ACCT 210 final exam: theory questions

The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials purchased.

true

The revenue and spending variances are the differences between the flexible budget and the actual results for the period.

true

When used in return on investment (ROI) calculations, operating assets do not include investments in land held for future use and investments in other companies.

true

A favorable spending variance occurs when the actual cost exceeds the amount of the cost in the static planning budget.

false

A quantity standard indicates how much output should have been produced.

false

A spending variance is the difference between the cost in the static planning budget and the actual amount of the cost for the period.

false

All other things being the same, a decrease in average operating assets will decrease return on investment (ROI).

false

Comparing a static planning budget to actual costs is a good way to assess whether variable costs are under control.

false

Purchase of poor quality materials may cause a favorable materials price variance and an unfavorable labor efficiency variance.

true

All other things being the same, which of the following would increase the residual income? A. Decrease in average operating assets. B. Decrease in sales. C. Increase in minimum required return. D. Decrease in net operating income.

A. Decrease in average operating assets.

A static planning budget is: A. a budget for a single level of activity. B. a budget that ignores inflation. C. used only for fixed costs. D. used when the mix of products does not change.

A. a budget for a single level of activity.

Net operating income is defined as: A. net income plus interest and taxes. B. sales minus variable expenses. C. sales minus variable expenses and traceable fixed expenses. D. contribution margin minus traceable and common fixed expenses.

A. net income plus interest and taxes.

In a company's standard costing system direct labor-hours are used as the base for applying variable manufacturing overhead costs. The standard direct labor rate is twice the variable overhead rate. Last period the labor efficiency variance was unfavorable. From this information one can conclude that last period the variable overhead efficiency variance was: A. unfavorable and half the labor efficiency variance. B. favorable and half the labor efficiency variance. C. unfavorable and twice the labor efficiency variance. D. favorable and twice the labor efficiency variance.

A. unfavorable and half the labor efficiency variance.

Residual income should not be used to evaluate a profit center.

true

Managerial performance can be measured in many different ways including return on investment (ROI) and residual income. A good reason for using residual income instead of ROI is: A. Residual income can be computed without having to measure operating assets. B. Managers are more likely to accept projects that are beneficial to the company. C. ROI does not take into account both turnover and margin. D. A minimum rate of return does not have to be specified when the residual income approach is used.

B. Managers are more likely to accept projects that are beneficial to the company.

Which of the following would produce a labor rate variance? A. Poor quality materials causing breakage and work interruptions. B. Use of persons with high hourly wage rates in tasks that call for low hourly wage rates. C. Excessive number of hours worked in completing a job D. An unfavorable variable overhead rate variance.

B. Use of persons with high hourly wage rates in tasks that call for low hourly wage rates.

The variance that is usually most useful in assessing the performance of the purchasing department manager is: A. the materials quantity variance B. the materials price variance. C. the labor rate variance. D. the labor efficiency variance.

B. the materials price variance.

Variable manufacturing overhead is applied to products on the basis of standard direct labor- hours. If the labor efficiency variance is unfavorable, the variable overhead efficiency variance will be: A. favorable. B. unfavorable. C. either favorable or unfavorable. D. zero.

B. unfavorable.

Which of the following would be an argument for the use of net book value in the computation of operating assets in return on investment calculations? A. It allows the manager to replace old, worn-out equipment with a minimum adverse impact on ROI. B. It allows ROI to decrease over time as assets get older. C. It is consistent with how plant and equipment items are reported on the balance sheet. D. It eliminates both age of equipment and method of depreciation as factors in ROI computations.

C. It is consistent with how plant and equipment items are reported on the balance sheet.

Consider the following three conditions: I. An increase in sales II. An increase in operating assets III. A reduction in expenses Which of the above conditions provide a way in which a manager can improve return on investment? A. Only I B. Only I and II C. Only I and III D. Only II and III

C. Only I and III

Which of the following would produce a materials price variance? A. An excess quantity of materials used. B. An excess number of direct labor-hours worked in completing a job. C. Shipping materials to the plant by air freight rather than by truck. D. Breakage of materials in production.

C. Shipping materials to the plant by air freight rather than by truck.

Comparing actual results to a budget based on the actual activity for the period is possible with the use of a: A. monthly budget. B. master budget. C. flexible budget. D. rolling budget.

C. flexible budget

Which of the following comparisons best isolates the impact that changes in operating efficiency have on performance? A. static planning budget and flexible budget B. static planning budget and actual results C. flexible budget and actual results D. master budget and static planning budget

C. flexible budget and actual results

Residual income: A. is the return on investment(ROI)percentage multiplied by average operating assets. B. is the net operating income earned above a certain minimum required return on sales. C. is the net operating income earned above a certain minimum required return on average operating assets. D. will always be greater than zero.

C. is the net operating income earned above a certain minimum required return on average operating assets.

A company that is seeking to increase ROI should attempt to decrease: A. sales. B. turnover. C. margin. D. average operating assets.

D. average operating assets.

Contribution income statements are used to measure the performance of: A. cost centers. B. both cost centers and profit centers. C. both cost centers and investment centers. D. both profit centers and investment centers.

D. both profit centers and investment centers.

A major weakness of flexible budgets is that: A. they are valid for only a single level of activity. B. they ignore fixed costs. C. they compare actual costs at one level of activity to budgeted costs at a different level of activity. D. none of these is a major weakness of flexible budgets.

D. none of these is a major weakness of flexible budgets.

A planning budget is prepared before the period begins and is valid for whatever the actual level of activity turns out to be.

False

Directly comparing a static planning budget to actual costs helps to distinguish between differences in costs that are due to changes in activity and differences that are due to how well costs were controlled.

false

Margin equals net operating income divided by sales.

false

Net operating income is income after interest and taxes.

false

Operating assets include cash, accounts receivable, and inventory but not any depreciable fixed assets.

false

Residual income is the net operating income that an investment center earns above the minimum required return on the investment in fixed assets.

false

Return on investment is superior to residual income as a means of measuring performance because it encourages managers to make investment decisions that are more consistent with the interests of the company as a whole.

false

The standard cost per unit is computed by dividing the standard quantity or hours by the standard price or rate.

false

The variable overhead efficiency variance measures how efficiently variable manufacturing overhead resources were used.

false

When a flexible budget is used in performance evaluation, actual costs are compared to the static planning budget rather than to what the costs should have been for the actual level of activity during the period.

false

A balanced scorecard should not contain any performance measures concerning customer satisfaction since the extent to which customers are satisfied is beyond the control of any manager in the company.

fasle

A direct materials quantity standard generally includes an allowance for waste.

true

A favorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period.

true

A flexible budget can be used to estimate what revenues and costs should have been, given the actual level of activity for the period.

true

A materials price variance is unfavorable if the actual price exceeds the standard price.

true

A profit center is responsible for generating revenue and for controlling costs.

true

A revenue variance is favorable if the actual revenue exceeds what the revenue should have been for the actual level of activity of the period.

true

All profit centers are responsibility centers, but not all responsibility centers are profit centers.

true

An unfavorable spending variance may reflect waste as well as paying too much for inputs.

true

Controllability has little to do with whether a cost is fixed or variable.

true