BACC 222 Exam 4 Study Guide

Fancy Nails cost formula for miscellaneous expenses is $30 per operating day plus $0.25 per client served. Fancy Nails' miscellaneous expense budget in a month when the business is going to be open for 25 days and they expect to serve a total of 2,400 clients is

$1,350

In 2021, Angel Corporation generated $75,000 in cash flow from operations. Capital projects expenditures were $50,000, and dividends of $6,000 were paid. Calculate free cash flow.

$19,000 (Reason: Net cash provided by operating activities ($75,000) - Capital expenditures ($50,000) - Dividends ($6,000)

Company A reported net income of $40,000. Included in net income was $10,000 of deprecation expense, a gain of $50,000 from the sale of a fixed asset and a $30,000 loss from the sale of an investment. Cash provided by operating activities equals ______.

$30,000 (Reason: (Net income) $40,000 + $10,000 (depreciation expense) - $50,000 (gain on sale of asset) + $30,000 (loss on sale of investment) = $30,000 cash provided from operations.)

If the activity level for the month is 4,000 units, actual revenue is $6,000, actual variable costs are $0.20 unit, and actual fixed costs total $500, which of the following are true?

$4,700 net income, $1,300 in total costs

The planning budget, based on 1,000 units, shows revenue of $24,000 and $6,250 for supplies. A total of 1,200 units were actually produced and sold. The flexible budget will show ______.

$7,500 for supplies $28,800 for revenue

Purchases of equipment and the sale of land are transactions that are classified as _____ activities

Investing

When preparing the operating activity section of the statement of cash flows using the indirect method, which of the following statements regarding gains and losses on fixed assets is correct?

Losses are added back to net income and gains are subtracted from net income.

A management system that compares actual results to a budget so that significant deviations can be flagged as exceptions and investigated further is called:

Management by exception

U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) require companies to organize the statement of cash flows into three sections that report cash flows resulting from:

Operating, investing, and financing activities

A budget that is prepared at the beginning of the period for a specific level of activity is called a ______ budget.

Planning

T/F: When interpreting the statement of cash flows, the most meaningful interpretation comes from considering the relationship among numbers.

True

Companies use _____ _____ cycle to evaluate and improve performance.

Variance Analysis

The materials price variance is calculated using the ______ quantity of the input purchased.

actual

The spending variance is labeled as favorable when the ______.

actual cost is less than what the cost should have been at the actual level of activity

A price variance is the difference between the ______.

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

Depreciation expense is ______ net income when preparing the operating activities section using the ______ method.

added to, indirect

When preparing a flexible budget, the level of activity ______.

affects variable costs only

When interpreting a statement of cash flows, the specific circumstances of a company should ______.

always be considered

Beginning balance + debits - credits = Ending balance is the basic equation for ______ accounts.

assets

When preparing the operating activity section of the statement of cash flows using the indirect method, increases in current ______ are subtracted from and increases in current ______ are added to net operating income.

assets, liabilities

A quantity variance is ______.

calculated using the standard price of the input

The statement of cash flows focuses on activities that affect the _____ _____.

cash balance

The materials price variance is ______.

charged to the production manager when production problems occur impacted by the delivery method chosen generally the responsibility of the purchasing manager

Standards are _____.

compared to the actual quantities and costs of inputs set for each major production input or task benchmarks for measuring performance

Operating activities include changes in ______.

current liability accounts for amounts owed to employees noncurrent assets that affect net income

When calculating net cash flows from operating activities, the change in accounts payable is subtracted from net income when accounts payable ______ during the period.

decreases

When interpreting a statement of cash flows, the specific circumstances of a company should ______.

decreasing sales

When preparing the operating section using the indirect method, ______ is added back to net income.

depreciation expense

If net cash flow from operating activities is less than current liabilities, it indicates the company ______.

did not generate enough operating cash flow to pay bills at the end of the period

A spending variance is the ______.

difference between the actual amount of the cost and how much a cost should have been, given the actual level of activity

A revenue variance is the ______.

difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period

Net cash provided by operating activities may be computed using either the _____ or _____ method.

direct, indirect

When interpreting the statement of cash flows, the most meaningful insights are found by ______.

examining relationships among numbers

When actual revenue ______ what the revenue should have been, the variance is labeled favorable.

exceeds

The purpose of the statement of cash flows is to ______.

explain the change in cash during the period

When the standard price is higher than the actual price, the materials price variance is ______.

favorable

The statement of cash flows is one of the required _____ _____.

financial statements

Cardinal Company issues new common stock for $50,000. This transaction is a(n) _____ activity on the statement of cash flows.

financing

Estimates of what revenues and costs should have been based on the actual level of activity are shown on the _____ budget.

flexible

What costs and revenues should have been for the actual level of activity is shown on a (n) _____ budget.

flexible

A company's ability to fund its capital expenditures and dividends from net cash provided by operating activities is measured by

free cash flow

Using multiple cost drivers on a flexible budget report will generally ______.

increase accuracy

Net income is adjusted to a cash basis when using the _____ method to prepare the operating section of the statement of cash flows.

indirect

Beginning balance - debits + credits = Ending balance is the basic equation for ______ accounts.

liability and contra-asset

When preparing the statement of cash flows using the indirect method, a ______ on the sale of an investment asset is added back to net income.

loss

The concept that focuses on important variances and ignores trivial ones is ______.

management by exception

The materials price variance is generally calculated at the time materials are purchased because ______.

management can generate more timely variance reports it allows materials to be carried in the inventory accounts at standard cost it simplifies bookkeeping

When preparing the operating activities section of the statement of cash flows using the indirect method ______.

net income is adjusted to a cash basis items that do not affect cash flow are removed from net income.

When comparing the static planning budget to actual activity, a problem that arises when actual activity is higher than budgeted activity is that ______.

net income is higher than expected but all or most expense variances are unfavorable

Changes in noncash balance sheet accounts that directly affect net income are classified as _____ activities.

operating

Either the direct or the indirect method may be used when preparing the net cash provided by _____ activities.

operating

Financing activities include ______.

payment of cash dividends to stockholders issuing new common stock

The difference between the actual price paid for the material and what should have been paid according to the standard is reflected in the direct materials _____ variance.

price

How much should be paid for each unit of an input is specified by a(n) _____ standard.

price, cost, or rate

The purchasing manager is generally responsible for the material _____ variance, and the production manager is generally responsible for the material _____ variance.

price, quantity

The calculation of a standard price per unit of direct materials includes ______.

purchase price of the materials purchase discounts shipping costs

Most companies compute the material price variance when materials are ______ and the material quantity variance when materials are ______.

purchased, used

The _____ manager has control over the price paid for goods and is therefore responsible for the materials price variance.

purchasing

How much input should be used to produce a product or provide a service is a(n) _____ standard.

quantity

SP(AQ-SQ) is the formula for the materials _____ variance.

quantity

The difference between the actual materials used in production and the standard amount allowed for the actual output is reflected in the materials _____ variance.

quantity

A _____ _____ is the difference between how much of an input was actually used and how much should have been used and is stated in dollar terms using the standard price of the input.

quantity variance

A materials price variance is equivalent to a labor _____ variance and a materials quantity variance is equivalent to a labor _____ variance.

rate, efficiency

The difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period is called a(n) _____ variance.

revenue

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost is a(n) _____ variance.

spending

The final, delivered price that should be paid for each unit of direct materials is the _____ price per unit of materials.

standard

The _____ _____ per unit defines the amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies, such as scrap and spoilage.

standard quantity

A benchmark used in measuring performance is called a(n)

standard, norm, or metric

Explaining the change in the cash balance is the purpose of the ______.

statement of cash flows

Planning budgets are sometimes called ______ budgets.

static

An unfavorable materials quantity variance occurs when ______.

the actual amount of material used is greater than the standard amount of material allowed for the actual output

The variance analysis cycle begins with _____.

the preparation of performance reports

Investing activities include ______.

the purchase of a new building the sale of used equipment

When the standard purchase price is less than the actual price paid for materials, the material price variance is

unfavorable

Which of the following are used to calculate the standard quantity per unit of direct materials?

Direct materials requirements per unit of finished product Allowance for waste and spoilage

On the statement of cash flows, cash is broadly defined as cash and cash _____.

Equivalents

T/F: A static budget is being compared to actual activity. The variance is F for net income but U for most expenses. This suggests that actual activity was lower than budgeted.

False

T/F: All material variances are generally the responsibility of the production manager.

False

T/F: Quantity standards refer to the price to be paid for each unit of the input.

False

T/F: True or false: A company can increase its cash flow by increasing its depreciation expense.

False

T/F: When interpreting the statement of cash flows, consideration should not be given to a company's specific circumstances.

False