EXAM 3 - ACCT 202

When the standard price is higher than the actual price, the materials price variance is __________

favorable

Which of the following is not one of the three primary types of responsibility centers? -sales -profit -cost -investment

sales

When a department has no idle capacity and will interrupt their current level of sales to regular customers, the lowest acceptable transfer price to supply product to another division is_____________ price charged by an outside supplier selling price contribution margin on lost sales variable costs

selling price

The difference between actual results and the flexible budget amount is a(n) ____________ variance.

spending

Division B wants to buy 500 units of a part from Division A. Division A's variable cost per unit for the part is $18. Division A has enough idle capacity to make 300 parts without interrupting regular sales. If Division A supplies the parts, it will lose sales of 200 units. The selling price per unit on the outside market is $38. The lowest transfer price per unit that Division A might accept is $________

variable cost + (contribution margin on lost sales/ # of units transferred) 18 + ((38-18) x 200/500) = 26

The materials price variance is calculated using the ________ quantity of the input purchased.

actual

The manager of a(n) __________ center does not have control over revenue or the use of investment funds.

cost

The difference between the standard and the actual direct labor wages per hour is reflected in the labor ___________ variance

rate

The standard price of materials is $3.50 per pound and the standard quantity allowed for actual output is 7,000 pounds. If the actual quantity purchased and used was 6,700 pounds, and the actual price per pound was $3.40, the direct materials price variance is $__________ ___________ (U or F)

(actual price - standard price) x actual quantity purchased $3.40 - 3.50 = 0.1 x 6700 = 670 Favorable: favorable because they actually paid less than the standard price

The standard hours or quantity allowed for an input is the amount of the input that should have been used to produce the standard output for the period. T OR F

False

When less hours are worked than the standard hours allows, the labor efficiency variance is ________ (U or F)

favorable

When the actual hourly rate is lower than the standard hourly rate, the labor rate variance is ________ (U or F)

favorable

The concept that focuses on important variances and ignores trivial ones is _________

management by exception

The system that compares actual results to a budget so that significant deviations can be flagged and investigated further is called ____________ ______________ _____________

management by exception

When managers are evaluated on residual income, rather than on return on investment (ROI), they will be _________ likely to pursue projects that will benefit the entire company. Multiple choice question.

more

The three methods commonly used for transfer pricing are ________

negotiation, full cost (variable cost), market price

Which of the following is NOT a service department? Internal auditing Human resources Sales Purchasing

Sales

The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is a(n) ____________ variance.

activity

Fill in the blank question. Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n) ____________ activity variance.

favorable

A performance report shows that the planning revenue was $240,000, the flexible budget revenue was $225,000, and actual revenue was $230,000. The activity variance is $____________ ___________

flexible rev - planning rev 225,000 - 240,000 = 15,000 unfavorable

If poor-quality materials results in excessive labor processing time, the _____________ manager will probably be held responsible for the labor efficiency variance.

purchasing

The materials price variance is generally the responsibility of the __________ department manager

purchasing

If the activity level for the month is 4,000 units, actual revenue is $6,000, actual variable costs are $0.20 unit, and actual fixed costs total $500, which of the following are true? -$4,700 net income -$800 in total costs -$1,300 in total costs -$4,200 net income

-$4,700 net income -$1,300 in total costs

Revenue on the planning budget is expected to be $380,000 for 1,900 client visits. The revenue on the flexible budget is $410,000, showing that there were actually ___________ client visits.

2,050 $380,000/1,900 = 200 $410,000/200 = 2,050

The spending variance is labeled as favorable when the ______. -amount spent is less than what was spent last period -actual cost is more than what the cost should have been at the actual level of activity -actual cost is less than what the cost should have been at the planned level of activity -actual cost is less than what the cost should have been at the actual level of activity

actual cost is less than what the cost should have been at the actual level of activity

The ROI formula typically uses ____________ -end of year operating assets -end of year operating and non-operating assets -average operating and non-operating assets for the year -average operating assets for the year

average operating assets for the year

Comparing actual net income to budgeted net income is often done to evaluate the manager of a(n) __________ center

profit

Service departments, such as the accounting department, are generally considered ____________ centers, while sales offices are often considered ___________ centers

cost, profit

When the standard purchase price is less than the actual price paid for materials, the material price variance is _____________

favorable

The labor efficiency variance is generally the responsibility of the ____________ manager.

production

When a manager accepts a project because the net operating income from the investment exceeds the minimum acceptable profit based on required rate of return, the investment was evaluated based on ____________ _____________

residual income

Any part of an organization whose manager has control over and is accountable for cost, profit, or investments is a(n) ____________ center

responsibility

Which of the following statements is incorrect regarding responsibility accounting? -Responsibility accounting links lower-level managers' decisions with the outcomes of those decisions. -Responsibility accounting holds managers accountable for the revenues and expenses over which they have control. -Responsibility accounting refers to the process of evaluating top management on the decisions made by lower-level managers. -Responsibility accounting divides the organization into "responsibility centers" to evaluate managers' decisions.

-Responsibility accounting refers to the process of evaluating top management on the decisions made by lower-level managers.

When the actual hourly rate is lower than the standard hourly rate, the labor rate variance is _____________ (U or F)

favorable

When the actual quantity of materials used is less than the standard quantity allowed, the material quantity variance is labeled as __________

favorable

The buying division in a transfer will only agree to a transfer price if the inside supplier's price is _____________(more/less) than or equal to the price offered by an outside supplier.

less

The concept that focuses on important variances and ignores trivial ones is ______________ ______ _______________

management by exception

When a manager is evaluated on residual income, an investment is acceptable when ___________ -the return on investment of the new project equals or exceeds current ROI -net operating income for the investment is above the minimum required return on average operating assets -it generates any positive net operating income -net operating income for the new investment is above the current return on average operating assets

net operating income for the investment is above the minimum required return on average operating assets

The central purpose of an organization are carried out in its __________(operating/service) departments.

operating

The flexible budget ____________ report combines activity and revenue and spending variances.

performance

The materials quantity variance is generally the responsibility of the _________ department manager.

production

Fill in the blank question. Net operating income - (Average operating assets × Minimum required rate of return) = ________________ ______________

residual income

Lower-level managers' decision-making authority can be linked to the outcomes of those decisions through ____________ accounting systems.

responsiblity

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost is a(n) ______________ variance.

spending

The amount of an input that should have been used to produce the actual output is known as the ______________quantity or hours allowed.

standard

An unfavorable materials quantity variance occurs when ___________. -too much material is purchased -the actual amount of material used is greater than the standard amount of material allowed for the actual output -the actual price paid for material is greater than the standard price allowed for the material

the actual amount of material used is greater than the standard amount of material allowed for the actual output

The price charged when one segment of a company provides goods or services to another segment of the same company is the __________ price.

transfer

If the actual cost is greater than what the cost should have been, the variance is labeled as ____________

unfavorable

When the actual cost incurred exceeds the standard cost allowed for the actual level of output, the spending variance is _________. F OR U

unfavorable

When the standard hourly rate is lower than the actual rate, the labor rate variance is ___________ (U or F)

unfavorable

When the standard hours allowed are lower than the actual hours used, the labor efficiency variance is ____________ (U or F)

unfavorable

When a department has enough idle capacity to supply a part to another division within the company without interrupting current sales, the lowest price the selling division will accept is the ____________ -full absorption cost per unit -variable cost per unit -selling price per unit charged to outside buyers -cost per unit buying division pays to outside suppliers

variable cost per unit

Managers of cost centers are evaluated on ______ in their responsibility center. -revenues and costs incurred -revenues, costs and the use of investment funds -their ability to control costs

their ability to control costs

Production Dept. B uses 40% of the Maintenance Dept. resources and budgeted 90,000 machine hours for the year. Actual machine hours used were 85,000. The Maintenance Dept. variable cost rate per machine hour was $5. Fixed costs were budgeted to be $400,000. Actual fixed costs were $450,000. Total Maintenance Dept. cost assigned to Dept. B for the year equals _____________

$585,000(85,000 × $5) + ($400,000 × 40%) = $585,000

Which of the following business segments would not be considered a cost center? -Accounting department -Retail outlet -Manufacturing facilities -Personnel department

-Retail outlet

Which of the following statements is correct? -Managers will be more likely to pursue projects that will benefit the entire company when being evaluated on ROI instead of residual income. -A manager might reject a proposal using ROI that the manager would accept using residual income. -A project that is not acceptable using residual income calculations may be acceptable when ROI is calculated.

A manager might reject a proposal using ROI that the manager would accept using residual income.

Activity variance

Subtract planning budget from flexible budget

If the planned budget revenue for 5,000 units is $120,000, the flexible budget revenue for 4,500 units is ___________

$108,000 $120,000/5,000 = 24 24 x 4,500= 108000

Commission expense is budgeted to be $16,000 at a planned sales level of 4,000 units. If only 2,900 units are sold, how much commission expense will appear on the flexible budget, and is the activity variance favorable or unfavorable?

$11,600 and favorable $16000/4000 = 4 4 x 2,900= $11,600 and favorable because its less than $16,000

Division B wants to purchase a part from Division A. Division A's variable cost per unit is $18. Allocated fixed costs are $5 per unit. Division A's normal selling price for the part is $30 per unit. Division A has enough idle capacity to be able to supply the needed parts without interrupting its regular sales. The lowest transfer price per unit that Division A might accept is $__________

$18

Fancy Nails' budgeted revenue is $20 per manicure. The planning budget for June was based on 2,400 manicures. During June, the actual revenue was $49,750 for 2,500 manicures. The revenue variance for June is __________

$250 U ???

Given the following, compute the standard cost per widget. Direct materials per unit: 4 pounds Direct material cost: $1.25 per pound Direct labor per unit: 1.5 hours Direct labor rate: $10.00 per hour Variable overhead rate: $4.00 per hour

$26.00 (4 pounds x 1.25) + (1.5 x 10) + (1.5 x 4) = 26

Production Dept. A uses 30% of the Maintenance Dept. resources. Dept. A budgeted 70,000 machine hours and actually used 75,000 hours. The Maintenance Dept. variable cost rate was $5 per machine hour. Fixed costs were budgeted to be $400,000. Actual fixed costs were $450,000. Total Maintenance Dept. cost assigned to Dept. A for the year equals ___________

$495,000(75,000 × $5) + ($400,000 × 30%) = $495,000

Given on the following information, calculate the variable overhead rate variance. Actual variable overhead cost $15,500; Actual hours used 4,200; Standard hours allowed 4,000; and Standard variable overhead rate $3.75 per hour. $____________ ________ (U or F)

$500 F -$15,750 (4,200 actual hours × $3.75) - $15,500 of actual overhead = $250 F.

The standard price of materials is $4.10 per pound and the standard quantity allowed for actual output is 5,800 pounds. If the actual quantity purchased and used was 6,000 pounds, and the actual price per pound was $4.00, the materials price variance is $__________ _________ (U or F)

(DM's actual price - standard price) x quantity purchased $600 Favorable: it is favorable because they paid less than the standard price

The materials price variance is calculated using the Blank______. -standard price of the input -actual price of the input -standard quantity allowed of the input for the actual output -actual quantity of the input purchased

(actual price of the input - standard price of input) x ( actual quantity purchased)

The flexible budget performance report consists of ___________. -the planning budget, flexible budget and -actual results -activity variances -the manager's performance evaluations revenue and spending variances

-the planning budget, flexible budget and actual results -activity variances -revenue and spending variances

Given the following, the standard cost of this item is $ per unit. (Enter your answer as a whole number.) Direct materials per unit: 2 pounds Direct material cost: $2.50 per pound Direct labor per unit: .75 hours Direct labor rate: $16.00 per hour Variable overhead rate: $8.00 per hour

23 (2 x 2.50) + (.75 x 16) + (.75 x 8) = 23

Fancy Nails cost formula for electricity is $40 per operating day plus $0.15 per client served. Calculate Fancy Nails' electricity budget in a month when the business is going to be open for 24 days and they expect to serve a total of 2,100 clients.

24 x 40 = 960 2100 x .15 = 315 315 + 960 = 1275

Which of the following methods is not commonly used to set transfer prices? Arbitration cost Negotiation Variable cost Market price

Arbitration cost

Residual income = _____________ -Net operating income (NOI) ÷ Average operating assets -NOI ÷ Sales -Margin × Turnover -NOI - (Average operating assets × Minimum rate of return)

NOI - (Average operating assets × Minimum rate of return)

Carlos, Inc. requires a minimum rate of return of 10% on its average operating assets. The housewares department currently has average operating assets of $200,000 and a net operating income of $24,000. The department's residual income is $ ___________

NOI - (Average operating assets × Minimum rate of return) 24000 - (200000 x .10) = 4000

Revenue and spending variances

Subtract flexible budget from actual results

A company with no idle capacity has variable costs of $8 per unit and a contribution margin of $12 per unit. Fixed costs total $10,000 for 5,000 units produced. The lowest per unit price they will accept to supply another division with 500 units is $__________

Variable cost + contribution margin $8 + $12 = 20

A price variance is the difference between the ___________. -actual price and the standard price multiplied by the actual amount of the input -actual price and the standard price multiplied by the standard amount allowed -standard quantity allowed and the actual quantity used multiplied by the actual price -standard quantity allowed and the actual quantity used multiplied by the standard price

actual price and the standard price multiplied by the actual amount of the input

Operating divisions are charged for ______ service department costs. budgeted variable and actual fixed budgeted variable and fixed actual variable and fixed actual variable and budgeted fixed

budgeted variable and fixed

A spending variance is the ________

difference between what a cost should have been at the actual level of activity and the actual amount of the cost

When actual revenue __________ what the revenue should have been, the variance is labeled favorable.

exceeds

The labor rate variance measures the productivity of direct labor. (TRUE OR FALSE)

false

The selling division will agree to a transfer price only if its profits _____________ (increase/decrease) as a result of the transfer, and the buying division will agree to the transfer only if its profits _____________(increase/decrease) as a result of the transfer.

increase, increase

Residual income is a measure used to evaluate managers of _________ centers. investment profit cost profit & investment

investment

ROI is a method used to evaluate _____________

investment centers, but not cost or profit centers

In order for the buying division to agree to a transfer price when an outside supplier does not exist, the transfer price must be ______ the profit per unit not including the transfer price. more than or equal to equal to less than or equal to

less than or equal to

The difference between the actual amount of an input used and the amount that should have been used, stated in dollar terms using the standard price of the input, is called a(n) _____________ variance.

quantity

AH(AR - SR) is the formula for the variable overhead ____________ variance

rate

The difference between the standard and the actual direct labor wages per hour is reflected in the labor ___________ variance.

rate

The amount that one division charges when it sells goods or services to another division of the same company is called a(n) __________price.

transfer

The standard price of the material is used in the calculation of the material quantity variance because _________ -using actual prices is unfair to the purchasing manager -actual prices are not known when the material quantity variance is calculated -materials are acquired at their standard prices, not their actual prices -using actual prices would hold the production manager responsible for the inefficiencies of the purchasing manager

using actual prices would hold the production manager responsible for the inefficiencies of the purchasing manager

A planning budget called for 500 units to be produced and total direct labor cost of $7,500. Actual production was 600 units and actual direct labor cost was $9,300. The spending variance is _____________

$300 U 7500/500 = 15 15 x600 = 9000 9000 - 9300 = 300 U

Marcos Co. is considering a project that will increase residual income by $15,000. The project has a 12% return on investment (ROI) which exceeds the company's 10% required rate of return. Marcos Co. currently has an overall 15% ROI in the department where this project would be implemented. Which of the following statements regarding this potential investment are true? -The project should be accepted by the company because it increases overall residual income. -The project should be rejected by the company because its ROI is lower than the current departmental ROI. -The department manager may not want to accept the project because it will lower the overall ROI for the department. -The project should be accepted because the residual income will help push the project's ROI above the projected 12%.

-The project should be accepted by the company because it increases overall residual income. -The department manager may not want to accept the project because it will lower the overall ROI for the department.

A performance report shows that the planning revenue was $200,000, the flexible budget revenue was $225,000, and actual revenue was $223,000. Which of the following statements are true? -The revenue variance is $2,000 Unfavorable. -The revenue variance is $2,000 Favorable. -The activity variance is $25,000 Favorable. -The activity variance is $25,000 Unfavorable.

-The revenue variance is $2,000 Unfavorable. (223000 - 225000) -The activity variance is $25,000 Favorable. (225000 - 200,000)

When the selling division has some idle capacity, but will have to interrupt current sales to supply the buying division, how is the lowest acceptable transfer price calculated? -Variable cost per unit + (Total contribution margin on lost sales ÷ Total transferred units) -Total contribution margin on all transferred units ÷ Total units sold and transferred -Variable cost per unit + (Total contribution margin on all transferred unit ÷ Total transferred units) -Variable cost per unit

-Variable cost per unit + (Total contribution margin on lost sales ÷ Total transferred units)

The materials price variance is __________. -generally unfavorable when lower than standard quality materials are purchased -charged to the production manager when production problems occur -impacted by the delivery method chosen -generally the responsibility of the purchasing manager

-charged to the production manager when production problems occur -impacted by the delivery method chosen -generally the responsibility of the purchasing manager

ROI can be calculated as ______. -average operating assets ÷ net operating income -margin × turnover -margin ÷ turnover -net operating income ÷ average operating assets

-margin × turnover -net operating income ÷ average operating assets

Material quantity variances __________. -use actual prices so that purchasing efficiency or inefficiency is excluded from the calculations -may be caused by faulty machinery or poor supervision -resulting from inferior materials are the responsibility of purchasing department manager -are usually the responsibility of the production manager

-may be caused by faulty machinery or poor supervision -resulting from inferior materials are the responsibility of purchasing department manager -are usually the responsibility of the production manager

Fancy Nail's monthly rent is $2,500. The company's static budget for March was based on the activity level of 2,000 manicures. Total sales was budgeted at $40,000 and nail technician wages (a variable cost based on the number of manicures) was budgeted at $20,000. Actual manicures in March totaled 2,200. Assuming no other expenses, Fancy Nails' flexible budget will show Blank______. -net operating income of $19,500 -wages of $20,000 -sales of $44,000 -rent expense of $2,750

-net operating income of $19,500 -sales of $44,000

Macey, Inc.'s investment center had average operating assets of $350,000, revenues of $1,050,000 and net operating income of $70,000. Return on investment is ___________

20% 70000/350000 = .2

Given a margin of 12%, sales of $150,000 and average operating assets of $90,000, the ROI is _____________%

20% margin = net op. inc./sales ROI = net op. inc/ ave. op. assets 12% = net op. inc./150,000 op inc. = 18000 18000/90000 = 20%

Fill in the blank question. Fancy Nails cost formula for miscellaneous expenses is $30 per operating day plus $0.25 per client served. Fancy Nails' miscellaneous expense budget in a month when the business is going to be open for 25 days and they expect to serve a total of 2,400 clients is $_________

25 x 30 = 750 2400 x .25 =600 600 + 750 = 1350

Toys, Trinkets and More requires a minimum rate of return of 12% on its average operating assets. The toy department currently has average operating assets of $300,000 and a net operating income of $42,000. The department's residual income is $__________

42,000 - (300,000 x .12) = $6000

Unfavorable variance:

Actual revenue is less than budgeted revenue.

Favorable variance

Actual revenue is more than budgeted revenue.

Return on investment = ______________

Net operating income ÷ Average operating assets

Which of the following ratios are part of the ROI formula? Cost of goods sold ÷ Average inventory Net operating income ÷ Sales Sales ÷ Average operating assets Sales on account ÷ Average accounts receivable

Net operating income ÷ Sales Sales ÷ Average operating assets

Which of the following statements are correct? Variable service department costs are charged to operating divisions based on the budgeted rate and actual activity. Fixed service department costs are based entirely on budgeted data. Fixed service department costs are based on actual cost and budgeted activity. Variable service department costs are charged to operating divisions based on the budgeted rate and budgeted activity.

Variable service department costs are charged to operating divisions based on the budgeted rate and actual activity. Fixed service department costs are based entirely on budgeted data.

Operating assets include ______. accounts receivable investments in bonds equipment inventory land held for investment

accounts receivable equipment inventory

The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is a(n) __________ variance.

activity

The range of acceptable prices is the range of transfer prices within which the profits of ____________ -both the buying and the selling divisions participating in a transfer would decrease -the selling division would decrease and the buying division would increase -the selling division would increase and the buying division would decrease -both the buying and the selling divisions participating in a transfer would increase

both the buying and the selling divisions participating in a transfer would increase

A quantity variance is_______ -based only on the standard quantity of inputs -calculated using the actual price of the input -calculated using the standard price of the input -based only on the actual quantity of inputs

calculated using the standard price of the input