Accounting 2 Exam 3

Which of the following is a difference between a static and a flexible budget?

Static budgets are based on a single estimate of volume, whereas flexible budgets show estimated costs and revenues at a variety of activity levels.

Item to ClassifyStandardActualSales Revenue 820,000 835,000 Wages 125,000 128,000 S&A Expenses 400,000 408,000 Cost of Goods Sold 608,000 600,000 Which of the following statements is incorrect?

The S&A expense variance is favorable

Select the incorrect statement about the planning process.

The longer the time period, the more specific the plans.

Select the correct statement about the master budget.

The master budget usually includes operating budgets and capital budgets and pro forma financial statements.

Which of the following statements regarding the schedule of cost of goods manufactured and sold is correct?

The schedule is an internal document that is not presented with the company's financial statements, and, in addition, the schedule of cost of goods manufactured and sold reports the amount of direct raw materials used during the period.

What is the role of top management in a participative budgeting system?

Top management must ensure that employee-generated objectives are consistent with those of the company.

Jones Manufacturing Company experienced an accounting event that affected its financial statements as indicated below: Assets=Liabilities+EquityRevenue−Expenses=Net Income+− NA NANA NA NA Which of the following accounting events could have caused the indicated effects on the firm's accounting equation?

Transferred cost of goods manufactured from the Work in Process Inventory to the Finished Goods Inventory account.

Which manager is normally held responsible for fixed cost volume variances?

Upper-level marketing managers

Volume variances are computed for which of the following costs?

Variable manufacturing and selling and administrative costs

Management recently instituted a new training program for upper-level managers. They budgeted the cost of the new program at $1,000 per employee trained, but actual costs were $1,250 per employee trained. The difference between the budgeted cost for training and the actual cost of training is called a:

Variance.

Purchasing production supplies for cash is a(n):

asset exchange transaction.

Kelly Company's manufacturing overhead costs totaled $2,871,400 during the year. At the end of the year, manufacturing overhead had been underapplied by $5,310. As a result:

cost of goods sold increases.

All of the following costs are accumulated in the Work in Process Inventory account except:

depreciation on factory equipment.

Cost information for services or products produced by a company is needed for:

determining the company's selling prices. external reporting. managerial decisions.

Budgeted cash payments for inventory would appear on the:

inventory purchases budget and pro forma statement of cash flows.

Which of the following statements is incorrect?

none of the above - In deciding whether to investigate a variance, managers should not consider the materiality of the variance. - A material variance is one that will influence stockholders' investment decisions. - The primary advantage of a standard cost system is to price products consistently.

Herald Company paid $2,800 cash for production supplies. The recognition of this event will:

not impact total assets.

The Winchester Company estimates that its overhead costs will amount to $595,000 and the company's manufacturing employees will work 85,000 direct labor hours during the current year. If actual overhead costs for the year amounted to $599,000 and actual labor hours amounted to 87,000, then overhead would be:

overapplied by $10,000.

A reporting unit of a decentralized business that controls identifiable revenue and/or expense items is known as a(n):

responsibility center

Budgeted sales commissions would appear on the:

selling, general, and administrative budget and pro forma income statement

The sales volume variance is the difference between the:

static budget (based on planned volume) and the flexible budget (based on actual volume).

Planning concerned with long-range decisions such as defining the scope of the business is referred to as:

strategic planning

Bates Company recognized $16,000 of estimated manufacturing overhead costs at the end of the month. As a result of this transaction the:

temporary account manufacturing overhead decreases and the work in process account increases.

An organizational unit of a business that incurs costs and generates revenues is known as a(n):

Profit center.

The inventory purchases budget is based on which budget?

Sales Budget

Which of the following accounts would appear on the sales budget and the pro forma income statement?

Sales Revenue

Which of the following would represent the order in which most master budgets are prepared?

Sales, Purchases, Cash, Income Statement

Which of the following income statement formats is most commonly used with flexible budgeting?

Sales − Variable costs = Contribution margin; Contribution margin − Fixed costs = Net income

Ringgold Company had beginning finished goods of $36,000. During the period, the company produced goods that cost $150,000. If the ending balance in the Finished Goods Inventory account was $24,000, the amount of cost of goods sold was:

$162,000.

Which of the following would increase residual income? (Assume all other things are equal)

Decrease in investment

Which of the following should not be included in the investment base used to compute residual income?

Land held for future use

Select the incorrect statement concerning the human factor of performance evaluation.

Managers should always be punished for unfavorable variances.

A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the:

Master Budget

The accounting records for Eisner Manufacturing Company included the following cost information relating to its first year of operations: Direct materials$60,000 Direct labor$80,000 Fixed manufacturing overhead$100,000 Variable manufacturing overhead$20,000 Assume the company produced 10,000 units of inventory and sold 6,000 of these units during the year for $192,000. The cost per unit under variable and absorption costing would be, respectively:

$16.00 and $26.00.

The Russell Company provides the following standard cost data per unit of product: Direct material (3 gallons @ $6 per gallon)$18.00 Direct labor (2 hours @ $10 per hour)$20.00 During the period, the company produced and sold 22,000 units, incurring the following costs: Direct material68,000gallons@$5.90per gallonDirect labor45,500hours@$9.75per hour The direct material usage variance was:

$12,000

Newton Corporation entered into the following transactions during its first year of operations. (Assume all transactions involve cash.) 1) Acquired $2,000 of capital from the owners. 2) Purchased $600 of direct raw materials. 3) Used $400 of these direct raw materials in the production process. 4) Paid production workers $800 cash. 5) Paid $400 for manufacturing overhead (applied and actual overhead are the same). 6) Started and completed 200 units of inventory. 7) Sold 50 units at a price of $12 each. 8) Paid $80 for selling and administrative expenses. The amount of net income for the year was:

$120.

Item to ClassifyStandardActualSales Revenue 820,000 835,000 Wages 125,000 128,000 S&A Expenses 400,000 408,000 Cost of Goods Sold 608,000 600,000 The sales revenue flexible budget variance was:

$15,000 favorable

Payne Company reported the following information for the current year: Sales$1,600,000 Average Operating Assets$500,000 Desired ROI 14%Net Income$85,000 The company's residual income was:

$15,000.

Which manager is usually held responsible for materials usage variances?

Production supervisor

The following standard cost card is provided for Navid Company's Product A: Direct material (2 lbs. @ $5.00 per lb.)$10.00 Direct labor (1 hr @ $8.00 per hr.) 8.00 Variable overhead (1 hr. @ $3.00 per hr.) 3.00 Fixed overhead (1 hr. @ $2.00 per hr.) 2.00 Total standard cost per unit$23.00 The fixed overhead rate is based on total budgeted fixed overhead of $12,000. During the period, the company produced and sold 5,800 units at the following costs:Direct material 12,200 pounds @ $4.80 per poundDirect labor 5,950 hours @ $8.00 per hourOverhead $29,920The standard manufacturing cost per unit is $23.00. What is the actual manufacturing cost per unit? (Do not round intermediate calculations.)

$23.46

McDonnell Industries estimated manufacturing overhead for the year at $290,000. Manufacturing overhead for the year was underapplied by $12,000. The company applied $235,000 to work in process. The amount of actual overhead would have been:

$247,000.

The Cineplex Movie Theater has invested in a snack bar for its store, where individual pizzas would be prepared and sold. The investment cost the company $45,000. The company expects a sales volume for the new product to be 12,000 pizzas a year. Variable materials, preparation, and marketing costs are expected to be $1.50 per unit and fixed costs are estimated at $15,000 a year. Based on a desired 12% ROI, what should Cineplex charge as the selling price per pizza?

$3.20

The accounts payable balance at the beginning of the year was $85,000. The company purchased $380,000 worth of goods on account, and the ending balance of the payables account was $70,000. What were the total payments on account?

$395,000

Purchases on account are given below: October 30,000 November 40,000 December 50,000 55% of the month's purchases will be paid in the month of the purchase; the remaining 45% will be paid in the following month.How much will the cash payments for purchases be in December?

$45,500

Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: January February MarchSalary expense$40,000 $36,000 $36,000 Sales commissions, 5% of sales 24,000 30,000 28,000 Utilities 2,800 2,800 2,800 Depreciation on store equipment 1,800 1,800 1,800 Rent 7,200 7,200 7,200 Miscellaneous 1,800 1,800 1,800 Total operating expenses$77,600 $79,600 $77,600 Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of cash to be paid for operating expenses during the month of January is:

$51,800

Oakland Company paid $200 cash for various manufacturing overhead costs, not before recorded. How does this transaction affect the financial statements? Assets=Liabilities+EquityRevenue−Expenses=Net IncomeCash+Manufacturing Overhead

(200)+200=NA+NANA−NA=NA

Which of the following statements regarding a balanced scorecard is correct?

- A balanced scorecard includes several different performance measures that can be used to assess how well a business is accomplishing its mission. - A balanced scorecard includes financial performance measures such as ROI. - A balanced scorecard includes nonfinancial measures such as defect rates or on-time deliveries.

Which of the following reason(s) cause flexible budgets to be useful planning tools?

- Flexible budgets allow managers to anticipate results under a variety of scenarios - Flexible budgets can help determine if a company's cash position is adequate. - Flexible budgets can help managers judge if materials and storage facilities are appropriate for various production levels.

Which of the following can reduce the amount of employees' budget gamesmanship?

- Have superiors and subordinates participate in the standard-setting process. - Incorporate standards into the firm's evaluation system. - Avoid using standards for punitive purposes.

Lexington Company's predetermined overhead rate is $4.00 per direct labor hour. Which of the following equations correctly computes the amount of overhead cost that should be applied to work in process assuming a job required 100 hours but was estimated to require 90 hours?

100 hours × $4 = $400

Campbell Candy Corporation desires a 16% return on investment (ROI) on all operations. The following information was available for the company for the current year: Sales$250,000 Operating Income$70,000 Turnover 0.6 What is the corporation's ROI?

16.8%

Ormand Organic Grocery has invested in a yogurt stand for its store. The investment cost the company $100,000. Variable materials, preparation, and marketing costs are expected to be $0.60 per unit and fixed costs are estimated at $6,000 a year. If actual sales were 20,000 servings, what would the ROI be using the sales price of $1.80?

18.0%

Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $45,000. Ending inventory at the end of January was $12,000. Based on this information, purchases for February would be:

30% * 45,000 = 13500 45000-12000+13500= $46,500

The cellular phone division of Stegall Company had budgeted sales of $950,000 and actual sales of $900,000. Budgeted expenses were $600,000, while actual expenses were $550,000. Based on this information, the responsibility report for the manager of this profit center would show:

A favorable cost variance.

Which of the following statements is correct?

A favorable variance may indicate the existence of unfavorable conditions.

Which of the following statements regarding profit centers is correct?

A manager of a profit center is evaluated on his/her ability to control costs and generate revenues.

The kind of responsibility center that would be evaluated by comparing income on assets to the amount of assets invested is:

An investment center.

Select the incorrect statement regarding the human factor in the budgeting process.

Budgets force employees to follow the organization's plan.

Which of the following statements regarding cost centers is incorrect?

Cost centers tend to be found at upper levels on a company's organization chart.

Which of the following is not typically found in a decentralized organization?

Decision center