Managerial Accounting EXAM 3

Which step in the management decision making process: identify the decision problem, or determine why a decision needs to be made in the first place

1

When a product line is eliminated, total variable cost should _____ in direct proportion to the reduction in production and sales of that product line

decrease

______ ______ are costs that change across decision alternatives

differential costs

A _____ fixed cost is one that can be traced to a specific business segment

direct

_____ _____ _____ is a fixed cost that can be attributed to specific business segment

direct fixed cost

_____ is the most constrained resource or the process that limits a system's output

bottleneck

Benefits of _____ include forcing managers to look ahead, which will help them to foresee potential problems such as running out of cash or inventory

budgets

_____ are an important part of organizing because they translate the company's objectives into financial terms and lay out the resources and expenditures required over a limited horizon

budgets

_____ impact the control function because they serve as a basis against which actual results are compared

budgets

A(n) _____ resource requires a manager prioritize how products are produced

constrained

_____ _____ are resources that are unable to meet the demand placed on them

constrained resource

_______ ______ ______ _____ ______ _____ ______ is step 3 of the management decision making process

evaluate the costs and benefits of alternatives

Which of the following is an advantage of budgeting? A. budgets focus on what has happened in the past B. budgets primarily help managers with day to day emergencies C. budgets communicate management's plan throughout the organization

C

_____ _____ budgeting requires managers to justify their expenditures each and every budgeting cycle instead of simply assuring previous period's levels are still appropriate

zero based

Which budget shows all costs of production other than direct materials and direct labor? A. manufacturing overhead budget B. cash budget C. merchandise purchases budget D. ending finished goods inventory budget

A

Which of the following is NOT a qualitative factor to consider in a make or buy decision? A. the variable production costs of the product B. the quality of the purchased product C. the reliability of the supplier

A

Which of the following is NOT a way to determine the sales forecast? A. long term objectives for R&D B. actual sales from prior periods C. planned marketing activities D. research on industry trends

A

Which of the following is NOT considered an operating budget? A. cash budget B. budgeted income statement C. selling and administrative expense budget D. raw materials purchase budget

A

Which of the following is NOT included on a budgeted cash payments budget? A. production in units B. depreciation C. cash paid for selling and administrative expenses D. payments for raw materials

A

The budgeted _____ _____ shows a company's planned profit

income statement

Monthly utility costs are estimated to be $1,200 regardless of the course of action; in this case the utility costs are considered a/an _____ _____

irrelevant cost

Each component of a(n) _____ budget is based on or provides input for another component

master

Costs that have already been incurred are _____ _____

sunk costs

Budgets are used for 2 distinct purposes: _____ and _____. The first of these purposes relates to developing goals and preparing various budgets, while the second involves comparing actual results to the budget A. directing; planning B. planning; controlling C. leading; controlling D. directing; leading

B

Common fixed costs A. are included in the calculation of segment margin B. will be incurred even if a segment is eliminated C. should be included in a keep or drop analysis D. can be assigned to specific company segments

B

1st step of the management decision making process is ______ ______ ______ _____

identifying the decision problem

Costs that can be avoided by choosing one option over another is an _____ _____

avoidable cost

_____ _____ is a cost that can be avoided by choosing one decision option instead of another

avoidable cost

An _____ cost is one that can be avoided by selecting a particular decision alternative. It's a _____ cost because it will differ between decision alternatives

avoidable, relevant

_____ give managers a goal to work toward as it directs their actions, and may either motivate or demotivate them

budgets

The decision to eliminate one product or service is unlikely to eliminate the _____ _____ costs that are shared by other product or service lines

common fixed

When a product line is eliminated, the _____ _____ costs allocated to that product will be redistributed to the remaining product lines

common fixed

_____ _____ _____ are costs shared by multiple segments that may be incurred even if a section is eliminated

common fixed costs

Discontinuing a _____ product can have a negative effect on related products

complementary

_____ _____ are products that are used together such as a printer and ink cartridge

complementary products

The 3 sections of the cash budget are _____, _____, and financing

disbursements, receipts

The _____ balance of cash appears on the budgeted balance sheet

ending

If a company has _____ capacity, increasing production will only increase the costs that vary with production

excess

When a company has more than enough resources to satisfy demand it's operating with ____ capacity

excess

Exists when a company has not yet reached the limit on its resources is ______ _____

excess capacity

If a company has enough _____ _____ of fill a special order without affecting "normal" sales, then there are no incremental fixed costs or opportunity costs to consider. Only the variable costs of the order must be covered by the sales price

excess capacity

When a company has not yet reached the limit on its resources, it has _____ _____

excess capacity

_____ _____ is the difference between a company's current level of production and what it could produce given its current operating structure and cost

excess capacity

_____ _____ occurs when a company has more than enough resources to satisfy demand

excess capacity

_____ capacity exists when a company has not yet reached the limit on its resources, while _____ capacity indicates that the limit on one or more resources has been reached

excess, full

The budgeted balance sheet is prepared using info from the _____ budgets

financial

_____ _____ are budgets that focus on the financial resources needed to support operations

financial budgets

_____ involves developing goals and objectives for the future

planning

_____ involves developing goals for the budget, whereas _____ involves determining if goal have been followed

planning, controlling

The _____ budget is used to compute the cash receipts, while the direct materials purchases, direct labor, manufacturing overhead, and selling administrative expense budgets are used to compute budgeted cash payments

sales

The first step in preparing the master budget process is the ____ budget or forecast

sales

The production budget is based upon the _____ budget

sales

______ _____ estimate of the total sales revenue to be generated in each budget period

sales budget

The _____ _____ is the starting point because all of the other budgets are based on it

sales forecast

The end result of the budgeting process is a set of _____ ______ financial statements that include a budgeted income statement, statement of cash flows, and budgeted balance sheet

pro forma

The _____ budget shows the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory

production

The raw materials purchases, direct labor and manufacturing overhead budgets are all based on the ____ budget

production

Once the _____ _____ has been prepared, the raw materials purchases, the direct labor, and the manufacturing overhead budgets can be prepared

production budget

_____ _____ budget that shows how many units need to be produced each period

production budget

The ______ ______ is based on last period's sales, industry trends, info from top management about sales objectives, input from research and development, and planned marketing activities

sales forecast

The starting point for preparing the master budget is the _____ _____

sales forecast

_____ ______ number of units expected to be sold each budget period. Serves as the starting point for all other components of the master budget

sales forecast

______ _____ calculated as revenue minus all costs that are directly traceable to a particular business segment

segment margin

_____ ______ ______ _____ _____ budget of selling and administration expenses required for the planned level of sales

selling and administrative expense budget

The budget that shows the budgeted expenses for areas other than manufacturing is the _____ and _____ expense budget

selling, administrative

_____ firms do not need to prepare production budgets, inventory budgets, or manufacturing overhead budgets but they need to prepare budgets to predict sales revenue, labor costs, supplies, and other non manufacturing expenses such as commissions and advertising

service

In the _____ run, constrained resources impacts management decisions by maximizing the amount of contribution margin generated by the most limited resources

short

______ _____ _____ specific goal that management wants to achieve in the short run; usually no longer than 1 year

short term objective

If the company has limited production capacity, filling the _____ _____ may create opportunity costs including lost revenue from regular sales, back orders, ect

special order

Negative consequences of accepting a _____ _____ include the potential impact sales made through "regular" channels, such as customers demanding the same reduced price that was given to the "special" order

special order

Management decision in which fixed manufacturing overhead is ignored as long as there's enough excess capacity to meet the order is _____ _____ _____

special order decision

Short term management decision made using differential analysis is _____ _____ _____, _____ _____ _____ _____, and _____ _____ _____ _____

special order decision, make or buy decisions, and keep or drop decision

_____ _____ _____ appellation of incremental analysis that requires managers to decide whether to accept or reject an order that's outside the scope of normal sales

special order decisions

_____ _____ _____ involve deciding whether to accept or reject an order that outside the normal scope of business, often at a reduced price

special order decisions

A _____ ____ is the starting point of the planning process and is the vision of what management wants to organization to achieve over the long term

strategic plan

The starting point of the planning process is management's _____ _____ or vision for the organization

strategic plan

_____ _____ managers' vision of what they want the organization to achieve over a long term horizon

strategic plan

_____ _____ products where one good can be used instead of another. Examples include butter and margarine, or sugar and artificial sweeteners

substitute products

Costs that are relevant to short term decision making are _____ _____

sunk costs

_____ _____ are costs that have already been incurred and are not relevant to future decisions

sunk costs

_____ specific actions or mechanisms that management uses to achieve objectives

tactics

T/F: Budgetary slack can sometimes be beneficial

true

Management decision in which lost revenue is compared to the reduction of costs to determine the overall effect on profit is _____ _____ _____ _____

keep or drop decision

_____ _____ _____ _____ application of incremental analysis that requires managers to decide whether to retain or eliminate a business segment or product

keep or drop decisions

In the _____ run, constrained resources impacts management decisions by eliminated non value added activities such as rework or waiting, or by increasing the capacity of the constrained resources such as hiring more workers, buying bigger or faster machines, or leasing additional space

long

_____ _____ _____ is a specific goal that management wants to achieve over a long term horizon, typically 5-10 years

long term objective

A strategic plan includes _____ term goals which are typically over a 5-10 year period and also include a ____ term or intermediate steps needed to achieve the long term goals

long, short

_____ _____ of make or buy decisions occur when a company loses an opportunity by making something internally as opposed to buying it from someone else (vice versa)

opportunity cost

_____ _____ benefits given up when one alternative is chosen over another

opportunity costs

Using a _____ _____, when one budget period passes, another is automatically added at the end

rolling budget

Eliminated of one product may also impact _____ of the remaining products as customers either move to one of the remaining products or move all or part of their business to another company

sales

A(n) _____ budget allows employees throughout the organization to have input into the budget setting process

participative

Disadvantages of _____ budgeting include the amount of time consumed and the fact that employees may try to build slack into a budget

participative

_____ _____ method that allows employees throughout the organization to have input into the budget setting process

participative budgeting

A _____ approach to budgeting is more likely to motivate people to work toward an organization's goal than a _____ _____ approach

participative, top down

When performing a keep or drop analysis, _____ fixed costs should be excluded from the analysis

common

When performing a keep or drop decision analysis, _____ fixed costs should be excluded from the analysis

common

A/an _____ _____ is the forgone benefit of choosing to do one thing over another

opportunity cost

Edison Corp's variable manufacturing overhead rate is $5 per direct labor hour. Budgeted direct labor cost is $20 per hour. Total budgeted fixed overhead is $25,000 per month. Total budgeted direct labor hours for the month of July is 20,000. Total budgeted manufacturing overhead for July is

$125,000 ((20,000 X 5) 100,000 + 25,000)

A(n) _____ translates company objectives into financial terms

budget

_____ is a measure of the limit placed on a specific resource

capacity

Davidson Corp's master budget shows expected direct labor cost of $90,000 for the month of May. During May, the company's expected sales equal 12,000 units and expected production is 15,000 units. If each unit requires 1/2 hour of direct labor, the budgeted direct labor rate is _____ per hour

$12 (15,000 X 1/2 hour or 7,500 required labor hours. 90,000/7,500)

Pastoria Enterprises has scheduled raw material purchases of $100,000 in January, $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February

$122,500 ((130,000 X 75%) 97,500 + Jan. purchases (100,000 X 25%) 25,000)

S&P's direct material cost is $6.50 per unit. The direct labor rate is $30 per hour and each unit takes 1/2 hour to produce. Variable manufacturing overhead is $2.75 per unit and total budgeted fixed overhead is $63,000. A sales commission of $5 is paid on each unit. If S&P expects to produce 9,000 units and sell 7,000 units, the total budgeted cost of goods sold for the year is

$218,750 (6.50 + 15 (30 X 1/2) + 2.75 + 7 (63,000/9,000)= 31.25 X 7,000)

Madison Corp's expected beginning cash balance for the month is $35,000. The company expects to collect $50,000 from customers. Cash disbursements are estimated to be $80,000. Management wants to maintain a minimum cash balance of $20,000. the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month

$25,000 (35,000 + 50,000 - 80,000= 5,000 + 20,000)

Sperling Company's master budget shows expected sales of 10,000 units and expected production 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15 per hour. Calculate the expected total direct labor cost for the month of March

$82,500 (11,000 X 1/2 X $15)

The forgone benefit of choosing one decision alternative over another is its _____ _____

opportunity cost

Blowing Sand Company has just received a one time offer to purchase 10,000 units of its Gusty model for a price of $22 each. The Gusty model costs $26 to produce ($17 in variable costs and $9 of fixed overhead). Because the offer came during a slow production month, Blowing Sand has enough excess capacity to accept the order. 1. Should blowing sand accept the special order? 2. Calculate the increase or decrease in short term profit from accepting the special order

1. Yes 2. Profit will increase $50,000 (10,000 fans X $5 contribution margin)

Identify which of these activities are steps in management's decision making process and place those steps in the order in which they should be executed. 1. Analyze how changes in cost structure affect CVP relationships 2. Make the decision 3. Eliminate the product line 4. Evaluate the costs and benefits of the alternatives 5. Prioritize products to maximize short term profits 6. Determine the decision alternatives 7. Process the product further 8. Review the results of the decision 9. Use cost volume profit analysis to determine sales needed to break even 10. Identify the decision problem

10, 6, 4, 2, 8

ABC Company expects to sell 100,000 units of its primary product in January. Expected beginning and ending finished goods inventory for January are 20,000 and 45,000 units, respectively. How many units should ABC produce?

125,000

If budgeted sales are 10,000 units, the desired ending inventory of finished goods is 5,000 units, and the beginning inventory of finished goods is 2,000 units, required production is

13,000 units (10,000 + 5,000 - 2,000)

ABC Inc's expected sales for the first 6 months of the year are as follows month expected unit sales Jan. 12,000 Feb. 15,000 March 16,000 April 20,000 May 22,000 June 25,000 Management believes that an appropriate ending inventory is 25% of current period sales. Calculate the number of units to be produced in March

16,250 (march sales 16,000 + ending inventory (25% of march sales) 4,000 - beginning inventory (25% of february sales) 3,750)

Which step in the management decision making process: determine the decision alternatives, or decide what the potential solutions to the problem are

2

Carter production, Inc's required production for the first 6 months of the year is as follows monthrequired production jan 50,000 feb 70,000 march 85,000 april 105,000 may 110,000 june 120,000 Each unit requires 2 pounds of material. Management believes that an appropriate ending inventory is 20% of next month's production needs. Calculate the pounds of material to be purchased in April

212,000 pounds (april production needs (105,000 X 2)210,000 + ending inventory (20% of May production needs: 110,000 X 2 X 20%)44,000 - beginning inventory (20% of April)42,000)

Which step in the management decision making process: evaluate the costs and benefits of the decision alternatives that were identified in the previous step

3

Which step in the management decision making process: make the decision based on the info gathered in the previous step

4

Tom Ellis recently bought a plasma tv and has since stated that he wouldn't recommend it to others. This indicates that Tom has completed which step of the decision making process?

5

Which step in the management decision making process: review the results of the decision with the goal of improving future decision making

5

Put the steps in the decision making process in order 1. make the decision 2. review the results 3. determine the decision alternatives 4. evaluate the costs and benefits 5. identify the decision problem

5, 3, 4, 1, 2

Organize the following budgets in order of preparation 1. cash budget 2. selling and administrative expense budget 3. manufacturing overhead budget 4. raw materials purchases budget 5. budgeted balance sheet 6. sales budget 7. direct labor budget 8. budgeted income statement 9. budgeted COGS 10. production budget

6, 10, 4, 7, 3, 9, 2, 8, 1, 5

Budgets that are most likely to motivate employees A. are tight but attainable B. contain budgetary slack C. are preparing using a top down approach D. are prepared using easy goals

A

Collections on credit sales made to customers in prior period(s) plus collections on sales made in the current budget period equal A. cash receipts B. cash payments C. merchandise purchases

A

Deciding what to do with a product that's ready to sell or could be enhanced is a A. sell or process further decision B. product line decision C. special order decision D. make or buy decision

A

Shasta Company plants to double its profits in 5 years. This is an example of a A. long term objective B. short term objective C. tactic D. sales forecast

A

The direct materials budget DIRECTLY relies on the A. production budget B. sales budget C. direct labor budget D. merchandise purchase budget

A

What kind of cost is gasoline when planning a trip and deciding to drive your car or take the train? A. relevant cost B. irrelevant cost C. sunk cost

A

What's added to the budgeted unit sales on a production budget to obtain the total number of units to be produced? A. budgeted ending inventory B. actual ending inventory C. budgeted beginning inventory D. actual beginning inventory

A

When a company is operating at full capacity A. a special order analysis includes the opportunity cost of lost sales B. a special order analysis is the same as if there's excess capacity C. a special order should never be considered or accepted D. a special order must consider the fixed manufacturing overhead costs

A

When making a one time special order decision, a company can ignore fixed overhead because A. the cost is not avoidable B. the cost is avoidable C. the cost cannot be determined D. none of the above

A

When resources are constrained, managers should prioritize products in order to maximize A. contribution margin per unit of the constrained resource B. sales volume C. opportunity cost D. fixed cost per unit of the constrained resource

A

When there's excess capacity, an analysis of a special order A. excludes fixed costs B. should include a sales price that's the same as the regular selling price C. includes opportunity costs D. isn't required because all special orders should be accepted

A

Abba Inc. is considering dropping a segment. During the prior year, the segment had sales of $207,000 and a contribution margin of $124,000. Fixed expenses consist of salaries $60,000 rent $50,000 advertising $20,000 administrative $35,000 total fixed expenses $165,000 The segment manager's $60,000 salary is a direct fixed cost as is the advertising. Of the administrative expenses, $10,000 is a direct fixed cost and the rest is part of common fixed costs. The rent expense is allocated to segments based on sales and represents a share of the total cost for building. If this segment were dropped, what would happen to the company's overall net operating income? A. overall net income would decrease by $34,000 B. overall net income would decrease by $124,000 C. overall net income would increase by $16,000 D. overall net income would increase by $41,000

A (the company would lose the $124,000 contribution margin. $90,000 of the fixed costs (salary, advertising and $10,000 of administrative) and direct fixed costs, so net income would decrease by $34,000)

Which of the following statements are true? (check all that apply) A. advertising for a specific product line is a direct fixed cost B. the general manager of a factory that has 3 separate product lines is a direct fixed cost C. direct fixed costs are avoidable if a segment is eliminated D. direct fixed costs will still be incurred if a segment is eliminated

A, C

ABC Lumber spent $1,000 cutting down a tree. The result was 40 unfinished logs that sell for $20 each and 100 bags of sawdust that sell for $1 each. If the unfinished logs are processed into finished lumber at a cost of $8 each, they will sell for $35. A bag of sawdust can be processed into Presto Logs that sell for $1.25 at a cost of $0.75 per bag. Which of the following statements are TRUE concerning whether the logs should be processed into finished lumber and whether the sawdust should be processed into Presto Logs? (check all that apply) A. the logs should be processed B. the sawdust should be sold as is without being processed into Presto Logs C. both the logs and the sawdust should be processed D. the $1,000 cost for cutting down the tree is relevant to the decision

A, B

Which of the following would be an advantage of dropping a division or other segment? (Check all that apply) A. an overall increase in net operating income B. avoiding more direct fixed costs than the company loses in contribution margin C. an overall decrease in other product line sales D. increasing relevant costs that the company incurs

A, B

A continuous or rolling budget (check all that apply) A. keeps managers in continuous planning mode B. adds one period to the end of the budget as each period comes to a close C. helps avoid games at the end of a budget period D. is also known as a zero based budget

A, B, C

When considering a make or buy decision managers should consider (check all that apply) A. qualitative factors B. opportunity costs C. all variable production costs D. all fixed production costs

A, B, C

Relevant costs (check all that apply) A. differ between alternatives B. are also called sunk costs C. occur in the future D. include all costs involved in a decision

A, C

When making a decision either to go to a movie or rent a DVD, choosing the movie instead of the DVD means that the cost of the DVD would be eliminated. This is an example of which type of cost? (check all that apply) A. avoidable cost B. sunk cost C. relevant cost D. future cost

A, C

Which of the following budgets are NOT needed in service firms (check all that apply) A. production B. selling and administrative C. manufacturing overhead D. cash

A, C

Financial budgets (check all that apply) A. include the cash budget B. impact the budgeted income statement C. include the capital expenditures budget D. impact the budgeted balance sheet

A, C, D

Which of the following are advantages of budgeting? (check all that apply) A. budgets force managers to think about and plan for the future B. budgeting provides each department with the same amount of money to spend, so that all departments are treated fairly C. budgets provide benchmarks for evaluating performance D. the budgeting process provides lead time to solve potential problems E. budgets promote cooperation and coordination between different areas within an organization

A, C, D, E

When an organization uses a top down approach to budgeting (check all that apply) A. top management sets the budget B. budgetary slack is often a problem C. employees are highly motivated to meet goals D. the budget is imposed on lower levels of the organization

A, D

When preparing a raw materials purchases budget, which of the following is needed to calculate the raw materials to be purchases (Check all that apply) A. raw materials per unit B. budgeted unit sales C. ending finished goods inventory D. beginning inventory of raw materials

A, D

When trying to decide if a particular cost is avoidable, how does a manager categorize irrelevant costs? (check all that apply) A. sunk costs B. future costs that differ between alternatives C. fixed costs D. future costs that do not differ between alternatives

A, D

Which of the following budgets are needed to calculate unit product costs (check all that apply) A. direct materials budget B. cash budget C. selling and administrative budget D. direct labor budget E. manufacturing overhead budget

A, D, E

Budgetary slack occurs when a manager submits a budget that's A. very vague B. too easy to attain C. much like budgets submitted over the previous few years D. too difficult to attain

B

Segment margin A. is calculated as part of a special order decision B. includes both variable and direct fixed costs C. includes both direct and common fixed costs D. is the same thing as contribution margin

B

Tactics are A. specific goals managers need to achieve B. specific actions or mechanisms C. used to develop the strategic plan D. detailed plans stated in financial terms

B

When determining which product or service makes the best use of constrained resource, a company has to determine which course of action will maximize the company's total A. fixed costs B. contribution margin C. net income from sales D. net sales

B

When is it profitable to continue processing a product instead of selling it as is? A. it's never profitable B. it's profitable when the incremental revenue exceeds the incremental manufacturing cost C. it's profitable when the incremental processing cost exceeds the incremental revenue D. it's always profitable

B

Which budget shows the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory? A. cash budget B. production budget C. direct materials budget D. sales budget

B

Which of the following causes opportunity costs to become relevant to management decisions? A. sunk cost B. operating at full capacity C. operating with idle or excess capacity D. avoidable costs

B

Which of the following is NOT a step of the management decision making process? A. review results of the decision B. contact competitors who have made similar decisions C. evaluate the costs and benefits of the alternatives D. determine the decision alternatives

B

Which of the following is NOT another term for relevant costs? A. avoidable costs B. sunk costs C. differential costs D. incremental costs

B

Which of the following is considered irrelevant when planning a trip? A. the cost of gasoline for the car B. the original cost of the car C. the tolls that will be paid during the drive to the destination

B

Which of the following should a company consider when making a decision? A. relevant and irrelevant costs and benefits B. relevant costs and benefits C. neither relevant nor irrelevant costs and benefits D. irrelevant costs and benefits

B

Which one of the following budgets should be prepared first? A. production budget B. sales budget C. direct materials budget D. cash budget

B

Stephens Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Stephens' per unit manufacturing costs for 20,000 units is cost per unit total VMC $12 $240,000 SS $3 $60,000 D $1 $20,000 AFO $7 $140,000 If the part is purchased, the supervisor position would be eliminated. The special equipment used to manufacture part XYZ has no other used and no salvage value. Total allocated fixed overhead would be unaffected by the decision. Should the company buy the part or continue to make it? A. buy- $100,000 advantage B. continue to make- $60,000 advantage C. buy- $80,000 advantage D. continue to make- $40,000 advantage

B (depreciation isn't a relevant cost. the avoidable costs of making the product are the variable costs plus the supervisor salary of $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make X 20,000 units))

Goodstone Tire Corp. sells tires for $90 each. Per unit costs associated with producing and selling the tires are direct materials $35 direct labor $10 factory overhead $20 The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has no excess capacity A. there will be no incremental profit or loss from the special order B. the incremental loss from the special order will be $25,000 C. the incremental profit from the special order will be $12,000

B (the total revenue of the special order is $65,000 and the cost is $53,000 (DM, DL, VO). The opportunity cost of lost sales is $37,000 (($90 regular cost-$53 of variable cost)X 1,000) for an overall loss of $25,000)

An analysis of a special order (check all that apply) A. uses the same decision making process as long term pricing decisions B. is different if a company has excess capacity that if it's at full capacity C. should consider the impact on regular customers

B, C

In the long term, companies can manage constraints by (check all that apply) A. prioritize products based on contribution margin B. increasing capacity C. hiring more workers D. eliminating value added activities

B, C

Short term objectives (check all that apply) A. are the starting point of strategic planning B. are an important component of long term objectives C. need to be achieved in one year or less D. are developed after the budget process

B, C

It's important to review the results of decisions because (check all that apply) A. it's important to make sure that all expected costs occurred B. feedback is an important component of managerial accounting C. they're likely to be unexpected costs and benefits D. corrective action may be needed

B, C, D

Incremental analysis (check all that apply) A. is an important component of identifying decision problems B. is also called differential analysis C. considers all costs and benefits of a decision D. may be referred to as relevant costing

B, D

Which of the following statements is true? (check all that apply) A. the general manager of a factory that has 3 separate product lines is a direct fixed cost B. direct fixed costs are avoidable if a segment is eliminated C. direct fixed costs will still be incurred if a segment is eliminated D. advertising for a specific product line is a direct fixed cost

B, D

Which of the following budgets are needed to calculate unit product costs? (check all that apply) A. selling and administrative budget B. manufacturing overhead budget C. cash budget D. direct labor budget E. direct materials budget

B, D, E

A _____ decision is a decision to carry out an activity internally or buy externally from a supplier A. product line B. sell or process C. make or buy D. special order

C

A business segment should only be dropped if a company can save more in fixed costs than it gives up in A. variable costs B. net income C. contribution margin D. segment sales

C

A(n) _____ order is a one time order that is NOT considered part of the company's normal ongoing business A. relevant B. supplier C. special D. standard

C

Budgets help companies A. meet short term objectives B. meet long term objectives C. both A and B D. none of the above

C

Determining decision alternatives A. is an important part of the feedback portion of decision making B. is done using incremental analysis C. is a critical step in the decision making process D. happens throughout the decision making process

C

In deciding whether to sell a product or continue to process it, costs incurred to get to product into its current condition _____ relevant in the decision A. are B. may be C. are not

C

Long term objectives are goals A. managers hope to achieve in 6-12 months B. that are used to develop a strategic plan C. managers hope to achieve in 5-10 years D. that are an integral part of the operating budget

C

Products that can be used in place of one another are called A. segment products B. common products C. substitute products D. complementary products

C

Sales revenue minus all costs (fixed or variable) of a particular division is known as A. gross margin B. contribution magin C. segment margin D. net operating income

C

The final step in the master budgeting process is to prepare the A. sales budget B. cash budget C. budgeted balance sheet D. budgeted income statement

C

To calculate the cash balance before financing on the cash budget A. add the beginning cash to the budgeted cash payments and subtract the budgeted cash receipts B. add the budgeted cash receipts to the budgeted cash payments and subtract the beginning cash balance C. add the beginning cash balance to the budgeted cash receipts and deduct budgeted cash payments D. add the cash borrowed or repaid to the ending cash balance

C

When making a decision A. neither quantitative nor qualitative data should be considered B. only quantitative data should be considered C. both quantitative and qualitative data should be considered D. only qualitative data should be considered

C

Which of the following costs is not likely to be completely eliminated by a decision to drop a product line? A. the variable overhead traced to that product line B. the cost of direct materials used to make the product C. the common fixed costs allocated to that product line D. all of the above will be completely eliminated

C

Which of the following is NOT an important qualitative factor? A. employee morale B. customer loyalty C. cost per unit D. quality considerations

C

Which of the following is NOT considered a direct benefit of budgeting? A. better communication B. motivating employees C. developing new product lines D. forcing managers to think ahead

C

Which of the following is a cost that can be eliminated in whole or in part by choosing one alternative over another? A. variable cost B. sunk cost C. avoidable cost D. irrelevant cost

C

Goodstone Tire Corp. sells tires for $90 each. Per unit costs associated with producing and selling the tires are direct materials $35 direct labor $10 factory overhead $20 The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has excess capacity A. there will be no incremental profit or loss from the special order B. the incremental loss from the special order will be $25,000 C. the incremental profit from the special order will be $12,000

C (the revenue per tire is $65 and the cost is $53 (DM, DL, VO), so each tire will generate $12 in incremental profit or $12,000 total)

Budgeted cost of goods sold is based on A. expected production B. actual sales C. actual production D. expected sales

D

Budgeted expenses for costs related to selling the product and managing the business are shown on the _____ budget A. manufacturing overhead B. cash C. ending finished goods inventory D. selling and administrative

D

What's multiplied by the budgeted unit sales to obtain total sales on the sales budget? A. budgeted units to be produced B. number of units budgeted to be sold C. budgeted gross margin % D. budgeted sales price per unit

D

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are _____ costs A. avoidable B. relevant C. irrelevant D. sunk

D

Raya Company is calculating its expected cash receipts for the month of June. This should NOT include A. cash sales made during June B. credit sales made during May C. credit sales made during June D. credit sales made during July

D

Sunk costs are always A. opportunity costs B. avoidable C. relevant D. irrelevant

D

The decision making approach in which a manager considers only costs and benefits that differ for alternatives is called A. incremental analysis B. outsourcing C. differential analysis D. either A or C

D

The entire budget must be created from scratch every period when using A. participative budgeting B. top down budgeting C. continuous budgeting D. zero based budgeting

D

The process of making a decision A. should consider both relevant and irrelevant costs B. starts with a determination of the decision alternatives C. varies depending upon the decision at hand D. is basically the same for all decisions

D

To calculate the direct labor requirement for each quarter A. multiply the number of direct labor hours required per unit times the number of units to be sold B. add the number of direct labor hours required per unit to the number of units to be produced C. add the number of direct labor hours required per unit to the number of units to be sold D. multiply the number of direct labor hours required per unit times the number of units to be produced

D

To maximize total contribution margin when a constrained resources exists A. produce the products with the lowest unit contribution margin B. produce the products with the highest unit contribution margin C. produce the products with the lowest contribution margin per unit of the constrained resource D. produce the products with the highest contribution margin per unit of the constrained resource

D

When making make or buy decisions, managers should consider A. alternate uses for any facility currently being used to make the item B. the costs of direct materials included in making the item C. qualitative factors such as whether the supplier can deliver the item on time and to the company's quality standards D. all of the above

D

Which of the following budgets is affected by the sales budget? A. direct labor budget B. cash receipts and payments budget C. selling and administrative budget D. all of the above

D

Which of the following budgets would be prepared earliest in a company's budgeting process? A. budgeted income statement B. budgeted balance sheet C. raw materials purchases budget D. production budget

D

Which of the following could be a constrained resource? A. machine hours B. direct materials C. factory space D. all of the above

D

Which of the following refers to the costs that ALWAYS differ between alternatives? A. irrelevant costs B. variable costs C. sunk costs D. relevant costs

D

Which of the following statements is TRUE? A. the first step in preparing the master budget is a budgeted balance sheet B. the master budget may be prepared in any order C. cooperation from management is not a required part of the budgeting process D. materials and labor budgets are based on the production budget

D

Which of the following statements is true? A. GAAP requires all companies to prepare budgets B. only newly formed companies need budgets C. most service firms prepare production budgets D. most companies would benefit from budgeting

D

Which phases of the management process are impacted by budgeting? A. planning B. directing/leading C. controlling D. all of the above

D

_____ happens when a manger creates a budget that understates expected revenues or overstates expected expenses A. zero based budgeting B. participative budgeting C. top down budgeting D. budgetary slack

D

Isabella Canon is considering taking a part time job at a local clothing store. She loves the store and shops there often, but unfortunately, employee discounts are given only to full time employees. If Isabella takes this job, she would have to withdraw from her Tuesday night basket weaving class to work. Accepting the job would also mean that Isabella must give up her volunteer work at the local animal sanctuary, an activity that she enjoys a great deal. The new job would pay approx. $125 per week but would cost Isabella $15 per week in gas. Isabella would be able to keep her Saturday afternoon job at the library that pays $40 per week. Identify if these factors are relevant or irrelevant to Isabella's decision 1. The $125 income from her new job 2. The $40 income from the library 3. The $50 nonrefundable registration fee Isabella paid for the basket weaving class 4. The $15 cost for gas 5. The $75 per month that Isabella spends on clothing 6. The time Isabella spends volunteering at the animal sanctuary

Relevant= 1, 4, 6 irrelevant= 2, 3, 5

_____ _____ comprehensive set of budgets that covers all phases of an organization's planned activities for a specific period

master budget

Utilizing different _____ for different purposes will minimize the impact of budgetary slack

budgets

Resource that's insufficient to meet the demands placed on them is _____

bottleneck

The process that's limiting overall output is called a(n) _____

bottleneck

_____ _____ is crucial because companies use budgets to plan their ongoing operations so they'll be able to meet their short term and long term objectives

budgetary planning

Managers who intentionally understate expected sales or overstate expected expenses are creating _____ _____

budgetary slack

_____ _____ is a cushion that managers may try to build into their budget by understating expected sales or overstating budgeting expenses so that they're more likely to come in under budget for expenses and over budget for revenues

budgetary slack

______ ______ results form employees' attempts to build a cushion or margin of safety into their budget so that they'll be more likely to meet or exceed their budgetary goal, and thus receive a better performance evaluation

budgetary slack

______ _______ can be detrimental if other decisions are based on the budget, without adjustment for it

budgetary slack

The _____ _____ _____ provides info about a company's expected financial position at a specific point in time

budgeted balance sheet

_____ _____ _____ forward looking balance sheet that shows expected balance of assets, liabilities, and owners' equity at the end of the budget period

budgeted balance sheet

_____ _____ _____ _____ _____ budgeted manufacturing cost per unit multiplied by budgeted unit sales

budgeted cost of goods sold

_____ _____ _____ is the budgeted sales less budgeted cost of goods sold

budgeted gross margin

The _____ _____ _____ provides info about a company's expected revenue, expenses, and profitability for a period of time

budgeted income statement

_____ _____ _____ is the forward looking income statement that summarizes budgeted sales revenues and expenses for the budget period

budgeted income statement

_____ _____ _____ _____ _____ is the sum of budgeted direct materials, direct labor, and manufacturing overhead stated on a per unit basis

budgeted manufacturing cost per unit

A measure of the limit placed on a specific resource is known as its _____

capacity

_____ is the measure of the limited capability of a resource

capacity

The _____ budget receives considerable attention because a company cannot exist without sufficient cash

cash

The components of the _____ budget include budgeted cash receipts, budgeted cash payments, and financing

cash

_____ _____ is the financial budget that provides info about budgeted cash receipts and payments

cash budget

_____ budgeting gives managers a constant period of budgets available and keeps them in a continuous planning mode instead of only once per period

continuous

The reason we focus on _____ _____ is that fixed costs will not change in the short run

contribution margin

Comparing actual results to budgeted pans is an example of management performing its _____ function

control

_____ _____ is the costs that differ between decision alternatives

differential costs

Only the _____ _____ costs traceable to a product are avoidable

direct fixed

_____ ____ _____ is a budget indicating the amount of direct labor needed to meet expected production

direct labor budget

______ _____ costs can be ignored when making special order decisions because these costs will remain the same regardless of whether the order is accepted or not, so long as the company has the capacity to the order

fixed overhead

At _____ capacity, opportunity costs become relevant and should be incorporated into the analysis

full

If a company is at _____ capacity, production cannot be increased without incurring additional fixed costs

full

When a company's operating at _____ capacity, it means the limit on one or more resources has been reached, and making the choice to do one thing means giving up the opportunity to do something else

full

_____ costs are relevant when firms are at full capacity because choosing to do one thing forces managers to give up something else

full

At _____ _____ opportunity costs become relevant and should be incorporated into the analysis

full capacity

Opportunity costs become relevant when a company is operating at _____ _____

full capacity

_____ _____ occurs when a company is operating its resources to the limit of its capacity. No additional units can be produced or customers served without increasing capacity or incurring opportunity costs

full capacity

_____ ______ exists when a company has met its limit on one or more resources

full capacity

For a cost to be relevant it must be a _____ cost that differs between decision alternatives

future

Decide whether the statement about management's decision making process is correct or incorrect 1. The final step in management's decision making process is to actually make the decision 2. In making business decisions, management will ordinarily only concern financial info because it's objectively determined 3. The 1st step in management's decision making process is to determine the decision alternatives 4. Relevant costing is used for short term decision making because it focuses only on the cost and benefits that are relevant to the decision at hand 5. Under incremental analysis, variable costs will change under different courses of action, but fixed costs will never change 6. Decisions involve a choice among alternative courses of action 7. When using differential analysis, some costs will change under alternative courses of action, but revenues will not change

incorrect= 1, 2, 3, 5, 7 correct= 4, 6

Comparing the relevant costs and benefits of alternative decision choices is called _____ _____

incremental analysis

_____ _____ is the decision making approach that focuses on the differential costs and benefits of alternative decision choices

incremental analysis

Make or buy decisions are also referred to as _____ vs. _____ decisions

insourcing, outsourcing

When making decisions, managers should ignore _____ costs

irrelevant

Decide whether it's relevant or irrelevant 1. Decision: should you take the bus or drive your car to school for the semester? Cost: $300 repair bill to fix brakes 2. Decision: Eliminate an unprofitable segment. Cost: unavoidable fixed overhead 3. Decision: make or buy a component used in manufacturing a product. Benefit: selling price of the final product 4. Decision: accept a special order. Cost: variable overhead 5. Decision: sell unassembled and unfinished furniture or sell finished assembled furniture. Cost: the cost of producing an unfinished and unassembled table 6. Decision: XYZ Tire Company is considering dropping one of its 10 models of tires. Cost: common fixed costs 7. Decision: ABC Golf Co. produces custom golf clubs and is considering purchasing the putter from a manufacturer of custom putters. Cost: direct labor 8. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Cost: cost of flight crew 9. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Cost: in flight meals 10. Decision: A major regional airline has been approached to provide 200 seats at a discounted price to Tampa, FL, for an executive training session. The airline has excess capacity on the scheduled flight date. Benefit: discounted ticket price

irrelevant= 1, 2, 3, 5, 6, 8 relevant= 4, 7, 9, 10

Management decision in which relevant costs of making a product internally are compared to the cost of purchasing that product is a _____ _____ _____ ______

make or buy decision

_____ _____ _____ _____ application of incremental analysis that requires managers to decide whether to perform a particular activity or function in house or to purchase it from an outside supplier

make or buy decisions

The _____ _____ budget shows all costs of production other than direct materials and direct labor

manufacturing overhead

_____ _____ _____ budget that estimates the manufacturing overhead costs needed to support budgeted production

manufacturing overhead budget

A _____ budget is a comprehensive set of budgets that covers all phases of an organization's planned activities for a specific period

master

The _____ budget is a comprehensive set of budgets that covers all phases of planned activities for a specific period

master

The _____ _____ is a set of interrelated budgets that constitutes a plan of action for a specific period

master budget

The _____ budget feeds directly into the cash budget

operating

The _____ budget is made up of the sales forecast, production budget, direct materials purchases budget, direct labor budget, manufacturing overhead budget, selling and administrative budget, and budgeted income statement

operating

The _____ budgets also affect other elements of the budgeted balance sheet, including budgeted accounts receivable, inventory, accounts payable, and owner's equity

operating

_____ budgets includes sales, productions, and purchases budgets

operating

The _____ _____ establish goals for the company's sales and production personnel

operating budget

_____ _____ budgets that cover the organization's planned operating activities for a particular period of time

operating budgets

Distinguish whether is an operating or financing budget 1. cash budget 2. sales budget 3. raw materials purchases budget 4. selling and administrative expense budget 5. budgeted balance sheet 6. manufacturing overhead budget 7. direct labor budget 8. budgeted income statement 9. production budget

operating= 2, 3, 4, 6, 7, 8, 9 financing= 1, 5

An _____ cost is what you give up when you choose to do something

opportunity

If a company has a resource that could be used for something else, the _____ cost is the profit that could be derived from the best alternative use of the resource

opportunity

When managers are forced to choose one alternative over another due to limited employee time and equipment availability, the business manager is facing _____ costs

opportunity

_____ _____ _____ _____ budget that indicates the quantity of raw materials that must be purchased to meet production and raw materials inventory needs

raw materials purchases budget

Costs that differ between alternatives are called _____ costs

relevant

Only those costs and benefits that differ in total between alternatives are _____ in a decision

relevant

A/an _____ _____ has the potential to influence a particular decision and will change depending on the alternative a manager selects

relevant cost

The local summer baseball league wants to buy new uniforms for its teams. The current uniforms are quite old and will require $400 in repairs before they can be handed out to players next week for the upcoming season. The old uniforms will be replaced as soon as new ones can be purchased. League leaders have investigated several possible fund raisers and have narrowed the choice down to 2 options: candy sales and car washes. Each option can generate the $2,500 that the new uniforms would cost. Option 1: The candy sales option would require the league to purchase 2,000 candy bars at a cost of $0.75 each. The players and coaches would then sell the bars for $2 each. The league estimates that it would take about 4 weeks to sell the candy and collect all of the money Option 2: The car wash option would require about $200 for buckets, sponges, soap, and towels. A local business has offered to donate the water (estimated at $300 total) and a location. The car washes would be held on Saturdays, and each team would be required to provide workers. Each car wash day is expected to generate $450 in proceeds, so the league expects that it would take 6 weeks to raise $2,500 Which factors are relevant and irrelevant to deciding which project to engage in 1. Repair costs for the old uniforms, $400 2. Initial outlay to purchase the candy bars, $1,500 3. Initial outlay to purchase car wash supplies, $200 4. Cost of water for the car wash option, $300 5. Cost of the new uniforms, $2,500 6. Additional 2 weeks that the car wash option would require to raise the money

relevant= 2, 3, 6 irrelevant= 1, 4, 5

Unlike a "_____ ______" approach to budgeting where budgets are set by upper management and imposed on employees, participative budgeting allows employees to provide input into their own budget

top down

______ _____ _____ budgeting method in which top management sets a budget and imposes it on lower levels of the organization

top down approach