ACCT concept questions Exam 3

In a budgeted income statement, _________ is subtracted from sales to arrive at gross margin. -cost of goods sold -interest expense -selling and administrative expense -depreciation expense

cost of goods sold

Film Studio, Inc. has beginning retained earnings of $80,000 and expects to earn net income of $70,000 during the budget period. What would be the budgeted ending balance in retained earnings if the company pays dividends of $50,000? $80,000 $100,000 $150,000 $200,000

$100,000

Khan Corporation has budgeted the unit sales for April to be 5,000 units. The sales price is $25 per unit, and production costs are $10 per unit. Monthly utility expenses are estimated to be $2,000 plus $2 per unit, whereas selling expenses are estimated to be $12,000. The company pays a monthly rent of $2,000. What would be the utility expenses on the company's flexible budget if actual unit sales for April were 6,000 units? $12,000 $14,000 $2,000 $26,000

$14,000

Pinnacle Corporation is a manufacturing company operating numerous machines. These require regular maintenance to keep them operational. The fixed portion of maintenance costs are $3,000 per month. Maintenance costs are also incurred at the rate of $5 per setup and $0.50 per unit produced. The company produced 23,000 units in 800 batches during a particular month. What will be the total cost of maintenance for this month? $3,000 $18,500 $7,000 $11,500

$18,500

Zeta Corporation is a manufacturer of sports caps, which require soft fabric. The standards for each cap allow 2.00 yards of soft fabric, at a cost of $2.00 per yard. During the month of January, the company purchased 25,000 yards of soft fabric at $2.10 per yard, to produce 12,000 caps. What is Zeta Corporation's materials price variance for the month of January? $2,000 F $2,000 U $2,500 F $2,500 U

$2,500 U

Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected cash disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum cash balance of $40,000. How much cash will the company need to borrow? $15,000 $25,000 $30,000 $40,000

$25,000

Budget Solutions has determined from its flexible budget that selling costs for actual level activity for a period should have been $25,000. Actual selling costs incurred during the period were $28,000. What is the amount and direction of variance in selling costs? $3,000 Favorable $28,000 Unfavorable $0 $3,000 Unfavorable

$3,000 Unfavorable

Pro Clean Company, a manufacturer of hand sanitizers, intends to produce 40,000 units in the third quarter and 35,000 units in the fourth quarter. Each unit requires 0.50 direct labor-hours (DLHs) and the cost of direct labor per hour is $18. What would be the total direct labor cost for the fourth quarter? $355,000 $360,000 $300,000 $315,000

$315,000

The following is a schedule of the projected unit sales of Western Company, which manufactures casual wear. Each unit sells for $25. The company began the period with a beginning accounts receivable balance of $10,000. Choose the correct answer from the options provided. Quarter First Second Third Fourth Year Budgeted unit sales 1,500 1,300 1,400 1,300 5,500 Percentage of sales collected in the quarter of the sale 75% Percentage of sales collected in the quarter after the sale 25% What is the amount of budgeted sales revenue for the fourth quarter? $32,500 $33,750 $35,000 $37,500

$32,500

The following is a schedule of the projected unit sales of Western Company, which manufactures casual wear. Each unit sells for $25. The company began the period with a beginning accounts receivable balance of $10,000. Choose the correct answer from the options provided. Quarter First Second Third Fourth Year Budgeted unit sales 1,500 1,300 1,400 1,300 5,500 Percentage of sales collected in the quarter of the sale 75% Percentage of sales collected in the quarter after the sale 25% What is the total amount of expected cash collections for the third quarter? $33,125 $33,750 $34,375 $38,125

$34,375

For the budget period ending December 31 of the current year, Aaron Corporation estimates its ending balances for cash as $4,000, accounts receivable as $16,000, finished goods inventory as $12,000, and raw materials inventory as $8,000. Invoices relating to raw materials in the amount of $14,000 are expected to be unpaid as of December 31. What is the amount of total current assets that will be reported on the budgeted balance sheet? $20,000 $26,000 $32,000 $40,000

$40,000

An unfavorable variance of $5,000 in sales is determined by comparing the flexible budget (9,000 units) and the planning budget (10,000 units). What type of variance is described? -Activity variance -Spending variance -Revenue variance

Activity variance

Precision Company estimates its machine-hour requirements for the four quarters to be 35,000 hours, 20,000 hours, 15,000 hours, and 30,000 hours respectively. The variable manufacturing overhead rate is $4 per machine-hour. The fixed manufacturing overhead is $50,000 per quarter, which includes $20,000 of depreciation expense. What is the budgeted variable manufacturing overhead for the year? $200,000 $260,000 $280,000 $400,000

$400,000

Smarton Company is in the process of preparing its budgeted income statement. It has determined its estimated gross margin to be $90,000. The company also expects to incur selling and administrative expenses of $30,000 and interest expense of $12,000. What is Smarton's budgeted net income? $18,000 $30,000 $48,000 $60,000

$48,000

William Corporation has a contract with the labor union which guarantees its workers pay for at least 40,000 hours every quarter. Based on its direct labor budget for the current year, the company estimated it will need 39,000 direct labor-hours during the fourth quarter to produce 13,000 units of finished goods. Each unit requires 3 direct labor-hours (DLHs) and the cost of direct labor per hour is $12 per hour. What is the total direct labor cost for the fourth quarter? $432,000 $468,000 $480,000 $540,000

$480,000

Khan Corporation has budgeted the unit sales for April to be 5,000 units. The sales price is $25 per unit, and production costs are $10 per unit. Monthly utility expenses are estimated to be $2,000 plus $2 per unit, whereas selling expenses are estimated to be $12,000. The company pays a monthly rent of $2,000. What is the net operating income in the company's planning budget? $49,000 $62,000 $125,000 $72,000

$49,000

Precision Company estimates its machine-hour requirements for the four quarters to be 35,000 hours, 20,000 hours, 15,000 hours, and 30,000 hours respectively. The variable manufacturing overhead rate is $4 per machine-hour. The fixed manufacturing overhead is $50,000 per quarter, which includes $20,000 of depreciation expense. What is the predetermined overhead rate for the year? $2 per machine hour $4 per machine hour $5 per machine hour $6 per machine hour

$6 per machine hour

The following is a schedule of the projected unit sales of Western Company, which manufactures casual wear. Each unit sells for $25. The company began the period with a beginning accounts receivable balance of $10,000. Choose the correct answer from the options provided. Quarter First Second Third Fourth Year Budgeted unit sales 1,500 1,300 1,400 1,300 5,500 Percentage of sales collected in the quarter of the sale 75% Percentage of sales collected in the quarter after the sale 25% What is the amount of cash that is expected to be collected during the second quarter as a result of sales made during the first quarter? $8,125 $8,750 $9,375 $28,125

$9,375

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What are the production needs for the first quarter? 160,000 bottles 175,000 bottles 195,000 bottles 215,000 bottles

195,000 bottles

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What is the desired ending inventory for the second quarter? 15,000 bottles 20,000 bottles 25,000 bottles 40,000 bottles

25,000 bottles

Which of the following scenarios demonstrates the leverage effect on net operating income due to the existence of fixed costs? -A 25% increase in sales resulting in a 30% decrease in net operating income. -A 15% increase in sales resulting in a 15% increase in cost of goods sold. -A 25% increase in sales resulting in a 30% increase in net operating income. -A 25% increase in sales resulting in a 30% increase in fixed costs.

A 25% increase in sales resulting in a 30% increase in net operating income.

Paradise Company's planning budget for 10,000 units showed sales of $500,000. The flexible budget for 12,000 units showed sales of $600,000. What is the variance of $100,000 called if this variance was due only to an increase in unit sales? -Spending variance -Activity variance -Unfavorable variance -Revenue variance

Activity variance

Which of the following explains why operating budgets generally span a period of one year? -Accounting regulations mandate that all operating budgets be prepared for one year. -Operating budgets, by definition, are prepared for one-year periods. -Companies choose a span of one year to correspond to their fiscal years. -Operating budgets need to correspond with the calendar year.

Companies choose a span of one year to correspond to their fiscal years.

Which of the following statements is not correct? -A flexible budget allows managers to isolate activity variances and revenue and spending variances. -One of the common errors in preparing performance reports is to implicitly assume that all costs are fixed. -Comparing static planning budget costs to actual costs only makes sense if the cost is variable. -One of the common errors in preparing performance reports is to implicitly assume that all costs are variable.

Comparing static planning budget costs to actual costs only makes sense if the cost is variable.

Which of the following is a major factor that should be taken into consideration while planning the desired level of inventories? -Costs of carrying inventory. -General administrative policy of the company. -Selling price of the finished product. -Statutory requirements.

Costs of carrying inventory

Which of the following is deducted from the total selling and administrative expense budget to determine the cash disbursements for selling and administrative expense budget? -Advertising expense -Depreciation expense -Selling commissions -Utilities expense

Depreciation expense

Which of the following is not a benefit of self-imposed budgets? -A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet. -Budget estimates prepared by front-line managers are often more accurate and reliable. -Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations. -Motivation is generally higher.

Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations.

Which of the following is NOT a column on a flexible budget performance report? -Actual results -Planning budget -Net operating income -Activity variances

Net operating income

Which of the following is true of self-imposed (participative) budgets? -Self-imposed budgets give managers at all levels of an organization an opportunity to provide input into the budgeting process. -Self-imposed budgets are prepared without consulting lower-level managers. -The estimates used in self-imposed budgets rely primarily on the inputs and insights of top managers. -Managers who create self-imposed budgets do not have an opportunity to embed budgetary slack within their estimates.

Self-imposed budgets give managers at all levels of an organization an opportunity to provide input into the budgeting process.

An unfavorable variance of $5,000 in cost of goods sold is determined by comparing the actual results (10,000 units) and the flexible budget (10,000 units). What type of variance is described? -Activity variance -Spending variance -Revenue variance

Spending variance

Which of the following is not a benefit of budgeting? -The budgeting process enables managers to uncover bottlenecks as they occur. -Budgets communicate management's plans throughout the organization. -Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.

The budgeting process enables managers to uncover bottlenecks as they occur.

The standard quantity per unit defines the ________. -price that should be paid for each unit of direct materials. -total cost of direct materials that should be used for each unit of finished product. -amount of direct materials that should be used for each unit of finished product including an allowance for normal inefficiencies, such as scrap and spoilage. -amount of direct labor-hours that should be used to produce one unit of finished goods.

amount of direct materials that should be used for each unit of finished product including an allowance for normal inefficiencies, such as scrap and spoilage.

Companies prepare direct labor budgets to ________. -avoid labor shortages -determine the direct labor-hours per unit -ensure timely supply of raw materials -reduce inventories

avoid labor shortages

For a production budget, the ______ is the beginning inventory for the year. -beginning inventory for the first quarter -beginning inventory for the last quarter -ending inventory for the last quarter -sum of beginning inventories for the four quarters

beginning inventory for the first quarter

A flexible budget performance report for variable manufacturing costs shows _______. -only the activity variances. -both the activity variances and the spending variances. -both the revenue variances and the spending variances. -both the quantity variances and the price variances.

both the activity variances and the spending variances.

In a direct materials budget, the desired ending raw materials inventory for the year is equal to the ________. -beginning balance of accounts payable -desired ending raw materials inventory for the last period -total merchandise purchased during the year -value of raw material used during the year

desired ending raw materials inventory for the last period

The purpose of preparing a direct materials budget is to ________. -allocate the cost of raw materials to production departments -estimate the manufacturing overhead -estimate the quantity of raw materials to be purchased -estimate the unit cost of direct materials to be purchased

estimate the quantity of raw materials to be purchased

All of the following are reasons for preparing a flexible budget with multiple cost drivers EXCEPT ________. -multiple cost drivers can lead to more accurate variances -cost formulas are likely to be more accurate -an expense may be expected to vary for more than one reason -it eliminates the need for performing variance analysis

it eliminates the need for performing variance analysis

Most companies compute the materials price variance when raw materials are _______. -received from suppliers and transported to raw materials inventory. -withdrawn from raw materials inventory and used in production. -ordered from suppliers. -moved from work in process inventory to finished goods inventory.

received from suppliers and transported to raw materials inventory.

The system of accountability in which managers are held responsible for those items of revenue and costs—and only those items—over which they can exert significant control is referred to as ________. -budgeting -control -responsibility accounting -self-imposed accounting

responsibility accounting

The difference between the actual total revenue and budgeted total revenue at the actual level of activity is called a(n) ________. -spending variance -activity variance -unfavorable variance -revenue variance

revenue variance

The budgeting process begins with the preparation of the ______ budget. -cash -direct materials -production -sales

sales

The difference between the actual cost and budgeted cost at the actual level of activity is called a(n) ________. -spending variance -activity variance -unfavorable variance -revenue variance

spending variance

The standard quantity allowed is _______. -the amount of an input that should have been -used to complete the planned output for the period. -the actual amount of input that was used to complete the planned output for the period. -the amount of an input that should have been used to complete the actual output for the period. -the actual amount of input that was used to complete the actual output for the period.

the amount of an input that should have been used to complete the actual output for the period.

The standard hours allowed is ________. -the direct labor-hours that should have been used to complete the planned output for the period. -the direct labor-hours that should have been used to complete the actual output for the period. -computed by multiplying the standard labor-hours allowed per unit by the planned output for the period. -computed by multiplying the actual labor-hours per unit by the planned output for the period.

the direct labor-hours that should have been used to complete the actual output for the period.

A company determines that the number of units sold is the cost driver for its variable selling and administrative expense budget. The product of its variable selling and administrative rate and budgeted unit sales will be ________. -budgeted sales revenue -total budgeted cash disbursements for selling and administrative expenses -total budgeted fixed selling and administrative expenses -total budgeted variable selling and administrative expenses

total budgeted variable selling and administrative expenses

The value of the ending inventory is calculated by multiplying the number of units in ending inventory by the ________. -unit product cost -variable overhead cost per unit -total overhead cost per unit -the sum of the direct materials and direct labor cost per unit

unit product cost

When computing variable manufacturing overhead variances, the standard rate represents the ________. -predetermined overhead rate. -variable portion of the predetermined overhead rate. -standard hourly pay rate for direct laborers. -the amount of hours allowed for the actual output.

variable portion of the predetermined overhead rate.

Assume that direct labor-hours are used as the overhead allocation base. If the direct labor efficiency variance is unfavorable, the variable overhead efficiency variance ________. -will be favorable. -will be unfavorable. -cannot be determined without additional information.convert materials into the finished product. -will be equal to zero

will be unfavorable.