Bract Exam 4
Reports to managers are usually less detailed because they need to concentrate on the key issues
upper-level
XYZ Company makes one product and has calculated the following amounts for direct labor: AH x AR = $84,000; AH x SR = $83,000; SH× SR = $85.000 Compute the direct labor cost variance
$1,000 F
Acme Manufacturing Company prepared a fixed budget based on the expected sales of 160,000 units. That fixed budget included variable costs totaling $800,000 and fixed costs totaling $240,000. If the company instead uses flexible budgeting and actually sells 200,000 units during the year, what are the amounts that will be included in its flexible budget performance report for total variable costs and total fixed costs?
$1,000,000 and $240,000
In producing jelly beans, 4,700 pounds of direct materials were used at a cost of $2.50 per pound. The standard was 4,000 pounds at $2.75 per pound. What is the direct materials quantity variance?
$1,925 Unfavorable
A company has budgeted total overhead at actual units produced of $10.400. The company has actual total overhead of $12.000. The controllable variance is:
$12,000 - 10,400 = $1,600 U.
ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36.000 hours at a total cost of $374.400. Compute the direct labor rate variance
$14,400 U
Tyler Industries currently manufactures one of its crucial parts at a cost of $4.50 per unit. This cost is based on a normal production rate of 50,000 units per year. Direct materials costs are $1.50 per unit and direct labor is $1.00 per unit, incremental overhead costs related to making this part are $50,000 per year, and allocated fixed overhead costs are $50,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Tyler is considering buying the part from a supplier for a quoted price of $3.70 per unit guaranteed for a three-year period. What is the relevant cost of making the 50,000 units?
$175.000
In producing jelly beans, 1,000 hours of direct labor were used at a rate of $12 per hour. The standard was 1,100 at $12.25 per hour. What is the direct labor rate variance?
$250 Favorable
The Menswear Department of Nancv's Department Store had sales of $191,000, cost of goods sold of $134,000, indirect expenses of $13.550. and direct expenses of $27.800 for the current period. What is the Menswear Department's contribution to overhead?
$29,200
Skilling Incorporated has the following information on one of its investment center departments. Sales: $9,800,000; income: $766,500; and investment center assets: $3,650,000. Management has set a target income of 11.5% of investment center assets. What is the department's residual income?
$346,750
ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct labor variance.
$374,400 - (35,000 units × 1 hr x $10/hr) = $24,400 U
XYZ Company makes one product and has calculated the following amounts for direct materials: AQ AP = $150,000; AQ x SP = $145,000; SO x SP = $152,000. Compute the direct materials price variance.
$5,000 U
The Beanny Company had budgeted sales of 1,000 units with a per unit selling price of $5 per unit. Actual sales were 1,100 units at a selling price of $4.75. What is its sales volume variance?
$500 Favorable
The fixed budget indicates sales of $50,000. Actual sales were $55,000. The variance is:
$55,000 Favorable
The Whole Grain Company produces three products from harvesting whole grains. To harvest the whole grain, it incurs costs of $30,000. The company allocates joint costs using the value basis method. Using the chart shown, how much of the joint product costs should be allocated to the Cake Mix product?
$6,000
XYZ Company makes a product and has calculated the following amounts for direct materials: AQ x AP = $150,000; AQ x SP = $145,000; SQ x SP = $152,000. Compute the direct materials quantity variance.
$7,000 F
XYZ Company makes a product and has calculated the following amounts for direct materials: AQx AP = $150,000; AQ x SP = $145,000; 5Q x SP = $152,000. Compute the direct materials quantity variance.
$7,000 F
ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36.000 hours at a total cost of $374.400. Compute the direct materials price variance
$720 F
A company had a standard sales price of $1.79 per unit and expected to sell 10,000 units. Due to a downturn in the economy, the product was marked down to $1.59 per unit and the company only sold 9,500 units. Calculate the sales price variance.
($1.59-$1.79x9500=$1,900U.
If a companv uses straight-line depreciation. the averade investment is calculated as: Check all that apply.
(initial investment + salvage value)/2. (beginning book value + salvage value)2.
if a companv uses straight-line depreciation. the average investment is calculated as. Check all that apply.)
(initial investment + salvage value\/2 (beginning book value + salvage value)/2
Some disadvantages of relying solely on financial measures include that: (Check all that apply.)
- they can encourage managers to focus too heavily on short-term financial goals. - some profitable opportunities may be rejected to keep return on investment high. - residual income is not as useful when comparing investment centers of different sizes
Rent expense of $3,000 is allocated to Department A and Department B based on square footage. Department A has 5,000 square feet and Department B has 2.500 sauare feet. The dollar amount of rent expense allocated to Department B is
1,000
XYZ company makes one product and has calculated the following amounts for direct labor: AH X AR = $84,000; AH x SR = $83,000; SH X SR = $85,000. Compute the direct labor rate variance
1,000 U
A division has residual income of $350.000. If the division has income of $600.000 and $2.500.000 in average assets, what is the target income %___?
10%
A retail stora bac 10 000 square leet of space and incurs rent costs of $5.000 per month. If Department A uses 2.000 sauare feet of space. the amount of rent allocated to the department will be $
1000
To make a cake, one pound of dry cake mix is needed. However, when pouring cake mix into the mixing bowl, 10% spills onto the floor and is unusable. What is the standard amount of cake mix necessary to make a cake?
110 pounds
Joint products C and D emerge from common processing costs of $10,000 and yield 1,000 units of Product C and 5,000 units of Product D. Product C can be sold for $100 per unit. Product D can be sold for $150 per unit. The amount of joint costs allocated to Product C if joint costs are allocated on the basis of relative sales value will be _________ _(rounded to nearest dollar). Do not round your intermediate calculations.
1176
A company sells a product for $3. The company prepares a flexible budget at two sales volumes. At a sales volume of 50 units, budgeted sales will be $____ At a sales volume of 60 units, budgeted sales will be $___
150 180
A company is considering two capital investments. Each requires an initial investment of $15,000 and has a 4 year useful life. Investment A has expected cash inflows of $5,000 each year for the 4 years for total cash inflows of $20,000. Investment B has the following expected cash flows. Year 1. ¢2 000• Year 2• $6 000- Year 3: $4 000: Year 4 $2.000: Total cash flows: $20.000. Calculate the payback period for Investment B
2.25 Years
The Midwest Division of Grainger Company has average assets of $200,000 and income of $40,000. What is the return on investment for this aivIsion:
20%
Chilly Company is considering investing $110,000 in a new refrigerator, designed to keep food extra crispy. The refrigerator will have a useful life of 10 years, a salvage value of $10,000, and is expected to generate an annual income of $15,000 in each year of its useful life. Chilly will use the straight-line method of depreciation. What is the accounting rate of return?
25%
A company is considering a capital investment of $16,000 in new equipment which will improve production and increase cash flows for the next five years at the following amounts: Year 1: $8,000; Year 2: $6,000; Year 3: $5,000: Year 4: $6,000; Year 5: $5,000. The payback period is ___ years
3
A company is considering a capital investment of $45,000 in new equipment which will improve production and increase cash flows by $15,000 per year for 6 years. The payback period is _____________ years.
3
A company is considering two capital investments. Each requires an initial investment of $15,000 and has a 4 year useful life. Investment A has expected cash inflows of $5,000 each year for the 4 ears for total cash inflows of $20,000. Investment B has the following expected cash flows: Yea 1: $8,000; Year 2: $6,000; Year 3: $4,000; Year 4: $2,000; Total cash flows: $20,000. Calculate the payback period for Investment A.
3 years
Jelly Company is considering purchasing a machine with a cost of $20,000 and a useful life of 10 ears. Jelly expects the machine to produce net annual cash flows of $2,000 in year 1, $10,000 in year 2, $5,000 in year 3, $12,000 in year 4, and $8,000 in year 5. What is the cash payback period of the machine?
3.25 years
Information for two alternative projects involving machinery investments follow. The accounting rate of return for Project 1 is:
30%
Actual sales volume for a period is 5,000 units. Budgeted sales volume is 4.500. Actual selling price per unit is $15 and budgeted price per unit is $15.75. The sales price variance is $
3750
A project requires a $1,290,000 initial investment for new machinery The project is expected to yield income of $103.000 per vear payback period is.
4.3 years
Mint Company is considering purchasing a machine with a cost of $10,000 and a useful life of 20 years. Mint expects the machine to produce net annual cash flows of $2,000 each year. What is the cash payback period of the machine?
5 years
XYZ Company makes one product and has calculated the following amounts for direct materials: AQ AP = $150,000; AQ x SP = $145,000; SQ x SP = $152 000. Compute the direct materials price variance
5,000 U
ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36.000 hours at a total cost of $374.400. Compute the direct materials guantity variance
500 U
A company budgets administrative salaries at $5,000 at a sales level of 1,000 units. At a sales level of 1,200 units, budgeted administrative salaries wilbe $_____
5000
A company incurs advertising costs of $10,000. The company's three selling departments have the following sales: Department 1-$10,000 Department 2--$30,000; Department 3-$40,000. Advertising is allocated based on percent of sales. The amount of advertising allocated to Department 3 will be S
5000
A manufacturing division has $1,800,000 in average assets and income of $720,000. The company's target rate is 8%. The division's residual income is $
576000
Assume straight-line depreciation. A company plans to purchase machinery costing $1,000,000 with salvage value of $200,000 after 4 years. Annual income is expected to be $40,000 during the 4 years. Calculate the accounting rate of return. Round your answer to the nearest tenth of a percent.
6.7%
Assume straight-line depreciation and equal cash flows. A company plans to purchase equipment for $25,000. The equipment wil have su salvage value and increase income by $7,500 annually during its 5-year life. The accounting rate of return is
60%
If a company has $2,000,000 in average assets, and desires to earn a return on investment of 30%, the company will need to earn income of $ ___________
60000
Joint products A and B emerge from common processing costs of $100,000 and yield 2,000 units of Product A and 1,000 units of Product B. Product A can be sold for $100 per unit. Product B can be sold for $120 per unit. The amount of joint costs allocated to Product A if joint costs are allocated on the basis of relative sales value will be $ ______
62500
A student purchases a concert ticket for $50. Before entering the concert, the student is offered $75 for the ticket. If th ticket and attend the concert, the opportunity cost is
75
A company has budgeted total overhead of $10,575 at actual units produced and actual total overhead of $9,775. The controllable variance is
800 F
A company sells a product for $3. Direct materials are $1.80 per unit. The company prepares a flexible budget at two sales volumes. At a sales volume of 50 units, budgeted direct materials will be $____. At a sales volume of 60 units, budgeted direct materials will be $___
90 180
Select the correct answer from the drop-down menu.
A static budget based on one predicted amount of sales. - Fixed Budget A variable budget based on more than one amount of sales. - Flexible Budget
Annual income divided by the average investment amount in a project.
Accounting rate of return.
Place the three allocation steps in the correct order using the drop-down menu.
Accumulate sales, direct expenses, and indirect expenses by department. Allocate service department expenses to operating departments Allocate indirect expenses across both service and operaung aepartments
List the steps in allocating costs to operating departments and preparing departmental income statements, with the first step on top
Accumulate sales, direct expenses, indirect expenses by department Allocate indirect expenses to service and operating departments Allocate service department expenses to operating departments
Place the following cash flows in the order that they would occur in a capital investment:
Acquisition USE Disposal
Match the cost variance component to its definition.
Actual quantity > The input used to manufacture the quantity of output Standard quantity > The expected input for the quantity of output Actual price > The amount paid to acquire input Standard price > The preset, or expected price
Company A has a return on investment of 20% and Company B has a return on investment of 24%. Assuming both companies have the same investment center average assets. which of the following statements is true?
Company B has higher return on investment than Company A
Using the drop-down list, select the correct label for each description.
Cost of buying land previously purchased. > Not relevant Future cost of land used to develop a plant site. > Relevant
Which of the following is the correct formula?
Cost variance = (AQ x AP) - (SQ x SP)
List the steps of the decision making process, with the first step on top
Define the decision Identify alternatives Collect relevant information Select the course of action Analyze and assess decision
Which report is more effective in evaluating the performance of profit centers?
Deparnental contribution to overhead reports
The calculation of the payback period for an investment when net cash flow is uneven Is:
Determining when the cumulative total of net cash rows reaches zero
Division ABC has $750,000 in average assets and income of $200.000. Division XYZ has $800,000 average assets and income of $210,000. Which of the following statements is true?
Division ABC has a higher return on investment
Division ABC has $750,000 in average assets and income of $200,000. Division XYZ has $800,000 average assets and income of $210,000. Which of the following statements is true?
Division ABC has a higher return on investment.
True or false: Standard rules exist to help managers identify appropriate allocation bases
False
When compared to the budgeted amount, if the actual cost or revenue contributes to a higher income, then the variance is considered
Favorable
Which of the following are correct statements about the internal rate of return (IRR)? (Check all that apply.)
IRR uses the time value of money. The higher the IRR, the better.
An additional cost from selecting a certain course of action is an):
Incremental cost.
An opportunity cost:
Is the potential benefit lost by taking a specific action instead of alternative actions
An outside supplier offers to provide Epsilon with all the units it needs at $63.05 per unit. If Epsilon bus from the supplier, the company will still incur 35% of its overhead. Epsilon should choose to
Make since the relevant cost to make it is $59.05
A flexible budget has which of the following characteristics?
Often based on several levels of activity Useful to compare what-if scenarios Useful for evaluating past performance
Match the capital budgeting method to its specific characteristic.
Payback period > Ignores the time value of money Accounting rate of return > Uses income rather than cash flows Net present value > Can reflect changes in risk over a project's life Internal rate of return > Allows comparisons of projects of different sizes
Identify the type of variance defined by the following formula: (Actual Price - Standard Price) × Actual Quantity.
Price variance
A company is considering two projects. Project 1 has an initial investment of $60,000 and expected cash inflows of $20,000 each year for 5 years. Project 2 has an initial investment of $80,000 and expected cash inflows of $20,000 each year for 10 years. Using the payback period as the evaluation method, which investment should be chosen by management?
Project 1 with payback period of 3 years
Determine if the following costs would be considered direct or indirect for a division which manufactures bicycles.
Property insurance > Indirect Depreciation on manufacturing equipment > Direct
Budget_______compare actual results to budgeted results
Report
A company incurred $1,000 in costs to produce 500 units which normally sell for $1,500. Upon inspection, it was determined the units were defective and reworking the units would cost an additional $1.50 per unit. The defective units can be sold as is for $1.00 each. How should the company nandie the defective units?
Rework the units which will generate incremental income of $250.
Costs developed which identify what products should cost are called
Standard Costs
A cost that cannot be avoided or changed because it arises from a past decision. and is irrelevant to current and future decisions, is called a(n):
Sunk cost.
A company currently makes a component used in production. The per unit costs incurred to make the component include: Direct materials: $5; Direct labor: $2; Overhead: $4; Total cost: $11. Twenty-five percent of the overhead costs are considered incremental. The company can purchase the component from another source for $10. The company should do which of the following?
The company should make the components because incremental costs are $2 less than the purchase price
The controllable variance is the difference between the actual total overhead and:
The controllable variance is the difference between the actual total overhead and budgeted overhead based on a flexible buddet
A responsibility accounting performance report contains which of the following items? (Check all that apply.)
The difference between actual and budgeted amounts Actual amounts Budgeted amounts A list of all controllable costs
Select the correct indirect expense item to be allocated from the drop-down menu.
Time spent in each department. > Wages expense Floor space occupied. > Rent expense Number of hours equipment is used. > Equipment depreciation expense
True or false: A flexible budget reporting sales volumes at three different levels will have the same fixed costs.
True
If the actual cost is greater than the standard cost, what is the resulting variance.
Unfavorable
Capital budgeting is used to evaluate the purchase of:
a machine
Tne overhead varience is the difference btw
actua total over head and the standard overhead abbied
The standard overhead applied is based on the level of activity multiplied by the predetermined overhead rate
actual
Actual quantity is the actual direct material or direct labor used to manufacture the
actual quantity of output
The last step in the decision making process is:
analyze and assess the decision
The formula to calculate the accounting rate of return is:
annual income/average investment
A flexible budget prepared (before/after) ________ the period begins allows management to make adjustments to increase profits or decrease losses.
before
Indirect and service department expenses are allocated across departments that ___________ them.
benefit from
The process of evaluating and planning for long-term investments is called __________ budgeting
capital
In responsibility accounting, unit managers are evaluated only on things that they can ______
control
A cost that a manager can determine or influence is called a(n) _______________ cost
controllable
A departmental contribution to overhead report is based on:
controllable costs
A _______ center Is evaluated based on control of costs so a performance report is prepared instead o an income statement.
cost
A department that incurs costs without generating revenues is considered a(n):
cost center
The accounting department of a manufacturing company is a(n):
cost center
In responsibility accounting, unit managers are evaluated on:
costs they can control
A department manager would normally have control of all of the following costs except.
department manager's salary
Profit centers commonly use __________ to report profit center performance:
departmental income statements
All of the following are cash flows over the life of an asset excep
depreciation
Step 1 of computing a standard overhead rate is to:
determine an allocation base
Julie works in the production department. Julles wages are an example_________ expenses for the production department.
direct
Denartmental income statements include:
direct and indirect expenses
Which of the following are examples of an overhead allocation base
direct labor hours machine hours
The accounting rate of return:
does not directly consider cash flows and their timing
Weaknesses of the accounting rate of return as a capital budgeting evaluation method include that it: (Check all that apply.)
does not directly consider cash flows and their timing. ignores time value of money.
The purpose of a responsibility accounting system is to provide information to: (Check all that apply.)
evaluate managers' performance. assign costs and expenses to the managers responsible for controlling them.
True or false: Controllable costs are the same as direct costs
false
The standard overhead rate is computed separately for:
fixed and varladle costs
management uses a __________ budget to establish the standard overhead rate
flexible
Decisions related to allocating expenses include: (Check all that apply).
how to allocate indirect expenses how to allocate service department expenses
A company's required rate of return computed as an average of the rate the company must pay to its lenders and investors is called:
hurdle rate
The first step in preparing a flexible budget is to:
identify activity levels
____________ costs, also called differential costs, are the additional costs from selecting a certain course of action.
incremental
All of the following are cash flows over the life of an asset except:
initial investment
The discount rate that results in a net present value of $0 is the:
internal rate of return
A company is considering two capital investments. Each requires an initial investment of $15,000 and has a 4 year useful life. Investment A has expected cash inflows of $5,000 each year for the 4 years for total cash inflows of $20,000. Investment B has the following expected cash flows: Yea 1: $8,000; Year 2: $6,000; Year 3: $4,000; Year 4: $2,000; Total cash flows: $20,000. Using the payback period as the evaluation method, which investment should be chosen by management?
investment B
A _________ center manager is evaluated on their success in generating income.
investment center
A department that incurs costs, generates revenues, and is responsible for effectively using department assets is considered a(n):
investment center
The manager of a certain division at Alpha Manufacturing is evaluated on how efficiently the division uses equipment, buildings, and other assets to generate profits. This division is considered a(n):
investment center
All of the following are strengths of the payback period except.
it ignores the time value of money.
All of the following are weaknesses of the accounting rate of return except.
it is easy to compute.
Costs incurred to produce or purchase two or more products at the same time are called ________ costs
joint
Costs which are incurred to produce two or more products at the same time are called _________ costs
joint
Budget reports are commonly prepared for: (Check all that apply).
month, year, quarter
Financial statements prepared according to GAP ____________ assign joint costs to products.
must
Evaluating manager's performance based solely on financial measures has limitations. Therefore, companies should consider using _____________ measures to help evaluate manager performance
nonfinacial
Standard costs are preset costs for a product under _________ conditions.
normal
A(n) ___________ cost is the potential benefit lost by taking an action instead of an alternative action.
opportunity
An investment's __________ period Is the expected time to recover the initial investment amount
payback
The capital budgeting evaluation method that measures the expected amount of time to recover the Initial investment amount is the:
payback period.
When preparing a flexible budget, variable costs are expressed as a constant amount ______ and fixed costs are expressed as a constant amount _______
per unit; in total
A _____ variance is the difference between the actual price per unit and the standard price per unit.
price
The standard overhead rate is computed separately Tor:
product and period costs
In a make or buy decision, management should consider: (Check all that apply.)
product quality employee morale workload incremental costs
Who has the main responsibility for a labor rate variance?
production manager
Standard costs have which of the following characteristics? (Check all that apply.)
production managers help determine production requirements for a unit of product they are preset costs for delivering a product or service under normal conditions
A center that generates revenues and incurs costs, but is not responsible for investments in operating assets, is referred to as a ___________ center
profit
Operating department income statements are used to evaluate the performance of ___________ centers
profit
A ________ center manager is evaluated on their success in generating income
profit center
A department that is evaluated on their success in generating income is a(n):
profit center
Who has the main responsibility for a materials price variance?
purchasing manager
All of the following individuals work to help set standard costs:
purchasing managers managerial accountants engineers
A ______ variance is the difference between the actual quantity of input used and the standard quantity of input that should have been used
quantity
The controllable variance is so called because it:
refers to activities usually under management control
Incremental or differential costs are __________ costs in making decisions.
relevant
A __________accounting system provides information that management can use to evaluate a department's manager.
responsibility
A(n) _____________ accounting system provides information that management can use to evaluate a departments manager
responsibility
When making scrap or rework decisions, management should consider: (Check all that apply.)
revenue from selling detective units as scrap incremental costs.
The decision-making process has five steps. After collecting relevant information and evaluating each alternative, the next step is to:
select the course of action.
A responsibility accounting system recognizes that control over costs and expenses belong to
several levels of manadement
A responsibility accounting system recognizes that control over costs and expenses belong to
several levels of management
Companies are easier to manager if they are divided into _______ units
smaller
Preset costs for delivering a product or service under normal conditions are called _____ costs.
standard
Preset costs for delivering a product or service under normal conditions are called ________ cost
standard
A __________ cost arises from a past decision, cannot be avoided or changed, and is irrelevant to current and future decisions.
sunk
Chana Industries has 1,300 defective units of product that already cost $48 each to produce. A salvage company will purchase the defective units as is for $22 each. Chang's production manager reports that the defects can be corrected for $40 per unit, enabling them to be sold at their regular market price of $38. The $48 per unit is a
sunk cost
Capital budgeting is risky because:
the decision is difficult to reverse C
An example of a cost that a department manager would not control IS:
the managers own salary
A student purchased a used car for $5.000. Three months later the student discovers the car needs maior repairs which will cost $2 000 The student must decide whether to repair the car or purchase another car. Which statement is correct?
the relevant costs are $2 000