ACCT225 Exam3

Buckson Framing's cost formula for its supplies cost is $1,350 per month plus $18 per frame. For the month of June, the company planned for activity of 716 frames, but the actual level of activity was 713 frames. The actual supplies cost for the month was $14,820. The supplies cost in the flexible budget for June would be closest to:

$14,184

Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment (ROI) computations?

It eliminates the age of equipment as a factor in return on investment (ROI) computations.

Which of the following will not result in an increase in return on investment (ROI), assuming other factors remain the same?

An increase in operating assets.

In a sell or process further decision, consider the following costs: A variable production cost incurred prior to split-off. A variable production cost incurred after split-off. An avoidable fixed production cost incurred after split-off. Which of the above costs is (are) not relevant in a decision regarding whether the product should be processed further?

Only I

The general model for calculating a quantity variance is:

Standard price × (Actual quantity of inputs used − Standard quantity allowed for output).

A cost that is assigned to a product using activity-based costing may or may not be a relevant cost in a decision involving that product.

T

A quantity standard indicates how much of an input should be used to make a unit of product or provide a unit of service.

T

A revenue variance is favorable if the actual revenue is greater than the revenue in the static planning budget.

T

If the actual hourly rate is greater than the standard hourly rate, the labor rate variance is labeled unfavorable (U).

T

In a flexible budget, when the activity declines, the total variable cost also declines.

T

It may be a good decision to replace an asset before its original cost has been fully recovered through increased revenues or decreased costs.

T

Material price variances are often isolated at the time materials are purchased, rather than when they are placed into production, to facilitate earlier recognition of variances.

T

Net operating income is income before interest and taxes.

T

ROI and residual income are tools used to evaluate managerial performance in investment centers.

T

Residual income is the difference between net operating income and the product of average operating assets and the minimum rate of return.

T

The balanced scorecard framework rejects the notion that improving process-oriented measures automatically leads to financial success.

T

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.

T

The materials price variance is computed based on the amount of materials purchased during the period.

T

The standard price per unit for direct materials should reflect the final, delivered cost of the materials.

T

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate.

T

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.

T

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

T

When the activity measure is the number of units sold, the revenue variance is favorable if the average actual selling price is greater than expected.

T

When the materials price variance is recorded at the time of purchase, raw materials are recorded as inventory at standard cost.

T

In a flexible budget, what will happen to fixed costs as the activity level increases?

The fixed cost per unit will decrease.

An unfavorable materials quantity variance indicates that:

actual usage of material exceeds the standard material allowed for output.

Costs that can be eliminated in whole or in part if a particular business segment is discontinued are called:

avoidable costs.

A favorable labor rate variance indicates that

the standard rate exceeds the actual rate.

Mongelli Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead budget for the most recent month appears below: Activity level90guestsVariable overhead costs: Supplies$ 234 Laundry315 Fixed overhead costs: Utilities220 Salaries and wages4,290 Depreciation2,680 Total overhead cost$7,739 The Inn's variable overhead costs are driven by the number of guests. What would be the total budgeted overhead cost for a month if the activity level is 99 guests?

$7,793.90

Which of the following would be considered an operating asset in return on investment computations?

Accounts receivable.

Which of the following may appear on a flexible budget performance report?

All of the above may appear on a flexible budget performance report.

Which of the following would be relevant in the decision to sell or throw out obsolete inventory? Direct material cost assigned to the inventory Fixed overhead cost assigned to the inventory A)YesYes B)YesNo C)NoYes D)NoNo

Choice D

A change in sales has no effect on margin and turnover.

F

A revenue variance is unfavorable if the revenue in the static planning budget is less than the revenue in the flexible budget.

F

Actual costs are determined by plugging the actual level of activity for the period into the cost formulas used in flexible budgets.

F

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.

F

Consistency demands that a cost that is relevant in one decision be regarded as relevant in other decisions as well.

F

Fixed costs are sunk costs.

F

If demand is insufficient to keep everyone busy and workers are not laid off, a favorable (F) labor efficiency variance often will be a result.

F

In a special order situation that involves using capacity that is not idle, opportunity costs are zero.

F

In general, the production manager is responsible for the materials price variance.

F

Incentive compensation for employees, such as bonuses, should be tied to balanced scorecard performance measures only if managers are confident that the performance measures are easily manipulated by those being evaluated.

F

Land held for possible plant expansion would be included as an operating asset when computing return on investment (ROI).

F

Return on investment (ROI) equals margin multiplied by sales.

F

Sunk costs are costs that have proven to be unproductive.

F

When using a flexible budget, a decrease in activity within the relevant range:

decreases total costs.

Kinsi Corporation manufactures five different products. All five of these products must pass through a stamping machine in its fabrication department. This machine is Kinsi's constrained resource. Kinsi would make the most profit if it produces the product that:

generates the highest contribution margin per stamping machine hour.

Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of:

return on investment.

Which of the following costs are always irrelevant in decision making?

sunk cost

Accepting a special order will improve overall net operating income if the revenue from the special order exceeds:

the incremental costs associated with the order.