Gleim Test 3

All of the following are considered operating budgets except the

Capital Budget

The operating budget process usually begins with the

sales budget

For the current-period production levels, XL Molding Co. budgeted 8,500 board feet of production and used 9,000 board feet for actual production. Material cost was budgeted at $2 per foot. The actual cost for the period was $3 per foot. What was XL's material efficiency variance for the period?

1000 unfavorable

Yola Co. manufactures one product with a standard direct labor cost of 4 hours at $12.00 per hour. During June, 1,000 units were produced using 4,100 hours at $12.20 per hour. The unfavorable direct labor efficiency variance was

1200

Hannon Retailing Company prices its products by adding 30% to its cost. Hannon anticipates sales of $715,000 in July, $728,000 in August, and $624,000 in September. Hannon's policy is to have on hand enough inventory at the end of the month to cover 25% of the next month's sales. What will be the cost of the inventory that Hannon should budget for purchase in August?

540,000 July: $715,000 ÷ 130%=$550,000 August: 728,000 ÷ 130%=560,000 September: 624,000 ÷ 130%=480,000 Purchases for August can now be calculated as follows: Projected sales at cost: $560,000 Add: Required ending inventory: 120,000 ($480,000 × 25%) Total goods needed: $680,000 Less: Beginning inventory: ($560,000 × 25%) (140,000) =Purchases: $540,000

Edith Carolina, president of the Deed Corporation, requires a minimum return on investment of 8% for any project to be undertaken by her company. The company is decentralized, and leaves investment decisions up to the discretion of the division managers as long as the 8% return is expected to be realized. Michael Sanders, manager of the Cosmetics Division, has had a return on investment of 14% for his division for the past 3 years and expects the division to have the same return in the coming year. Sanders has the opportunity to invest in a new line of cosmetics that is expected to have a return on investment of 12%. If the Deed Corporation evaluates managerial performance using return on investment, what will be the preference for taking on the proposed cosmetics line by Edith Carolina and Michael Sanders?

A company with an 8% ROI threshold should obviously accept a project yielding 12% because the company's overall ROI would increase. The manager being evaluated on the basis of ROI who is already earning 14% will be unwilling to accept a 12% return on a new project because the overall ROI for the division would decline slightly. This absence of goal congruence suggests a weakness in ROI-based performance evaluation

In an organization that plans by using comprehensive budgeting, the master budget is

A compilation of all the separate operational and financial budget schedules of the organization.

When a manager is concerned with monitoring total cost, total revenue, and net profit conditioned upon the level of productivity, an accountant would normally recommend

A flexible budget is a set of static budgets prepared in anticipation of varying levels of activity. It permits evaluation of actual results when actual and expected production differ. Setting cost standards facilitates preparation of a flexible budget. For example, a standard unit variable cost is useful in determining the total variable cost for a given output.

A standard-cost system may be used in

A standard-cost system assigns standard (predetermined) costs to the product. It then compares expected with actual cost. This comparison allows deviations (i.e., variances) from expected results to be identified and investigated. A standard-cost system can be used in both job-order and process-costing systems to isolate variances.

XYZ Company is using flexible budgeting to analyze its operating performance for this year. It concludes that the flexible budget variance for sales revenue is $20,000 unfavorable and the sales-volume variance is $22,000 favorable. Which of the following is most likely to be true based on this information?

Actual sales units > budgeted sales units. Actual unit price < budgeted unit price. Sales-volume variances are the differences between the flexible budget and the master (static) budget amounts. Flexible budget variances are the differences between the actual revenues and costs for the period and the amounts that should have been earned and expended given the achieved level of production. They are the differences between the actual results and the flexible budget amounts. For example, a sales-volume revenue variance is favorable if actual units sold exceed budgeted unit sales. An unfavorable flexible budget revenues variance means that actual revenues are less than the amount that should have been earned at a given level of production. Thus, the actual unit price is lower than the budgeted unit price. Because the given information applies only to sales revenues, no conclusion is possible about the cost of goods sold.

Which of the following criteria would be most useful to a sales department manager in evaluating the performance of the manager's customer-service group?

All customer inquiries should be answered within 7 days of receipt.

Which of the following criteria would be most useful to a sales department manager in evaluating the performance of the manager's customer-service group?

All customer inquiries should be answered within 7 days of receipt. A criterion that requires all customer inquiries to be answered within 7 days of receipt permits accurate measurement of performance. The quantitative and specific nature of the appraisal using this standard avoids the vagueness, subjectivity, and personal bias that may afflict other forms of personnel evaluations.

Return on investment (ROI) is a very popular measure employed to evaluate the performance of corporate segments because it incorporates all of the major ingredients of profitability (revenue, cost, investment) into a single measure. Under which one of the following combinations of actions regarding a segment's revenues, costs, and investment would a segment's ROI always increase?

An increase in revenue and a decrease in costs will increase the ROI numerator. A decrease in investment will decrease the denominator. The ROI must increase in this situation.

If a company is customer-centered, its customers are defined as

Anyone external to the company and those internal who rely on its product to get their job done. One of the principles of TQM is customer orientation, whether the customer is internal or external. An internal customer is a member of the organization who relies on another member's work to accomplish his or her task.

Which of the following budgets provides information for preparation of the owner's equity section of a budgeted balance sheet?

Budgeted income statement. The pro forma balance sheet is prepared using the cash and capital budgets and the pro forma income statement. The statement of retained earnings, which flows through to the equity section of the balance sheet, is increased by net income and decreased by a net loss.

Why are ideal standards used in a manufacturing environment often replaced by attainable standards for budgeting purposes?

Budgeting and forecasting require accuracy. Standards often are used to focus effort and outcomes. But they must be realistic and achievable if they are to be used in budgeting and forecasting.

Rockford Manufacturing Corporation uses a responsibility accounting system in its operations. Which one of the following items is least likely to appear in a performance report for a manager of one of Rockford's assembly lines?

Depreciation on equipment The manager of an assembly line cannot make the decision whether or not to invest in the machinery of the line. Managers in a responsibility accounting system can only be held responsible for revenue and cost elements that are subject to their control.

Which criterion for allocation of common costs most likely promotes acceptance of the allocation?

Direct cause and effect relationship

Which of the following types of variances would a purchasing manager most likely influence?

Direct materials price

Which of the following quality costs are nonconformance costs? Environmental costs. This answer is correct. Nonconformance costs include internal and external failure costs. External failure costs include environmental costs, e.g., fines for violations of environmental laws and loss of customer goodwill.

Environmental costs. Nonconformance costs include internal and external failure costs. External failure costs include environmental costs, e.g., fines for violations of environmental laws and loss of customer goodwill.

All of the following are considered operating budgets except the

It is calculated from the desired ending inventory and the sales forecast

The difference between standard hours at standard wage rates and actual hours at standard wage rates is referred to as which of the following types of variances?

Labor usage

The cash receipts budget includes

Loan Proceeds A cash budget may be prepared monthly or even weekly to facilitate cash planning and control. The purpose is to anticipate cash needs while minimizing the amount of idle cash. The cash receipts section of the budget includes all sources of cash. One such source is the proceeds of loans.

In responsibility accounting, a center's performance is measured by controllable costs. Controllable costs are best described as including

Only those costs that the manager can influence in the current time period.

Which of the following standard costing variances would be least controllable by a production supervisor?

Overhead Volume

Which of the following performance measures is nonfinancial?

Percentage of defective products. Of the choices provided, percentage of defective products is the only one whose calculation does not involve a monetary amount.

Individual budget schedules are prepared to develop an annual comprehensive or master budget. The budget schedule that would provide the necessary input data for the direct labor budget would be the

Production Budget: A master budget typically begins with the preparation of a sales budget. The next step is to prepare a production budget. Once the production budget has been completed, the next step is to prepare the direct material, direct labor, and overhead budgets.

Berol Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales. There are 150,000 finished units in inventory on June 30. Each unit of finished product requires 4 pounds of direct materials at a cost of $1.20 per pound. There are 800,000 pounds of direct materials in inventory on June 30. Assume Berol Company plans to produce 600,000 units of finished product in the 3-month period ending September 30 and to have direct materials inventory on hand at the end of the 3-month period equal to 25% of the use in that period. The estimated cost of direct materials purchases for the 3-month period ending September 30 is

Production of 600,000 units will require 2,400,000 pounds of direct materials (600,000 units × 4 lbs.). In addition, ending inventory will be 25% of the period's usage, or 600,000 pounds (2,400,000 × 25%). Thus, 3,000,000 total pounds will be needed. However, given 800,000 pounds in inventory, purchases will be only 2,200,000 pounds. At $1.20 per pound, the cost will be $2,640,000.

The following information pertains to Bala Co. for the year ended December 31: Sales $600,000 Income 100,000 Capital investment 400,000 Which of the following equations should be used to compute Bala's return on investment?

ROI equals capital turnover (sales ÷ investment) times the profit margin (income ÷ sales). Thus, Bala's ROI can be represented by [($600,000 ÷ $400,000) × ($100,000 ÷ $600,000)]. (6/4) × (1/6) = ROI.

In evaluating an investment center, top management should concentrate on

ROI: Return on investment

Wexford Co. has a subunit that reported the following data for Year 1: Asset (investment) turnover 1.5 times Sales $750,000 Return on sales 8% The imputed interest rate is 12%. What is the division residual income for Year 1?

Residual income is the excess of operating income over a target return on invested capital. Because return on sales is the ratio of operating income to sales, Wexford has operating income of $60,000 ($750,000 sales × 8% return on sales). The target return on invested capital equals invested capital times the imputed interest rate. Invested capital is $500,000 ($750,000 sales ÷ 1.5 asset turnover), so the target return on capital is $60,000 ($500,000 capital × 12% imputed interest). Thus, Wexford's residual income is $0 ($60,000 operating income - $60,000 target return on capital).

Which one of the following best describes the order in which budgets should be prepared when developing the annual master operating budget?

Revenue budget, production budget, direct material budget.

After the goals of the company have been established and communicated, the next step in the planning process is development of the

Sales budget

The budget that is usually the most difficult to forecast is the

Sales budget

The production budget process usually begins with the

Sales budget.

Which of the following listings correctly describes the order in which the four types of budgets must be prepared?

Sales, production, direct materials purchases, cash disbursements.

When compared with ideal standards, practical standards

Serve as a better motivating target for manufacturing personnel. Practical standards, also called attainable standards, are more likely to be accepted by workers than standards based on an unachievable ideal.

While an operating budget is a key element in planning and control, it is not likely to

Set out long-range, strategic concepts.

The imputed interest rate used in the residual income approach to performance evaluation can best be described as the

Target return on investment set by the company's management. Residual income is the excess of operating income over a targeted amount equal to an imputed interest charge on invested capital. The rate used ordinarily is set as a target return by management but is often equal to the weighted average cost of capital.

RedRock Company uses flexible budgeting for cost control. RedRock produced 10,800 units of product during October, incurring indirect materials costs of $13,000. Its master budget for the year reflected indirect materials costs of $180,000 at a production volume of 144,000 units. A flexible budget for October production would reflect indirect materials costs of

The cost of indirect materials for 144,000 units was expected to be $180,000. Consequently, the unit cost of indirect materials is $1.25 ($180,000 ÷ 144,000). Multiplying the $1.25 unit cost times the 10,800 units produced results in an expected total indirect materials cost of $13,500.

Fargo Mfg., a small business, is developing a budget for next year. Which of the following steps should Fargo perform first?

The first step, among those listed, is to forecast Fargo's sales volume. This forecast permits estimation of costs, the necessary price for the product relative to its cost, and the dollar amount of forecasted sales.

Which of the following statements is not true regarding ISO 9000 standards?

The objective of ISO 9000 standards is to ensure high quality products and services. The objective of ISO 9000 standards is to ensure consistent quality even if the quality is poor. The market will determine the quality of the end result.

Which measures would be useful in evaluating the performance of a manufacturing system?

Throughput time Total setup time for machines/total production time Number of rework units/total number of units completed Throughput time is the average amount of time required to convert raw materials into finished goods ready to be shipped. Total setup time as a percentage of total production time provides valuable information for scheduling. The number of rework items as a percentage of total number of units completed provides efficiency and quality control data. These are all important factors in evaluating the performance of a manufacturing system.

In investment centers, managers are responsible for all activities, including costs, revenues, and investments. An investment center is a profit center with significant control over the amount of capital invested. This control extends to investments such as receivables and property, plant, and equipment, as well as entry into new markets. A cost center, for example, a production department, is responsible for costs only. A profit center, for example, the appliance department in a retail store, is responsible for both revenues and expenses.

Which of the following types of responsibility centers include controllable revenues in their performance reports? investment centers and profit centers

Which of the following methods involves comparing a company's internal processes that need to be improved to those of external companies identified as being best in class?

bench marking

A static budget contains which of the following amounts?

budgeted costs for budgeted output A static budget is based on only one level of activity. It embodies management's best estimate about production and sales for the upcoming period. Thus, it contains only budgeted costs for budgeted output.

The balanced scorecard provides an action plan for achieving competitive success by focusing management attention on critical success factors. Which one of the following is not one of the perspectives on the business into which critical success factors are commonly grouped in the balanced scorecard?

competitor business qualities A typical balanced scorecard classifies critical success factors and measures into one of four perspectives on the business: financial, customer satisfaction, internal business processes, and learning and growth.

The balanced scorecard provides an action plan for achieving competitive success by focusing management attention on critical success factors. Which one of the following is not one of the perspectives on the business into which critical success factors are commonly grouped in the balanced scorecard?

computer business strategies A typical balanced scorecard classifies critical success factors and measures into one of four perspectives on the business: financial, customer satisfaction, internal business processes, and learning and growth.

In a highly decentralized organization, the best option for measuring the performance of manufacturing subunits is the establishment of

cost centers

Which of the following terms refers to a performance measurement that is calculated as an investment center's after-tax operating income minus the product of its total assets multiplied by the company's weighted-average cost of capital (WACC)?

economic value added