Module 3 Exam ACCT 2

Last year a company had sales of $600,000, a turnover of 3.6, and a return on investment of 18%. The company's net operating income for the year was:

$600,000*.18= $108,000 $108,000/3.6= $30,000

Which of the following statements is true? 1. 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. 2. To help assess how well a manager has controlled costs, actual costs should be compared to what the costs should have been for the actual level of activity. 3. Fixed costs should usually be included in performance reports because fixed costs are generally controllable.

All of the statements are true.

Which of the following statements is true? 1. Using a flexible budget, actual results can be compared to what costs should have been at the actual level of activity. 4. Fixed costs should not be ignored when evaluating how well a manager has controlled costs.

Both statements 1one and 4 are true.

Which of the following statements is true? 2. From the buying division's perspective, when a transferred item can be purchased from an outside supplier, the price charged by the outside supplier represents an upper bound on the charge that should be made on transfers between the selling and buying divisions. 3. Whenever the selling division must give up outside sales in order to sell internally, it has an opportunity cost that should be considered in setting the transfer price.

Both statements 2 and 3 are true.

Which of the following statements is true? 2. When used in return on investment (ROI) calculations, turnover equals sales divided by average operating assets. 4. An advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.

Both statements 2 and 4 are true.

Which of the following statements is true? 1. The direct labor budget begins with the required production in units from the production budget. 2. The direct labor budget shows the direct labor-hours required to satisfy the production budget.

Both statements are true.

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.

Pankey Incorporated has a $700,000 investment opportunity that would involve sales of $1,050,000, a contribution margin ratio of 40% of sales, and fixed expenses of $325,500. The company's minimum required rate of return is 18%. The residual income for this year's investment opportunity is closest to:

NOI = (Sales * Contribution Margin Ratio) - Fixed Expenses NOI = ($1,050,000 * 0.40) - $325,500 NOI = $420,000 - $325,500 NOI = $94,500 Average Operating Assets = Investment Opportunity Average Operating Assets = $700,000 Residual Income = $94,500 - (0.18 * $700,000) Residual Income = $94,500 - $126,000 Residual Income = -$31,500

Which of the following statements is true? 1. A flexible budget report should exclude variable costs because they can be expected to change with a change in the level of activity. 2. A flexible budget performance report contains activity variances but not revenue or spending variances.

Neither statement is true.

Which of the following statements is true? 1. The activity variance for revenue is favorable if the actual revenue for the period exceeds the revenue in the static planning budget. 2. 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.

Neither statement is true.

Which of the following statements is true? 1. In service department cost allocations, sales dollars should be used as an allocation base whenever possible. 2. For performance evaluation purposes, variable service department costs should be charged to operating departments in predetermined, lump-sum amounts. 3. All charges for services computed using budgeted rather than actual rates should be removed from an operating department's performance report.

None of the statements are true.

Which of the following statements is true? 1. The budgeted income statement is typically prepared before the budgeted balance sheet.

Only statement 1 is true.

Which of the following statements is true? 2. 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).

Only statement 2 is true.

The following data has been provided for a company's most recent year of operations: Return on investment 34% Average operating assets $ 40,000 Minimum required rate of return 15% The residual income for the year was closest to:

ROI = Net operating income ÷ Average operating assets 0.35 = Net operating income ÷ $40,000 Net operating income = 0.35 × $40,000 = $14,000 Residual income = Net operating income − (Average operating assets × Minimum required rate of return) = $14,000 − ($40,000 × 0.15) = $14,000 − $6,000 = $8,000

Braymiller Incorporated has a $1,600,000 investment opportunity with the following characteristics: Sales $ 4,000,000 Contribution margin ratio 30 % of sales Fixed expenses $ 1,040,000 The turnover for this investment opportunity is closest to:

Turnover = Sales / Investment Amount Turnover = $4,000,000 / $1,600,000 Turnover = 2.5

Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of:

return on investment.