ACCT 241 Exam #4 (Ch. 10, 11)

Residual Income

"Go forth and maximize the absolute amount of income in excess of some desire minimum":

Return on Investment

"Go forth and maximize your rate of return""

C. The manager has the power to incur the cost within a given time period.

A cost is considered controllable at a given level of managerial responsibility if: A. It changes in magnitude in a flexible budget. B. It is a variable cost, but it is uncontrollable if it is a fixed cost. C. The manager has the power to incur the cost within a given time period. D. The cost has not exceeded the budget amount in the master budget.

B. Static budget.

A projection of budget data at one level of activity is a: A. Flexible budget. B. Static budget. C. Fixed budget. D. Variable budget

C. Profit center.

A responsibility center that incurs costs and also generates revenues is a(n): A. Cost center. B. Investment center. C. Profit center. D. Segment.

B. Show only those costs that a manager can control.

A responsibility report should: A. Only show variable costs. B. Show only those costs that a manager can control. C. Be prepared in accordance with generally accepted accounting principles. D. Only be prepared at the highest level of managerial responsibility.

A. Normal standard.

A standard which represents an efficient level of performance that is attainable under expected operating conditions is called a(n): A. Normal standard. B. Loose standard. C. Ideal standard. D. Tight standard.

C. Fixed.

A static budget is useful in controlling costs when cost behavior is A. Linear. B. Mixed. C. Fixed. D. Variable.

A. A projection of budget data at a single level of activity.

A static budget is: A. A projection of budget data at a single level of activity. B. Compared to a flexible budget in a budget report. C. Never appropriate in evaluating a manager's effectiveness in controlling costs. D. A projection of budget data at several levels of activity within the relevant range of activity.

D. Fixed manufacturing costs and fixed selling & administrative expenses.

A static budget report is appropriate for: A. Fixed selling and administrative expenses only. B. Fixed manufacturing costs only. C. Variable selling and administrative expenses. D. Fixed manufacturing costs and fixed selling & administrative expenses.

Learning and Growth Perspective

A viewpoint employed in the balanced scorecard to evaluate how well a company develops and retains its employees:

Customer Perspective

A viewpoint employed in the balanced scorecard to evaluate the company from the perspective of those people who buy its products or services:

Internal Process Perspective

A viewpoint employed in the balanced scorecard to evaluate the efficiency and effectiveness of the company's value chain:

C. Increase net income.

All of the following are advantages of standard costs except they: A. Are useful in setting selling prices. B. Simplify costing in inventories. C. Increase net income. D. Facilitate management planning.

C. Fewer costs are controllable as one moves up to each higher level of managerial responsibility.

All of the following statements are correct about controllable costs except: A. All costs are controllable at some level of responsibility within a company. B. All costs are controllable by top management. C. Fewer costs are controllable as one moves up to each higher level of managerial responsibility. D. Costs incurred directly by a level of responsibility are controllable at that level.

B. Means that top management has to investigate every budget difference.

All of the following statements are correct about management by exception except it: A. Means that top management's review of a budget report is focused primarily on differences between actual results and planned objectives. B. Means that top management has to investigate every budget difference. C. Requires that there must be some guidelines for identifying an exception. D. Enables top management to focus on problem areas that need attention.

Balanced Scorecard

An approach that incorporates financial and nonfinancial measures in an integrated system that links performance measurement and a company's strategic goals:

Normal Standards

An efficient level of performance that is attainable under expected operating conditions:

Nonfinancial Measures

An evaluation tool that is not based on dollars:

Ideal Standards

An optimum level of performance under perfect operating conditions:

A. A greater number of costs are controllable.

As one moves up to each higher level of managerial responsibility, A. A greater number of costs are controllable. B. The responsibility for cost incurrence diminishes. C. Performance evaluation becomes less important. D. Fewer costs are controllable.

B. Direct fixed costs.

Fixed costs that relate specifically to one center and are incurred for the sole benefit of that center are: A. Noncontrollable fixed costs. B. Direct fixed costs. C. Common fixed costs. D. Indirect fixed costs.

Variance Analysis

How do you evaluate a Cost Center?

Segment Income Statement

How do you evaluate a Profit Center?

Return on Investment and Residual Income

How do you evaluate an Investment Center?

C. Offer wage incentives to those meeting standards.

If a company is concerned with the potential negative effects of establishing standards, it should: A. Not employ any standards. B. Set tight standards in order to motivate people. C. Offer wage incentives to those meeting standards. D. Set loose standards that are easy to fulfill.

D. Supervision.

In a flexible budget, a cost that would remain the same at each activity level is: A. Indirect materials. B. Utilities. C. Indirect labor. D. Supervision.

B. Controllable margin.

In a responsibility report for a profit center, controllable fixed costs are deducted from contribution margin to show: A. Net income. B. Controllable margin. C. Income from operations. D. Profit center margin.

C. Contribution margin less controllable fixed costs.

In a responsibility report for a profit center, controllable margin is: A. Contribution margin less noncontrollable fixed costs. B. Sales less variable costs. C. Contribution margin less controllable fixed costs. D. Sales less controllable fixed costs.

D. A cost center.

The accounting department of a manufacturing company is an example of: A. A profit center. B. An investment center. C. A contribution center. D. A cost center.

D. Both favorable and unfavorable variances that exceed a predetermined quantitative measure such as percentage or dollar amount.

In using variance reports to evaluate cost control, management normally looks into: A. All variances. B. Favorable variances only. C. Unfavorable variances only. D. Both favorable and unfavorable variances that exceed a predetermined quantitative measure such as percentage or dollar amount.

A. Cost center.

Maintenance and human resources departments are examples of a(n): A. Cost center. B. Investment center. C. Segment. D. Profit center.

Responsibility Accounting

Managers should be evaluated by how well they manage those items - and only those items - under their (direct or indirect) control // matches authority over with responsibility for:

Management by Exception

Managers should focus on quantities and costs that significantly exceed standards:

Variance

Measures the impact on earnings from a performance gap:

Investment Center

Performance Measure: ROI and Residual Income

Profit Center

Performance Measure: Sales and Cost Goals (CM Goals and Segment Margin Analysis):

Cost Center

Performance Measure: Standard Costs and/or tight budgetary control:

D. All of these answers are correct.

Standard costs: A. May show past cost experience. B. Help establish expected future costs. C. Are the budgeted cost per unit in the present. D. All of these answers are correct.

True

T/F: A static budget is a projection of budget data at a single level of activity.

True

T/F: A static budget is not appropriate in evaluating a manager's effectiveness in controlling costs unless the actual activity level approximates the static budget activity level or the behavior of the costs is fixed.

False

T/F: All budget reports are prepared on a weekly basis.

True

T/F: As a result of analyzing budget reports, management may either take corrective action or modify future plans.

True

T/F: Budget reports compare actual results with planned objectives.

False

T/F: Budgetary control works best when a company has an informal reporting system.

False

T/F: Labor quantity variances usually result from misallocation of workers.

True

T/F: Management uses budget reports to analyze differences between actual and planned results and to determine their causes.

False

T/F: Materials price variances are reported to the production department that did the work and used the materials.

False

T/F: Normal standards represent optimum levels of performance under perfect operating conditions.

False

T/F: The balanced scorecard evaluates company performance by employing only non-financial measures.

True

T/F: The investigation of a materials price variance usually begins in the purchasing department.

True

T/F: The primary recipient of the scrap report is the production manager.

False

T/F: The primary recipients of the sales report are the sales manager and the production supervisor.

False

T/F: Top management's reaction to unfavorable differences is not influenced by the materiality of the difference.

False

T/F: Using standard costs complicates the costing of inventories and increase clerical costs.

D. Responsibility accounting.

The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called: A. Flexible accounting. B. Static reporting. C. Master budgeting. D. Responsibility accounting.

C. Determines precise selling prices.

The advantages of standard costs include all of the following except: A. Facilitates management planning. B. Simplifies the costing of inventories. C. Determines precise selling prices. D. Promotes greater economy by making employees aware of costs.

Variance

The difference between total actual costs and total standard costs:

Budget

The expected cost for all units:

Standard Cost

The expected cost for one unit:

B. Standard costs can be used as a means of finding fault with performance.

Which of the following is not considered an advantage of using standard costs? A. Standard costs can make employees "cost-conscious." B. Standard costs can be used as a means of finding fault with performance. C. Standard costs can be useful in setting prices for finished goods. D. Standard costs can reduce clerical costs.

D. Controllable margin.

The return on investment for an investment center can be improved by increasing: A. Fixed costs. B. Average operating assets. C. Variable costs. D. Controllable margin.

B. Controllable margin by average operating assets.

The return on investment for an investment center is computed by dividing: A. Net income by average operating assets. B. Controllable margin by average operating assets. C. Contribution margin by average operating assets. D. Net income by ending operating assets.

C. Standards should not be used in "management by exception."

Which of the following statements about standard costs is false? A. Standard costs can simplify the costing of inventories. B. Standard costs facilitate management planning. C. Standards should not be used in "management by exception." D. Properly set standards should promote efficiency.

D. Controllable costs and revenues.

To evaluate the performance of a profit center manager, upper management needs detailed information about: A. Controllable revenues. B. Controllable costs and revenues and average operating assets. C. Controllable costs. D. Controllable costs and revenues.

Price Standards

Use competitive prices for the quality and quantity desired:

Quantity Standards

Use product design specification:

A. Budgeted amounts for the actual activity level achieved.

What budgeted amounts appear on the flexible budget report? A. Budgeted amounts for the actual activity level achieved. B. Actual costs for the budgeted activity level. C. Actual costs for the estimated activity level. D. Original budgeted amounts at the static budget activity level.

A Flexible Budget Report lists all of the expenses specifically, and a Static Budget Report lists the total expenses.

What is the difference between a Static Budget Report and a Flexible Budget Report?

B. Enable the company to achieve its strategic plan goals.

When a company implements a balanced scorecard approach and measures itself along attributes other than financial achievements only, the process should include identification of objectives in each of the four perspectives that A. Maximize shareholders' dividend payments. B. Enable the company to achieve its strategic plan goals. C. Help the company meet the earnings forecasts provided to analysts. D. Maximize the company CEO's compensation.

-Indirect Labor -Indirect Materials -Lubricants -Maintenance -Utilities

Which of the following are Controllable Costs? -Indirect Labor -Indirect Materials -Lubricants -Maintenance -Property Taxes -Rent -Salaries -Utilities?

B. Earnings per share.

Which of the following would not be an objective used in the customer perspective of the balanced scorecard approach? A. Brand recognition. B. Earnings per share. C. Percentage of customers who would recommend product to a friend. D. Customer retention.

C. Compare actual controllable costs with flexible budget data.

Which one of the following is an effective method of evaluating a cost center? A. Compare actual total costs with flexible budget data. B. Compare actual controllable costs with static budget data. C. Compare actual controllable costs with flexible budget data. D. Compare the actual profit generated with expected profit.

B. It can be used as the price at which to sell a product.

Which one of the following is not an advantage of a standard costing system? A. It provides a quick basis for determining the actual cost of a product. B. It can be used as the price at which to sell a product. C. It is useful in highlighting variances for management by exception. D. It allows for a comparison of differences between actual and standard costs.

B. It determines who is responsible for variances.

Which one of the following is not an advantage of standard costing? A. It simplifies costing in inventories. B. It determines who is responsible for variances. C. It facilitates management planning. D. It is useful in setting selling prices.

D. A cost is controllable if it is incurred directly in a manager's division or segment.

Which one of the statements is correct about controllable costs? A. Variable costs are controllable and fixed costs are not. B. More costs are controllable as one moves downward in management levels. C. Allocated costs are controllable. D. A cost is controllable if it is incurred directly in a manager's division or segment.

B. Budgets contribute to the control of operations.

Which statement is correct as it relates to budgetary control? A. Budget reports are used to compare estimated results with budgeted results. B. Budgets contribute to the control of operations. C. Planned objectives lose value when monitored. D. Budget reports are prepared either annually or quarterly.

A. It links performance measures to a company's strategic goals.

Which statement is true concerning the balanced scorecard? A. It links performance measures to a company's strategic goals. B. It uses four financial measures to evaluate performance. C. It sets objectives in order to create the largest amount of profit. D. It evaluates performance using standard costs to effectively incorporate all areas of the organization.

Because Common Fixed Costs are assigned, and therefore cannot be controlled by management.

Why can't Common Costs be allocated to Business Segments?