Accounting Exam #3

Valley Farm Supply started the period with $80,000 cash. Cash receipts for January were expected to total $350,000. Cash disbursements for January were expected to be $290,000. What is the expected cash balance at the end of January?

$140,000

The beginning cash balance was $50,000. The company desires to have a $25,000 ending cash balance. The surplus (or shortage) of cash before considering any borrowings in April would be:

$20,000 shortage

Max bought a ticket to the championship baseball game for $135. Someone approaches him outside the stadium and offers him $295 for his ticket. If Max decides to go to the game instead of selling his ticket, how much does it cost Max to go to the game?

$295

55% of the month's purchases will be paid in the month of the purchase; the remaining 45% will be paid in the following month. How much will the cash payments for purchases be in November?

$35,500

The following static budget is provided: Units 23,000 Units Sales $ 230,000 Less variable costs: Manufacturing costs $ 80,500 Selling and administrative costs $ 55,200 Contribution margin $ 94,300 Less fixed costs: Manufacturing costs $ 32,200 Selling and administrative costs $ 17,250 Net income $ 44,850 What will budgeted net income equal if 21,000 units are produced and sold?

$36,650

Breezy Company is disposing of equipment that was originally purchased for $600,000 and has $240,000 of accumulated depreciation to date. The same equipment would cost $800,000 to replace. What is the total amount of sunk cost in this decision?

$360,000

Payne Company reported the following information for the current year: Sales $ 870,000 Average operating assets $ 370,000 Desired ROI 15 % Operating income $ 57,000 The company's residual income was:

$1,500

White Company budgeted fixed overhead costs of $200,000 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 spending variance relating to the fixed overhead cost is:

$10,000 unfavorable

57) Jones Company developed the following static budget at the beginning of the company's accounting period: Revenue (10,100 units) $ 20,200 Variable costs 5,050 Contribution margin $ 15,150 Fixed costs 5,050 Net income $ 10,100 If actual production totals 10,500 units, the flexible budget would show total costs of:

$10,300

The company's past records show collection of credit sales as follows: 31% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:

$39,790

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 price variance was

$5,250 unfavorable

What are the incremental (differential) costs of the Western Tour

$6,000

Which of the following statements regarding cost centers is incorrect?

Cost centers tend to be found at upper levels on a company's organization chart

Select the correct equation format for the purchases budget

Cost of budgeted sales + desired ending inventory - beginning inventory = required purchases

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

Expected future revenues that differ among the alternatives under consideration are often referred to as:

Differential revenues

Select the correct statement regarding relevant costs and revenues

Direct labor is an example of a unit-level cost.

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 price 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

Engineering design costs are generally referred to as:

Product-level costs

Which of the following is not an advantage of budgeting?

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

When evaluating alternatives, what type of costs should be considered?

Relevant costs

All of the following statements describe qualities of relevance except

Relevant information requires a high degree of precision.

Select the correct statement regarding relevant costs and revenues

Relevant revenues must differ among the alternatives.

The inventory purchases budget is based on which budget?

Sales budget

Which of the following is not considered a pro forma financial statement?

Sales budget

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

Sales forecast

Which of the following accounts would appear on the sales budget and the pro forma income statement?

Sales revenue

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

Sales − Variable costs = Contribution margin; Contribution margin − Fixed costs = Net income

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

Sales, Purchases, Cash, Income Statement

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

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

What budget is generally not included in a master budget?

Strategic budget

Ethan paid $3 for a bottle of Thirst Aid. Later, while on a hiking trip, he was offered $8 for the Thirst Aid. Select the correct statement from the following:

The $3 original purchase price is irrelevant to his decision to sell the Thirst Aid

Select the correct statement about budgeting and human behavior:

The attitudes of upper managers significantly impact budget effectiveness

All of the following are variables that could be considered in a decision to outsource a component that is currently being produced in-house. Which of the following is not likely to be relevant?

The book value of equipment used in making the component

If the company stops providing Service 2:

The company's income will decrease by $1,500 per year

Select the correct statement about the master budget:

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

Select the incorrect statement regarding the cash budget.

The total cash available is calculated by adding cash receipts and the ending cash balance

Select the correct statement regarding quantitative and qualitative information

To be relevant, qualitative data need not be quantified

The cost that is avoided when a company eliminates a single item of a product or service is a

Unit-level cost

Sunk costs:

are not considered when evaluating new proposals

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

budgeting

Which section is not included on the cash budget?

investing

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

master budget

Pilot Motors Corporation is an automobile manufacturer. The company produces its own motors, tires, and other automobile parts. Pilot has the opportunity to purchase tires from another manufacturer instead of producing the tires in its own facility. This type of decision is typically known as a(n):

outsourcing decision

An organizational unit of a business that incurs costs and generates revenues is known as a(n):

profit center

All of the following are examples of product-level costs except

property and real estate tax costs

A reporting unit of a decentralized business that controls identifiable revenue and/or expense items is known as a(n):

responsibility center

Budgeted sales commissions would appear on the:

selling, general and administrative budget and pro forma income statement

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

static budget

The practice of delegating authority and responsibility is referred to:

Decentralization

The master budget normally covers:

1 year

Huang Company reported the following information for the current year: Sales $ 920,000 Average operating assets $ 620,000 Margin 10 % The company's return on investment was:

14.84%

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 statements regarding profit centers is correct?

A manager of a profit center is evaluated on his/her ability to control costs and generate revenues

Which costs are relevant for equipment replacement decisions?

All of these answers are correct

Which of the following is a benefit associated with budgeting?

All of these answers are correct

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

An investment center

Special order decisions involve:

An offer from a customer to buy goods at a lower-than-normal selling price.

Budgeted depreciation expense would not appear on a:

Cash budget

Asset replacement decisions involve:

Choices between continuing to operate existing equipment or replacing it with new equipment

Easton can currently purchase the scooters it makes from another company. If the company purchases the scooters, Easton would still continue to use its own logo, sales staff, and advertising programs. Which of the following costs would be classified as a facility-level cost?

Company president's salary

The equipment was purchased last year and has no resale value. Which of these amounts is relevant for the selection of one contract over another?

Contract revenue and labor costs

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 would a variance be labeled as unfavorable?

None of these answers is correct.

The benefits sacrificed when one alternative is chosen over another are referred to as:

Opportunity costs

Which of the following is not a possible alternate term for costs that can be eliminated by taking a specified course of action?

Opportunity costs

When would a variance be labeled as favorable?

When actual costs are less than standard costs

When would a sales variance be listed as favorable?

When actual sales exceed budgeted or expected sales

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

a cost center

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