level managers knowledge in operational terms
Allocating service department costs ______. a)provides information about demand for the service b)encourages users to increase the amount of service provided c)helps allocate a scarce resource d)assists with accessing operating efficiency
provides information about demand for the service helps allocate a scarce resource assists with accessing operating efficiency
In general, budget lapsing ______ agency problems. Multiple choice question. a)reduces b)has no impact on c)increases d)eliminates
reduces
Line-item budgets ______. Multiple select question. a)reduces managerial opportunism b)limit spending for each item in the budget c)increase incentives to look for savings d)reduce agency problems
reduces managerial opportunism limit spending for each item in the budget reduce agency problems
Budgets that add a future period as the current period concludes are called ______ budgets. Multiple choice question. a)flexible b)static c)rolling d)zero-based
rolling
Beginning inventory + Production = Multiple choice question. a)Sales - Ending Inventory b)Sales + Ending Inventory c)Sales - Beginning Inventory d)Production - Beginning Inventory
sales + ending inventory
Purchasing, human resources, security and maintenance are examples of _______departments. (Enter only one word per blank.)
service
To avoid the death spiral when excess capacity exists ______. a)users should be changed for the full cost of the resource b)some of the fixed costs could be excluded from the transfer price c)users should have some discretion over how much of the common resource to use
some of the fixed costs could be excluded from the transfer price
When using the step-down method, large variations in the cost-based transfer prices can arise because ______. a)shifting the order of a service department from first to last decreases its cost-based transfer price b)transfer prices are based on ratios c)the first service department in the sequence has no allocated costs in its numerator
transfer prices are based on ratios the first service department in the sequence has no allocated costs in its numerator
Zero-based budgeting is ______. Multiple select question. a)most useful in organizations with stable middle and senior management b)useful when there is high uncertainty c)often used in governments d)more costly than incremental budgeting
useful when there is high uncertainty often used in governments more costly than incremental budgeting
Ways to reduce the ratchet effect include ______. Multiple select question. a)using a central planning group to prepare budgets b)more frequent job rotations c)asking salespeople to estimate next year's sales d)basing this year's budget on last year's actual result
using a central planning group to prepare budgets more frequent job rotations asking salespeople to estimate next year's sales
The death spiral occurs when ______. a)utilization of a common resource with fixed costs falls b)full cost transfer pricing is used c)the user does not have discretion over the quantity of resource used
utilization of a common resource with fixed costs falls full cost transfer pricing is used
Indicators of whether managers are meeting expectations include budget ________.
variances
In a large corporation, an important aspect of the budgeting system includes sharing knowledge ______. Multiple choice question. a)only horizontally b)only vertically c)vertically and horizontally
vertically and horizontally
Information shared among superiors and subordinates is being shared __________, whereas information shared among peers in other parts of the organization is being shared _________. (Enter only one word per blank.)
vertically, horizontally
Which of the following statements are correct? Multiple select question. a)Long-run budgets increase manager focus on short-term performance. b)Long-run budgets typically are prepared for a 10-15 year period. c)Without long-term budgets, managers have an incentive to cut maintenance and R&D expenditures. d)Long-run and short-run budgets are typically integrated in a single process.
without long-term budgets, managers have an incentive to cut maintenance and R&D expenditures Long-run and short-run budgets are typically integrated in a single process
When organizations have considerable turnover in middle and senior level ranks, it is generally useful to use ______ budgeting. Multiple choice question. a)incremental b)zero-based
zero-based
