ACG 2071: Unit II Exam Review

an accounting report that presents predicted amounts of the company's assets, liabilities, and equity as of the end of the budget period

budgeted balance sheet

a plan that lists dollar amounts to be both spent on purchasing additional pant assets to carry out the budgeted business activities

capital expenditures budget

a plan that shows the expected cash inflows and outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans

cash budget

The excess of sales revenues over variable costs

contribution margin

compares actual performance against budgeted goals

controlling

Graphically shows costs, sales, and operating profit or loss at various levels of units sold

cost- volume profit chart

Which of the following is an example of a cost that varies in total as the number of units produced changes?

direct materials cost

actions to achieve budgeted goals

directing

A budget can be an effective means of communicating management's plans to the owners of a business.

false

A manager in a cost center also has responsibility and authority over the revenues.

false

A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.

false

A responsibility center in which the department manager has responsibility for and authority over costs, revenues, and assets invested in the department is termed a cost center.

false

Budgets are normally used only by profit-making businesses.

false

Employees view budgeting more positively when goals are established for them by senior management.

false

If a business sells two products, it is not possible to estimate the break-even point.

false

One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions.

false

The budgeting process is used to effectively communicate planned expectations regarding profits and expenses to the entire organization.

false

The reliability of cost-volume-profit analysis does not depend on the assumption that costs can be accurately divided into fixed and variable components.

false

When budget goals are set too tight, the budget becomes less effective as a tool for planning and controlling operations.

false

Remain the same in total dollar amount as the level of activity changes

fixed costs

The three most common cost behavior classifications are

fixed costs, variable costs, and mixed costs

shows expected results at several activity levels

flexible budgeting

occurs when employee self-interests are different from company goals

goal conflict

Which of the graphs in Figure 21-1 illustrates the behavior of a total fixed cost?

graph 1

Most operating decisions of management focus on a narrow range of activity called the

relevant range of production

a plan showing the units of goods to be sold and the sales to be derived; usually the starting point in the budgeting process

sales budget

begins by estimating the quantity of sales

sales budget

The relative distribution of sales among products sold by a company

sales mix

The relative distribution of sales among the various products sold by a business is the

sales mix

shows expected results at only one activity level

static budget

When a business sells more than one product at varying selling prices, the business's break-even point can be determined as long as the number of products does not exceed

there is no limit

A centralized business organization is one in which all major planning and operating decisions are made by top management.

true

Companies with large amounts of fixed costs will generally have a high operating leverage.

true

Separation of businesses into more manageable operating units is termed decentralization.

true

The financial budgets of a business include the cash budget, the budgeted income statement, and the budgeted balance sheet.

true

Rusty Co. sells two products, X and Y. Last year, Rusty sold 5,000 units of X and 35,000 units of Y. Related data are: Unit SellingUnit VariableUnit ContributionProductPriceCostMarginX$110.00$70.00$40.00Y 70.00 50.00 20.00 What was Rusty Co.'s sales mix last year?

12.5% X, 87.5% Y

Where a business's revenues exactly equal costs

break even point

occurs when budgets are too loose

budget slack

Plots only the difference between total sales and total costs

profit volume chart

The plant managers in a cost center can be held responsible for major differences between budgeted and actual costs in their plants.

true

The primary accounting tool for controlling and reporting for cost centers is a budget.

true

The process of measuring and reporting operating data by responsibility centers is termed responsibility accounting.

true

The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers.

true

A capital expenditures budget is prepared before the operating budgets.

false

As production increases, the fixed cost per unit

decreases

Indicates the possible decrease in sales that may occur before operating loss results

margin of safety

Contribution margin divided by income from operations

operating leverage

setting goals

planning

Understanding how costs behave is useful to management for all the following reasons except

predicting customer demand

a plan showing the number of units to be produced each month

production budget

As production increases, variable costs per unit

stay the same

Costs that vary in total in direct proportion to changes in an activity level are called

variable costs

Vary in proportion to changes in activity levels

variable costs

Rusty Co. sells two products, X and Y. Last year, Rusty sold 5,000 units of X and 35,000 units of Y. Related data are: Unit SellingUnit VariableUnit ContributionProductPriceCostMarginX$110.00$70.00$40.00Y 70.00 50.00 20.00 What was Rusty Co.'s weighted average unit contribution margin?

22.50

Rusty Co. sells two products, X and Y. Last year, Rusty sold 5,000 units of X and 35,000 units of Y. Related data are: Unit SellingUnit VariableUnit ContributionProductPriceCostMarginX$110.00$70.00$40.00Y 70.00 50.00 20.00 Assuming that last year's fixed costs totaled $675,000. What was Rusty Co.'s break-even point in units?

30,000

Rusty Co. sells two products, X and Y. Last year, Rusty sold 5,000 units of X and 35,000 units of Y. Related data are: Unit SellingUnit VariableUnit ContributionProductPriceCostMarginX$110.00$70.00$40.00Y 70.00 50.00 20.00 What was Rusty Co.'s weighted average unit selling price?

75

Which of the following statements is true regarding fixed and variable costs?

Fixed costs are constant in total, and variable costs are constant per unit.

lans an important role for organizations in planning, directing, and controlling a company's future goals

budget

Which of the following is not an assumption underlying cost-volume-profit analysis?

The break-even point will be passed during the period.

Which of the graphs in Figure 21-1 illustrates the behavior of a total variable cost?

graph 3

If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would

increase

The difference between the current sales revenue and the sales at the break-even point is called the

margin of safety

integrated set of operating and financing budgets for a period of time

master budget

A cost that has characteristics of both a variable cost and a fixed cost is called a

mixed cost

estimates the number of units to be manufactured to meet sales and inventory levels

production budget

A specific activity range over which the cost changes are of interest.

relevant range

A formal written statement of management's plans for the future, expressed in financial terms, is called a budget.

true

Absorption costing is required for financial reporting under generally accepted accounting principles.

true

Cost-volume-profit analysis can be presented in both equation form and graphic form.

true

Developing and retaining quality managers are advantages of decentralization.

true

In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center.

true

Part of the cash budget is based on information drawn from the capital expenditures budget.

true

The objectives of budgeting are (1) establishing specific goals for future operations, (2) executing plans to achieve the goals, and (3) periodically comparing actual results with these goals.

true