Exam 3 Accounting

Which of the following statements is true

The fixed cost spending variance is the difference between the amount of fixed cost shown on the flexible budget and the actual amount of fixed cost

A decision to open a new restaurant would be made by a manager of a(n)

investment center

When the actual amount of sales is greater thatn the budgeted amount of sales, the variance

is classified as favorable

Residual income is calculated by

operating income- (operating assets X desired ROI)

The static budget is based on an estimated level of sales volume that was determined at

the beginning of an accounting period

Return on investment is equal to

(operating income/sales) X (sales/operating assets)

ROI may be calculated for investments made for

- a particular investment opportunity - a particular division of a company - a company taken as a whole

Which of the following statements is true?

-a higher margin suggests better performances -a higher turnover suggests better performances -the margin times the turnover is equal to the ROI

A manager of an investment center is responsible for

-cost control -profitability -investment decisions

A flexible budget is prepared using

-the sames sales price per unit that was used to prepare the static budget -a different amount of expected sales volume than was used to prepare the static budget -the same variable cost per unit that was used to prepare the master budget

Which items are likely to be the responsibility of the home furnishings department manager?

-travel expenses for the housewares buyer -seasonal decorations for the furniture section -revenues for the home furnishings department -delivery expenses for the furniture purchases -salaries for the sales staff in the lamp section

Chi Company had budgeted sales of $243,000. Actual sales amounted to $262,000. Which of the following items could have caused this result?

Chi increased the number of units of product sold

A static budget is a different term for the master budget

True

Which of the following types of business is most likely to have a low margin and high turnover?

a discount retail company like walmart

A grocery store that is part of a national chain of grocery stores is most likely to be classified as

a profit center

The predetermined overhead rate is

equal to the amount of fixed cost estimated at the beginning of the accounting period divided by the number of units a company estimates it will produce at the beginning of the accounting period

Cost variances are always unfavorable

false

Management by exception is a strategy that maximizes profitability by rewarding managers who demonstrate exceptional performance

false- directs management attention to areas that are underperforming

The return on investment(ROI) is measured by dividing the amount of operating income by the amount of the return

false- dividing the return (operating income) by the investment (operating assets)

The central concept in decentralization is that the people at the top of the organization should have the primary decision making role because they know what is best for the organization as a whole

false- people closest to the work being done are better informed

Measuring performances on the basis of residual income is likely to lead to suboptimization

false- residual income is a technique designed to avoid the suboptimization that frequently occurs when ROI is used as the sole measure of performance

The difference between the flexible budget and the actual results are called

flexible budget variances

Kahns Company static budget was based on sales volume of 12,000 units. Its flexible budget was based on sales volume of 14,000 units. Based on this information

the labor cost volume variance is expected to be unfavorable

An ROI of 15% means that a company received fifteen cents for every dollar invested

true

Suboptimization is likely to occur when there is a conflict between what is in the best interest of the company and what is in the best interest of one of its managers

true

The analysis of the fixed cost volume variance focuses on how volume affects fixed cost per unit.

true

The difference between budget data and actual results is called a variance.

true

The fixed cost flexible budget variance is also called the fixed cost spending variance. This statement is

true

A manager of a cost center is evaluated using

variance analysis

The difference between the static budget and the flexible budget is called the

volume variance