Managerial Accounting Exam Chapters 8 and 13

The activity variance for revenue is unfavorable if the actual revenue for the period is lessthan the revenue in the static planning budget.

False

The main difference between a flexible budget and a static budget is that a flexible budgetdoes not contain fixed costs

False

The revenue and spending variances are the differences between the static planning budgetand the flexible budget.

False

It may be easier to control fixed costs than variable costs

True

A revenue variance is favorable if the actual revenue is greater than the revenue in the static planning budget.

false

A spending variance is the difference between the amount of the cost in the static planning budget and the amount of the cost in the flexible budget.

false

Actual costs are determined by plugging the actual level of activity for the period into the cost formulas used in flexible budgets.

false

Product X-547 is one of the joint products in a joint manufacturing process. Management is considering whether to sell X-547 at the split-off point or to process X-547 further into Xylene. The following data have been gathered: 1. Selling price of X-547 2. Variable cost of processing X-547 into Xylene. 3. The avoidable fixed costs of processing X-547 into Xylene. 4. The selling price of Xylene. 5. The joint cost of the process from which X-547 is produced. Which of the above items are relevant in a decision of whether to sell the X-547 as is or process it further into Xylene?

1, 2, 3, and 4.

Which of the following statements is true? 1 . When a company is involved in more than one activity in the entire value chain, it is vertically integrated. 2. A vertically integrated company is less dependent on its suppliers than a company that is not vertically integrated. 3. A disadvantage of vertical integration is that by pooling demand for parts from a number of companies, a supplier may be able to enjoy economies of scale that result in higher quality and lower cost than if every company makes its own parts.

All of the statements are true.

Which of the following statements is true? 1 . The variable costs of a product are relevant in a decision concerning whether to eliminate the product. 2. Fixed costs are irrelevant in decisions about whether a product should be dropped. 3. A product whose revenues do not cover its variable costs and its traceable fixed costs should usually be dropped. 4. In a decision to drop a product, the product should be charged for rent in proportion to the space it occupies even if the space has no alternative use and the rental payment is unavoidable.

Both statements 1 and 3 are true.

Which of the following statements is true? 1. The book value of an old machine is always considered an opportunity cost in a decision. 2. A cost that will be incurred regardless of which alternative is selected is not relevant when choosing between the alternatives. 3. A complete income statement need not be prepared as part of a differential cost analysis. 4. An avoidable cost is a sunk cost that can be eliminated (in whole or in part) as a result of choosing one alternative over another.

Both statements 2 and 3 are true.

Which of the following statements is true? 1. Eliminating nonproductive processing time is particularly important in a bottleneck operation. 2. Payment of overtime to a worker in order to relax a production constraint could increase the profits of a company.

Both statements are true.

A flexible budget is an estimate of what revenues and costs should have been, given thelevel of activity that had been planned for the period

False

A static planning budget is suitable for planning and for evaluating how well costs arecontrolled

False

An unfavorable activity variance for a cost indicates that spending was higher than itshould have been for the actual level of activity for the period

False

If the actual level of activity is 4% less than planned, then the costs in the static budgetshould be reduced by 4% before comparing them to actual costs.

False

If the actual level of activity is 4% more than planned, then the fixed costs in the static budget should be increased by 4% before comparing them to actual costs

False

There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget?

It is calculated based on the sales budget and the desired ending inventory.

Which of the following statements is true? 1. In a special order situation that involves using capacity that is not idle, opportunity costs are zero. 2. In a special order situation, any fixed cost associated with the order would be irrelevant.

Neither statement is true.

In a sell or process further decision, consider the following costs: 1. A variable production cost incurred prior to split-off. 2. A variable production cost incurred after split-off. 3. An avoidable fixed production cost incurred after split-off. Which of the above costs is (are) not relevant in a decision regarding whether the product should be processed further?

Only 1

A favorable spending variance occurs when the actual cost is less than the amount of thatcost in the flexible budget

True

A flexible budget performance report should contain fixed as well as variable and mixedcosts

True

A planning budget is prepared before the period begins and is valid for only the plannedlevel of activity

True

A problem with directly comparing a static planning budget to actual costs is that thiscomparison fails to distinguish between differences in costs that are due to changes in activityand differences that are due to how well costs were controlled.

True

A revenue variance is unfavorable if the actual revenue is less than what the revenue shouldhave been for the actual level of activity for the period

True

When the activity measure is the number of units sold, the revenue variance is unfavorableif the average actual selling price is less than expected

True

Costs that can be eliminated in whole or in part if a particular business segment is discontinued are called:

avoidable costs

A favorable spending variance occurs when the actual cost is less than the amount of the cost in the static planning budget.

false

A flexible budget performance report contains activity variances but not revenue or spending variances.

false

A flexible budget report should exclude variable costs because they can be expected to change with a change in the level of activity.

false

An activity variance is the difference between an actual revenue or cost and the revenue or cost in the flexible budget that is adjusted for the actual level of activity of the period.

false

Both variable and fixed manufacturing overhead costs are included in the selling and administrative expense budget

false

Budgeting is a trade-off between planning and control in that increased use of budgeting will usually improve but will weaken control

false

Budgets are used for the distinct purposes of planning and profit.

false

Control involves developing goals and preparing various budgets to achieve those goals.

false

Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes.

false

If activity is higher than expected, total fixed costs should be higher than expected. If activity is lower than expected, total fixed costs should be lower than expected.

false

One difficulty with self-imposed budgets is that they are not subject to any type of review.

false

One of the weaknesses of budgets is that they are of little value in uncovering potential bottlenecks in an organization.

false

One of the weaknesses of budgets is that they are of little value in uncovering potential bottlenecks.

false

Planning and control are essentially the same thing.

false

Sales forecasts are drawn up after the cash budget has been completed because only then are the funds available for marketing known.

false

The basic idea behind responsibility accounting is that top management is responsible for preparing detailed budgets by which the performance of middle and lower management will be evaluated

false

The cash budget is the starting point in preparing the master budget.

false

The disbursements section of a cash budget consists of all cash payments for the period except cash payments for dividends.

false

The first budget a company prepares in a master budget is the production budget.

false

The production budget is typically prepared prior to the sales budget.

false

The selling and administrative expense budget lists all costs of production other than direct materials and direct labor.

false

Uncollectible amounts on credit sales to customers will be listed as cash outflows on the schedule of expected cash collections

false

When preparing a direct materials budget, beginning inventory for raw materials should be added to production needs, and desired ending inventory should be subtracted to determine the amount of raw materials to be purchased.

false

Kinsi Corporation manufactures five different products. All five of these products must pass through a stamping machine in its fabrication department. This machine is Kinsi's constrained resource. Kinsi would make the most profit if it produced the product that:

generates the highest contribution margin per stamping machine hour.

A joint product is:

one of several products produced from a common input.

-Sunk costs are never relevant in decision-making. -Sunk costs and future costs that do not differ between the alternatives may or may not be relevant in a decision. -Fixed costs are sunk costs.

only statement 1 is true

When preparing a direct materials budget, the required purchases of raw materials in units equals:

raw materials needed to meet the production schedule + desired ending inventory of raw materials − beginning inventory of raw materials.

Which of the following costs are always irrelevant in decision making?

sunk costs

Accepting a special order will improve overall net operating income if the revenue from the special order exceeds:

the incremental costs associated with the order.

The usual starting point for a master budget is:

the sales forecast or sales budget.

A benefit from budgeting is that it forces managers to think about and plan for the future.

true

A continuous or perpetual budget is a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed.

true

A revenue variance is the difference between what the total sales revenue should been, given the actual level of activity of the period, and the actual total sales revenue.

true

A sales budget is a detailed schedule showing the expected sales for the budget period; typically, it is expressed in both dollars and units of product.

true

An unfavorable activity variance for revenue indicates that activity was less than expected when the static planning budget was developed.

true

Both planning and control are needed for an effective budgeting system.

true

Both variable and fixed manufacturing overhead costs are included in the manufacturing overhead budget.

true

Comparing a static planning budget to actual costs is a not good way to assess whether variable costs are under control.

true

Fixed costs should not be ignored when evaluating how well a manager has controlled costs.

true

Fixed costs should usually be included in performance reports because fixed costs are generally controllable.

true

In the manufacturing overhead budget, the non-cash charges (such as depreciation) are deducted from the total budgeted manufacturing overhead to determine the expected cash disbursements for manufacturing overhead.

true

In the merchandise purchases budget, the required purchases (in units) for a period can be determined by subtracting the beginning merchandise inventory (in units) from the budgeted sales (in units) and desired ending merchandise inventory (in units).

true

In the selling and administrative budget, the non-cash charges (such as depreciation) are added to the total budgeted selling and administrative expenses to determine the expected cash disbursements for selling and administrative expenses.

true

On a cash budget, the total amount of budgeted cash payments for manufacturing overhead should not include any amounts for depreciation on factory equipment.

true

One benefit of budgeting is that it coordinates the activities of the entire organization.

true

One of the disadvantages of a self-imposed budget is that the person directly involved in an activity is more likely to be in a position to make good budget estimates.

true

The activity variance for revenue is favorable if the revenue in the flexible budget exceeds the revenue in the static planning budget.

true

The budgeted income statement is typically prepared before the budgeted balance sheet.

true

The budgeted variable selling and administrative expense is calculated by multiplying the budgeted unit sales by the variable selling and administrative expense per unit.

true

The direct labor budget begins with the required production in units from the production budget.

true

The main difference between a flexible budget and a static budget is that the static budget is not adjusted for changes in the level of activity.

true

The manufacturing overhead budget lists all costs of production other than direct materials and direct labor.

true

The manufacturing overhead budget provides a schedule of all costs of production other than direct materials and direct labor

true

The master budget consists of a number of separate but interdependent budgets.

true

The master budget is a network consisting of many separate budgets that are interdependent.

true

The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducted the beginning inventory.

true

The production budget is typically prepared before the direct materials budget.

true

The sales budget is usually prepared before the production budget.

true

The sales budget often includes a schedule of expected cash collections.

true

The selling and administrative budget is typically prepared before the cash budget.

true

Using a flexible budget, actual results can be compared to what costs should have been at the actual level of activity.

true