Accounting 211 Exam III
participative budgeting
Lower-level managers are more likely to perceive results as fair and achievable under this approach
a
Of the following, which is considered in the net present value method? a. present value of liquidation proceeds b. present value of unequal amounts of annual net income generated b the project c. present value of equal amounts of annual net in come generated by the project d. present value of depreciation expense
b
Of the following, which is correct about the annual rate of return method? a. a present value table is consulted to find the factor and determine the annual rate of return b. the timing of the cash inflows is not considered c. the time value of money is considered d. the calculation is complex, but the results are relatively easy to understand
a
Of the following, which is incorrect about average operating assets? a. the assets are valued at fair market values b. the average may be based on beginning and ending recorded balances c. nonoperating assets are excluded d. both current assets and plant assets are included
b
Of the following, which is not a direct fixed cost of a profit center? a. depreciation on center's equipment b. general office administrative costs c. profit center manager's salary d. timekeeping for center's employees
a
Of the following, which is not part of a formalized reporting system? a. state the corrective action that should be taken b. specify the purpose of the report c. indicate the primary recipient(s) of the report d. identify the name of the budget report
c
Of the following, which is typically considered a cash inflow? a. increased operating costs b. repairs and maintenance c. sale of old equipment d. overhaul of equipment
a
Of the following, which would not be considered an aspect of budgetary control? a. it provides a guarantee for favorable results b. it assists in the determination of differences between actual and planned results c. it assists management in controlling operations d. it provides feedback value needed by management to see whether actual operations are on course
b
Pretzel Company used 20,000 direct labor hours when standard hours were 21,000. The actual pay rate was $6.30 when the standard rate was $6.50. The labor quantity variance is a. $6,500 unfavorable b. $6,500 favorable c. $6,300 unfavorable d. $6,300 favorable
d
The following explanations appeared on last week's variance report for JT Engineering's purchasing department. Which of these explanations would relate to an unfavorable materials price variance? a. untrained production workers b. quantity discount c. repeat customer credit d. rush order
d
The labor price variance is the difference between the a. standard and actual hours multiplied by the difference between standard and actual rate b. standard and actual rate multiplied by standard hours c. standard and actual hours multiplied by actual rate d. standard and actual rate multiplied by actual hours
c
The minimum required rate of return a. is determined annually by the board of directors and applies to all the company's capital projects for the period b. is used in all capital budgeting methods c. is compared to the annual rate of return to decide if a project is acceptable d. is also called the annual rate of return
a
When using a static budget, a. the actual results are always compared with budgeted data at the original budgeted activity level b. budget reports comparing actual results to planned objectives are only prepared once per year c. if actual results differ from planned results, the difference must be investigated by management d. only budgeted fixed costs are compared with actual fixed costs
c
When using the return on investment (ROI) formula, a. sales are divided by average investment center operating assets b. controllable margin is divided by sales c. controllable margin is divided by average investment center operating assets d. sales are divided by net income
b
Which of the following best represents the cash payback formula? a. average investment divided by the net income b. cost of capital investment divided by the net annual cash flow c. cost of capital investment divided by the net income d. average investment divided by the net annual cash flow
d
Which of the following departments is generally responsible for an UNFAVORABLE materials price variance? a. quality contorl b. engineering c. production d. purchasing
d
Which of the following is the difference between the actual labor rate multiplied by the actual labor hours worked and the standard labor rate multiplied by the standard labor hours? a. labor efficiency variance b. labor quantity variance c. labor price variance d. total labor variance
b
Which of the following most accurately describes the relationship between a direct materials price standard and a direct materials quantity standard? a. the standards are divisible: the price standard is divided by the materials standard to determine the standard cost per unit b. the standards are multiplicative; the price standard is multiplied by the materials standard to determine the standard cost per unit c. the standards are additive: the price standard is added to the materials standard to determine the standard cost per unit d. the standards are subtractive; the price standard is subtracted from the materials standard to determine the standard cost per unit
b
Which of the following statements is correct? a. capital budgeting decisions usually involve relatively minimal investments and most often have a limited impact on the company's future profitability b. the board of directors approves the capital budget c. capital budgeting proposals are screened by management and submitted to the capital budgeting committee for its selection and approval of proposals d. capital budgeting project proposals are requested from the company's vendors and customers
d. an increase in sales
Which of the following will cause the ROI to increase? a. an increase in controllable fixed costs b. an increase in variable costs c. an increase in average operating assets d. an increase in sales
b. investment center
a manager at which of the following centers will have the highest number of assets to manage in order to have a positive performance evaluation? a. sales center b. investment center c. cost center d. profit center
c
a purchases budget is used instead of a production budget by a. manufacturing companies b. not for profit organizations c. merchandising companies d. service enterprises
a
a responsibility reporting system a. involves the preparation of a report for each level of responsibility shown in the company's organization chart b. begins with the highest level of responsibility and moves downward to the lowest level c. does not permit management by exception at each level of responsibility d. does not permit comparative evaluations of responsibility
master budget
a set of interrelated budgets that constitutes a plan of action for a specific time period
d
coordinating the preparation of the budget is the responsibility assigned to the a. lower levels of management b. accounting department c. top management d. budget committee
a. sound organizational structure b. research and analysis c. acceptance by all levels of management
essentials of effective budgeting are:
financial budgets
focus primarily on the cash resources needed to fund expected operations and planned capital expenditures
b
A NEGATIVE net present value means that the a. project's rate of return equals the required rate of return b. project's rate of return is less than the required rate of return c. project is acceptable d. project's rate of return exceeds the required rate of return
a
A standard the represents the optimum level of performance under operating conditions is called a(n) a. ideal standard b. normal standard c. materials price standard d. controllable standard
d
All but which of the following is involved in budgetary control? a. modify future plans, if necessary b. develop to budget c. analyze differences between actual and planned results d. take disciplinary action
d
An UNFAVORABLE labor quantity variance means that a. the actual rate was higher than the standard rate b. actual hours were less than standard hours c. the total labor variance must also be unfavorable d. actual hours exceeded standard hours
c
If Jack's Beans applies overhead using direct labor hours and has an unfavorable direct labor variance, how would this affect the total manufacturing overhead variance? a. the total manufacturing overhead variance would be zero b. the total manufacturing overhead variance would be unfavorable c. there would be no mathematical correlation between them d. the total manufacturing overhead variance would be favorable
a
the profitability index is calculated by a. dividing the present value of cash flows by the initial investment b. multiplying the initial investment by the present value of cash flows c. multiplying the discount rate by the initial investment d. dividing the initial investment by the present value of future cash
operating budgets
used as the basis for the preparation of the budgeted income statement
a budget may be prepared for any period of time
what is the length of the budget period?
b
which line items of the budgeted balance sheet are calculated based on operating budgets? a. accounts receivable, accounts payable, retained earnings, and accumulated depreciation b. finished goods inventory, raw materials inventory, and retained earnings c. cash, accounts receivable, accounts payable, and buildings and equipment d. finished goods inventory, raw materials inventory, buildings and equipment, and retained earnings
a
which of the following is a characteristic of long-range planning? a. it is used to review progress rather than as a basis for control b. more detail is presented than in a budget c. it is prepared for period not exceeding one year d. it focuses on achieving goals such as meeting annual profit objectives
c
which of the following represents the flow of budget data under participative budgeting? a. president to plant manager to department manager b. vice president of production to plant manager to department manager c. department manager to plant manager to vice president of production d. department manager to vice president of production to plant manager
d
which of the following statements is correct? a. service companies prepare budget data using an expected input approach while manufacturers prepare budget data using an expected output approach b. the budgets of service companies are approved by voters c. the production budget is derived from the direct materials and direct labor budget d. in the budget process for not for profit organizations, the emphasis is on cash flow rather than on revenue and expenses
a & c
Bella Beauty had a 15% increase in sales in the cosmetics division over the last year while all fixed costs remained unchanged. Which of the following would be true? a. revenues would increase 15% b. the contribution margin would decrease by 15% c. the contribution margin would increase by 15% d. the controllable margin would increase by 15% e. traceable fixed costs would increase by 15% f. variable costs would increase by 15% of the controllable margin
b
Identifying an exception under management by exception uses these criteria: a. materiality and frequency b. materiality and controllability c. controllable only d. controllability and frequency
c
Campers Unlimited sells 15 campers in their slow months and 35 campers in their busy months. If Campers Unlimited wanted to develop a flexible budget, what interval should they use between each activity index? a. 15 units b. 20 units c. 5 units d. 1 unit
d
Christ Lawrence is contemplating a project with an initial investment of $50,000. Christ also has a discount rate of 8%. If the project has an estimated net annual cash flows of $12,000 for the next six years, what is the profitability index for the project? a. 1.27 b. 1.07 c. 1.03 d. 1.11
d
Clark Company is contemplating a project costing $160,000. Clark's discount rate is 12% and the project has a profitability index of 1.00. The present value of the cash flows associated with the project are a. cannot be determined unless the number of periods is known b. greater than $160,000 c. less than $160,000 d. $160,000
b
Controllable costs for responsibility accounting purposes are those costs that are directly influenced by which of the following? a. a change in activity b. a given manager within a given period of time c. sales volume d. production volume
c
Ellen is a manager who helps develop sales promotions, targets customers for upselling, and searches for potential new customers. Which of the following budgets would Ellen MOST likely help develop? a. manufacturing overhead budget b. cash budget c. sales budget d. selling and administrative expense budget
c
Elm Company had an investment which cost $260,000 and had no salvage value at the end of its useful life of 5 years. If Elm's expected annual net income is $20,000, the annual rate of return is a. 13% b. 20% c. 15.4% d. 7.7%
c
Responsibility accounting cannot be used effectively a. for costs that can be directly associated with the specific level of responsibility b. when budget data can be developed for evaluating the manager's effectiveness in controlling costs c. for costs allocated to the responsibility level d. for costs controllable at the level of responsibility with which they are associated
c
What is the formula for the annual rate of return? a. expected annual net income divided by cost of capital investment b. annual cash flow divided by cost of capital investment c. expected annual net income divided by average investment d. annual cash flow divided by average investment
b. 30%
What is the return on investment if controllable margin is $300,000 and the average investment center operating assets are $1,000,000? a. 3.33% b. 30% c. 33% d. 10%
b
When a potential investment has a negative net present value, a. the project is likely to be accepted since the cash flows occur just after the initial investment b. its internal rate of return is less than the required rate of return c. the internal rate of return calculation will yield a negative internal rate of return factor d. it is not possible to use the internal rate of return method
b
When reporting variances a. promptness is relatively unimportant b. the reports should facilitate management by exception c. management normally investigates all variances d. the reports are not departmentalized
c
When using a static budget a. data are modified and adjusted according to changes in activity during the year b. only budgeted variable costs are compared with actual variable costs c. the actual results are always compared with budgeted data at the original budgeted activity level d. it is important to select an activity index and a relevant range of activity
long-range planning
identifies long-term goals, selects strategies to achieve these goals, and develops policies and plans to implement the strategies
d
in order to assure better management acceptance, the flow of input data for budgeting should begin with the a. budget committee b. accounting department c. top management d. lower levels of management
one year
most common budget period
d
place the following four budgets into their correct sequence of preparation: 1. capital expenditure budget 2. selling and administrative expense budget 3. sales budget 4. direct materials budget a. 3, 2, 1, 4 b. 3, 2, 4, 1 c. 4, 3, 2, 1 d. 3, 4, 2, 1
a. requires management to plan ahead b. provides definite objectives c. creates an early warning system d. facilitates the coordination of activities e. results in greater management awareness f. motivates personnel
primary benefits of budgeting are:
sales forecast
shows potential sales for the industry and a company's expected share of such sales