ACC 203 Exam 2

The budgeted balance sheet shows the company's planned profit, and serves as a benchmark to compare to actual performance.

False

The cash budget is the starting point in preparing the master budget.

False

The cash budget should be broken down into time periods that are as long as feasible.

False

We can determine the break-even point by simply adding together all of the expenses from the income statement.

False

When a company structures its sales commissions, it should always base them on sales dollars alone, without considering the relative contribution margin of various products sold.

False

To simplify cost-volume-profit calculations, managers typically adopt assumptions. Which of the following is an assumption underlying cost-volume-profit (CVP) analysis?

In multiproduct companies, the sales mix is constant.

In a budgeted income statement, _________ is subtracted from sales to arrive at gross margin.

cost of goods sold

Which of the following explains why operating budgets generally span a period of one year?

Companies choose a span of one year to correspond to their fiscal years.

Which of the following is deducted from the total selling and administrative expense budget to determine the cash disbursements for selling and administrative expense budget?

Depreciation expense

Which of the following is not a benefit of self-imposed budgets? A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet. Budget estimates prepared by front-line managers are often more accurate and reliable. Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations. Motivation is generally higher.

Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations.

Fill in the blank: The basic idea underlying ___________________________ is that a manager should be held responsible only for those items that they can control to a significant extent.

Responsibility Accounting

Which of the following is true of self-imposed (participative) budgets?

Self-imposed budgets give managers at all levels of an organization an opportunity to provide input into the budgeting process.

Which of the following is not a benefit of budgeting? The budgeting process enables managers to uncover bottlenecks as they occur. Budgets communicate management's plans throughout the organization. Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.

The budgeting process enables managers to uncover bottlenecks as they occur.

A benefit from budgeting is that it forces managers to think about and plan for the future.

True

A company's margin of safety is $50,000. If the company's sales drop by $60,000, it will have negative net operating income (in other words, a net loss).

True

A continuous or perpetual budget is a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed.

True

If the variable expense per unit decreases, and all other factors remain the same, the contribution margin ratio will increase.

True

Ruby Corporation's margin of safety is $90,000. If the company's sales drop by $80,000, it will still have positive net operating income.

True

The basic idea underlying responsibility accounting is that a manager should be held responsible for those items—and only those items—that the manager can actually control to a significant extent.

True

The budgeted balance sheet is developed using data from the actual balance sheet from the beginning of the budget period, as well as data in various other budget schedules.

True

The budgeted variable selling and administrative expense is calculated by multiplying the budgeted unit sales by the variable selling and administrative expense per unit.

True

The cash disbursements section of a cash budget consists of all budgeted cash payments for the period except repayment of principal and interest.

True

The cash disbursements section of the cash budget consists of all budgeted cash payments for the period except repayment of principal and interest.

True

The first step in the budgeting process is the preparation of the sales budget.

True

The margin of safety is the amount by which sales can decrease before losses are incurred by the company.

True

The master budget consists of a number of separate but interdependent budgets.

True

The selling and administrative budget is typically prepared before the cash budget.

True

To prepare a schedule of expected cash collections for a company that makes sales on account, we must know the expected cash collection pattern of the company.

True

If the contribution margin is not sufficient to cover fixed expenses:

a loss occurs

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.

contribution margin

The measure of how sensitive net operating income is to a given percentage change in dollar sales is called _______.

operating leverage

The system of accountability in which managers are held responsible for those items of revenue and costs—and only those items—over which they can exert significant control is referred to as ________.

responsibility accounting

The budgeting process begins with the preparation of the ______ budget.

sales

Contribution margin equals ________.

sales minus variable cost

A company determines that the number of units sold is the cost driver for its variable selling and administrative expense budget. The product of its variable selling and administrative rate and budgeted unit sales will be ________.

total budgeted variable selling and administrative expenses

Break-even point is the level of sales at which ______.

total revenue equals total costs