Exam 3 acct 2
The production budget is typically prepared prior to the sales budget.
false
When preparing a direct materials budget, beginning inventory for raw materials should be added to production needs, and desired ending inventory should be subtracted to determine the amount of raw materials to be purchased.
false
A budget that is based on the actual activity of a period is known as a:
flexible budget.
When used in return on investment (ROI) calculations, turnover equals sales divided by average operating assets.
true
Tracie Corporation manufactures and sells women's skirts. Each skirt (unit) requires 2.2 yards of cloth. Selected data from Tracie's master budget for next quarter are shown below: July August September Budgeted sales (in units) 8,300 10,300 12,300 Budgeted production (in units)9,300 11,800 14,300 Each unit requires 0.9 hours of direct labor, and the average hourly cost of Tracie's direct labor is $19. What is the cost of Tracie Corporation's direct labor in September?
$244,530 Required production in units 14,300 Direct labor-hours per unit 0.9 Total direct labor-hours needed 12,870 Direct labor cost per hour $ 19 Total direct labor cost $ 244,530
Sedita Incorporated is working on its cash budget for July. The budgeted beginning cash balance is $26,000. Budgeted cash receipts total $198,000 and budgeted cash disbursements total $197,000. The desired ending cash balance is $45,000. The excess (deficiency) of cash available over disbursements for July will be:
$27,000
Bustillo Incorporated is working on its cash budget for March. The budgeted beginning cash balance is $35,000. Budgeted cash receipts total $142,000 and budgeted cash disbursements total $151,000. The desired ending cash balance is $30,000. To attain its desired ending cash balance for March, the company needs to borrow:
$4000 Beginning cash balance: $ 35,000 Add cash receipts (all sales are for cash): 142,000 Total cash available: 177,000 Less cash disbursements: 151,000 Excess (deficiency) of cash available over disbursements: 26,000 Financing ($30,000 − $26,000): 4,000 Ending cash balance$ 30,000
Residual income can be used most effectively in comparing the performance of divisions of different size.
false
Return on investment (ROI) equals margin multiplied by sales.
false
Which of the following may appear on a flexible budget performance report? An unfavorable activity variance. A favorable revenue variance. An unfavorable spending variance. All of the above may appear on a flexible budget performance report.
All of the above may appear on a flexible budget performance report.
Which of the following will not result in an increase in return on investment (ROI), assuming other factors remain the same? A reduction in expenses.Incorrect An increase in net operating income. An increase in operating assets. An increase in sales.
An increase in operating assets.
Which of the following would not be included in operating assets in return on investment calculations? Cash. Accounts Receivable. Equipment Factory building rented to (and occupied by) another company.
Factory building rented to (and occupied by) another company.
There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget?
It is calculated based on the sales budget and the desired ending inventory.
Which of the following statements is NOT correct concerning the Cash Budget? It is not necessary to prepare any other budgets before preparing the Cash Budget. The Cash Budget should be prepared before the Budgeted Income Statement. The Cash Budget should be prepared before the Budgeted Balance Sheet. The Cash Budget builds on earlier budgets and schedules as well as additional data.
It is not necessary to prepare any other budgets before preparing the Cash Budget.
In a flexible budget, what will happen to fixed costs as the activity level increases?
The fixed cost per unit will decrease.
Suppose a company evaluates divisional performance using both ROI and residual income. The company's minimum required rate of return for the purposes of residual income calculations is 12%. If a division has a residual income of $6,000, then its return on investment is less than 12%.
false
The cash budget is the starting point in preparing the master budget.
false
Which of the following would be considered an operating asset in return on investment computations? Land being held for plant expansion. Treasury stock. Accounts receivable. Common stock.
accounts receivable
Which of the following performance measures will increase if inventory decreases and all else remains the same? Return on Investment Residual Income A)Yes Yes B)No Yes C)Yes No D)No No
choice A
Which of the following budgets are prepared before the sales budget? Return on Investment Residual Income A)Yes Yes B)No Yes C)Yes No D)No No
choice D
Which of the following segment performance measures will decrease if there is an increase in the interest expense for that segment? Return on Investment Residual Income A)Yes Yes B)No Yes C)Yes No D)No No
choice D
When using a flexible budget, a decrease in activity within the relevant range:
decreases total costs.
A change in sales has no effect on margin and turnover.
false
Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes.
false
If activity is higher than expected, total fixed costs should be higher than expected. If activity is lower than expected, total fixed costs should be lower than expected.
false
Land held for possible plant expansion would be included as an operating asset when computing return on investment (ROI).
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
When preparing a direct materials budget, the required purchases of raw materials in units equals:
raw materials needed to meet the production schedule + desired ending inventory of raw materials − beginning inventory of raw materials.
The usual starting point for a master budget is:
the sales forecast or sales budget.
A benefit from budgeting is that it forces managers to think about and plan for the future.
true
All other things the same, an increase in unit sales will normally result in an increase in the return on investment.
true
An advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.
true
Cash collections in a schedule of cash collections typically consist of collections on sales made to customers in prior periods plus collections on sales made in the current budget period.
true
Comparing a static planning budget to actual costs is not a good way to assess whether variable costs are under control.
true
In a flexible budget, when the activity declines, the total variable cost also declines.
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 number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducting the beginning inventory.
true
The use of return on investment (ROI) as a performance measure may lead managers to reject a project that would be favorable for the company as a whole.
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
