Accounting Exam 3

With regard to a static budget instead of a flexible budget, which of the following is true?

A stative budget is prepared for only one level of sales activity

Variable Manufacturing Overhead Rate Variance

AH(AR-SR)

DR Rate Variance

Actual Hours(Actual Rate-Standard Rate)

Direct Materials Price Variance

Actual Quantity Purchased(Actual Price - Standard Price)

The variable manufacturing overhead efficiency variance is the difference between which of the following?

Actual hours and the standard hours.

The direct materials quantity variance assesses the efficiency with which materials were used, therefore the calculation includes which of the following?

Actual quantity used

In which of the follow company types does a manager use an operating expense budget?

All of the above

In which of the following company types does a manager use a sales budget?

All of the above

In which of the following company types does the manager use a capital expenditures budget?

All of the above

In which of the following company types foes a manager use a sales budget?

All of the above

The manager of the corporate division of Anthropologie, a large retail clothing chain, may be in charge of a(n)

Investment Center

With regard to flexible budgets, which of the following statements is true?

Managers use them to help plan for uncertainties.

In which of the following company types does the manager use a "cost of goods sold, inventory and purchases" budget?

Merchandising

In which of the following company types would the manager combine cost of goods sold, inventory, and purchases into one budget?

Merchandising

Residual Income(RI) Equation

Operating Income- Targeted Income Targeted Income= target rate of return X Investment capital

Sales Margin Equation

Operating Income/ Sales

Return on Investments(ROI) Equation

Operating Income/ Total Assets

Which of the following budgets usually shows separate sections for fixed and variable costs?

Operating expenses budget and manufacturing overhead budget

Most companies use ____ when the lower level management develops budgets each year

Participative budgeting

When a management team is in the process of setting a standard or benchmark they need to consider which of the following?

Prior, current and future costs.

The entire product line of PepsiCo may be classified as a(n)

Profit Center

When setting a standard cost for direct marvels using the practical standard approach, which of following issues will be included in the calculation?

Quantity, price, and waste

If a company must decrease its sales price of a product while all of the company's expenses remain constant, what will happen to return on investment (ROI)?

ROI will decrease

If selling and administrative expenses decrease while all of the company's expenses remain constant, what will happen to return on investment (ROI)?

ROI will increase

What will happen to return on investment (ROI) if current assents decrease while everything else remains the same?

ROI will increase over time

Which term below best fits "a part, segment, or subunit of a company whose manager is accountable for specified activities?

Responsibility center

The manager of the Northeast sales region at General Mills may be in charge of a(n)

Revenue Center

The reservations department that has self-contained sales operations at a car rental chain may be classified as a(n)

Revenue Center

Variable Manufacturing Overhead Efficiency Variance

SR (AH-SHA)

Which of the following budgets is the cornerstone of the master budget?

Sales

Capital Turnover Equation

Sales/Total Assets

Which of the following is the operating income an investment center generates before subtracting common fixed costs that are allocated to the center?

Segment margin

_______ is a what-if technique that asks what a result will be if a predicted amount of NOT achieved or if an underlying assumption changes

Sensitivity Analysis

Management by exception would dictate that the manager investigates which of the following variances?

Variances which are greater than a budget and actual dollar amount or percentage

Which of the following is not included in the operating budget?

Budgeted balance sheet

The fixing overhead volume variance is the result of which of the following causes?

Viewing fixed costs as variable costs and incorrectly estimating activity levels

Financial budget is best described by which of the following?

a budget that projects cash inflows, cash outflows, and the end of period budgeted balance sheet

Which of the following is a benefit to an organization that implements a budget?

all of the above

A standard cost represents the budgeted or planned cost for one unit of a product. Standard costing is an effective way to identify the ________ for evaluating actual costs.

benchmark

The two fixed overhead variances are the

budget and volume variances

A performance report compares actual revenue and expenses with ________ revenues and expenses

budgeted

A management team will prepare three cash budgets which includes which of the following?

cash collections, cash payments, combined budget

The difference between the actual revenues and expenses and the comprehensive budget is known as a

comprehensive budget variance

A manager can increase return on investment (ROI) by doing which of the following

decrease operating expenses

All of the following budgets are prepared by merchandising companies except

direct materials

All of the following are responsibility centers expect

equity center

All costs incurred in the value chain, except production costs must be _____ as ______ expenses in the period they are incurred

expensed, operating

The variable overhead rate variance may be caused by variances in the following production inputs except

fixed manufacturing overhead

An favorable variance causes operating income to be _____ the budgeted operating income?

greater than

A company should ________ when projecting cash receipts for a given month.

include cash to be collected in that month regardless of when the sale was made

Frito-Lay, a stand-alone division of PepsiCo may be classified as a(n)

investment center

A cost benchmark is valid only if the standards are

kept up to date

An unfavorable variance causes operating income to be _____ the budgeted operating income?

lower than

When managers identify variances or differences they will want to implement _________ to determine which variances are _________ enough to warrant investigation

management by exception, significant

When calculated the direct materials quantity variance, if the quantity used is ________ than the standard quantity, the resulting variance will be ________.

more, unfavorable

In a budgeted income statement, we calculate the cost of goods by multiplying the _______ of unit sales and the _______ cost per unit

number, manufacturing

When attempting to evaluate an investment's center's financial performance, each investment manager will assess ________ in relationship to its ________.

operating income, assets

ON the direct materials budget, the total quantity of direct materials to purchase is computed as

quantity needed for production + desired end inventory of DM - beginning inventory of DM

The ________ "tells managers how much of the total direct materials variance is due to using more or less materials than anticipated the by standards."

quantity variance

In preparing the operating budget, the first step is preparing the

sales budget

A ______ is the operating income generated by a profit or investment center before deducting common _______

segment margin, fixed costs

A ________ is the operating income generated by a profit or investment center before deducting common ________

segment margin, fixed costs

The fixed overhead volume variance is the difference between the budgeted fixed overhead and

the standard fixed overhead cost allocated to production.

Disadvantages of using standard costs and variances include all of the following except

those manufacturing costs that enter Work in Process Inventory are recorded at standard cost, rather than actual cost.

Managers may intentionally build slack into the budget...

to gain the resources they need in the event of budget cuts

Unfortunately, standard costs can quickly become outdated reducing their usefulness as an effective decision-making tool, therefore a company needs to ___________ standards whenever a change in an input cost is identified as _________

update, permanent

Which of the following alternatives reflects the proper order of preparing components of the comprehensive budget? 1. Production budget 2. Sales budget 3. Direct materials budget

2,1,3

Capital expenditures budget is best described by which of the following concepts?

A company's plan to purchase property, plant, equipment and other long-term assets

As companies embark on a decentralization strategy, top management will no longer be involved in many day-to-day operations. In order for management to determine if the company-wide goals are being achieved, they will need to implement what?

A performance evaluation system

Which of the following items is a component of a cash payments budget?

Cash Dividends

"The comprehensive budget" is best described by which of the following terms?

Comprehensive Budget

The manager of the truck maintenance department at FedEx may be in charge of a(n)

Cost Center

A manager can increase return on investment (ROI) by doing which of the following?

Decrease operating expenses

"Combined cash budget" is best defined by which of the following?

Details about how the company expects to move out of the beginning cash balance into the desired ending cash balance

All of the following budgets are prepared by merchandising companies except...

Direct Materials

Which variance is directly impacted if the employees who build the product go no strike and temporary workers whoa re slower and not as skilled are hired?

Direct labor efficiency variance

TTU's purchasing department negotiates all the purchasing contracts for raw materials. Which variance is most useful in assessing the performance of the purchasing department?

Direct materials price variance

A potential disadvantage of decentralization is which of the following?

Duplication of costs

When deciding whether or not to adopt standard costs and perform variance analysis, management should do which of the following?

Examine the costs and benefits of a standard costing system

An unfavorable variance causes operating income to be higher than budgeted

False

Companies evaluate investment center performance the way they evaluate profit center performance.

False

Ideal standards allow for a normal amount of waste and inefficiency

False

The difference between actual results and budgeted results is known as decentralization

False

The direct labor rate variance is calculated by multiplying the standard hours that should have been worked for the actual output by the difference between the standard labor rate and the actual labor rate

False

The standard for the first labor rate per hour does NOT include fringe benefit such as health care insurance and vacations

False

Which type of variance causes operating income to be greater than the budgeted operating income?

Favorable variance

Which of the following budget project cash inflows, cash outflows, and budget balance sheet?

Financial budget

The _______ is a budget based on multiple levels of projected sales or production

Flexible budget

An unfavorable direct labor rate variance indicates which of the following?

The actual direct labor cost per hour exceeded the standard direct labor cost per hour for Actual Quantity (AQ) of direct labor hours.

The direct materials price variance is calculated as

The actual quantity purchases (AQP) multiplied by the difference between the Actual Price and the Standard Price of the input purchased

How is the fixed overhead budget variance calculated?

The difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs

How is the variable manufacturing overhead efficiency variance calculated?

The difference between the standard hours allowed and the actual hours used multiplied by the standard overhead rate

How is the direct labor efficiency variance calculated?

The difference between the standard labor hours allowed and the actual labor hours used multiplied by the standard labor rate

Which of the following may cause a favorable sales volume variance of the revenues?

The flexible budget sales in dollars are greater than the static budget sales in dollars.

The primary causes of large unfavorable direct labor variances are due to which of the following?

The labor rate was higher and the efficiency level was lower

A direct materials flexible budget variance can be broken down into a price variance and a quantity variance

True

Decentralization allows top management to hire workers with expert knowledge in each business unit

True

Raw material, ruined through mistakes during production, results in a materials quantity variance.

True

The cash budget is prepared before the budgeted balance sheet is prepared.

True

The duties of an investment center manager are similar to those of a CEO

True

The variable overhead rate variance may be affected by both indirect labor and indirect materials

True

Total assets is the denominator in the formula manager use to compute ROI

True

If the production volume variance is less than budgeted, the fixed overhead has been ________ and the fixed overhead volume variance is _________

Underallocated, unfavorable

Which type of variance causes operating income to be lower than the budgeted operating income?

Unfavorable Variance