Accounting exam 3

The total product cost flexible budget variance is obtained by adding direct labor efficiency variance and fixed overhead volume variance.

false

Decentralization may cause the company to duplicate certain costs or activities.

true

Sensitivity analysis is a what-if technique.

true

The correct formula for the profit margin ratio is operating income / Net sales

true

When a manufacturing company uses a standard cost​ system, Work−in−Process Inventory is debited at standard input quantities and standard costs.

true

When evaluating​ variances, exceptions can be expressed as a percentage of a budgeted amount or a dollar amount.

true

After the production​ budget, the next budget to be prepared is the​ ________________

direct materials budget

Which of the following is most likely to appear on the responsibility report for a manufacturing production​ supervisor?

direct labor costs

The management technique whereby managers concentrate on results that are outside the accepted parameters is called management by​ ________.

exception

For the cash​ budget, cash receipts can be projected by referring to the​ ____________.

sales budget

In a company with different business​ units, individual managers make decisions by changing various assumptions of its budget in order to determine how the modifications would affect the operational and financial results. This is an example of​ ________.

sensitivity analysis

A long−term financial plan used to coordinate the activities needed to achieve the long−term goals of the company is a​ ___________ budget.

strategic

what is an example of the planning function of the budgeting process

the budget outlines a specific course of action for the coming period

A favorable direct materials cost variance occurs when the actual direct materials cost incurred is less than the standard direct materials cost

true

A flexible budget summaries revenues and costs for various levels of sales volume within a relevant range

true

A standard cost system is an accounting system that uses standards for product costs.

true

A static budget is prepared for only one level of sales volume.

true

A unique factor of responsibility accounting performance reports is the focus on responsibility and controllability.

true

A variance is the difference between an actual amount and the budgeted amount.

true

All costs are ultimately controllable at the upper levels of management.

true

An efficiency variance measures how well the business uses its materials or human resources.

true

An unfavorable variance means more cost has been incurred than planned.

true

Both favorable and unfavorable variances should be investigated.

true

Both the sales volume variance and the flexible budget variance help revenue center managers understand why they have exceeded or fallen short of budgeted revenue.

true

Companies conduct time-and-motion studies and use benchmarks from other companies when developing standards

true

Cost center responsibility reports typically focus on the flexible budget variance.

true

Favorable and unfavorable variances are netted together in the same way debits and credits are.

true

Favorable and unfavorable variances are subtracted from each other to arrive at a net favorable or unfavorable variance

true

Favorable variances are contra expenses and therefore decrease Cost of Goods Sold.

true

In a decentralized​ company, segment managers may not fully understand the big picture when making decisions.

true

In a standard costing​ system, each input of direct​ materials, direct​ labor, and manufacturing overhead has a cost standard and an efficiency standard.

true

In a standard cost​ system, the standard overhead allocation rate replaces the predetermined overhead allocation rate but the concept is the same.

true

In decentralized​ companies, performance evaluation systems provide upper management with the feedback it needs to maintain control over the entire organization.

true

Key performance indicators​ (KPIs) are summary performance measures that help managers assess whether the company is achieving its goals.

true

Managers should look at any variance that is significant

true

One of the advantages of decentralization is that it allows top management to concentrate on long−term strategic planning.

true

Operational performance measures are nonfinancial measures that evaluate a​ firm's performance on the basis of effectiveness and efficiency to ensure all segments of the business are working together to achieve the​ company's goals.

true

Performance evaluation systems provide top management with a framework for maintaining control over the entire organization.

true

Standard overhead allocation rate times standard quantity of the allocation base allowed for actual output equals the overhead allocation to production.

true

The correct formula for the asset turnover​ ratio is Net Sales/ Average Total Assets

true

The direct materials cost and efficiency variances make up the total direct materials variance.

true

The flexible budget variance is the difference between the actual results and the expected results in the flexible budget for the actual units sold.

true

The return on investment formula focuses on the amount of operating income earned before considering other revenue and expense​ items, such as interest expense.

true

The sales volume variance is the difference between the expected results in the flexible budget for the actual units sold and the static budget

true

The standard overhead allocation rate is calculated during the budgeting process.

true

To adequately evaluate an investment​ center's financial​ performance, summary performance measures should include both the​ division's operating income and its assets.

true

When investigating variable overhead​ variances, management needs to determine whether cost increases were controllable or if the cost standard needs to be updated.

true

A budgeting technique that requires managers to justify all revenue and expenses for each new period is called​ ________.

zero-based budgeting

Which of the following is an advantage of​ decentralization?

​Managers' motivation and retention can be increased by empowering segment managers to make decisions.

A favorable variance reflects a decrease in operating income.

false

A lag indicator is a performance measure that forecasts future performance.

false

A limitation of financial performance measures is that they tend to focus on the​ company's longterm achievements rather than on shortterm performance.

false

A master budget is a financial plan for a specific segment of an organization.

false

A static budget presents financial data at multiple levels of sales volume.

false

Actual overhead costs divided by budgeted allocation base equals standard overhead allocation rate.

false

An efficiency variance measures how well a company keeps unit costs of material and labor inputs within standards.

false

Decentralization does not support the use of other expert knowledge.

false

The following information is available from previously prepared budgets for the month of​ March: Sales Revenue​ (from Sales​ Budget) ​$1,550 Cost of Goods Sold​ (from Cost of Goods Sold​ Budget) 650 Selling and Administrative Expenses​ (from S&A Expense​ Budget) 230 Interest Expense​ (from Cash​ Budget) 16 Income Tax Expense​ (from Cash​ Budget) 440 What is the budgeted net income for​ March?

$214

June sales were​ $31,000, while projected sales for July and August were​ $57,000 and​ $72,000, respectively. Sales are​ 60% cash and​ 40% credit. All credit sales are collected in the month following the sale. Calculate expected collections for July.

$46600

Fedor, Inc. has prepared the following direct materials purchases​ budget: Month Budgeted DM Purchases June: $69,000 July: 75,500 August: 76,300 September: 74,200 October: 73,800 All purchases are paid for as​ follows: 40​% in the month of​ purchase, 50​% in the following​ month, and 10​% two months after purchase. Calculate total budgeted cash payments made in October for purchases.

$74250

which is NOT a benefit of benchmarking

It does not help management highlight company problems.

Which of the following describes the cash​ budget?

It helps in planning to ensure the business has adequate cash.

Which of the following best describes the term​ "sensitivity analysis"?

It is a testing technique to determine how results would differ if key assumptions are changed.

Which of the following describes the production​ budget?

It provides the quantity of finished goods to be produced during a budget period.

A budgeting process where individuals who are impacted by a budget are directly involved in its development is called​ ________.

Participative budgeting

The standard cost income statement starts with sales revenue at standard and subtracts​ _____________.

any unfavorable sales revenue variance

A budget is a financial plan that managers use to coordinate a​ business's activities.

True

​____________ occurs when managers intentionally understate expected revenues or overstate expected expenses.

budgetary slack

For a merchandising​ company, the final step in the process of creating the master budget is the preparation of the​ ________.

budgeted balance sheet

The budgeting process is described as a loop that begins​ by_______________.

developing strategies

When a manufacturing company uses a standard cost​ system, an unfavorable variance is a contra expense.

false

Responsibility reports are used for​ _____________.

performance evaluations

Which of the following statements about management by exception is incorrect​?

There is no need to investigate variances that are less than​ 20% of the budgeted amount.

After comparing budgets with the actual​ results, the feedback allows managers to determine​ what, if​ any, corrective action should be taken.

True

The financial budgets include the cash budget and the budgeted financial statements—the budgeted income statement and budgeted balance sheet.

True

Use of advanced technology makes it more cost effective for managers to conduct sensitivity analysis.

True

All of the following are true for planning a budget​ except:

a well-planned budget should never need modifications

A company uses a balanced scorecard and has established a key performance indicator for product quality. If the actual warranty claims are higher than​ expected, there is an indication that the quality standards have been met.

false

A cost variance measures the difference in quantities of actual inputs used and the standard quantity of inputs allowed for the actual number of units produced.

false

A favorable variance has a debit balance and is a contra revenue.

false

Because profit centers are only responsible for controlling​ costs, their performance reports include only information on actual costs versus budgeted costs.

false

Centralized companies split their operations into segments and top management delegates decision making to the segment managers.

false

Decentralized companies often lead to diminished customer relations and slower customer response time.

false

Decentralized companies rarely struggle to achieve goal congruence.

false

Goal congruence occurs when segment​ managers' goals do not align with top​ management's goals.

false

In a decentralized​ company, all the planning and controlling decisions are made by top management.

false

In a standard cost​ system, the actual overhead allocation rate replaces the predetermined overhead allocation rate.

false

In a standard cost​ system, the manufacturing overhead allocated to production equals the standard overhead allocation rate multiplied by the standard quantity of the allocation base allowed for expected output.

false

Net income is used in the numerator of the return on investment formula.

false

On a standard cost income​ statement, the variances with debit balances are shown in parentheses because they are contra expenses and therefore decrease the expense Cost of Goods Sold.

false

Once a company decentralizes​ operations, top management is still involved in running subunits day−to−day operations.

false

Only favorable variances should be evaluated.

false

Only substantial unfavorable variances should be investigated to determine their causes.

false

Setting standard costs is a function of the​ company's production department and does not require input from other departments.

false

The balanced scorecard is a performance evaluation system that requires management to consider financial measures of​ performance, but not nonfinancial measures.

false

The flexible budget variance is the difference expected results in the flexible budget for the actual units sold and the static budget.

false

The return on investment of a company can be improved by either increasing average total assets or decreasing operating income.

false

The sales volume variance is a result of the difference between the actual sales price and the budgeted sales price.

false

The static budget is used to compute flexible budget variances as well as cost and efficiency variances for direct materials and direct labor.

false

The total fixed overhead variance is the total of the variable overhead cost variance and fixed overhead volume variance

false

To compute the variable overhead cost​ variance, first compute the difference between actual cost and standard cost.​ Then, multiply this difference by standard quantity.

false

When a manufacturing company uses a standard cost​ system, the direct materials cost variance is recorded at the time direct materials are issued in production.

false

When favorable variances are added to unfavorable​ variances, the result is always a total favorable variance.

false

When using management by​ exception, managers investigate only those variances that are unfavorable.

false

fixed overhead volume variance is a flexible budget variance

false

The budgeted balance sheet is part of which element of the master​ budget?

financial budget

The cash budget and the budgeted financial statements are collectively known as the​ ________.

financial budget

A​ __________________ budget is a budget prepared for various levels of sales volume.

flexible

A budget is a financial plan that managers use to coordinate a​ business's activities with its​ _________.

goals and strategies

what is true of the operating budget

it includes the sales budget

what is true of the budgeting process

it is a continuous process that encourages communication

what is true of the capital expenditures budget

it must be completed before the cash budget is prepared

The variable overhead cost variance measures how well the business​ ________.

keeps unit costs of variable overhead inputs within standard

In the production​ budget, the total number of units to be produced is equal to budgeted sales in units​ ________.

plus the desired units in ending inventory minus the number of units in beginning inventory

A manufacturing company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet. The balance of Finished Goods Inventory can be taken from the​ ________.

production budget and cost of goods sold budget

The performance reports of​ ________ contain actual and budgeted information on both their revenues and costs.

profit centers