acct final
Which of the following are ways in which to calculate the benefit of selecting one alternative over another?
An analysis that looks at all costs and benefits and identifies those that are differential. An analysis that just looks at the relevant costs and benefits. The difference between the net operating income for the two alternatives.
Advantages of a budget
Budgets communicate management's plans throughout the organization. Budgets force managers to think about and plan for the future. the budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively. The budgeting process can uncover potential bottlenecks before they occur. Budgets coordinate the activities of the entire organization by integrating the plans of its various parts. Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.
Which of the following may be an advantage of buying a part instead of making it?
Economies of scale can result in higher quality and lower costs from suppliers.
A budget is a detailed plan for the future that is usually expressed in formal qualitative terms.
False
Challenging but highly achievable budgets increase the likelihood that lower-level managers will engage in undesirable behavior to secure their desired compensation.
False
Cash collections schedule
estimates the amount of monthly sales will be collected in cash (uses values from the sales budget)
ABC Lumber spent $500 cutting down a tree which resulted in 40 pieces of unfinished lumber that sell for $20.00 each and 100 bags of sawdust that sell for $1.00 each. For $8.00, an unfinished piece of lumber can be processed into a piece of finished lumber that sells for $35.00. If the company processes the unfinished lumber, profit will (increase/decrease) by $
increase and 280
Control
involves the steps taken by management to increase the likelihood that the objectives set down while planning are attained and that all parts of the organization are working together toward that goal
When deciding whether to drive your car or take a train to a destination, the costs for your car insurance and driver's license are
irrelevant
When deciding whether to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) _____ cost.
irrelevant
Incremental cost
is an increase in cost between two alternatives.
Incremental cost -
is an increase in cost between two alternatives.
The cash budget _____.
is prepared near the end of the master budget process
Opportunity cost
is the benefit that is foregone as a result of pursuing some course of action. Opportunity costs are not actual cash outlays and are not recorded in the formal accounts of an organization.
The present trend appears to be towards ______ vertical integration
less
manufacturing overhead budget lists all costs of production other than DM & DL
lists all costs of production other than DM & DL
When considering accepting a special order,
normal sales must not be affected there must be idle capacity
Allocated common costs are_____
only relevant to decisions if they are avoidable
A budget that is prepared with the full cooperation of managers at all levels is a self-imposed or
participative
More accurate estimates and higher motivation are generally the result of using a(n) ______ budget.
participative
Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time and 10 minutes of labor time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time and 5 minutes of labor time. If the company's constraint is labor time, the contribution margin per unit of constraint for Product XYZ is $_______
product ABCThe company should fill the demand for the product with the highest CM per unit of the constrained resource. ABC's is $3 per minute of machine time (CM of $10/5 minutes) while XYZ's is only $1.50 per minute of machine time (CM of $15/10 minutes.)
In a manufacturing company, the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget are all based on the_______budget.
production
The budgeted income statement does NOT rely on information from the ______ budget
production
The direct materials budget directly relies on the ______ budget.
production
A product's differentiation value can arise by enabling customers to ____the best available alternative.
realize greater cost savings than and generate more sales and contribution margin than
A product's economic value to the customer is based on the______value and the_____value.
reference differentiation
A product's economic value to the customer is based on___ the value and the___value.
reference differentiation
Differential revenue is an example of a(n) ______ benefit.
relevant
A 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed is called a(n)______ or continuous budget.
rolling or perpetual
Both the production and selling and administrative expense budgets are prepared using information directly from the
sales budget
To calculate total sales on the sales budget, multiply budgeted sales in units by
sales price per unit
To calculate total sales on the sales budget, multiply budgeted sales in units by_______
sales price per unit
ABC Lumber spent $500 cutting down a tree which resulted in 40 pieces of unfinished lumber that sell for $20.00 each and 100 bags of sawdust that sell for $1.00 each. For $8.00, an unfinished piece of lumber can be processed into a piece of finished lumber that sells for $35.00. For $0.75, a bag of sawdust can be processed into a Presto Log that sell for $1.25. Based on this information,
the pieces of unfinished lumber should be processed into finished lumber and the bags of sawdust should be sold without additional processing
In companies that do not use a self-imposed budgeting process, profit targets are generally set by
top managers
Budgetary control
use of budgets to control an organization's activities
A special order should be accepted
when the incremental revenue from the special order exceeds the incremental costs of the order
Joint Products
when two or more products produced from a common input.
Future cost
would not differ between alternatives; thus, not relevant
When estimating the cost of taking a 300 mile trip, the average cost per mile × 300 is the best way to evaluate the total cost.
False
Advantages of a self-imposed budget:
Individuals at all levels of the organization are viewed as members of the team whose judgments are valued by top management. Budget estimates prepared by front-line managers are often more accurate than estimates prepared by top managers. Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above. A manager who is not able to meet a budget imposed from above can claim that it was unrealistic. Self-imposed budgets eliminate this excuse.
Responsibility accounting
Managers should be held responsible for those items - and only those items - which they can actually control to a significant extent. Responsibility accounting enables organizations to react quickly to deviations from their plans and to learn from feedback.
In a manufacturing company, which budget is used as the basis for creating the direct materials budget, the direct labor budget, and the manufacturing overhead budget?
Production
The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget?
Production
the cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget?
Production
Which of the following budgets are directly based on information from the sales budget?
Production Selling & administrative expense
Which of the following involves increasing the capacity of a bottleneck?
Relaxing the constraint
What number does the direct materials budget take directly from the production budget?
Required production
Anticipated selling price - Desired profit =
Target cost
Which of the following is needed to prepare a sales budget?
The budgeted number of units to be sold
A detailed plan for the future that is usually expressed in formal quantitative terms is
a budget
Continuous/perpetual budget
a budget 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed.
Operating budget
a budget for a 12-month period; does not have to follow a calendar year
Self-imposed budget
a budget that is prepared with the full cooperation and participation of managers at all levels, also called a participative budget. Should be reviewed by higher management to avoid budgetary slack (loose budget)
Avoidable cost
a cost that can be eliminated in whole or in part by choosing one alternative over another. These costs are RELEVANT.
Differential cost
a cost that differs between any two alternatives. Differential costs are always relevant costs.
Differential cost -
a cost that differs between any two alternatives_______ are always relevant costs.
Sunk cost
a cost that has already been incurred and cannot be avoided regardless of what a manager decides to do
Unavoidable cost
a cost that will NOT be eliminated in whole or in part by choosing one alternative over another. These costs are NOT relevant
Budget
a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period
Master budget
a group of budgets that lay out the company's sales, production, and financial goals. Is made up of the below budgets, which are interdependent and based on various estimates and assumptions
Bottleneck
a process or machine that is limiting output; it is the constraint
Constraint
a resource that is limiting a company's ability to satisfy demand
Differential revenue
a revenue that differs between any two alternatives
Differential revenue -
a revenue that differs between any two alternatives.
Budgeting
act of preparing a budget
Sales budget
always prepared first and consists of budgeted sales units times selling price per unit. All other parts of the Master Budget are dependent on the sales budget.
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) ______ cost.
avoidable
Because it is needed for the schedule of expected cash collections, the annual master budget file includes the
balance sheet
Budgets ______.
communicate management's plan throughout the organization
A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in
contribution margin
The formula to calculate the target cost includes
desired profit per unit & anticipated selling price
Financing section
details the borrowings and repayments projected to take place during the budget period
Cash excess or deficiency section
determines if the company will need to borrow money or if it will be able to repay funds previously borrowed; and (see LO8)
Planning
developing objectives and preparing various budgets to achieve those objectives
Enabling customers to realize greater cost savings than the best alternative available raises a product's
differentiation value
In a manufacturing company, the budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories
direct materials
The price of a customer's best available alternative plus the value of what differentiates the product from that alternative is the product's
economic value to the customer
The price of a customer's best available alternative plus the value of what differentiates the product from that alternative is the product's___
economic value to the customer
Cash disbursements schedule -
estimates the amount of cash to be paid each month
Irrelevant costs and irrelevant benefits
should be ignored when making decisions.
Allocated common costs are ______ avoidable and/or relevant to a decision.
sometimes
When planning a trip and deciding to drive your car or take the train, gasoline is a(n) Blank______ cost.
sunk
Irrelevant costs include _____.
sunk costs future costs that do not differ between alternatives
The market is instrumental in determining a product's price through the laws of ______________ & _________.
supply & demand
The market is instrumental in determining a product's price through the laws of
supply and demand
Production Budget
takes the sales budget and a desired ending inventory into account
When making a decision, only relevant items are included in the analysis of the alternatives when using
the differential cost approach only
The target costing approach was developed because
the market really determines prices most of a product's cost is determined in the design stage
S&P Enterprises has scheduled direct material purchases of $100,000 in January, $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February.
$122,500
When profit targets are set by top managers,
- waste may occur - too much slack may be allowed - goals may be unrealistically high
Which of the following is needed to calculate raw materials to be purchased on the direct materials budget?
-Beginning inventory of raw materials -Raw materials required per unit
Average costs______.
-are often misleading -contain sunk costs
Highly achievable budget targets
-may generate greater management commitment to the budget -are used in most companies -may help build manager confidence
Human factors in budgeting:
1. Top management must be enthusiastic and committed to the budgeting process. 2. Top management must not use the budget to pressure employees or blame them when something goes wrong. 3. Highly achievable budget targets are usually preferred (rather than "stretch budget" targets) when managers are rewarded based on meeting budget targets.
Relevant benefits (revenues)
Benefits (revenues) that differ between alternatives
Relevant costs
Costs that differ between alternatives
Split-off Point
the point in the manufacturing process where each joint product can be recognized as a separate product. The cost incurred up to the split-off point are called ______
When making a decision, irrelevant items are included in the analysis of both alternatives when using
the total cost approach only
