ACCT 2301 EXAM 2 Conceptual Questions

How is the variable overhead rate variance calculated?

AH(AR-SR)

*What is an attribute of the internal rate of return?*

All of the above are attributes of the internal rate of return: it is the interest rate that makes the cost of the investment equal to the present value of the investment's net cash inflows, it is used in the capital rationing process, and it is the interest rate that makes the NPV of the investment equal to zero

Which of the following is a benefit to an organization that implements a budget?

All of the above: budgets help the manager improve the motivation of employees in the workplace, budgets help managers focus their attention on the future needs in an organization, and budgets help managers improve their decision-making processes in an organization

Merchandising companies prepare which of the following budgets?

All of the above: operating expense, cash, sales

The term _____ is best described as "a stream of equal installments made at equal time intervals."

Annuity

The two fixed overhead variances are the...

Budget and volume variances

A performance report compares actual revenue and expenses with ______ revenues and expenses.

Budgeted

Which of the following is NOT included in the operating budget?

Budgeted balance sheet

*"Financial budget" is best described by which of the following?*

A budget that projects cash inflows, cash outflows, and the end of period budgeted balance sheet

"Capital expenditures budget" is best described by what concept?

A company's plan to purchase property, plant and equipment, and other long-term assets

With regard to a static budget instead of a flexible budget, which of the following is TRUE?

A static budget is prepared for only one level of sales activity

Management by exception would dictate that the manager investigate which of the following variances?

Variances which are greater than a budget and actual dollar amount or percentage

Which of the following is NOT part of the operating budget?

Cash budget

Which of the following items is a component of a cash payments budget?

Cash dividends

The manager of the truck maintenance department at FedEx may be in charge of a

Cost Center

The security department that is evaluated on its ability to control costs when the company compares actual costs to budget costs at a department store chain may be classified as a(n)...

Cost center

*A manager can increase return on investment (ROI) by doing which of the following?*

Decrease operating expenses

A manager considers all of the following when he or she prepares the cash budget EXCEPT...

Depreciation expense

All of the following are functions of the budget committee EXCEPT...

Determine the bonuses the organization awards to employees that achieve the target budget

What rate measures how well the business keeps prices of direct labor inputs within standards

Direct Labor rate

Merchandising companies do not prepare the ______ budget

Direct Materials

The ____ variance measures whether the quantity of direct labor used to make the actual number of outputs is within the standard allowed for that number of outputs

Direct labor efficiency

A company uses sugar in producing its product. If the price of sugar doubles, which variance is directly impacted

Direct materials price variance

What is a potential disadvantage of decentralization?

Duplication

All of the following are responsibility centers except? A. Investment center. B. equity center. C. cost center. D. profit center.

Equity

*Management by ______ is the practice that directs executive attention to large budget variances.*

Exception

T or F: The flexible budget variance for fixed costs will always be zero

False

*Which type of variance causes operating income to be greater than the budgeted operating income?*

Favorable variance

What budget projects cash inflows, outflows and the budgeted balance sheet?

Financial Budget

The variable overhead rate variance may be caused by variances in the following production inputs EXCEPT...

Fixed manufacturing overhead

Which of the following statements may be true if actual units produced exceed the budgeted units to be produced?

Fixed overhead volume variance is expected to be favorable.

A budget that is based on multiple levels of projected sales or production

Flexible budget

Capital Budgeting

Formal means of analyzing long-range investment alternatives

A favorable variance causes operating income to be _________ the budgeted operating income?

Greater than

The manager of the corporate division of Anthropologie, a large retail clothing chain, may be in charge of an

Investment Center

*A cost benchmark is valid only if the standards are...*

Kept up to date

An unfavorable variance causes operating income to be _______ than the budgeting operating income

Lower

With regard to flexible budgets, which of the following statements is TRUE?

Managers use them to help plan for uncertainties

*All of the following budgets are prepared by merchandising companies except...*

Manufacturing overhead

*A favorable volume variance for variable expenses would indicate that:*

More units were actually sold than the company had originally budgeted to sell

The standard cost of direct labor per unit is calculated by

Multiplying the standard quantity of DL by the standard price of direct labor

The standard cost of direct labor per unit is calculated by:

Multiplying the standard quantity of direct labor by the standard price of direct labor

*The standard cost of direct materials per unit is calculated by:*

Multiplying the standard quantity of direct materials by the standard price of direct materials

The standard cost of direct materials per unit is calculated by...

Multiplying the standard quantity of direct materials by the standard price of direct materials

The "decision model that computes the difference between the present value of the investment's net cash inflows, using a desired rate of return, and the cost of the initial investment" is best described by which of the following terms?

NPV

If the purchasing manager purchased a greater quantity of raw materials than budgeted, but paid the Standard Price (SP), which variance may be affected?

Neither of the variances may be affected

Regarding capital rationing decisions for capital assets, which of the following is TRUE?

None of the above are true

The _______ is the difference between the actual machine hours run and the standard machine hours allowed for the actual production volume.

Overhead flexible budget variance

Most companies use ____ when the lower level management develops budgets each year

Participative Budgeting

The ______ capital budgeting model is generally the simplest to compute.

Payback

*Which of the following examples may lead directly to a favorable fixed overhead volume variance?*

Producing more units than anticipated

The ______ budget is a component in an operating budget.

Production

The ________ budget is the only budget stated only in units, not dollars.

Production

In a(n) _______ center, managers are accountable to BOTH revenues and costs.

Profit

The entire product line at PepsiCo​ (such as the Pepsi Max product​ line) may be classified as​ a(n)

Profit Center

What variance tells managers how much of the total direct materials variance is due to using more or less materials than anticipated by the standards

Quantity variance

*Which of the following financial performance measures can be used to compare potential projects of different sizes?*

ROI

Using ________ may cause a manager to reject a project that may be profitable to the company as a whole.

ROI

If a company must decrease its sales price of a product and all expenses remain constant, what will happen to ROI

ROI will decrease

*If selling and administrative expenses decrease while other expenses remain constant, what will happen to return on investment (ROI)?*

ROI will increase

If selling and administrative expenses decrease while other expenses remain constant, what will happen to return on investment (ROI)?

ROI will increase

What will happen to ROI if current assets decrease while everything else remains the same?

ROI will increase over time

The following are all methods of analyzing capital investments except Payback Period. Net Present Value (NPV). Regression Analysis. Accounting Rate of Return (ARR).

Regression Analysis

time value of money

Relationship among principle, interest rate and time

A performance report of a ______ will only include revenues generated by the center.

Revenue center

A performance report of a _______ will only include revenues generated by the center.

Revenue center

The manager of the Northeast sales region at General Mills may be in charge of​ a(n)

Revenue center

The regional sales department for Xerox copiers may be classified as a(n)...

Revenue center

*How is the variable manufacturing overhead efficiency variance calculated?*

SR(AH-SHA)

Operating income an investment center generates before subtracting common fixed costs that are allocated to the center is called

Segment Margin

How would you describe the Standard Hours Allowed?

Standard Hours Allowed is the number of hours it should have taken given the standard hours and the actual number of units produced.

What is an advantage of using standard costs and variances?

Standard costs are benchmarks that managers use to judge actual costs

What may cause a sales volume variance for fixed expenses?

The number of units actually sold falls within a different relevant range than the static budget sales volume

*The fixed overhead volume variance is the difference between the budgeted fixed overhead and...*

The standard fixed overhead cost allocated to production

The present value of an investment is NOT affected by

The value of a past investment

Disadvantages of using standard costs and variances include all of the following except

Those manufacturing costs that enter Work in Process Inventory are recorded at standard cost, rather than actual cost

Why do managers intentionally build slack into the budget?

To gain the resources they need in the event of budget cuts

The format of the "cost of goods sold, inventory, and purchases" budget is as follows:

cost of goods sold + desired ending inventory - beginning inventory.

At lean companies, employees tend to be multi-skilled and cross-trained to perform a number of duties. These workers are held in high-esteem by management and are considered to be part of a team effort, rather than a labor force to be controlled. Consequently, this

decreases the importance of direct labor standards.

All of the following are functions of the budget committee except? A. approve the final budget it expects the organization to implement. B. remove unwarranted slack in the workplace. C. determine the bonuses the organization awards to employees that achieve the target budget. D. review the budgets it submits for approval in an organization.

determine the bonuses the organization awards to employees that achieve the target budget.

The type of standard that expects no waste and no inefficiencies in the production process is referred to as a(n)

ideal standard.

The profitability index is calculated by dividing the present value of net cash inflows by

initial investment.

If the accounting rate of return exceeds the required accounting rate of​ return,

invest in the capital asset

An unfavorable volume variance for variable expenses would indicate that:

less units were actually sold than the company had originally budgeted to sell

The difference between the actual revenues and expenses and the master budget is known as a

master budget variance

What is the cornerstone of the master budget?

sales budget

The performance evaluation of a profit center is typically based on its

segment margin

The performance evaluation of a profit center is typically based on its

segment margin.

The term ________ is best described as a relationship among principal, interest rate, and time.

time value of money

On the direct labor budget, the total quantity of direct labor hours needed is computed as

units to be produced × direct labor hour per unit.