Accounting Chapter 11, ch 10 managerial acct, Accounting, Chapter 9 Accounting II, Chapter 8 Managerial Accounting, Ch.7, SB 6, Chap 5, SB 4, ACT 2, Chapter 2, ACT 2

A fixed cost remains fixed [.....] within the relevant range of activity.

A fixed cost remains fixed IN TOTAL within the relevant range of activity.

Which of the following statements is correct?

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

calculated using the standard price of the input

A quantity variance is

Which of the following budgets shows the company's planned profit and serves as a benchmark against which subsequent company performance can be measured?

Budgeted income statement

True or false: A balanced scorecard includes leading indicators but NOT lagging indicators.

False

True or false: Control involves developing goals and preparing various budgets to achieve those goals.

False

True or false: For most companies a single, annual cash budget is sufficient.

False

True or false: When two projects are mutually exclusive, investing in one does not eliminate the other one from consideration.

False

The terms "standard" and "budget" have the same meaning.

False - While these terms are often used interchangeably, they have slightly different meanings.

Which of the following is NOT a volume-based cost driver?

Machine setups

A flexible budget variance is calculated by comparing actual costs to the flexible budget. (Enter only one word per blank.)

Spending

based on what managers think costs should be, used to help control costs and used to maintain consistency & quality

Standards are:

Which of the following is NOT another term for relevant costs?

Sunk costs

True

T/F Both the master budget and the flexible budget are based on standard costs

False

T/F Quantity standards refer to the price to be paid for each unit of the input

True

T/F Sometimes a favorable variance can indicate poor performance

True

T/F The flexible budget can be used as a benchmark for evaluating performance

True

T/F The master budget is a static budget

False

T/F Total fixed costs will differ between the master budget and the flexible budget

false

T/F: A favorable materials price variance is always a good thing

False

T/F: An unfavorable variance is always an indication of a problem that needs correction

True

T/F: The variable overhead rate variance uses the same basic formula as the labor rate variance except that the variable overhead rates are used instead of the direct labor rates

true

T/FT/F: variances always compare actual results to budgeted or standard results

Which of the following is needed to prepare a sales budget?

The budgeted number of units to be sold

True or False? Within the relevant range of activity, fixed costs remain constant in total?

True

True or False? the Key to most managerial decision is understanding cost behavior.

True

True or false: Many of the schedules in a master budget are based on a variety of management estimates and assumptions.

True

Mixed costs contain

a fixed portion that is incurred and a variable portion that increases with usage. Utilities typically behave in this manner.

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

actual

A variance is labeled as favorable when the ______.

actual cost is less than the standard or budgeted cost

A price variance is the difference between the ______.

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

The materials price variance is calculated using the ______.

actual price of the input actual quantity of the input purchased standard price of the input

The three types of cost systems discussed in the chapter are ___ , ___ , and ___

actual, normal, and standard

The receipts section of the cash budget lists ______.

all cash inflows, except from financing

Contribution margin equals sales minus ______.

all variable costs

Non-volume-based cost drivers ______.

are used in ABC systems allow more indirect costs to be allocated to products

Total mixed costs increase

as activity increases.

When making a capital budgeting decision, it is most useful to calculate the payback period ______.

as part of the screening process

There are many variances of ROI, including return on ______.

assets equity capital employed

The final step in activity-based costing is ______.

assigning indirect costs to products or services

At a minimum, an ABC system should have ______.

at least one non-unit-level activity cost pool

The basic formula for process costing is ______.

average unit cost = total manufacturing cost/total units produced

The annual master budget file includes the ______ from last year because it is needed for the schedule of expected cash collections.

balance sheet

To prepare a budgeted balance sheet as of December 31, 2020, data is needed from the ______ December 31, 2019.

balance sheet as of

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ___-level activities.

batch

What types of activities are performed each time a group of units is processed, regardless of how many units are in the group?

batch

Costs at the batch level depend on the number of ______.

batches processed

A budgeted balance sheet is developed using data from the ______ of the budget period and data contained in the various schedules.

beginning

A company with a $2,500 favorable direct materials price variance and a $700 unfavorable direct materials quantity variance has a direct material variance of $ favorable. (Enter only one word per blank.)

blank 1: spending Blank 2: 1800 or 1,800

If a company raises the price of a product with no change in costs, the unit contribution margin and contribution margin ratio will ______.

both increase

When a budget is flexed, ______ is (are) based on standard costs.

both the master and flexible budgets

Activity-based costing systems typically include ______ cost drivers.

both volume- and non-volume-based

A(n) ______ limits a system's overall output.

bottleneck

Solving for the sales level needed to achieve a profit of zero is ______ analysis.

break-even

A detailed document that identifies resources and expenditures that will be required over a limited time (typically a year) is a(n) ______.

budget

Company objectives are translated into financial terms in a(n)

budget

When a manager creates a budget that is too easy to attain, ______ occurs.

budgetary slack

When a manager creates a budget that understates expected revenues or overstates expected expenses, _________ ________ occurs

budgetary slack

One of the most important concepts in responsibility accounting is the ____________ _______________ , Correct Unavailable which states that managers should only be held responsible for what they are in charge of.

controllability principle

Managers must prioritize how products are produced when faced with a(n) _____ resource.

constrained

When a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) _____resource.

constrained

Another budget period is automatically added to the budget as one period passes when using a(n) ______ or rolling budget

continuous

Responsibilities of a profit center manager may include ______.

contract negotiations controlling division costs involvement in strategic initiatives related to product success

The amount each unit sold contributes towards fixed costs and profit is the unit ___ ___.

contribution margin

To calculate the degree of operating leverage, divide ___ ___ by net operating income.

contribution margin

When a constraint exists, companies need to focus on maximizing ______.

contribution margin per unit of constraint

How much contribution margin is generated per dollar of sales revenue is the ___ ___ ___.

contribution margin ratio

The contribution margin stated as a percentage of sales dollars is the ______.

contribution margin ratio

The weighted-average ___ ___ ___ is based on the relative percentage of total sales revenue in dollars, not units

contribution margin ratio

According to the ______ managers should only be held accountable for what they are actually in charge of.

controllability principle

An organization in which decision-making authority is spread throughout the organization is

decentralized

Once you have identified a problem, the next step is to determine the possible solutions, which are called ____ _____.

decision alternatives

If the interest rate earned increases, net present value will ______.

decrease

When a company increases the selling price of a product with no change in variable cost per unit or total fixed costs, the break-even point for that product will ______.

decrease

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the ______.

degree of operating leverage

To convert net income to net cash flow, add back ______ expense.

depreciation

Quantity standards refer to the price to be paid for each unit of the input.

false - Quantity standards are the amounts of each input needed to produce a product. Price standards specify the price to be paid.

A performance metric based on after-tax net operating income, cost of capital, and total capital employed is ______.

economic value added

The cost of unsold units is computed on the ______ budget.

ending finished goods inventory

The formula for a predetermined overhead rate is ______.

estimated total manufacturing overhead cost / estimated total cost driver

Measuring the value provided to shareholders is the ______ perspective of the balanced scorecard.

financial

Decisions about the use of debt versus equity affects a company's ___ ___.

financial leverage

Standards that do not allow for any work interruptions or machine breakdowns are called ___ standards

idea

$120,000 (budgeted fixed costs don't change)

if the planned fixed overhead for 5000 units is $120,000, what is the flexible budget fixed overhead for 4,500 units?

Major limitations of the accounting rate of return method for evaluating capital investment proposals include that it ______.

ignores the time value of money is based on net income instead of net cash flows

Managers put plans into action as part of ______.

implementing

Segment margin ______.

includes both variable and direct fixed costs

When calculating Return on Investment (ROI), net operating income ______.

includes income from normal operations does not include interest expense

Discounted cash flow methods ______.

incorporate the time value of money include the profitability index are generally superior to non-discounting methods

As the cost of capital (discount rate) decreases, the net present value of a project will ______.

increase

Comparing the relevant costs and benefits of alternative decision choices is called ______ analysis.

incremental

Net operating income is income before other income,

interest tax

The balanced scorecard perspective that focuses on all activities from product design and development until the time it is in the hands of the customer is

internal business processes

ROI is a method used to evaluate ______.

investment centers, but not cost or profit centers

A predetermined overhead rate is calculated by dividing the ______ total manufacturing overhead by the ______ total cost driver.

estimated; estimated

Ideally an allocation base should ______.

explain or influence the amount of overhead incurred

Activities that occur regardless of how many products are produced or how many batches are run or units made are ___ - ___ activities

facility Level

True or false: An advantage of the accounting rate of return (ARR) is that it uses net income to evaluate capital investments.

false

True or false: CVP analysis is only used for break-even and target profit analysis.

false

True or false: Controlling involves developing goals and preparing various budgets to achieve those goals.

false

True or false: Cost centers have no impact on revenue.

false

True or false: Cost structure refers to how a company uses product and period costs in an organization.

false

True or false: In order to foster continuous improvement, standards should remain consistent over time.

false

True or false: The best reason to implement an ABC system is to obtain more accurate information about the cost of products and services.

false

True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

false

True or false: The same budget that is used for planning should always be used for performance evaluation.

false

True or false: The terms operating leverage and financial leverage refer to the same concept.

false

True or false: Using a participative approach to budgeting is less likely to motivate employees than using a top-down approach.

false

Determining decision alternatives ______.

is a critical step in the decision-making process

The process of making a decision ______.

is basically the same for all decisions

Given the choice it ______.

is better to receive money today instead of a year from today

True or false: When the discount rate increases a project is more likely to be acceptable because its net present value will also increase.

false

An advantage of IRR as compared to NPV is that IRR ______.

is generally easier for managers to interpret makes it easier to compare projects of different sizes

The weighted -average cost of capital ______.

is how much it costs a company to fund capital projects should be reflected in the company's discount rate

A problem with decentralization is that ______.

it may lead to duplication of resources

Continue-or-discontinue decisions are commonly known as ________-or- ________ decisions.

keep drop

The difference between the standard hours allowed for a job and the actual hours used is reflected in the direct variance. (Enter only one word per blank.)

labor effeciency

Evaluating how the company will sustain the ability to change and improve is part of the ______ perspective of the balanced scorecard.

learning and growth

A project's payback period is the ______.

length of time it takes for the project to recover its initial cost from the net cash inflows generated

Deciding to carry out an activity internally or buy externally from a supplier is called a ______ decision.

make-or-buy

Using budgeting assumptions when preparing the master budget, ______.

makes it easier to answer "what-if" questions

Long-term objectives are goals ______.

managers want to achieve in 5 to 10 years

All costs of production other than direct materials and direct labor are shown on the ______ budget.

manufacturing overhead

To calculate manufacturing overhead cost per unit using ABC, divide the total ______.

manufacturing overhead cost by the number of units produced

The difference between an actual and a normal cost system is how ______ are recorded.

manufacturing overhead costs

Once Stage 2 allocation has been completed it is possible to compute total ______.

manufacturing overhead per product

The excess of the budgeted (or actual) sales dollars over break-even sales is called the ___ of ___.

margin safety

The transfer pricing method that generally provides the most benefit to the seller is the ______ method.

market price

An integrated business plan that formally lays out the company's goals is called the ______ budget.

master

An example of a static budget is the ___budget, whereas a(n) ___budget adjusts revenues and costs as the level of activity changes.

master , flexible

actual price of the input standard price of the input actual quantity of the input purchased

materials price variance is calculated using the

production department manager

materials quantity variance is generally the responsibility of

a favorable material price variance ______.

may be based on the quality of the goods may be due to price fluctuations may be due to a quantity discount

A favorable material price variance ______.

may be due to a quantity discount may be due to price fluctuations may be based on the quality of the goods

A company with adequate cash balances at the beginning and end of the year, ______.

may still have cash deficiency issues during the year

An allocation base is a(n) ______

measure of activity used to assign overhead costs to products and services

The amount of goods to be acquired from suppliers during the period is shown on the _______ budget.

merchandise purchases

Managers of cost centers are expected to ______.

minimize costs and maximize cost-effectiveness

The hurdle rate is the ______ rate of return on an investment.

minimum acceptable

Non-discounting methods of evaluating capital investments are ______.

payback accounting rate of return

Developing goals and preparing various budgets to achieve those goals is part of ______,

planning

Setting goals and objectives for the future is done during the ______ phase

planning

Budgets are used for two 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.

planning controlling

Budgeting is an important part of the ______ and ______ cycle

planning control

Developing goals for the budget is part of _______, whereas ________- involves determining if goals have been followed

planning controlling

The manager of a(n) ____________ center has control over both costs and revenues, but not over the use of _________________ funds.

profit investment

The ratio of a project's benefits (measured by the present value of future cash flows) to its required investment is the

profitability index

The net operating income that an investment center earns above the minimum amount needed to meet the required rate of return is its

residual income

Because all other parts of the budget depend on it, if the ______ budget is inaccurate, the rest of the budget will be inaccurate.

sales

Gross profit margin calculates gross margin as a percentage of

sales

The first step in the budgeting process is preparing the ______ budget.

sales

When preparing a multi-product break-even analysis, the assumption is ordinarily made that the ______ will not change.

sales mix

The break-even point can be affected by ______.

sales mix total fixed costs product mix

Contribution Margin

sales price of a product - variable costs = Contribution margin

To calculate total sales on the sales budget, multiply budgeted sales in units by ______.

sales price per unit

In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the ______ budget.

selling and administrative

false

t/f In an standard cost system, overhead is applied o production using the predetermined overhead rate x the actual cost driver usage

false:

t/f: a direct material quantity variance is not impacted by waste

true

t/f: companies generally try to hold specific managers responsible or specific variances

false

t/f: efficient use of variable overhead results in a favorable variable overhead efficiency variance

false

t/f: favorable variances are always good and unfavorable variances are always bad

false

t/f: material quantity variances are always unfavorable and can never be favorable

false

t/f: material quantity variances are generally the responsibility of the purchasing department

false

t/f: the labor rate variance measures the productivity of direct labor

false

t/f: variable overhead efficiency variance is exactly the same as the direct labor rate variance

false

t/f: variable overhead efficiency variances are impacted by the cost of overhead items

true

t/f: when calculating variances only one factor changes at a time

Specific actions or mechanisms managers use to achieve objectives are called ________

tactics

Indirect costs can be assigned to products or services using ______.

the activity rate method the activity proportion method

What does "x" represent?

the activity that causes total cost (y) to change. Activity (x) is also called the cost driver, or the independent variable

A company can consider making investments or repay outstanding principal and interest when ______.

the cash excess is greater than the minimum required cash balance

Select all that apply Borrowing money is required whenever ______.

the cash excess is less than the minimum required cash balance there is a cash deficiency

When cash flows are uneven, ______.

the cash flow for each year must be multiplied by the appropriate discount factor

What does "Y" represent and where is it plotted on a scatter graph?

total cost, which is plotted on the vertical axis, and is called the dependent variable

Transfer prices are not particularly important when managers are evaluated on ______.

total firm value

The weighted-average contribution margin ratio is calculated using the ______.

total sales mix

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

transfer

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

transfer price

True or false: For capital budgeting purposes, capital assets includes item research and development projects.

true

True or false: When computing unit costs, the direct materials and direct labor costs are the same, regardless of whether ABC or a volume-based costing system is used.

true

f the actual cost is greater than budgeted cost, the variance is labeled as . (Enter your answer as a word.)

unfavorable

The amount that each unit sold contributes to fixed costs and profit is ______.

unit contribution margin

Methods that can be used to model the relationship between revenues, costs, profit and volume include the ___ contribution margin method and the contribution ___ ___ method

unit; Margin Ratio

The weighted average unit contribution margin is the average unit contribution margin of multiple products weighted according to ______.

units sold

The term cost structure refers to how a company uses ___ costs versus ___ costs in its operations.

varaible; fixed

When preparing a CVP graph, the slope of the total cost line represents ______.

variable cost per unit

When constructing a CVP graph, the vertical axis represents ______.

variable costs Rationale: This is only partially correct. The vertical axis represents dollars. Sales, variable costs, and fixed costs are all measured in dollars.

In the profit equation, total ______ is a function of the number of units sold (Q).

variable costs sales revenue

Contribution margin equals sales minus ______.

variable manufacturing costs variable selling and administrative costs

are calculated using the same basic formulas as labor and material variances

variable overhead variances:

When a master budget is flexed, total ___ costs will be different on the two budgets, but total ___ costs will be the same.

variable, fixed

The process of comparing actual and budgeted results is called ___ ___

variance analysis

standards

very detailed levels to reflect the required quantity of inputs for a product or service are specified in

A flexible budget ___ variance is calculated by comparing the master budget to the flexible budget.

volume

Direct labor hours and machine hours are both examples of ___ -based cost drivers.

volume

Fancy Nail's monthly rent is $2,500. The company's static budget is based on an activity level of 2,000 manicures per month. It shows nail technician wages (a variable cost) of $20,000. Fancy Nails' flexible budget for 2,200 manicures will show ______.

wages of $22,000 rent expense of $2,500

The cost of capital is the ______.

weighted average after tax cost of debt and cost of equity

CVP analysis can be useful in deciding ______.

which products to offer which services to offer what marketing strategy to use what price to charge for goods or services what cost structure to implement

Costs of partially completed units are accounted for in ______.

work in process

The internal rate of return is the discount rate that results in a net present value of _____ for the investment.

zero

Favorable variances always indicate good performance

False -Variances reflect a difference between actual and standard costs. A favorable variance does not always indicate good performance.

Which of the following is NOT a question managers need to consider when making a keep-or-drop decision?

How much is the salary of the company CEO?

What types of activities are carried out regardless of which products are produced, how many batches are run, or how many units are produced?

Facility-level

Favorable variances always indicate good performance

False

The minimum required rate of return is also known as the______ rate.

hurdle

The required rate of return is also known as the

hurdle rate

Abba, Inc. has developed the following standards for one of its products: Direct materials - 1/2 pound at $6.00 per pound Direct labor - 1/4 hour at $20.00 per hour Variable overhead - 20% of direct labor cost Total fixed overhead is expected to be $15,000 and the company expects to produce 7,500 units. The standard cost card for this product would show a cost per unit of ______.

$11.00

The Greenery sells three products. Product A has a contribution margin of $10 per unit, Product B has a contribution margin of $15 per unit and Product C has a contribution margin of $12 per unit. Sales are: 25% A, 35% B and 40% C. The weighted average unit contribution for The Greenery is ______.

$12.55 Rationale: ($10 × 25% + $15 × 35% + $12 × 40%) = $12.55

If the planned fixed overhead for 5,000 units is $120,000, what is the flexible budget fixed overhead for 4,500 units?

$120,000

A company's net operating income for the year is $118,000. Depreciation expense for the year equals $23,000. The company's net cash flow for the year is ______.

$141,000 Rationale: $118,000 + $23,000 = $141,000

Widgets, Inc., plans to produce 8,000 widgets during the upcoming year. Each widget requires four direct labor hours at $25 per hour and $110 in direct material costs. Manufacturing overhead is assigned based on direct labor hours and is estimated to be $625,000 for the upcoming year. Compute the predetermined overhead rate per direct labor hour.

$19.53 Rationale: $625,000/(8,000 × 4) = $19.53

Sweet Dreams sells 15,000 pillows per year for $25 per unit. Variable cost per unit is $14. Sweet Dreams wants to improve customer satisfaction by using higher quality direct materials which will increase the variable cost per unit to $19. Fixed costs per year total $90,000. If sales increase by 5,000 units per year, what price will Sweet Dreams have to charge to earn the same profit it is earning now ($75,000 per year)?

$27.25 Rationale: Costs + Target Profit: ($19 × 20,000 + $90,000 + $75,000) = $545,000 / 20,000 = $27.25

Adele's Attic assigns overhead to products based on direct labor hours. For the upcoming year the business plans to use a total of 25,000 machine hours and 5,000 direct labor hours. Total overhead cost is expected to be $35,000. How much overhead would be assigned to a job that used 180 machine hours and 40 direct labor hours?

$280 Rationale: Predetermined overhead rate = $35,000/5,000 or $7 per direct labor hour × 40 hours = $280.

Using the tables from the Appendix, and an interest rate of 8% compounded annually, $5,000 to be received four years from today is equal to ______ today.

$3,675 Rationale: $5,000 x 0.7350 (PV of a dollar for 4 years at 8%) = $3,675.

Jacki's Jewels sells 10,000 necklace & earring sets per year. Fixed costs are $80,000 and variable costs are $20 per set. Jacki is planning to increase the quality of the stones, which will increase variable costs by $8 per set and increase sales by 25%. If Jacki increases the quality of the stones, what price will she need to charge to attain her target profit of $60,000 per year?

$39.20 Rationale: Costs + Target Profit = ($28 x 12,500 + $80,000 + $60,000) = $490,000/12,500 = $39.20

Calculate the present value of a 10-year, 6% loan with annual payments of $7,500 made at the end of each year using the tables in the appendix.

$55,201 Rationale: $7,500 × 7.3601 (PV of an annuity for 10 years at 6%) = $55,201

A company's activity rate for the general factory is $2.00 per machine hour. Product A used 3,000 machine hours and 1,000 labor hours. General factory overhead assigned to Product A is ______.

$6,000 Rationale: $2 × 3,000 = $6,000

A company sells two products. Product A sells for $10.00 per unit and Product B sells for $8.00 per unit. Variable costs are $3.00 for Product A and $2.50 for Product B. If the sales mix is 70% Product A and 30% Product B, the weighted average contribution margin is ______.

$6.55 Rationale: $7.00 × 70% + $5.50 × 30% = $6.55

A static budget shows variable supply cost of $6,250 based on 1,000 units. A flexible budget based on 1,200 units should show ______ for supplies.

$7,500

Larson Productions LLC has an activity cost pool called product design and redevelopment. The cost driver for this pool is design hours. A total of 1,000 design hours were used, 620 for Model XLT and 380 for Model TXT. The total cost assigned to the cost pool was $118,000. Using the activity proportion method, determine how much cost should be allocated to each product.

$73,160 to Model XLT and $44,840 to Model TXT Rationale: 620/1000 = 62% to Model XLT and 380/1000 = 38% to TXT

A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. The activity rates are ______.

$8 per customer call and $15 per development hour Rationale: $200,000/25,000 = $8 per customer call and $300,000/20,000 = $15 per development hour.

The activity proportion method uses ___ to assign overhead costs to products

%

Standard cost systems ______.

- are based on what managers think costs should be - help managers budget and control costs - help maintain consistency and quality

Advantages of dropping a division or other segment include ______.

- avoiding more direct fixed costs than the company loses in contribution margin -an overall increase in net operating income

Direct labor standards ______

- Use the time it should take to produce a single unit - Are stated in terms of quantity and price

When evaluating a make-or-buy decision, managers should consider ______.

- qualitative factors - opportunity factors -all variable production cost

To encourage continuous improvement, ______.

- standards should increase in difficulty over time

Ideal standards are problematic because they ______.

- tend to discourage workers - demand peak effort at all times

Which of the following statements are true?

-Direct fixed costs are avoidable if a segment is eliminated. -Advertising for a specific product line is a direct fixed cost.

The weighted average unit contribution margin ______.

-assumes that the percentage of each product sold is constant -is used instead of the single product contribution margin in multi-product break-even analysis -is based on the relative percentage of each unit sold

CVP ______.

-can be used for "what-if" analysis -can be used to make many different decisions -allows managers to see how changing one variable can impact another

Multi-product target profit analysis ______.

-depends upon the sales mix -is calculated the same way as single product analysis

Presented below is income statement information of the Schefter Corporation for the year ended December 31, 2021. Sales revenue $520,000 Salaries expense 85,300 Interest revenue 7,000 Advertising expense 11,750 Gain on sale of investments 9,500 Cost of goods sold 286,000 Insurance expense 14,750 Interest expense 4,000 Income tax expense 42,500 Depreciation expense 25,000 Required: Prepare the necessary closing entries at December 31, 2021.

1. Dec. 31, 2021 Debit: Sales revenue $520,000 Debit: Interest revenue $7,000 Debit: Gain on sale of investments $9,500 Credit: Retained earnings $536,500 2.Dec. 31, 2021 Debit: Retained earnings $469,300 Credit: Salaries expense $85,300 Credit: Advertising expenses $11,750 Credit: Cost of goods sold $286,000 Credit: Insurance expense $14,750 Credit: Interest expense $4,000 Credit: Income tax expense $42,500 Credit: Depreciation expense $25,000

Because it is needed for the schedule of expected cash collections, the annual master budget file includes the (1) (2) from last year. (Enter only one word per blank.)

1. balance 2. sheet

A detailed plan for the future that is usually expressed in formal quantitative terms is a(n) (1). (Enter only one word per blank)

1. budget

The number of working hours required to satisfy the production budget is shown on the (1) (2) budget. (Enter only one word per blank.)

1. direct 2. labor

In a manufacturing company, the (1) (2) budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories. (Enter only one word per blank.)

1. direct 2. materials

The section on the cash budget that summarizes all cash payments that are planned for the budget period is the cash (1) section. (Enter only one word per blank.)

1. disbursements

A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budgeted (1) (2). (Enter only one word per blank.)

1. income 2. statement

All costs of production other than direct materials and direct labor are shown on the (1) (2) budget. (Enter only one word per blank.)

1. manufacturing 2. overhead

A number of separate, but interdependent, budgets that formally lay out the company's sales, production, and financial goals are contained in the (1) budget. (Enter only one word per blank.)

1. master

The amount of goods for resale to be acquired from suppliers during the period is shown on the (1) (2) budget. (Enter only one word per blank.)

1. merchandise 2. purchases

Developing goals and preparing various budgets to achieve those goals is part of the (1) process. (Enter only one word per blank.)

1. planning

In a manufacturing company, the (1) budget is prepared right after the sales budget. (Enter only one word per blank.)

1. production

In a manufacturing company, the (1) budget is used to determine the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget. (Enter only one word per blank.)

1. production

In a manufacturing company, the (1) budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory. (Enter only one word per blank.)

1. production

The first step in the budgeting process is the preparation of the (1) budget. (Enter only one word per blank.)

1. sales

A manager cannot complain that the budget was unrealistic and impossible to meet when a(n) (1)-(2) budget is in place. (Enter only one word per blank)

1. self 2. imposed

Calderon Kitchen Supplies is planning to invest $210,000 in a new product. The product is expected to generate a net present value of $56,700. The project profitability index is ______.

1.27 Rationale: The profitability index is calculated using the present value of the future cash flows, not the net present value. ($210,000 + $56,700) ÷ $210,000 = 1.27

An investment offers you $750 per year for 20 years starting at the end of this year. At an interest rate of 3.75%, the investment is worth $

10422

To have $15,000 available for a down payment on a house 5 years from now, you need to invest $ ______ today at 7% compounded annually.

10695

Spicer, Inc. is considering purchasing a piece of equipment that will cost $80,000 and generate the following cash flows: Yr. 1 = $25,000; Yr. 2 = $40,000; and Yr. 3 = $45,000. Using a discount rate of 9% and the tables in Supplement 11A, the net present value rounded to the nearest dollar is $

11,352

A company assigns overhead based on direct labor costs. The predetermined overhead rate is $3.00 per direct labor dollar. A job that used a total of 20 direct labor hours ($400 in total direct labor costs) would be assigned $ ___ in total overhead.

1200

A company's sales for the year total $218,000. Cash expenses for the year were $92,000 and depreciation expense was $23,000. The company's net cash flow for the year is ______.

126,000 Rationale: $218,000 - $92,000 = $126,000

SPL Enterprises assigns overhead based on number of machine hours. For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labor hours. Total overhead cost is expected to be $500,000. The predetermined overhead rate per machine hour is $

2

Valley Manufacturing reported sales of $800,000, net operating income of $40,000, and average invested assets of $400,000. Based on this, Valley's investment turnover is_________its profit margin is_________and its return on investment is.

2,5,10

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK EVEN?

2,800 Rationale: $98,000/($50 - $15) = 2,800

Given sales of $110,000, a contribution margin of $75,000 and net operating income of $30,000, operating leverage is ______.

2.5 Rationale: $75,000/$30,000 = 2.5

Sandy's Soda Co. is planning an investment in new cooling equipment that would cost $56,000. The new equipment would save on operating costs over the next 5 years as follows: $21,500 in year 1; $23,100 in year 2; $19,000 in year 3; $13,900 in year 4; and $15,200 in year 5. The payback period for the cooling equipment is ______ years,

2.6 Rationale: After two years $44,600 ($21,500 + $23,100) will have been paid back, leaving $11,400 ($56,000 - $44,600). $11,400 ÷ $19,000 = 0.6, so the total payback period is 2.6 years.

Macey, Inc.'s investment center had invested assets at the beginning of the year of $300,000. Ending invested assets totaled $400,000. Total revenue for the year was $1,050,000, and net operating income was $70,000. Return on investment was ______.

20%

Given beginning operating assets of $140,000, ending operating assets of $180,000, net operating income of $40,000, and tax expense of $8,000, return on investment is equal to

25

Desks by Daisy sells a student desk for $100 per unit. The variable cost per desk is $40 and Daisy's fixed costs of producing the desks equals $15,000 per month. Daisy needs to sell ___ desks per month in order to break-even.

250

Given net operating income of $50,000, contribution margin of $150,000 and sales of $300,000, the degree of operating leverage of ___.

3

Anders Inc. assigns overhead using activity proportions and has a machine setup cost pool. Last year there were 27,500 setups at a total cost of $550,000. Product R3D used a total of 8,250 of those setups and should be assigned ___% of the total setup cost.

30

Studio Films is considering the purchase of some new film equipment that costs $150,000. The new equipment is expected to increase revenues by $115,000 annually. Total annual operating expenses are expected to be $70,000. The accounting rate of return of the equipment is _________%

30

Poppy's Gumball Co. is planning to invest in a new marketing campaign that would require an initial investment of $85,000. The project is expected to generate net income of $27,200. The accounting rate of return on the project is ______.

32% Rationale: $27,200 ÷ $85,000 = 32%

Tilly's Travels purchased a new tour bus at a cost of $320,000. The bus is expected to increase cash inflows over the next 5 years as follows: $98,000 in year 1; $87,500 in year 2; $74,500 in year 3; $60,000 in year 4; and $59,000 in year 5. The payback period for the new bus is ______ years.

4

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

4000

State Bank is implementing a new marketing campaign that requires an initial investment of $35,000. If the project profitability index is 1.2, the present value of the campaign's future cash flows is $______.

42000

A company sells 15,000 units of product per month. The sales price per unit is $5.00, variable costs are $2.80 per unit and and total fixed costs equal $3,000. The contribution margin ratio is ______.

44% Rationale: ($5.00 - $2.80) / $5.00 = 44%

Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine setups. The activity rate is $ ___ per setup.

500

Given sales of 10,000 units per month, sales price per unit of $4.00, variable costs of $1.80 per unit and and total fixed costs of $5,000, the contribution margin ratio is ___%.

55

Spicer Dentistry is considering the purchase of a new x-ray machine. The machine costs $2,400 and has a useful life of 10 years. The new machine is expected to reduce operating costs by $400 per year. The payback period for the x-ray machine is ______ years.

6

Farm Central is considering the purchase of a larger combine to increase productivity. Combine A costs $210,000 and has a useful life of 10 years. The combine will reduce labor costs by $25,000 per year. The payback period of the combine is ______ years.

8.4 Rationale: $210,000 ÷ $25,000 = 8.4 years

What does a Contribution Margin income statement identify?

A contribution Margin income statement Separates costs into their fixed and variable components Can assist with management decision making

Which of the following statements are true?

A direct fixed cost supports a specific business segment. Common fixed costs are commonly incurred at higher levels of an organization. A profit manager is accountable for direct fixed costs.

Least-squares regression is

A statistical method used to analyze mixed costs The goal of this method is to minimize the sum of the squared errors. y = a + bx

standard cost system

A system that records cost based on what managers think they should be rather than using actual costs is

less money was spent on supplies and other variable overhead items & the relationship between variable overhead and direct labor may not be perfect

A variable overhead rate variance may be favorable because

the relationship between variable overhead and direct labor may not be perfect & less money was spent on supplies and other variable overhead items

A variable overhead rate variance may be favorable because:

actual cost is less than the standard or budgeted cost

A variance is labeled as favorable when the

Which of the following capital budgeting decision tools focuses on net operating income rather than cash flows?

Accounting rate of return

In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?

Activity rate

poorly motivated workers

An unfavorable labor efficiency variance can result from:

paying more than expected

An unfavorable variance may be caused by:

Variable Costs

Are those that change in total in direct proportion to changes in activity. Variable costs are the same per unit, but of course the total variable costs rise/fall as number of units rise/fall.

Which of the following statements regarding the balanced scorecard is incorrect?

Balanced scorecard objectives are generally broad and generic.

When is the predetermined overhead rate calculated?

Before the period begins

Which of the following is NOT a method used for basic CVP analysis?

Break-even analysis

When a transfer price is based on cost plus a percentage markup, the method being used is ______.

COST BASED

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

CVP analysis

A tool to help managers make decisions about investments in major assets such as new facilities, equipment, and products is called

Capital budgeting

Which of the following is not found in the financing section of the cash budget?

Cash deficiency

Paid a cash dividend to shareholders.

Cash disbursements journal

Paid accounts payable.

Cash disbursements journal

Paid advertising bill.

Cash disbursements journal

Paid employee salaries.

Cash disbursements journal

Paid interest on a loan.

Cash disbursements journal

Paid rent.

Cash disbursements journal

Purchased equipment for cash.

Cash disbursements journal

Purchased office equipment for cash.

Cash disbursements journal

Which of the following is NOT an assumption of discounted cash flow methods?

Cash flow and net income will always be equal.

Borrowed $20,000 and signed a note.

Cash receipts journal

Collected an account receivable.

Cash receipts journal

Collected cash from customers on account.

Cash receipts journal

Collected interest on the note receivable.

Cash receipts journal

Issued common stock in exchange for cash.

Cash receipts journal

Sold equipment for cash.

Cash receipts journal

Sold merchandise for cash (the sale only, not the cost of the merchandise).

Cash receipts journal

Sales Revenue - Variable Costs=

Contribution Margin

The financial statement that organizes costs by their behavior instead of by the:

Contribution format income statement

Degree of operating leverage equals ______.

Contribution margin/Net operating income

Cost assumptions are reasonably valid within the [.........] of activity

Cost assumptions are reasonably valid within the RELEVANT RANGE of activity

Paid $158,950 on account for the merchandise purchased in 3.

Debit: Accounts Payable $158,950 Credit: Cash $158,950

Sold goods to customers on account. (To record sale of goods to customers.)

Debit: Accounts Receivable Credit: Sales Revenue

Credit sales for the month totaled $374,000. The cost of the goods sold was $187,000

Debit: Accounts Receivable $374,000 Credit: Sales Revenue $374,000 Debit: Cost of Goods Sold $187,000 Credit: Inventory $187,000

Collected cash from customers for goods sold in 3.

Debit: Cash Credit: Accounts Receivable

Issued common stock in exchange for cash.

Debit: Cash Credit: Common Stock

Received cash for advance payment from customer.

Debit: Cash Credit: Deferred Sales Revenue

Borrowed cash from a bank and signed a note.

Debit: Cash Credit: Notes Payable

Issued 110,000 shares of common stock in exchange for $550,000 cash.

Debit: Cash $550,000 Credit: Common Stock $550,000

Penne Pharmaceuticals sold 6 million shares of its $1 par common stock to provide funds for research and development. If the issue price is $11 per share, what is the journal entry to record the sale of the shares?

Debit: Cash $66,000,000 Credit: Common Stock $6,000,000 Credit: Paid-In Capital - excess of par $60,000,000 Cash (6 million shares × $11 per share) = $66 million Common stock (6 million shares × $1 par per share) = $6 million

The following is a news item reported by Reuters: WASHINGTON, Jan 29 (Reuters)—Crossfire Medical Group, a maker of reconstructive implants for knees and hips, on Tuesday filed to sell 4 million shares of common stock. In a filing with the U.S. Securities and Exchange Commission, it said it plans to use the proceeds from the offering for general corporate purposes, working capital, research and development, and acquisitions. After the sale there will be about 34.5 million shares outstanding in the Arlington, Tennessee-based company, according to the SEC filing. Wright shares closed at $17.45 on Nasdaq. The common stock of Crossfire Medical Group has a par of $0.03 per share. Required: Prepare the journal entry to record the sale of the shares assuming the price existing when the announcement was made and ignoring share issue costs.

Debit: Cash $69,800,000 Credit: Common Stock $120,000 Credit: Paid-In Capital - excess of par $69,680,000 Explanation Cash (4 million shares × $17.45 per share) = $69,800,000. Common stock (4 million shares × $0.03 par per share) = $120,000.

Collected $74,800 from customers on account.

Debit: Cash $74,800 Credit: Accounts Receivable $74,800

Sold goods to customers on account. (To record cost of goods sold to customers.)

Debit: Cost of Goods Sold Credit: Inventory

On December 1, 2021, the company received $6,300 in cash from another company that is renting office space in Falwell's building. The payment, representing rent for December, January, and February was credited to deferred rent revenue.

Debit: Deferred Rent Revenue $2,100 Credit: Rent Revenue $2,100

Mazzanti owns a warehouse that it rents to another company. On January 1, 2021, Mazzanti collected $16,800 representing rent for the 2021 calendar year and credited deferred rent revenue.

Debit: Deferred Rent Revenue $4,200 Credit: Rent Revenue $4,200

Recorded depreciation expense of $1,825 for the month on the office equipment.

Debit: Depreciation Expense $1,825 Credit: Accumulated Depreciation $1,825

Depreciation on equipment totaled $12,500 for the year.

Debit: Depreciation Expense $12,500 Credit: Accumulated Depreciation $12,500

Depreciation on the office building is $12,600 for the fiscal year.

Debit: Depreciation Expense $3,150 Credit: Accumulated Depreciaiton $3,150

Paid a cash dividend

Debit: Dividend Credit: Cash

Paid shareholders a cash dividend of $5,500.

Debit: Dividend $5,500 Credit: Cash $5,500

Recorded the amount of prepaid insurance that expired for the month.

Debit: Insurance Expense $210 Credit: Prepaid Insurance $210

The Mazzanti Wholesale Food Company's fiscal year-end is June 30. The company issues quarterly financial statements requiring the company to prepare adjusting entries at the end of each quarter. Assume all quarterly adjusting entries were properly recorded. On December 1, 2020, the company paid its annual fire insurance premium of $2,400 for the year beginning December 1 and debited prepaid insurance.

Debit: Insurance Expense $600 Credit: Prepaid Insurance $600

On November 1, 2021, the company borrowed $210,000 from a bank. The note requires principal and interest at 12% to be paid on April 30, 2022.

Debit: Interest Expense $4,200 Credit: Interest Payable $4,200 210,000 / 0.12 = 25,200 / 6 months = 4,200 each month

On August 31, 2020, the company borrowed $35,000 from a local bank. The note requires principal and interest at 8% to be paid on August 31, 2021.

Debit: Interest Expense $700 Credit: Interest Payable $700

Purchased inventory on account.

Debit: Inventory Credit: Accounts Payable

Purchased inventory on account at a cost of $220,000. The company uses the perpetual inventory system.

Debit: Inventory $220,000 Credit: Accounts Payable $220,000

Purchased office equipment at a cost of $91,250. $36,500 was paid in cash and a note payable was signed for the balance owed.

Debit: Office Equipment $91,250 Credit: Notes Payable: $54,750 Credit: Cash $36,500

A three-year fire insurance policy was purchased on July 1, 2021, for $12,600. The company debited insurance expense for the entire amount.

Debit: Prepaid Insurance $10,500 Credit: Insurance Expense $10,500 12,600 x (30/36) = 10,500

Paid $2,520 to an insurance company for fire and liability insurance for a one-year period beginning June 1, 2021.

Debit: Prepaid Insurance $2,520 Credit: Cash $2,520

Paid rent for the next three months.

Debit: Prepaid Rent Credit: Cash

Paid $4,750 in rent on the store building for the month of June.

Debit: Rent Expense $4,750 Credit: Cash $4,750

On December 1, 2021, the company received $6,300 in cash from another company that is renting office space in Falwell's building. The payment, representing rent for December, January, and February was credited to rent revenue rather than deferred rent revenue for $6,300 on December 1, 2021.

Debit: Rent Revenue $4,200 Credit: Deferred Rent Revenue $4,200

Employee salaries for the month of June 2021 $13,500 will be paid on July 20, 2021.

Debit: Salaries Expense $13,500 Credit: Salaries Payable $13,500

Employee salaries of $17,000 for the month of December will be paid in early January 2022.

Debit: Salaries Expense $17,000 Credit: Salaries Payable $17,000

Purchased supplies for cash.

Debit: Supplies Credit: Cash

At the end of October, recorded the amount of supplies that had been used during the month.

Debit: Supplies Expense Credit: Supplies

Which of the following is not a characteristic of decentralization?

Decentralization reduces how accountable lower-level managers are for the outcomes of their decisions.

Will a debit increase or decrease Accounts Payable?

Decrease

Will a debit increase or decrease Common Stock?

Decrease

Will a debit increase or decrease Interest Revenue?

Decrease

Will a debit increase or decrease Salaries Payable?

Decrease

Will a debit increase or decrease Sales Revenue?

Decrease

Will a debit increase or decrease Utilities Payable?

Decrease

True or False? Within the relevant range of activity total variable costs do not change

False Within the relevant range of activity total variable costs remain constant per unit and change in total.

In order to foster continuous improvement, standards should remain consistent over time.

False -Standards should increase in difficulty over time.

True

Favorable and unfavorable reflect a difference between actual and standard costs

Which of the following statements are true?

Favorable and unfavorable reflect a difference between actual and standard costs. Sometimes a favorable variance can indicate poor performance.

During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders' equity. The articles of incorporation authorized the issue of 9 million common shares, $1 par per share, and 2 million preferred shares, $50 par per share. Feb. 12. Sold 3 million common shares, for $9 per share. 13. Issued 42,000 common shares to attorneys in exchange for legal services. 13. Sold 73,000 of its common shares and 7,500 preferred shares for a total of $1,050,000. Nov. 15. Issued 435,000 of its common shares in exchange for equipment for which the cash price was known to be $4,048,000.

February 12 Debit: Cash $27,000,000 Credit: Common Stock $3,000,000 Credit: Paid-in capital - excess of par, commons $24,000,000 February 13 Debit: Legal expenses $378,000 Credit: Common stock $42,000 Credit: Paid-in capital - excess of par, common $336,000 February 13 Debit: Cash $1,050,000 Credit: Common stock $73,000 Credit: Paid-in capital - excess of par, common $584,000 Credit: Preferred stock $375,000 Credit: Paid-in capital - excess of par, preferred $18,000 November 15 Debit: Property, plant, and equipment $4,048,000 Credit: Common stock $435,000 Credit: Paid-in capital - excess of par, common $3,613,000

What kind of costs remain constant in total and vary per unit?

Fixed Costs

Which of the following shows how budgeted costs and revenues will change over different volumes?

Flexible budget

Sold a factory building in exchange for a note receivable.

General Journal

Sold equipment on credit.

General Journal

Recorded accrued interest payable.

General journal

Recorded accrued salaries payable.

General journal

Recorded depreciation expense.

General journal

Which of the following are facility-level activities?

Human resource hiring fairs Paying factory insurance

they demand peak effort at all times and tend to discourage workers

Ideal standards are problematic because:

unfavorable

If the actual cost if greater than the budget cost, the variance is labeled as

the standard value of the cost driver

In a standard costing system, overhead is applied by multiplying the budgeted overhead rate by:

Will a debit increase or decrease Accounts Receivable?

Increase

Will a debit increase or decrease Cost of Goods Sold?

Increase

Will a debit increase or decrease Depreciation Expense?

Increase

Will a debit increase or decrease Equipment?

Increase

Will a debit increase or decrease Interest Expense?

Increase

Will a debit increase or decrease Inventory?

Increase

Will a debit increase or decrease Prepaid Rent?

Increase

Will a debit increase or decrease Rent Expense?

Increase

Will a debit increase or decrease Utilities Expense?

Increase

How can a company increase its return on investment (ROI)?

Increase sales Reduce operating expenses

What does "a" represent?

Intercept Total fixed cost, an amount that will be incurred regardless of the activity level, and is called the intercept or the constant

Which type of manager(s) have the authority to make purchase decisions regarding company assets?

Investment center managers only

Which of the following statements regarding decentralized organizations are correct?

Managers in decentralized operations may make decisions that are good for their department, but not for the organization as a whole. Decentralized organizations often use responsibility accounting systems to evaluate lower level-managers. Decentralization often allows decisions to be made faster, since not as many layers of management are needed for approval. Decentralization helps lower-level managers develop better management skills.

What document specifies the type and quantity of direct materials used on a specific job?

Materials requisition form

Which of the following statements are true?

Money is more valuable today than it will be in the future. The time value of money should be considered in capital budgeting decisions

Review 8 and 9 on Chapter 2 Exercises

N/A

Which of the following statements regarding the balanced scorecard are true?

Objectives and measures in each category should be linked so that performance in one area leads to performance in another. The learning and growth perspective typically contains leading indicators of future performance.

Cost assumption are reasonably valid within the [...] of activity?

Relevant Range

Lewelling Company issued 113,000 shares of its $1 par common stock to the Michael Morgan law firm as compensation for 5,300 hours of legal services performed. Morgan's usual rate is $220 per hour. By what amount should Lewelling's paid-in capital - excess of par increase as a result of this transaction?

Paid-in capital—excess of par $1,053,000 Explanation Lewelling's paid-in capital - excess of par will increase by $1,053,000: 5,300 hours × $220 less $113,000 par. General journal Debit: Legal expense (5,300 hours × $220) $1,166,000 Credit: Common stock (113,000 shares × $1 par per share) $113,000 Credit: Paid-in capital - excess of par (remainder) $1,053,000

High/Low Method

Pick the highest and lowest level of volume and their total costs. Calculate the difference in the total costs and divide by the difference in volume: (Total cost high volume) - (Total cost low volume) =Variable Cost Diff (High volume level) - (Low volume level) =Volume Difference

unfavorable direct labor efficiency variance

Poor supervision is one possible cause of?

In a manufacturing company, which budget is used as the basis for creating the direct materials budget, the direct labor budget, and the manufacturing overhead budget?

Production

Which of the following are assumptions of cost volume profit analysis?

Production volume is equal to sales volume. All costs can be classified as either fixed or variable. In multi-product companies, the sales mix is constant.

Purchased merchandise on account.

Purchases journal

The materials price variance is generally the responsibility of the manager. (Enter only one word per blank.)

Purchasing

are developed for both direct materials and direct labor

Quantity and price standards:

tight but attainable

Reasonable, efficient efforts from employees are required when standards used are:

Fixed costs

Remain the same in total, regardless of activity level. Again, assuming we are in the relevant range. Fixed costs per unit change (rise/fall), depending upon the fall/rise in the number of units.

Which of the following business segments would not be considered a cost center?

Retail outlet

Contribution margin ratio

Revenues- Variable Costs= Contribution Margin ratio

direct labor rate variance

SR(SH-AH) is the formula for

Sold merchandise on credit (the sale only, not the cost of the merchandise).

Sales journal

Which of the following is not a manufacturing cost category?

Selling & administrative costs

True or False? The relevant range of activity is approximated by a straight line.

True

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

quantity variance

The difference between the amount of an input used and the amount that should have been used, all evaluated at the standard price for the input is called?

the standard price for materials with the difference multiplied by the actual quantity of materials

The direct materials price variance is the difference between the actual price of materials and?

Which of the following statements are true?

The net present value and internal rate of return methods provide consistent information when making screening decisions. The internal rate of return method makes an assumption about reinvesting cash flows that may not be realistic. The net present value method is generally preferred over the internal rate of return method when making preference decisions.

Which of the following statements is true?

The production manager is most often responsible for the materials quantity variance.

`Garnett, Inc. has a required rate of return on new projects of 12%. The Western division of Garnett is currently earning a combined return on investment (ROI) of 14.5% on the projects in its division. The manager of the Western division is considering a project that is projected to earn 13.25%. Which of the following statements regarding the manager's decision are true?

The project is acceptable because it exceeds the company's required rate of return. The project will generate positive residual income. The manager may decide to reject the project because it will lower the current ROI earned by his division.

Fancy Nails' master budget for June was based on 2,400 manicures and supplies were budgeted at a total cost of $1,800. During June, 2,500 manicures were done and the total cost for supplies was $2,000. Which of the following statements are true?

The spending variance is $125 U. The volume variance is $75 U.

A master budget calls for 3,000 units of production and budgeted fixed overhead of $6,000. Actual production was 3,500 units and total fixed overhead was $6,150. Which of the following statements is true?

The spending variance is ($150).

How do we calculate Total Costs?

Total Costs = VC/unit (# units) + Total Fixed Costs

The equation for the profit equation method is ______.

Total Sales Revenue - Total Variable Costs - Total Fixed Costs = Profit

How is total variable cost per unit calculated?

Total variable cost per unit = total VC/# units (per unit, this will remain constant when # of units change..........total VC will change as # of units change

An important consideration in a keep-or-drop decision is the impact on the costs and revenues of other segments.

True

Incremental analysis is a decision-making approach that compares the relevant costs and benefits of decision alternatives.

True

True or False? Outside of the relevant range cost behavior conclusions may not be valid.

True

During the course of your examination of the financial statements of the Hales Corporation for the year ended December 31, 2021, you discover the following: A. An insurance policy covering three years was purchased on January 1, 2021, for $3,300. The entire amount was debited to insurance expense and no adjusting entry was recorded for this item. B. During 2021, the company received a $600 cash advance from a customer for merchandise to be manufactured and shipped in 2022. The $600 was credited to sales revenue. No entry was recorded for the cost of the merchandise. C. There were no supplies listed in the balance sheet under assets. However, you discover that supplies costing $540 were on hand on December 31. D. Hales borrowed $14,000 from a local bank on October 1, 2021. Principal and interest at 12% will be paid on September 30, 2022. No accrual was recorded for interest. E. Net income reported in the 2021 income statement is $29,000 before reflecting any of the above items. Required: Determine the proper amount of net income for 2021.

Unadjusted net income $29,000 Adjustments: a. Insurance expense overstated $2,200 b. Sales revenue overstated $(600) c. Supplies expense overstated $540 d. Interest expense understated $(420) Adjusted net income $30,720

If the actual cost is greater than budgeted cost, the variance is labeled as .

Unfavorable

overtime premiums being charged to the direct labor account and skilled workers being assigned to jobs requiring little skill

Unfavorable labor rate variances may occur as a result of:

How do you estimate Cost behavior?

Use least-squares regression

Which of the following are common causes of favorable variances?

Using less direct materials than expected Using less of a variable resource than expected

Which of the following are common causes of favorable variances?

Using less of a variable resource than expected Taking less time to produce a unit than expected Using less direct materials than expected

Which type of cost changes in total, in direct proportion to changes in activity level?

Variable Cost

How is Sales Revenue computed?

Variable Costs - Contribution Margin= Sales Revenue

Variable cost per unit is

Variable cost per unit is

The process of comparing actual and budgeted results is called

Variance Analysis

Within the relevant range of activity, variable costs:

Vary in total Remain constant per unit

Which of the following statements are true?

When materials are purchased they are recorded in the Raw materials inventory account. Raw materials inventory represents the cost of materials not yet used in production.

flexible budget

Which of the following shows how budgeted costs and revenues will change over different volumes

the variable overhead efficiency variance may depend on the efficiency of direct labor

Which statement regarding variable overhead variance is true>

Within the relevant range, [...] costs remain constant on a per unit basis.

Within the relevant range, VARIABLE COSTS remain constant on a per unit basis.

How do we estimate cost behavior?

Y (TOTAL COST) = Total Fixed Costs + (Variable Cost per Unit)* # units of activity. Y is the dependent variable and the # units is the independent variable.

A detailed plan for the future that is usually expressed in formal quantitative terms is ______.

a budget

flexible budget

a budget that adjusts revenues and costs as the level of activity changes

master budget

a budget that is static

may be due to quantity discount, price fluctuations, and the quality of goods

a favorable material price variance

Revenue center managers are evaluated primarily on their ______.

ability to meet sales goals

How much net income a potential project is expected to generate as a relative percentage of required investment is told by the ______ of return.

accounting rate

Net cash flow differs from net income because of ______.

accrual-based accounting

Capital budgeting decisions include ______.

acquiring a new facility to increase capacity purchasing new equipment to reduce cost deciding to replace old equipment determining which equipment to purchase among available alternatives choosing to lease or buy new equipment

A technique that attempts to assign overhead costs to products based on the actions they require is called

activity based costing

Cost per cup declines as

activity increases

Per unit mixed costs decrease as

activity increases

Total FIXED costs remain constant as

activity increases

Total VARIABLE costs increase as

activity increases.

A predetermined overhead rate in an activity-based costing system is called a(n)

activity rate

The formula to apply overhead to products is ______.

activity rate times activity

A method that attempts to assign overhead costs based on what is required to produce products is ______ costing.

activity-based

A predetermined overhead rate in an activity-based costing system is called ______.

an activity rate

Select all that apply Budgets ______.

and the budgeting process can uncover potential bottlenecks before they occur define goals and objectives that can serve as benchmarks for evaluating subsequent performance coordinate the activities of the entire organization by integrating the plans of its various parts force managers to think about and plan for the future

The direct materials price variance is the difference between the actual price of materials ______.A price variance is the difference between the ______.

and the standard price for materials with the difference multiplied by the actual quantity of materials

Equal interest rates, interest periods, and dollar amounts each interest period are all characteristics of ______.

annuities

A stream of cash flows that occur uniformly over time is a(n) ______.

annuity

A stream of equal cash flows is called a(n)________.

annuity

Return on investment, residual income, and economic value added ______.

are all lagging measures of performance

Select all that apply Master budget schedules ______.

are based on estimates and assumptions. answer several key questions for a company

Quantity and price standards ______.

are developed for both direct materials and direct labor

Step costs

are fixed over a range of activity and then increase in a step-like fashion. Mixed costs (aka semi-variable costs) have both a fixed and variable component.

Discounted cash flow methods assume cash flows ______.

are immediately reinvested in another project can be projected with 100% certainty

In deciding whether to sell a product or continue to process it, costs incurred to get the product into its current condition ______ relevant to the decision.

are not

Indirect costs ______.

are not easily traced to products or services

Budgets that are most likely to motivate employees ______.

are tight but attainable

spending variance

calculated by comparing actual costs to the flexible budget

volume variance

calculated by comparing the master budget to the flexible budget

A quantity variance is ______.

calculated using the standard price of the input

There are many variances of ROI, including return on ______.

capital employed assets equity

Investing in new technology to save on labor costs is an example of a(n)______ decision.

capital investment

The receipts, disbursements, excess or deficiency, and financing section are all parts of the ______ budget.

cash

Decision-making authority is kept at the very top when an organization is

centralized

Decision-making authority lies mostly with higher-level managers in strongly ______ organizations.

centralized

Using less DM than expected Taking less time to produce a unit Using less of a variable resource than expected

common causes of favorable variances

Budgets ______.

communicate management's plan throughout the organization

price variance

compare the actual cost to what the cost should have been

may penalize a manager for serving more customers than expected & doesn't indicate what actions need to be taken to address problems

comparing a static budget to actual results

When the dollar amount of interest earned on a given investment increases every year, ______ interest is in force.

compound

Interest earned on top of interest is called

compounding

The required rate of return ______.

considers financing costs considers the risk of an investment

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

cost

The formula to compute activity proportion is ______.

cost driver for product / cost driver for all products

To determine if a project is acceptable, compare the internal rate of return to the company's ______.

cost of capital

The ending finished goods inventory budget computes the ______ units.

cost of unsold

A group of similar activities that have been combined together is an activity ______.

cost pool

A group of similar activities that have been combined together is called an activity

cost pool

The discount rate should reflect a company's_____ of_____.

cost, capital

The internal rate of return is compared to the______ of________ when analyzing the acceptability of an investment

cost, capital

Contribution margin ______.

covers fixed cost and profit

When creating an Excel budget and performing what-if analysis, it is generally easiest to ______.

create the budget with a budgeting assumption tab

The link between internal business processes and financial results is the ___________perspective of the balanced scorecard.

customer

The four groups of performance measures typically used in the balanced scorecard approach are financial, ______.

customer, internal business processes, and learning and growth

Internal transfer prices ______.

determine how revenues and costs are reported between divisions

The first step in assigning manufacturing overhead costs using a predetermined overhead rate is to ______.

determine the cost driver

A fixed cost that can be traced to a specific business segment is called a(n) _______ fixed cost.

direct

One of the benefits of dropping a product line is that a company can eliminate the product line's _____ fixed costs.

direct

Working hours required to satisfy the production budget are shown on the ______ budget.

direct labor

are computed in the same way as material variances

direct labor variances:

The quantity and price of an input (i.e. ounces or pounds) that should be required to create a single unit of output is identified by a(n) ___ ___ standard

direct material

In a manufacturing company, the ______ budget details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories

direct materials

Major inputs such as lumber and fixtures that can be easily traced to a specific job are called

direct materials

The rate applied to future cash flows to reflect the time value of money is called the _______ rate.

discount

Net present value, internal rate of return, and profitability index are referred to as___________methods because they incorporate the time value of money.

discounted cash flow

Backing out interest to find the equivalent value in today's present dollars is called______.

discounting

Calculating the present value of money is referred to as ______ cash flows.

discounting

The opposite of compounding is

discounting

Shortcomings of the payback period include it ______.

does not consider the time value of money ignores cash flows that occur after the payback period

The ______ step in the decision-making process is to identify the decision problem.

first

Step-FIXED costs are

fixed over a fairly wide range of activities

A budget that takes into account how costs are affected by changes in level of activity is a(n) ___ budget

flexible

Financial performance measures ______.

focus on past, not future performance may cause managers to make decisions that won't be optimal in the long run

If you have $1,000 now and want to know what it will be worth in 3 years, you are solving a(n) _______problem.

future value

Responsibility centers can be based on _________ regions, ____________ lines, _________characteristics, or some combination of the three.

geographical product functional

A performance evaluation system can create _________ or a conflict of interest between what is best for a division and best for the company as a whole.

goal incongruence

Sales price per unit - manufacturing cost per unit = ______ per unit.

gross profit per unit

Managers must try to find the "just-right" level of difficulty in setting budgetary goals so they ______.

have motivating effects on employee behavior

What does "b" represent?

he slope of the line, the unit variable cost, which tells us how much the total cost (y) will increase for each unit increase in activity (x)

quantity standards

how much input should be used to produce a product or provide a service are specified by

CVP analysis can help answer the question of _____.

how net income can be increased

Deciding whether to purchase or lease a vehicle is an example of a(n) ______ project decision.

mutually exclusive

Short-term objectives ______.

need to be achieved in one year or less are an important component of long-term objectives

A transfer price developed using the ______cost , method should fall somewhere between the variable cost and the wholesale price.

negotiation

The accounting rate of return equals ______.

net income/ initial investment

When a manager is evaluated on residual income, an investment is acceptable when ______.

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

Capital investment methods that ignore the time value of money are referred to as __________ methods.

non-discounting

When performance is evaluated based on ROI, managers may ______.

not make an investment that would be good for the company as a whole

An advantage of IRR over NPV is that it is stated ______.

on a relative basis

Opportunity costs are ______.

only relevant when capacity is limited

Decisions about whether to use fixed or variable costs to run a business affects a company's ___ leverage.

operating

Decisions about whether to use fixed or variable costs to run a business impact a company's ___ ___.

operating leverage

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 considering a keep-or-drop decision, it is important to consider ___________ _____________, such as whether the elimination of the segment will free resources that could be used in another way.

opportunity costs

Make-or-buy decisions are also referred to as ______ decisions.

outsourcing

Indirect costs are also referred to as ___ costs

overhead

The predetermined overhead rate is multiplied by the actual cost driver usage for a job to calculate the ______ the job.

overhead applied to

Total manufacturing overhead under activity-based costing consists of all ______.

overhead assigned during Stage 2 allocations

Employees throughout the organization have input into the budget-setting process when ________ budgeting is used

participate

More accurate estimates and higher motivation are generally the result of using a(n) ______ budget.

participative

Budgets are used for two distinct purposes: ______ and ______.

planning; control

A project with a(n) ______ net present value creates economic value for a company whereas a project with a(n) _____ net present value reduces a firm's economic value.

positive negative

Capital budgeting techniques involve solving __________ problems because of the need to know how much something is worth today.

present value

According to the assumptions of CVP, ______ will not change as the volume of a product increases or decreases.

price

How much should be paid for an input is specified by a(n) ___ standard.

price

The actual cost is compared to what the cost should have been when calculating a(n) variance.

price or spending

The actual cost is compared to what the cost should have been when calculating a(n) variance. (Enter only one word per blank.)

price or spending

variance analysis

process of comparing actual and budgeted results

The first line of the direct labor budget consists of the budgeted units expected to be ______ during the period.

produced

Activities performed to design a new type of service to be offered are ______-level activities.

product

Activities incurred for each product produced and not dependent on the number of units or batches are

product level activities

Research and development is a(n)

product-level activity

In a manufacturing company, the ______ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory.

production

The direct labor budget is based directly on the ______ budget.

production

The basic premise of the payback method is ______.

projects with shorter payback periods are safer investments than projects with longer payback periods

Implementing an ABC system ______.

provides information for cost management

Advantages of budgeting include ______.

providing lead time to solve potential problems providing benchmarks for evaluating performance forcing managers to think about and plan for the future promoting cooperation and coordination among different areas within the organization

The materials price variance is generally the responsibility of the manager. (Enter only one word per blank.)

purchasing

How much input should be used to produce a product or provide a service is specified by ___ standards.

quantity

The formula for the direct materials variance is (SQ - AQ) × SP. (Enter only one word per blank.)

quantity, usage, or efficiency

direct labor efficiency variance

reflects the difference between the standard hours allowed for a job and the actual hours used

Business transactions between units or divisions are commonly known as ______.

related-party transactions

Costs and benefits that always differ between alternatives are called ______ costs and benefits.

relevant

When making a decision to drive or take the train on a trip, the cost of the train ticket is a(n) ______ cost

relevant

When planning a trip and deciding to drive your car or take the train, gasoline is a(n) ______ cost.

relevant

budgets

represent the total dollar amount expected at a given level of output

Typical capital budgeting decisions include ______.

research and development projects equipment selection decisions lease or buy decisions

The economic value added calculation is similar to the computation of ______.

residual income

An area of business that a manager has control over and is accountable for is called a(n)

responsibility

An area of business that a manager has control over and is accountable for is called a(n)_________ center.

responsibility

Net operating income ÷ average invested assets = ______.

return on investment

Sales quotas are often given to____________ center managers.

revenue

Step-VARIABLE costs

rise in multiple steps across the relevant range

The two types of capital investment decisions are ______ and ______ decisions.

screening, preference

The two types of capital investment decisions are ___________ decisions and ________ decisions

screening, preference

Sales revenue minus all costs that are directly attributable to a particular product line or region of a business is called the

segment margin

Sales revenue minus all fixed and variable costs attributable to a particular division is called ______.

segment margin

A(n) Blank 1 of 1 income statement is broken down by product line, region, or other area of a business.

segmented

The most common method used to evaluate profit center managers is based on ______.

segmented income statements

Recognizing individuals at all levels of the organization as team members whose views and judgments are valued by top management is an advantage of ______.

self-imposed budgeting

Deciding what to do with a product that is salable or could be enhanced is a ______ decision.

sell-or-process-further

Budgeted expenses for areas other than manufacturing are shown on the ______ budget.

selling and administrative

Synonyms for the accounting rate of return are the ______ rate of return and the ______ rate of return.

simple, unadjusted

Sometimes budgetary ________ can be beneficial as a way to hedge against uncertainty or future events than cannot be anticipated.

slack

When constructing a CVP graph, the ___ of the line represents variable cost per unit.

slope

A one-time order that is not considered part of the company's normal ongoing business is called a ______ order.

special

Deciding to accept a sales request that is outside the scope of normal sales is called a(n) ______ - _______ decision

special order

Tactics are ______.

specific actions or mechanisms used to achieve an objective

A flexible budget ___ variance is calculated by comparing actual costs to the flexible budget.

spending

An unfavorable variance may be caused by ______ more than expected

spending

Combining the direct materials price variance with the direct materials quantity variance is a way to compute the direct materials variance.

spending

In decentralized organizations, decision-making authority is ______.

spread throughout the organization

Very detailed levels to reflect the required quantity of inputs for a product or service are specified in ___ , whereas ___ represent the total dollar amount expected at a given level of output.

standard , budgets

A system that records costs based on what managers think they should be rather than using actual costs is a(n) ___ ___ system.

standard , cost

The amount a company should spend to produce a single unit of product based on expected production and sales is shown on a(n) ___ ___ card

standard cost

price standard

standard that specifies how much should be paid for an input

To encourage continuous improvement, ______.

standards should increase in difficulty over time

ideal standards

standards that don't allows for any work interruptions or machine breakdowns are

Planning starts with managers' ______.

strategic plan

The starting point of the planning process is management's _________ ________or vision for the organization.

strategic plan

Select all that apply Limitations of self-imposed budgeting include ______.

suboptimal budget recommendations budgetary slack

Net present value is ______.

the difference between the present value of cash inflows and present value of cash outflows for a project used to determine if a project is an acceptable capital investment

The internal rate of return method indicates ______.

the discount rate that makes the present value of the cash inflows equal to the present value of the cash outflows

the actual quantity of the input purchased

the materials price variance is calculated using:

In the equation Y=a+bX, b denotes

the variable cost per unit of activity and slope of the line

Managers of cost centers are evaluated on ______.

their ability to control costs and provide quality service

Reasonable, efficient efforts from employees are required when standards used are ______.

tight but attainable

multiply the actual quantity times the standard price and compare it to the standard quantity allowed times the standard price

to calculate a quality variance

multiply the actual hours worked times times the actual labor rate and compare it to the actual hours worked times the standard labor rate.

to calculate the direct labor rate variance

standards should increase in difficulty over time

to encourage continuous improvement:

Budgetary slack occurs when a manager submits a budget that is ______.

too easy to attain

When an organization uses a top-down approach to budgeting, ______.

top management sets the budget the budget is imposed on lower levels of the organization

When management sets the budget and imposes it on employees throughout the organization, a __________-_________ approach is being followed

top-down

The activity rate is computed by dividing the ______ by the ______.

total activity cost; total cost driver