ACC 321 - Exam #2 - Chap 6-9

Information pertaining to Brenton Corporation's sales revenue is presented in the following table. February March April Cash sales $160,000 $150,000 $120,000 Credit sales 300,000 400,000 280,000 Total sales $460,000 $550,000 $400,000 Management estimates that 5% of credit sales are not collectible. Of the credit sales that are collectible, 60% are collected in the month of sale and the remainder in the month following the sale. Cost of purchases of inventory each month is 70% of the next month's projected total sales. All purchases of inventory are on account; 25% are paid in the month following the purchase. Brenton's budgeted total cash payments in March for inventory purchases are a. $358,750 b. $280,000 c. $385,000 d. $306,250

A) 358,750

Budgeting is the common accounting tool companies' use for planning and controlling. Budgets a. are prepared independent of the company's long-term strategies. b. provide a measure of planned financial results. c. serve as the financial expression of management's plans for the upcoming period. d. do not usually reflect actual results, so they are a useless exercise.

C) serve as the financial expression of management's plans for the upcoming period.

Controllability: a. is always clear cut as to who has responsibility for a cost. b. is another term for responsibility. c. is the responsibility of the corporate controller. d. is the degree of influence a specific manager has over costs, revenues, and other items.

D) is the degree of influence a specific manager has over costs, revenues, and other items.

Information on Pruitt Company's direct-material costs for the month of July 2005 was as follows: Actual quantity purchased 30,000 units Actual unit purchase price $2.75 Materials purchase-price variance —unfavorable (based on purchases) $1,500 Standard quantity allowed for actual production 24,000 units Actual quantity used 22,000 units For July 2005, there was a favorable direct-materials efficiency variance of a. $7,950. b. $5,400. c. $5,600. d. $5,500.

b. $5,400.

The basic principles and concepts of variance analysis can be applied to activity-based costing a. with use of standard costing systems only. b. by application as to the levels of cost hierarchy. c. through careful classification of costs as direct and indirect as applied to the product or job. d. only through those activities related to individual units of product or service.

b. by application as to the levels of cost hierarchy.

Which of the following is true of capacity costs? a. Capacity costs cannot be used with activity-based costing. b. Capacity costs are difficult to estimate. c. Capacity costs do not arise in the nonmanufacturing parts of the value chain. d. Capacity costs don't provide a useful planning tool for nonmanufacturing firms.

b. Capacity costs are difficult to estimate.

Which of the following inventory costing methods shown below is required by GAAP (Generally Accepted Accounting Principles) for external financial reporting? a. variable costing b. absorption costing c. direct costing d. throughput costing

b. absorption costing

Under absorption costing, fixed manufacturing costs ________. a. are treated as an expense b. are inventoriable costs c. are sunk costs d. are period costs

b. are inventoriable costs

Which of the following measures capacity levels in terms of demand for the output of the plant? a. practical capacity and theoretical capacity b. normal capacity utilization and master-budget capacity utilization c. theoretical capacity and normal capacity utilization d. master-budget capacity utilization and practical capacity

b. normal capacity utilization and master-budget capacity utilization

Information for Garner Company's direct-labor costs for the month of September 2005 was as follows: Actual direct-labor hours 34,500 hours Standard direct-labor hours 35,000 hours Total direct-labor payroll $241,500 Direct-labor efficiency variance—favorable $3,200 What is Garner's direct-labor price (or rate) variance? Hint: Labor efficiency variance can be calculated by using (actual hours - standard hours) x standard rate. a. $17,250 unfavorable b. $21,000 favorable c. $20,700 unfavorable d. $21,000 unfavorable

c. $20,700 unfavorable

The following information is available for the Gabriel Products Company for the month of July: Static Budget Actual Units 5,000 5,100 Sales revenue $60,000 $58,650 Variable manufacturing costs $15,000 $16,320 Fixed manufacturing costs $18,000 $17,000 Variable marketing and administrative expense $10,000 $10,500 Fixed marketing and administrative expense $12,000 $11,000 The total sales-volume variance for operating income for the month of July would be a. $100 favorable. b. $1,350 unfavorable. c. $700 favorable d. $2,550 unfavorable.

c. $700 favorable

Which of the following is not an advantage for using standard costs for variance analysis? a. Standards simplify product costing. b. Standards are usually expressed on a per-unit basis. c. Standards are developed using past costs and are available at a relatively low cost. d. Standards can take into account expected changes planned to occur in the budgeted period.

c. Standards are developed using past costs and are available at a relatively low cost.

The higher the denominator level, the ________. a. higher the budgeted fixed manufacturing cost rate b. more likely actual output will exceed the denominator level c. lower the amount of fixed manufacturing costs allocated to each unit produced d. higher the favorable production-volume variance

c. lower the amount of fixed manufacturing costs allocated to each unit produced

Practical capacity is the denominator-level concept that ________. a. is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year b. is the maximum level of operations at maximum efficiency c. reduces theoretical capacity for unavoidable operating interruptions d. is based on anticipated levels of capacity utilization for the coming budget period

c. reduces theoretical capacity for unavoidable operating interruptions

Bartholomew Corporation's master budget calls for the production of 6,000 units of product monthly. The master budget includes indirect labor of $396,000 annually; Bartholomew considers indirect labor to be a variable cost. During the month of September, 5,600 units of product were produced, and indirect labor costs of $30,970 were incurred. A performance report utilizing flexible budgeting would report a flexible-budget variance for indirect labor of a. $2,030 favorable. b. $170 favorable. c. $2,030 unfavorable. d. $170 unfavorable.

d. $170 unfavorable.

Flexible budgets a. are static budgets that have been revised for changes in price(s). b. are used to evaluate capacity utilization. c. accommodate changes in the inflation rate. d. accommodate changes in activity levels.

d. accommodate changes in activity levels.

Benchmarking is a. best done with the best in their field regardless of type of company. b. relatively easy to do with the amount of available financial information about companies. c. simply reporting the magnitude of differences in costs or revenues across companies. d. making comparisons to direct attention to why differences in costs exist across companies.

d. making comparisons to direct attention to why differences in costs exist across companies.

The only difference between variable and absorption costing is the expensing of ________. a. direct manufacturing costs b. variable marketing costs c. variable administrative costs d. fixed manufacturing costs

d. fixed manufacturing costs

Performance evaluation using variance analysis should guard against a. emphasis on a single performance measure. b. emphasis on total company objectives c. basing effect of a manager's action on total costs of the company as a whole. d. highlighting individual aspects of performance.

d. highlighting individual aspects of performance.

Information pertaining to Brenton Corporation's sales revenue is presented in the following table. February March April Cash sales $160,000 $150,000 $120,000 Credit sales 300,000 400,000 280,000 Total sales $460,000 $550,000 $400,000 Management estimates that 5% of credit sales are not collectible. Of the credit sales that are collectible, 60% are collected in the month of sale and the remainder in the month following the sale. Cost of purchases of inventory each month is 70% of the next month's projected total sales. All purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month following the purchase. Brenton's budgeted total cash receipts in April are a. $448,000. b. $431,600. c. $328,000. d. $437,000.

B) 431,600

Hester Company budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels (in units) are planned for the fiscal year of July 1, 2004 through June 30, 2005. July 1, 2004 June 30, 2005 Raw material1 40,000 10,000 Work-in-process 8,000 8,000 Finished goods 30,000 5,000 1 Three (3) units of raw material are needed to produce each unit of finished product. If Hester Company plans to sell 500,000 units during the 2004-2005 fiscal year, the number of units it would have to manufacture during the year would be a. 500,000 units. b. 475,000 units. c. 505,000 units d. 480,000 units

B) 475000

Which of the following is not a major benefit of budgets? A) Compels planning B) Eliminates innovation C) Provides performance criteria D) Promotes coordination and communication

B) Eliminates innovation

Which of the following does not pertain to financial planning models in software form? a. Performs calculations that are mathematical representations of relationships in master budget b. Eliminates need to update budgets as uncertainty resolved c. Assists managers with sensitivity analysis d. Reduces computational burden and time required to prepare budgets

B) Eliminates need to update budgets as uncertainty resolved

Which of the following statements does not describe responsibility accounting? a. It measures the plans and actions of each responsibility center. b. It identifies managers at fault for operating problems by reports for each responsibility center. c. It budgets to emphasize that for which each responsibility center is accountable. d. It calculates variances between budgeted and actual accountability for each responsibility center.

B) It identifies managers at fault for operating problems by reports for each responsibility center.

Dewitt Co. budgeted its activity for October 2004 from the following information: Sales are budgeted at $750,000. All sales are credit sales and a provision for doubtful accounts is made monthly at the rate of 2% of sales. Merchandise inventory was $120,000 at September 30, 2004, and an increase of $10,000 is planned for the month. All merchandise is marked up to sell at invoice cost plus 50%. Estimated cash disbursements for selling and administrative expenses for the month are $105,000. Depreciation for the month is projected at $25,000. Dewitt is projecting operating income for October 2004 in the amount of a. $230,000. b. $119,000. c. $105,000. d. $129,000.

C) 105,000

Hester Company budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels (in units) are planned for the fiscal year of July 1, 2004 through June 30, 2005. July 1, 2004 June 30, 2005 Raw material1 40,000 10,000 Work-in-process 8,000 8,000 Finished goods 30,000 5,000 1 Three (3) units of raw material are needed to produce each unit of finished product. If 450,000 finished units were to be manufactured during the 2004-2005 fiscal year by Hester Company, the units of raw material needed to be purchased would be a. 1,350,000 units. b. 1,330,000 units. c. 1,360,000 units. d. 1,320,000 units.

D) 1,320,000

________ is the continuing reduction in the demand for a company's products that occurs when competitor prices are not met. a. Downward demand spiral b. Continuous step down demand c. Super-variable costing d. Competitor pricing pressure

a. Downward demand spiral

If the unit level of inventory increases during an accounting period, then ________. a. more operating income will be reported under absorption costing than variable costing b. less operating income will be reported under absorption costing than variable costing c. the exact effect on operating income cannot be determined d. operating income will be the same under absorption costing and variable costing

a. more operating income will be reported under absorption costing than variable costing

The contribution-margin format is used for ________. a. variable costing income statement b. mixed costing income statement c. absorption costing income statement d. job order costing income statement

a. variable costing income statement