Test 3 Acct. 2

Standard Costs: a) Are imposed by governmental agencies b) Are predetermined unit costs which companies use as measures of performance c) Can be used by manufacturing companies but not by service or not-for-profit companies d) All of the above

b) Are predetermined unit costs which companies use as measures of performance

The direct labor budget and the manufacturing overhead budget are prepared directly from the a) Cash budget b) Sales budget c) Production budget d) Budgeted income statement

c) Production budget

A manager of an investment center can improve ROI by: a) increasing average operating assets b) reducing sales c) increasing variable costs d) reducing variable and/or controllable fixed costs

d) reducing variable and/or controllable fixed costs

In producing product AA, 6,300 pounds of direct materials were used at a cost of $1.10 per pound. The standard was 6,000 pounds at $1.00 per pound. The direct materials quantity variance is: a) $330 unfavorable b) $300 unfavorable c) $600 unfavorable d) $630 unfavorable

b) $300 unfavorable

A production manager in a manufacturing company would most likely receive a: a) sales report b) income statement c) scrap report d) shipping department overhead report

c) scrap report

What is a weakness of the cash payback approach? a) It uses accrual-based accounting numbers b) It ignores the time value of money c) It ignores the useful life of alternative projects d) Both B and C are true

d) Both B and C are true

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 a percentage or dollar amount

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

Which statement is correct as it relates to budgetary control? a) Budget reports are used to compare estimated results with budgeted results b) Planned objectives lose value when monitored c) Budget reports are prepared either annually or quarterly d) Budgets contribute to the control of operations

d) Budgets contribute to the control of operations

Which of the following would not be an objective used in the customer perspective of the balances scorecard approach? a) Percentage of customers who would recommend product to a friend b) Customer retention c) Brand recognition d) Earnings per share

d) Earnings per share

If a project has intangible benefits whose value is hard to estimate, the best thing to do is: a) Ignore these benefits, since any estimate of their value will most likely be wrong b) Include a conservative estimate of their value c) Ignore their value in your initial net present value calculation, but then estimate whether their potential value is worth at least the amount of the net present value deficiency d) Either b or c is correct

d) Either b or c is correct

The advantages of standard costs include all of the following except: a) Management by exception may be used b) Management planning is facilitated c) They may simplify the costing of inventories d) Management must use a static budget

d) Management must use a static budget

Which of the following is not a cash outflow used as an input in capital budgeting decisions? a) Initial investment b) Overhaul of equipment c) Repairs and maintenance d) Salvage value of equipment when project is complete

d) Salvage value of equipment when project is complete

In a standard costing system, a) Journal entries are made using actual cost data b) Standard costs can only be used with process costing c) Standard costs can only be used with job order costing d) The Work in Process account is maintained exclusively on the basis of standard costs

d) The Work in Process account is maintained exclusively on the basis of standard costs

Budget reports are prepared: a) daily b) weekly c) monthly d) all of the above

d) all of the above

At 9,000 direct labor hours, the flexible budget for indirect materials is $27,000. If $28,000 of indirect materials costs are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials: a. $1,000 unfavorable. b. $1,000 favorable. c. $400 favorable. d. $400 unfavorable.

d. $400 unfavorable.

Cash outflows include sale of old equipment. a) True b) False

b) False

Labor quantity variances usually result from misallocation of workers a) True b) False

b) False

Post-Audit evaluations of investment projects are not necessary in well-run organizations. a) True b) False

b) False

When using the net present value method, the proposal is acceptable when the net present value is negative. a) True b) False

b) False

The most common budget period is one month. a) True b) False

b) False (its one year)

Which statement is correct concerning the costing of inventories at standard cost for external financial statements? a) Standard costing is not allowed b) Generally accepted accounting principles allows standard costing only if significant differences do not exist between actual and standard costs c) Standard costing is preferable to reporting at actual costs d) Generally accepted accounting principles allows standard costing only if significant differences exist between actual and standard costs

b) Generally accepted accounting principles allows standard costing only if significant differences do not exist between actual and standard costs

Which of the following is not a benefit of budgeting? a) It facilitates the coordination of activities b) It provides definite objectives for evaluating performance c) It provides assurance that the company will achieve its objectives d) It requires all levels of management to plan ahead on a recurring basis

c) It provides assurance that the company will achieve its objectives

Assume Project A has a present value of net cash inflows of $79,600 and an initial investment of $60,000. Project B has a present value of net cash inflows of $82,500 and an initial investment of $75,000. Assuming the projects are mutually exclusive, which project should management select? a. Project A. b. Project B. c. Project A or B. d. There is not enough data to answer the question.

a. Project A.

The essentials of effective budgeting do not include: a. Top-down budgeting. b. Management acceptance. c. Research and analysis. d. Sound organizational structure.

a. Top-down budgeting.

The formula for computing the total overhead variance is a) none of these answer choices are correct b) actual overhead less overhead applied c) actual overhead less overhead budgeted d) overhead budgeted less overhead applied

b) actual overhead less overhead applied

A flexible budget projects budget data for one level of activity a) True b) False

b) false

Compute the net present value of a $260,000 investment with a 10-year life, annual cash inflows of $50,000 and a discount rate of 12%. a. $(9,062). b. $22,511. c. $9,062. d. $(22,511).

b. $22,511.

A $100,000 investment with a zero scrap value has an 8-year life. Compute the payback period if straight-line depreciation is used and net income is determined to be $20,000. a. 8.00 years. b. 3.08 years. c. 5.00 years. d. 13.33 years.

b. 3.08 years.

In a responsibility report for a profit center, controllable fixed costs are deducted from contribution margin to show: a. Profit center margin b. Controllable margin c. Net income d. Income from operations

b. Controllable margin

In the formula for return on investment (ROI), the factors for controllable margin and operating assets are, respectively: a. Controllable margin percentage and total operating assets. b. Controllable margin dollars and average operating assets. c. Controllable margin dollars and total assets. d. Controllable margin percentage and average operating assets.

b. Controllable margin dollars and average operating assets.

A static budget is useful in controlling costs when cost behavior is: a. Mixed. b. Fixed. c. Variable. d. Linear. b. Fixed.

b. Fixed.

A sales budget is: a. Derived from the production budget. b. Management's best estimate of sales revenue for the year. c. Not the starting point for the master budget. d. Prepared only for credit sales.

b. Management's best estimate of sales revenue for the year.

Which of the following is incorrect about variance reports? a. They facilitate "management by exception." b. They should only be sent to the top level of management. c. They should be prepared as soon as possible. d. They may vary in form, content, and frequency among companies.

b. They should only be sent to the top level of management.

A variance is favorable if actual costs are: a. less than budgeted costs. b. less than standard costs. c. greater than budgeted costs. d. greater than standard costs

b. less than standard costs

The standard rate of pay is $10 per direct labor hour. If the actual direct labor payroll was $39,200 for 4,000 direct labor hours worked, the direct labor price variance is a) $1,000 favorable b) $1,000 unfavorable c) $800 favorable d) $800 unfavorable

c) $800 favorable

An example of an intangible benefit provided by a capital budgeting project is: a) The salvage value of the capital investment b) A positive net present value c) A decrease in customer complaints due to poor quality d) An internal rate of return greater than zero

c) A decrease in customer complaints due to poor quality

The overhead controllable variance is the difference between a) Budgeted overhead and applied overhead b) Actual overhead and applied overhead c) Actual overhead and budgeted overhead d) None of these choices are correct

c) Actual overhead and budgeted overhead

Which of the following is not one of the simplifying assumptions made when applying the net present value method? a) All cash flows are immediately reinvested in another project that has a similar return b) All cash flows can be predicted with certainty c) All of these answer choices are correct d) All cash flows come at the end of each year

c) All of these answer choices are correct

How should intangible benefits be included in the net present value calculation of an investment? a) The should be included b) At their face value c) At their discounted cash flow amount d) At their cash flow amount

c) At their discounted cash flow amount

Standards differ from budgets in that: a) Budgets but not standards may be used in valuing inventories b) Budgets but not standards mat be journalized and posted c) Budgets are a total amount and standards are a unit amount d) Only budgets contribute to management planning and control

c) Budgets are a total amount and standards are a unit amount

The cash budget contains sections for each of the following except a) Financing b) Cash disbursements c) Capital expenditures d) Cash receipts

c) Capital expenditures

Which of the following is incorrect about a standard cost accounting system? a) It is applicable to job order costing b) It is applicable to process costing c) It reports only favorable variances d) It keeps separate accounts for each variance

c) It reports only favorable variances

What is the order of involvement of the following parties in the capital budgeting authorization process? a) Plant managers, officers, capital budget committee, board of directors b) Board of directors, plant managers, officers, capital budget committee c) Plant managers, capital budget committee, officers, board of directors d) Officers, plant managers, capital budget committee, board of directors

c) Plant managers, capital budget committee, officers, board of directors

Resposibility reports for cost centers: a) distinguish between fixed and variable costs b) use static budget data c) include both controllable and noncontrollable costs d) include only controllable costs

D) include only controllable costs

A zero direct labor hours in a flexible budget graph, the total budgeted cost line intersects the vertical axis at $30,000. At $10,000 direct labor hours, a horizontal line drawn from the total budgeted cost line intersects the vertical axis at $90,000. Fixed and variable costs may be expressed as: a) $30,000 fixed plus $6 per direct labor hour variable b) $30,000 fixed plus $9 per direct labor hour variable c) $60,000 fixed plus $3 per direct labor hour variable d) $60,000 fixed plus $6 per direct labor hour variable

a) $30,000 fixed plus $6 per direct labor hour variable [ ($90,000-$30,000)/10,000 ]

The formula for computing the total overhead variance is: a) Actual overhead less overhead applied b) Overhead budgeted less overhead applied c) Actual overhead less overhead budgeted d) No correct answer is given

a) Actual overhead less overhead applied

Normal Standards: a) Allow for rest periods, machine breakdowns, and set up time b) Represent levels of performance under perfect operating conditions c) Are rarely used because managers believe they lower workforce morale d) Are more likely than ideal standards to result in unethical practices

a) Allow for rest periods, machine breakdowns, and set up time

In most cases, not-for-profit entities a) Begin the budgeting process by budgeting expenditures rather than receipts b) Can ignore budgets because they are not expected to generate net income c) Prepare budgets using the same steps as those used by profit-oriented enterprises d) Know budgeted cash receipts at the beginning of a time period, so they budget only for expenditures

a) Begin the budgeting process by budgeting expenditures rather than receipts

In the formula for return on investment (ROI), the factors used are a) Controllable margin and average operating assets b) Contribution margin and total operating assets c) Controllable margin and total assets

a) Controllable margin and average operating assets

The formula for the production budget is budgeted sales in units plus a) Desired ending finished goods units less beginning finished goods units b) Desired ending merchandise inventory less beginning merchandise inventory c) Beginning finished goods units less desired ending finished goods units d) Desired ending direct materials units less beginning direct materials units

a) Desired ending finished goods units less beginning finished goods units

The budgeted balance sheet is: a) Developed from the budgeted balance sheet for the preceding year and the budgets for the current year b) The last operating budget prepared c) Used to prepare the cash budget d) All of the above

a) Developed from the budgeted balance sheet for the preceding year and the budgets for the current year

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

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

What is a true statement regarding using a higher discount rate to calculate the net present value of a project? a) It will make it less likely that the project will be accepted b) It will make it more likely that the project will be accepted c) It is appropriate to use a higher rate if the project is perceived as being less risky than other projects being considered d) It is appropriate to use a higher rate if the project will have a short useful like relative to other projects being considered

a) It will make it less likely that the project will be accepted

Compared to budgeting, long-range planning generally has the a) Longer time period b) Same emphasis c) Same time period d) Same amount of detail

a) Longer time period

A post- audit of an investment project should be performed: a) On all significant capital expenditure projects b) On all projects that management feels might be financial failures c) On randomly selected projects d) Only on projects that enjoy tremendous success

a) On all significant capital expenditure projects

The budgeted income statement is: a) The end-product of the operating budgets b) The end product of the financial budgets c) The starting point of the master budget d) Dependent on cash receipts and cash disbursements

a) The end-product of the operating budgets

The direct materials budget shows both the quantity and cost of direct materials to be purchased. a) True b) False

a) True

The accounting department of a manufacturing company is an example of: a) a cost center b) a profit center c) an investment center d) a contribution center

a) a cost center

Budgetary control involved a) All of these answer choices are correct b) Developing the budget c) Analyzing differences between actual and budget d) Taking corrective action

a) all of these answer choices are correct

Under responsibility accounting, the evaluation of a manager's performance is based on matters that the manager: a. Directly controls. b. Directly and indirectly controls. c. Indirectly controls. d. Has shared responsibility for with another manager.

a. Directly controls

Drew Enterprises reports all its sales on credit, and pays operating costs in the month incurred. Estimated amounts for the months of June through October are: June July August September October Budgeted sales $310,000 $330,000 $300,000 $280,000 $260,000 Budgeted purchases $144,000 $120,000 $128,000 $132,000 $90,000 · Customer amounts on account are collected 60% in the month of sale and 40% in the following month. · Cost of goods sold is 45% of sales. · Drew purchases and pays for merchandise 30% in the month of acquisition and 70% in the following month. How much cash is budgeted to be received during August? a) $318,000 b) $312,000 c) $180,000 d) $291,000 b) $312,000

b) $312,000 ( Amounts collected during August include August sales plus amounts collected for July sales. Collection of August sales: $300,000 x 60% = $180,000; Collection of July sales: $330,000 x 40% = $132,000; Total = $180,000 + $132,000 = $312,000.)

Taylor Trucking is considering purchasing a new truck. It is expected the truck will increase annual revenues by $31,000 and increase annual expenses by $19,800 including depreciation. The truck will cost $110,000 and will have a $2,000 salvage value at the end of its useful life. Compute the annual rate of return. a) 10% b) 20% c) 20.7% d) 10.2%

b) 20%

Banner Company had the following operating data for the current year: sales, $500,000; contribution margin, $100,000; total fixed costs (controllable), $60,000; and average total operating assets, $200,000. If management is able to improve its contribution margin by $20,000 and hold its fixed costs constant, what would Banner's ROI be for the year? a) 20% b) 30% c) 50% d) 12%

b) 30%

The setting of standards is: a) A managerial accounting decision b) A management decision c) A worker decision d) Preferable set at the ideal level of performance

b) A management decision

The format of a cash budget is: a) Beginning cash balance + cash receipts + cash from financing - cash disbursements = ending cash balance b) Beginning cash balance + cash receipts - cash disbursements + /- financing = ending cash balance c) Beginning cash balance + Net income - cash dividends = ending cash balance d) Beginning cash balance + cash revenues - cash expenses = ending cash balance

b) Beginning cash balance + cash receipts - cash disbursements + /- financing = ending cash balance

In a responsibility report for a profit center, controllable margin is a) Sales less controllable fixed costs b) Contribution margin less controllable fixed costs c) Sales less variable costs d) Contribution margin less noncontrollable fixed costs

b) Contribution margin less controllable fixed costs

Which of the following steps is not taken by management when developing a flexible budget? a) All of these answer choices are correct b) Identify the fixed costs and determine the budgeted fixed cost per unit c) Identify the activity index and the relevant range of activity d) Identify the variable costs and determine the budgeted variable cost per unit

b) Identify the fixed costs and determine the budgeted fixed cost per unit

A budget: a) Is the responsibility of management accountants b) Is the primary method of communicating agreed-upon objectives throughout an organization c) Ignores past performance because it represents management's plans for a future time period d) May promote efficiency but has no role in evaluating performance

b) Is the primary method of communicating agreed-upon objectives throughout an organization

Variance is favorable is actual costs are a) Greater than budgeted costs b) Less than standard costs c) Greater than standard costs d) Less than budgeted costs

b) Less than standard costs

A responsibility center that incurs costs and also generates revenues is a(n) a) Cost center b) Profit center c) Investment center d) Segment

b) Profit center

Siegel Industries is considering two capital budgeting projects. Project A requires an initial investment of $48,000. It is expected to produce net annual cash flows of $7,000. Project B requires an initial investment of $75,000 and is expected to produce net annual cash flows of $12,000. Using the cash payback technique to evaluate the two projects, Siegel should accept: a) Project A because it has a shorter cash payback period b) Project B because it has a shorter cash payback period c) Project A because it requires a smaller initial investment d) Project B because it produces a larger net annual cash flow

b) Project B because it has a shorter cash payback period

A positive net present value means that the: a) Projects rate of return is less than the cutoff rate b) Projects rate of return exceeds the required rate of return c) Projects rate of return equals the required rate of return d) Project is unacceptable

b) Projects rate of return exceeds the required rate of return

A company produces four reports in its responsibly reporting system, one for each level of management: department managers, plant managers, division managers, and the company vice president (listed in order of responsibility). Which statement is correct concerning the content of the respective reports? a) The department mangers see a summary of controllable costs for each division manager b) The department manager sees controllable costs of his or her respective department c) The vice president sees a summary of controllable costs for each department manager d) The plant managers see a summary of controllable costs for each division manager

b) The department manager sees controllable costs of his or her respective department

Which of the following is incorrect about variance reports? a) They facilitate "management by exception?" b) They should only be sent to the top level of management c) They should be prepared as soon as possible d) They may vary in form, content, and frequency among companies

b) They should only be sent to the top level of management

The formula for computing the direct labor budget is to multiply the direct labor cost per hour by the a) Physical units to be produced b) Total required direct labor hours c) Equivalent units to be produced d) None of these answer choices are correct

b) Total required direct labor hours

Controllable margin is the excess of contribution margin over total fixed costs a) False b) True

b) True

A static budget is: a) a projection of budget data at several levels of activity within the relevant range of activity b) a projection of budget data at a single level of activity c) compared to a flexible budget in a budget report d) never appropriate in evaluating a manager's effectiveness in controlling costs

b) a projection of budget data at a single level of activity

Generally accepted accounting principles allow a company to: a) Report inventory at standard cost but cost of goods sold must be reported at actual cost b) Report cost of goods sold at standard cost but inventory must be reported at actual cost c) Report inventory and cost of goods sold at standard cost as long as there are no significant differences between actual and standard cost d) Report inventory and cost of goods sold only at actual costs; standard costing is never permitted

c) Report inventory and cost of goods sold at standard cost as long as there are no significant differences between actual and standard cost

What is standard cost? a) The total number of units to be produced times the unit cost expected for production b) The actual cost incurred to produce a good or service c) The amount management thinks that should be incurred to produce a good or service d) The total amount that appears on the flexible budget as the cost of producing products

c) The amount management thinks that should be incurred to produce a good or service

A project should be accepted is its internal rate of return exceeds: a) Zero b) The rate of return on a government bond c) The company's required rate of return d) The rate the company pays on borrowed funds

c) The company's required rate of return

To evaluate the performance of a profit center manager, upper management needs detailed information about: a) controllable costs b) controllable revenues c) controllable costs and revenues d) controllable costs and revenues and average operating assets

c) controllable costs and revenues

Most companies that use standards set them at a(n): a. optimum level. b. ideal level. c. normal level. d. practical level.

c) normal level

Budgetary control involves all but one of the following: a. Modifying future plans. b. Analyzing differences. c. Using static budgets. d. Determining differences between actual and planned results.

c) using static budgets

Expected direct materials purchases in Read Company are $70,000 in the first quarter and $90,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are: a. $96,000 b. $90,000 c. $78,000 d. $72,000

c. $78,000

Each of the following budgets is used in preparing the budgeted income statement except the: a. Sales budget. b. Selling and administrative budget. c. Capital expenditure budget. d. Direct labor budget.

c. Capital expenditure budget.

Which of the following is not a benefit of budgeting? a. Management can plan ahead. b. An early warning system is provided for potential problems. c. It enables disciplinary action to be taken at every level of responsibility. d. The coordination of activities is facilitated.

c. It enables disciplinary action to be taken at every level of responsibility.

Direct materials inventories are kept in pounds in Byrd Company, and the total pounds of direct materials needed for production is 9,500. If the beginning inventory is 1,000 pounds and the desired ending inventory is 2,200 pounds, the total pounds to be purchased is: a) 9,400 b) 9,500 c) 9,700 d) 10,700

d) 10,700 (9,500+2,200-1,000)

Which of the following is not an alternative name for the discount rate? a) Required rate of return b) Hurdle rate c) Cutoff rate d) All of these answer choices are correct

d) All of these answer choices are correct

Which of the following is not an example of a capital budgeting decision? a) Decision to build a new plant b) Decision to renovate an existing facility c) Decision to buy a piece of machinery d) All of these are capital budgeting decisions

d) All of these are capital budgeting decisions

The preferred inputs for capital budgeting purposes are: a) Actual accrual basis numbers b) Actual cash flows c) Estimated accrual basis numbers d) Estimated cash flows

d) Estimated cash flows

Annual rate of return is computed by dividing a) Expected cash flows by total investment b) Expected annual net income by total investment c) Expected cash flows by average investment d) Expected annual net income by average investment

d) Expected annual net income by average investment

Which of the following is correct about the total overhead variance? a) Budgeted overhead and budgeted applied are the same b) Total actual overhead is composed of variable overhead, fixed overhead, and period costs c) Standard hours actually worked are used in computing the variance d) Standard hours allowed for the work done is the measure used in computing the variance

d) Standard hours allowed for the work done is the measure used in computing the variance

Which of the following is incorrect about the annual rate of return technique? a) The calculation is simple b) The accounting terms used are familiar to management c) The timing of the cash inflows is not considered d) The time value of money is considered

d) The time value of money is considered

Responsibility centers include: a) cost centers b) profit centers c) investment centers d) all of the able

d) all of the able

The budget for a merchandiser differs from a budget for a manufacturer because: a. A merchandise purchases budget replaces the production budget. b. The manufacturing budgets are not applicable. c. None of the above. d. Both (a) and (b) above

d. Both (a) and (b) above

Which of the following would not be an objective used in the customer perspective of the balanced scorecard approach? a. Percentage of customers who would recommend product to a friend. b. Customer retention. c. Brand recognition. d. Earning per share.

d. Earning per share.

The direct materials price standard should include an amount for all of the following except: a. receiving costs. b. storing costs. c. handling costs. d. normal spoilage costs.

d. normal spoilage costs.