Accounting Quizzes Exam 2

A decrease in the number of units sold will decrease the break-even point.

False

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

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

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

False

For a given level of sales, a low contribution margin ratio will produce more net operating income than a high contribution margin ratio.

False

In a Cost-Volume-Profit graph, the anticipated profit or loss at any given level of sales is measured by the vertical distance between the total revenue line (sales) and the total fixed expense line.

False

Incremental analysis is an analytical approach that focuses only on those revenues and costs that will not change as a result of a decision.

False

On a Cost-Volume-Profit graph for a profitable company, the total expense line will be steeper than the total revenue line.

False

One disadvantage of budgeting is that budgeting makes it more difficult to coordinate the plans and activities of departmental managers.

False

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

False

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

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 smaller the contribution margin ratio, the smaller the amount of sales required to cover a given amount of fixed expenses.

False

The total volume in sales dollars that would be required to attain a given target profit is determined by dividing the target profit by the contribution margin ratio.

False

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 be, given the actual level of activity of the period, and the actual total sales revenue.

True

A shift in the sales mix from products with high contribution margin ratios toward products with low contribution margin ratios will raise the break-even point for the company as a whole.

True

Differences between the static planning budget and the flexible budget show what should have happened because the actual level of activity differed from what had been planned.

True

Fawn Company's margin of safety is $90,000. If the company's sales drop by $80,000, it will still have positive net operating income.

True

If the variable expense per unit decreases, and all other factors remain the same, the contribution margin ratio will increase.

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

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

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

True

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

True

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

True

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.

True

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

True