Exam 2

Burruss Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 8,000 units: Per Unit Revenue$4.00 Variable costs: 1.50 Contribution margin: $2.50 Fixed costs: 2.00 Net income$0.50 If actual production totals 10,000 units, which is within the relevant range, the flexible budget would show fixed costs of:

$16,000

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units, and average selling price was $6.12. The sales revenue flexible budget variance was:

$17,880 favorable

Willis Company made a $200,000 investment in new machinery. Assuming the company's margin is 4%, what income will be earned if the investment generates $600,000 in additional sales?

$24,000

The Family Restaurant chain had a 12% return on a $60,000 investment in new ovens. The investment resulted in increased sales and an increase in income that was 3% of the increase in sales. The increase in sales was:

$240,000

White Company budgeted for $200,000 of fixed overhead cost and volume of 40,000 units. During the year, the company produced and sold 39,000 units and spent $210,000 on fixed overhead. The fixed overhead cost spending variance is:

$10,000 favorable

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units, and average selling price was $6.12. The sales volume variance was:

$6,000 unfavorable

Sometimes the sales staff will deliberately underestimate the amount of expected sales. This practice is known as:

Lowballing

Standard cost systems facilitate the management practice known as:

Management by exception

Which of the following is not a characteristic of an effective responsibility accounting system?

Reports that set goals for long-term strategic performance.

Which of the following would be prepared first when a merchandising company uses a master budget?

Sales forecast

Which of the following would represent the order in which most master budgets are prepared?

Sales, Purchases, Cash, Income Statement

A budget prepared at a single volume of activity is referred to as a:

Static Budget

Planning concerned with long-range decisions such as defining the scope of the business is referred to as:

Strategic planning

Select the incorrect statement about the planning process.

The longer the time period, the more specific the plans.

Select the correct statement about the master budget

The master budget usually included operating budgets and capital budgets and pro forma financial statements

Which of the following is not an advantage of decentralization?

Upper-level managers are able to concentrate on routine decisions.

Shia Company makes a product that is expected to require 2 hours of labor per unit of product. The standard cost of labor is $5.20. Shia actually used 2.1 hours of labor per unit of product. The actual cost of labor was $5.30 per hour. Shia made 1,000 units of product during the period. Based on this information alone, the labor price variance is:

$210 unfavorable

Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: January: $30,000 February: $36,000 March: $45,000 April:$48,000 The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:

$39,600

Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $45,000. Ending inventory at the end of January was $12,000. Based on this information, purchases for February would be:

$46,500

White Company budgeted for $200,000 of fixed overhead cost and volume of 40,000 units. During the year, the company produced and sold 39,000 units and spent $210,000 on fixed overhead. The fixed overhead cost volume variance is:

$5,000 unfavorable

The Ferguson Company estimated that October sales would be 100,000 units with an average selling price of $6.00. Actual sales for October were 105,000 units, and average selling price was $5.95. The sales revenue flexible budget variance was:

$5,250 unfavorable

Fairpoint Products provided the following selected information about its consumer products division for the current year: Desired ROI 8 % Net Income $ 100,000 Residual Income $ 60,000 Based on this information, the division's investment amount was:

$500,000

What will budgeted net income equal if 21,000 units are produced and sold? (do not round intermediate calculations.)

$55,500

The following static budget is provided: Per Unit Total Sales $ 60 $ 900,000 Less variable costs: Manufacturing costs: 30 and 450,000 Selling and administrative costs: 10 and 150,000 Contribution margin: $20 $300,000 Less fixed costs: Manufacturing costs: 75,000 Selling and administrative costs: 125,000 Total fixed costs: 200,000 Net income: $100,000 What will be the overall volume variance if 12,000 units are produced and sold?

$60,000 U

Jones Company developed the following static budget at the beginning of the company's accounting period: Revenue (8,000 units) $ 16,000 Variable costs 4,000 Contribution margin $ 12,000 Fixed costs 4,000 Net income $ 8,000 If actual production totals 8,200 units, the flexible budget would show total costs of:

$8,100

Joseph Company has an investment in assets of $450,000, operating income that is 10% of sales, and an ROI of 18%. From this information the amount of operating income would be:

$81,000

Campbell Candy Corporation desires a 16% return on investment (ROI) on all operations. The following information was available for the company for the current year: Sales $ 250,000 Operating Income $ 70,000 Turnover 0.6 What is the corporation's ROI?

16.8%

Ormand Organic Grocery has invested in a yogurt stand for its store. The investment cost the company $100,000. Variable materials, preparation, and marketing costs are expected to be $0.60 per unit and fixed costs are estimated at $6,000 a year. If actual sales were 20,000 servings, what would the ROI be using the sales price of $1.80?

18.0%

Sales for January are budgeted at 50,000 units, and the company expects sales to increase 4% each month. How many units will need to be purchased in February if the company's policy is to keep ending inventory each month at 10,000 units?

52,000 units

Spark Company's static budget is based on a planned activity level of 45,000 units. At the same time the static budget was prepared, the management accountant prepared two additional budgets, one based on 40,000 units and one based on 50,000. The company actually produced and sold 49,000 units. In evaluating its performance, management should compare the company's actual revenues and costs to which of the following budgets?

A budget based on 49,000 units

Packrall Company makes computer chips. Curtis is manager of the company's maintenance department. Because his maintenance technicians are so well trained in maintaining expensive and sensitive circuit board stamping equipment, Curtis has been authorized to contract to perform maintenance for outside customers. In this company, the maintenance department is likely organized as:

A profit center

Which of the following is an incorrect statement regarding variances?

A variance is favorable when expected sales are more than actual sales.

A responsibility repost provided to a manager typically includes:

All of these are correct answers

The kind of responsibility center that would be evaluated by comparing income on assets to the amount of assets invested is:

An investment center

A tool that is often used to deceit the lines of authority and responsibility pithing a firm is:

An organization chart

The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as:

Continuous budgeting

Jacob is a department manager who recently instituted a new recognition program for his employees. He budgeted the cost of the new program at $10 per employee, but actual costs were $15 per employee. The cost associated with the recognition program would be considered which of the following kinds of cost?

Controllable cost

When a company's district managers submitted their preliminary budget proposals, top management discovered that the southern district manager had requested a new project management information system. Unfortunately, the system is incompatible with the system used at headquarters. Which of the following advantages of budgeting reduces the likelihood that the company will end up with two incompatible systems?

Coordination

Which of the following is not typically found in a decentralized organization?

Decision center

Which of the following would appear on a selling and administrative expense budget, but would not appear on a schedule of cash payments for selling and administrative expenses?

Depreciation expense

Thanks to his firm's decentralization and use of responsibility accounting, Matt has more time to review a proposed new joint venture with one of the firm's business partners. What advantage of decentralization does this illustrate?

Encourages upper-level management to concentrate on strategic decisions.

Assuming actual volume is 10,000 units and planned volume is 12,000 units, the sales volume variance in units:

Equals 2,000 units unfavorable

Which of the following items is not needed to prepare a sales budget by product line?

Expected purchase force of each product

Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business?

Expected unit selling price

Global Company makes a product that is expected to use 2.2 pounds of material per unit of product. The material has a standard cost of $2 per pound. Global actually used 2.3 pounds of material per unit of product made in January. The actual cost of material was $1.95 per pound. Based on this information alone, the materials variances for the January production would be:

Favorable for price and unfavorable for usage

Select the incorrect statement concerning the human factor of performance evaluation.

Managers should always be punished for unfavorable variances

Marcy is plant manager for Diversified Industries. She and the managers of four other plants report to the vice president in charge of manufacturing operations. Three department managers report to Marcy. Select the incorrect statement regarding the preparation of responsibility reports.

Marcy's administrative costs should be included on the reports of her three department managers.

One company's practice is to provide bonuses to salespeople who exceed their sales targets. Which of the following advantages of budgeting enables the company to establish its recognition program?

Performance measurement

Jason had been operating his machine for an entire month before he realized that it was generating more scrap than usual. Which advantage of budgeting would have helped him identify this problem sooner?

Performance measurment

The budgeting process formalizes and documents managerial plans to clearly communicate objectives to both superiors and subordinates. This budgeting requirement is an example of:

Planning

Which range of difficulty should normally be used to develop standards?

Practical standards

Prentiss Company is decentralized with three divisions. While all three division managers have responsibility for costs, only the Division Three manager has responsibility for generating revenues. Select the correct statement from the following.

Responsibility reports should be prepared for all three divisions.

Which of the following is a difference between a static and a flexible budget?

Static budgets are based on a single estimate of volume, whereas flexible budgets show estimated costs and revenues at a variety of activity levels.

Static and flexible budgets are similar in that:

They both are based not the same per-unit variable amounts and the same fixed costs.

The master budget normally covers:

1 year

The research and development department of Apple Computers would likely be organized as:

A cost center

Expressing plans for a business in financial terms is commonly called:

Budgeting

Which of the following applications is most suited for developing flexible budgets?

Spreadsheet

Which of the following statements regarding responsibility accounting is not correct?

It requires top management to prepare a budget for the entire company and communicate that plan to lower levels of management.

The manager of the production department for Romulus Manufacturing has responsibility for all stages of the production process and does not have time to review all the operational details of his department. He has found it to be more productive to focus on the significant deviations from budget. This kind of management is called:

Management by exception

Which of the following income statement formats is most commonly used with flexible budgeting?

Sales-Variable costs=Contribution margin; Contribution margin-fixed cost = net income

The Cineplex Movie Theater has invested in a snack bar for its store, where individual pizzas would be prepared and sold. The investment cost the company $45,000. The company expects a sales volume for the new product to be 12,000 pizzas a year. Variable materials, preparation, and marketing costs are expected to be $1.50 per unit and fixed costs are estimated at $15,000 a year. Based on a desired 12% ROI, what should Cineplex charge as the selling price per pizza?

$3.20

Huang Company reported the following information for the current year: Sales $ 400,000 Average Operating Assets $ 250,000 Margin 10 % The company's return on investment was:

16%

Contribution margin would be the most important variable in evaluating the performance of:

A profit center

Which of the following can reduce the amount of employees' budget gamesmanship?

All of these answers are correct

Which of the following budgets needs to be prepared prior to preparing an inventory purchases budget?

Sales budget

The Russell Company provides the following standard cost data per unit of product: Direct material (3 gallons @ $6 per gallon): $18.00 Direct labor (2 hours @ $10 per hour): $20.00 During the period, the company produced and sold 22,000 units, incurring the following costs: Direct material 68,000 gallons @ $5.90 per gallon Direct labor 45,500 hours @ $9.75 per hour The direct labor price variance was:

$11,375 favorable

The Russell Company provides the following standard cost data per unit of product: Direct material (3 gallons @ $6 per gallon): $18.00 Direct labor (2 hours @ $10 per hour): $20.00 During the period, the company produced and sold 22,000 units, incurring the following costs: Direct material: 68,000 gallons @ $5.90 per gallon Direct labor: 45,500 hours @ $9.75 per hour The direct material usage variance was:

$12,000 unfavorable

Payne Company reported the following information for the current year: Sales $ 1,600,000 Average Operating Assets $ 500,000 Desired ROI 14 % Net Income $ 85,000 The company's residual income was:

$15,000

The Russell Company provides the following standard cost data per unit of product: Direct material (3 gallons @ $6 per gallon): $18.00 Direct labor (2 hours @ $10 per hour): $20.00 During the period, the company produced and sold 22,000 units, incurring the following costs: Direct material 68,000 gallons @ $5.90per gallon Direct labor 45,500 hours @ $9.75 per hour The direct labor usage variance was:

$15,000 unfavorable

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Desired ending inventory levels are 25% of the following mont

$165,000

Hernandez Company expects credit sales for January to be $100,000. Cash sales are expected to be $60,000. The company expects credit and cash sales to increase 10% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information, the amount of cash collections in February would be:

$166,000

A major benefit of a decentralized organization is that:

Managers are more motivated to improve productivity.

Select the incorrect statement regarding flexible budgets

A flexible budget is also known as a master budget

Select the correct statement regarding flexible budgets

A flexible budget shows expected revenues and costs at a variety of activity levels.

Which of the following factors should be considered in establishing standards for use with a standard costing system?

All of these answers are correct

Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget?

Both administrative salaries and advertising expense are correct

Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job. The difference between inflated and realistic standards is known as:

Budget slack

Select the incorrect statement.

Budget slack is the difference between deflated and realistic standards.

Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as:

Capital budgeting

The practice of delegating authority and responsibility is referred to as:

Decentralization

Responsibility reports are prepared:

For each manager who controls a responsibility center.

The resources used in the manufacturing process are frequently called:

Inputs

A company's numerous specific budgets (sales, inventory purchase, etc.) together are referred to as the:

Master budget

Select the incorrect statement about budgeting committees.

Membership on the budget committee is restricted most often to accountants because the budget involves numbers.

When would a variable be labeled as unfavorable?

None of these answers are correct

Budgeting that involves the development of a master budget to direct the firm's activities over the short terms is referred to as:

Operations budgeting

Which manager is usually held responsible for labor price variances?

Production supervisor

Which manager is usually held responsible for materials usage variances?

Production supervisor

Which of the following is not an advantage of budgeting?

Provides assurance that accounting records are in accordance with generally accepted accounting principles

Which manager is usually held responsible for materials price variances?

Purchasing agent

Which of the following formats is typically used in year-to-date income statements prepared for internal use under a responsibility accounting system?

Sales - Variable Costs = Contribution Margin; Contribution Margin - Fixed Costs = Net Income

All of the following factors should influence the decision to investigate a variance except:

The direction of the variance (favorable of unfavorable)

Which of the following is not an advantage of using a standard cost system?

The easiest cost system to develop and maintain

Select the incorrect statement concerning responsibility reports.

The reports become more specific for higher levels within the organization.

Select the correct statement.

The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements.

Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $3,000 and an unfavorable direct materials usage variance of $2,000.

The total direct materials variance is $1,000 favorable

A difference between the static budget based on planned volume and a flexible budget prepared at actual volume is called a:

Volume variance

Which manager is normally held responsible for fixed cost volume variances?

Upper-level marketing managers

Select the correct statement regarding general, selling, and administrative (GS&A) costs.

Variable general, selling, and administrative costs can have price variances.

Volume variances are computed for which of the following costs?

Variable manufacturing and selling and administrative costs

Management recently instituted a new training program for upper-level managers. They budgeted the cost of the new program at $1,000 per employee trained, but actual costs were $1,250 per employee trained. The difference between the budgeted cost for training and the actual cost of training is called a:

Variance

When would a variance be labeled as favorable?

When actual costs are less than standard cost

Abbot Company spent less than expected for materials and more than expected for labor. Select the incorrect statement from the following.

You can always expect unfavorable labor variances if you have favorable material variances.