Acct 2302 Exam 3
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
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?
Comparing the costs and benefits of decision alternatives is done using ______________ analysis because it focuses on the factors that will change between the decision alternatives.
Incremental
Comparing the relevant costs and benefits of alternative decision choices is called _____________ analysis
Incremental
Which of the following budgets are needed to calculate unit product costs?
Manufacturing overhead budget Direct labor budget Direct materials budget
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
Which of the following statements is true?
Understanding the interrelationships of individual budgets is the key to developing a master budget.
Sperling Company's master budget shows expected sales of 10,000 units and expected production of 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15.00 per hour. Calculate the expected total direct labor cost for the month of March.
Units to be produced x time per unit x rate per hour 11,000 x 1/2 x 15 = $82,500
When evaluating a make-or-buy decision, managers should consider __.
all variable production costs qualitative factors opportunity costs
When deciding whether to sell a product as is or continue to process it, costs incurred to get the product to its current condition ______ relevant to the decision.
are not
One of the benefits of dropping a product line is that a company can eliminate the product line's _______ fixed costs
avoidable
To calculate the cash balance before financing on the cash budget, add the ______.
beginning cash balance to the budgeted cash receipts and deduct budgeted cash payments
A(n) ______ limits a system's overall output.
bottleneck
The process that limits overall output is called a(n) ________
bottleneck
The final step in the master budgeting process is to prepare the ______.
budgeted balance sheet
Which of the following budgets shows the company's planned profit?
budgeted income statement
A future-oriented version of the statement of cash flows is the
cash budget
The operating budgets feed directly into the ______ __________ which then feeds directly into the budgeted balance sheet.
cash budget
Collections on credit sales made to customers in prior period(s) plus collections on sales made in the current budget period equal ______.
cash receipts
When performing a keep-or-drop decision analysis, _________fixed costs should be excluded from the analysis.
common
Budgets ________-
communicate management's plan throughout the organization
Managers must prioritize how products are produced when faced with a(n) _______ resource
constrained
Once you have identified a problem, the next step is to determine the possible solutions, which are called
decision alternative
Relevant costs ______.
differ between alternatives occur in the future
fixed cost that can be traced to a specific business segment is called a(n) _________Fixed cost
direct
When the total amount of the cost will be the same regardless of the alternatives selected in a decision, the cost should be ______ when doing decision analysis.
excluded
Using a participative approach to budgeting is less likely to motivate employees than using a top-down approach
false
A pro forma budgeted balance sheet is developed from the _____________budgets
financial
The ______ step in the decision-making process is to identify the decision problem.
first
A business segment should only be dropped if a company can save more in ______ costs than it loses in contribution margin.
fixed
Advantages of budgeting include ______.
forcing managers to think about and plan for the future providing benchmarks for evaluating performance providing lead time to solve potential problems promoting cooperation and coordination among different areas within the organization
Standard cost systems ______.
help managers budget and control costs are based on what managers think costs should be help maintain consistency and quality
Standards that do not allow for any work interruptions or machine breakdowns are called ___________ standards.
idea
Segment margin ______.
includes both variable and direct fixed costs
The budgeted______ ______ shows a company's planned profit.
income statement
The manufacturing overhead budget includes ______.
indirect manufacturing costs depreciation on production equipment
Bad decisions can easily result from erroneously including ______ costs and benefits when analyzing alternatives.
irrelevant
When planning a trip and making a decision to drive or take the train, the cost of boarding your dog while you are away is a(n) ______ cost.
irrelevant
The number of units that must be made to satisfy sales needs and to provide for the desired ending inventory is shown on the ________budget
production
Which of the following is NOT included on a budgeted cash payments budget?
production in units
Total sales on the sales budget equal budgeted unit sales multiplied by ______.
budgeted sales price per unit
The three sections of the cash budget are _______ , _________, and financing
collections disbursements
When there is excess capacity, an analysis of a special order ______.
excludes fixed costs
Controlling involves developing goals and preparing various budgets to achieve those goals
false
Quantity standards refer to the price to be paid for each unit of the input
false
When making decisions, managers should ignore ________costs
irrelevant/sunk/unavoidable
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
Continue-or-discontinue decisions are commonly known as ___________ ________ decisions
keep -or- drop
All costs of production other than direct materials and direct labor are shown on the ____________ ________ budget
manufacturing overhead
The calculation of unit product cost requires information from the ______ budget.
manufacturing overhead
A comprehensive set of budgets that covers all phases of planned activities for a specific period is called the _______ budget.
master
Each component of a(n) _________ budget is based on or provides input for another component.
master
The forgone benefit of choosing one decision alternative over another is its
opportunity cost
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
Employees throughout the organization have input into the budget-setting process when ___________ budgeting is used
participative
Budgeting is an important part of the ________________ and _______ cycle
planning, controlling
Developing goals for the budget is part of ________whereas __________ involves determining if goals have been followed
planning, controlling
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
The actual cost is compared to what the cost should have been when calculating a(n) _____ variance
price
How much should be paid for an input is specified by a(n)________ standard.
price/rate/cost
The ______ budget shows the number of units needed to satisfy sales and provide the desired ending inventory.
production
The direct materials budget directly relies on the ______ budget.
production
When planning a trip and deciding to drive your car or take the train, gasoline is a(n) ______ cost.
relevant
When planning a trip and making a decision to drive or take the train, the cost of car repairs and maintenance is a(n) ______ cost.
relevant
The ______ budget is prepared first when creating the master budget.
sales
The first step in the process of preparing the master budget is the ____________budget or forecast.
sales
Sales revenue minus all fixed and variable costs attributable to a particular division is called ______.
segment margin
Deciding what to do with a product that is salable or could be enhanced is a ______ decision.
sell-or-process-further
Budgeted expenses for costs related to selling the product and managing the business are shown on the ______ budget.
selling and administrative
The budget that shows the budgeted expenses for areas other than manufacturing is the ___________ and ____________ expense budget
selling, administrative
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
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
Which of the following is NOT another term for relevant costs?
sunk cost
Goodstone Tire Corporation sells tires for $90 each. Per-unit costs associated with producing and selling the tires are: Direct materials $35; Direct labor $10; Factory overhead $20. The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has excess capacity, ______.
the incremental profit from the special order will be $12,000
The process of comparing actual and budgeted results is ______.
variance analysis
Common fixed costs ______.
will be incurred even if a segment is eliminated
Pastoria Enterprises has scheduled raw material purchases of $100,000 in January, $130,000 in February, and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February.
$122,500 Reason: February purchases ($130,000 × 75%) $97,500 + January purchases ($100,000 × 25%) $25,000 = $122,500.
quantity variance =
(SQ x SP)- (AQ x SP)
Steps in the decision-making process
1. Identify the decision problem 2. Determine the decision alternatives 3. Evaluate the costs and benefits of the alternatives 4. Make the decision 5. Review the results of the decision
Davidson Corporation's master budget shows expected direct labor cost of $90,000 for the month of May. During May, the company's expected sales equal 12,000 units and expected production is 15,000 units. If each unit requires 1/2 hour of direct labor, the budgeted direct labor rate is $_________ per hour.
12
What number does the raw materials budget take directly from the production budget?
Budgeted production
Which of the following provides critical information managers need to manage daily operations?
Cash budget
Which of the following is a limitation of some type that restricts a company's ability to satisfy demand?
Constrained resource
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.
Fruit First produces and sells baskets of dried fruit for $20 each. It receives a special order from Carol Costellano for 150 fruit baskets at a special price of $16. The company incurs a variable cost of $11 and a fixed manufacturing overhead of $6 per unit of fruit basket. The company is operating at full capacity and will have to cancel its existing orders to fill this special order. What will be the total opportunity cost that must be considered in the incremental analysis for this decision?
Opportunity cost that would be considered for incremental analysis will be the contribution margin forgone due to special order. Contribution margin = Selling price - Variable cost = 20 - 11 = $9 Opportunity cost of 150 units = 150*9 = $1,350
The __________ of making something internally include alternative uses for the internal resources.
Opportunity costs
A major accounting contribution to the managerial decision-making process in evaluating possible courses of action is to:
Provide relevant revenue and cost data about each course of action.
Which of the following is needed to prepare a sales budget?
The budgeted number of units to be sold
Opportunity costs are ______.
only relevant when the company has excess capacity
Costs and benefits that always differ between alternatives are called ______ costs and benefits.
relevant
Reasonable, efficient efforts from employees are required when standards used are ______.
tight but attainable
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
If the actual cost is greater than budgeted cost, the variance is labeled as
unfavorable
Madison Corporation's expected beginning cash balance is $35,000. Cash collections are budgeted at $50,000 and cash disbursements are estimated to be $80,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month.
$35,000 + $50,000 - $80,000 = $5,000. Since they can borrow in increments of $10,000, they must borrow $20,000 to meet or exceed the minimum cash balance, making the ending balance $25,000.
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 _____
(1/2 x $6.00) + (1/4 x $20.00) + ($5.00 x 20%) + ($15,000/7,500) = $11.00 per unit
