Cost Accounting

Which of the following items would not be an example of an economic value added (EVA) adjustment to eliminate accounting distortions?

Common Stock

The forecasting method in which individual forecasts of group members are submitted anonymously and evaluated by the group as a whole is called:

Delphi technique

Which of the following is not an alternative name for the production volume variance?

Fixed overhead efficiency variance.

National Telephone Company has been forced by competition to put much more emphasis on planning and controlling its costs. Accordingly, the company's controller has suggested initiating a formal budgeting process. Which of the following steps will NOT help the company gain maximum acceptance by employees of the proposed budgeting system?

Implementing the change quickly.

Which of the following is not a benefit of budgeting?

It reduces the need for tracking actual cost activity.

Which one of the following items would most likely not be incorporated into the calculation of a division's investment base when using the residual income approach for performance measurement and evaluation?

Land being held by the division as a site for a new plant.

Which of the following budgets does not require the production budget?

Marketing and administrative expenses.

Which department is customarily held responsible for an unfavorable materials quantity variance?

Production

Which of the following statements does not represent a limitation of using return on investment (ROI) for measuring and evaluating performance?

ROI cannot be used to compare divisions of different sizes

Which of the following should not be used for the cost of capital to compute residual income?

Return on Investment (ROI)

Which of the following variances will always be favorable when actual sales exceeds budgeted sales?

Sales activity.

The starting point in which preparing a comprehensive budget for a manufacturing company limited by its ability to produce and not by its ability to sell is

an estimate of productive capacity.

Sensitivity analysis can best be used in the budgeting process to:

answer "what-if" questions regarding key projections.

Managerial performance can be measured in many different ways including return on investment (ROI) and residual income. A good reason for using residual income instead or ROI is that:

appropriate goal congruence behavior is more likely to occur when using residual income.

Long-range planning as a management function is more important:

at top management levels.

The most fundamental variance analysis compares:

budgeted operating income with actual operating income

An operating budget would not include a:

cash budget

Which one of the following budgets would be the last one prepared in the master budget preparation process?

cash budget.

The purpose of the flexible budget is to:

compare actual and budgeted results at virtually any level of production.

Level return on investments (ROI) over the life of a long-term project is more likely when ROI is computed using:

current costs and gross book values

Residual income is a better measure for performance evaluation of an investment center center manager than return on investment (ROI) because:

desirable investment decisions will not be neglected by high return divisions.

Residual income is a better measure for performance evaluation of an investment center manager than return on investment because:

desirable investment decisions will not be neglected by high-return divisions.

A variance can best be described as:

differences between planned results and actual results.

A continuous (rolling) budget:

drops the current month or quarter and adds a future month or quarter as the current month or quarter is completed

The statistical method of forecasting that relies heavily on regression models is called:

econometric models.

Residual income is similar to the _____ notion of profit as being the amount left over after all costs, including the cost of capital employed in the division, are subtracted.

economist's

The intercept of the flexible budget-line is total:

fixed costs

The major objectives of any budget system are to:

foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among organization segments.

The asset turnover is a measure (ratio) of an investment center's ability to:

generate sales

The measure (ratio) that reflects the performance of a manager regarding sales and cost of goods sold, but not other operating costs and income taxes, is called the:

gross margin ratio.

A firm earning a profit can increase its return on investment by:

increasing sales revenues and operating expensees by the same percentage.

The basic difference between a master budget and a flexible budget is that a:

master budget is based on one specific level of production and a flexible budget can be prepared for any production level within a relevant range.

In general, the terms favorable and unfavorable are used to describe the effect of a variance on:

net income.

A master budget:

presents the plan for only one level of activity and does not adjust to changes in the level of activity.

After-tax income divided by sales is called the:

profit margin ratio.

The difference between operating profits in the master budget and operating profits in the flexible budget is called:

sales activity variance

In general, the first budget prepared is the:

sales budget.

A division earning a profit will increase its return on investment (ROI) if it increases operating expenses and:

sales by the same percentage.

Economic value added (EVA) is a concept that is closely related to residual income. EVA is computed by:

subtracting the adjusted total cost of capital from the adjusted after-tax income.

If a division is evaluated using return on investment (ROI) without regard to how assets are financed, the denominator in the ROI calculation will be:

total assets available

The slope of the flexible budget-line is the:

variable cost per unit.