Accounting 204 Final Theory - Tindall

An unfavorable activity variance for revenue indicates that activity was less than expected when the static planning budget was developed.

True

In general, the purchasing agent is responsible for the materials price variance.

True

In preference decisions, the profitability index and internal rate of return methods may produce conflicting rankings of projects.

True

The internal rate of return for a project is the discount rate that makes the net present value of the project equal to zero.

True

Which of the following may appear on a flexible budget performance report? -Unfavorable activity variance -Favorable revenue variance -Unfavorable spending variance

All of the above

The main difference between a flexible budget and a static budget is that the static budget is not adjusted for changes in the level of activity.

True

Which of the following will not result in an increase in the residual income, assuming other factors remain constant? - An increase in sales. - An increase in the minimum required rate of return. - A decrease in operating assets. - A decrease in expenses.

An increase in the minimum required rate of return.

All other things the same, which of the following would increase residual income? - Increase in minimum required return. - Decrease in average operating assets. - Decrease in net operating income. - Increase in average operating assets.

Decrease in average operating assets.

A favorable spending variance occurs when the actual cost is less than the amount of the cost in the static planning budget.

False

A revenue variance is unfavorable if the revenue in the static planning budget is less than the revenue in the flexible budget.

False

If new equipment is replacing old equipment, any salvage received from sale of the old equipment should not be considered in computing the payback period of the new equipment.

False

Managers of cost centers are evaluated according to the profits which their departments are able to generate.

False

Planning and control are essentially the same thing.

False

Standard costs should generally be based on the actual costs of prior periods.

False

A budget that is based on the actual activity of a period is known as a:

Flexible Budget

The discount rate must be specified in advance for NPV and IROR; one, both, or neither

NPV not IROR

Which of the following statements is not correct? -The sales budget is constructed by multiplying the expected sales in units by the sales price. -The sales budget generally is accompanied by a computation of expected cash receipts for the forthcoming budget period. -The sales budget is the starting point in preparing the master budget. - The cash budget must be prepared prior to the sales budget because managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period.

The cash budget must be prepared prior to the sales budget because managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period.

The use of return on investment as a performance measure may lead managers to make decisions that are not in the best interests of the company as a whole.

True

The general model for calculating a price variance is:

actual quantity of inputs × (actual price − standard price).

A labor efficiency variance resulting from the use of poor quality materials should be charged to:

the purchasing agent

When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred, then the lowest acceptable transfer price as far as the selling division is concerned is:

variable cost of producing a unit of product.