Accouting Exam Ch. 8,10 and 11
Typical capital budgeting decisions include ______.
-research and development projects -lease or buy decisions -equipment selection decisions
Which of the following statements is correct?
A manager might reject a proposal using ROI that the manager would accept using residual income.
Which of the following budgets shows the company's planned profit?
Budgeted income statement
True or False: Budgeting is more important in manufacturing firms than in other types of businesses.
False
True or False: Cost centers have no impact on revenue
False
True or False: The segment margin is useful for evaluating the manager of a profit center because it separates the manager's fixed costs from the variable ones.
False
True or false: A balanced scorecard includes leading indicators but NOT lagging indicators.
False
True or false: The sales budget is based on the production budget.
False
True or false: Using a participative approach to budgeting is less likely to motivate employees than using a top-down approach.
False
True or false: When two projects are mutually exclusive, investing in one does not eliminate the other one from consideration.
False
Which of the following is needed to prepare a sales budget?
The budgeted number of units to be sold
True or false: For capital budgeting purposes, capital assets includes item research and development projects.
True
When computing IRR using Excel, a Guess of the internal rate of return must be included in the calculation.
True
Based on all of the previous budgets, a pro-forma _______ __________ is prepared.
balance sheet
To calculate the cash balance before financing on the cash budget, add the ______.
beginning cash balance to the budgeted cash receipts and deduct budgeted cash payments
Company objectives are translated into financial terms in a(n) ___________ .
budget
The final step in the master budgeting process is to prepare the ______.
budgeted balance sheet
What number does the raw materials budget take directly from the production budget?
budgeted production
Total sales on the sales budget equal budgeted unit sales multiplied by ______.
budgeted sales price per unit
The four groups of performance measures typically used in the balanced scorecard approach are financial, ______.
customer, internal business processes, and organizational capacity
An organization in which decision-making authority is spread throughout the organization is _________ .
decentralized
If the interest rate earned increases, net present value will ______.
decrease
The cash budget is one of the primary ______ budgets that is prepared.
financial
Managers put plans into action as part of ______.
implementing
When using Excel, the original investment of a project is ______ function(s).
included in the IRR and excluded in the NPV
A company's planned profit is shown on the budgeted ___________ _______________ .
income statement
When projects are unrelated to one another so that investing in one does not preclude investment in others, they are called ___________ projects.
independent
When two projects are ______, investing in one of the projects does not preclude investing in the other.
independent
Net operating income is net income from normal operating activities, before other income, _______ , and ________.
interest, tax
Authority to make decisions about how and where to invest the company's assets to drive long-term profitability manager rests with the manager of a(n) _______ center.
investment
Sales revenue ÷ average invested assets = ______.
investment turnover
Given the choice it ______.
is better to receive money today instead of a year from today
The time value of money is the principle that money ______.
is more valuable today than it will be in the future
The internal rate of return ______.
is the discount rate that makes NPV equal zero for a project
A project's payback period is the ______.
length of time it takes for the project to recover its initial investment
All costs of production other than direct materials and direct labor are shown on the __________ _____________ budget.
manufacturing overhead
The calculation of unit product cost requires information from the ______ budget.
manufacturing overhead
The transfer pricing method that treats the two segments as if they were independent businesses is the ______ method.
market-price
The transfer pricing method that generally provides the most benefit to the seller is the ______ method.
market-priced
Each component of a(n) _______ budget is based on or provides input for another component.
master
The amount of time it takes for a capital investment to "pay for itself" is the period.
payback
Setting goals and objectives for the future is done during _______the phase.
planning
Which of the following is NOT included on a budgeted cash payments budget?
production in units
Sales quotas are often given to ______ center managers.
profit
The manager of a(n) ________ center has control over both costs and revenues, but not the use of investment funds
profit
The managers of a(n) ________ center has control over both costs and revenues, but not the use of investment funds.
profit
Net operating income ÷ Sales revenue = ______.
profit margin
In order to fully evaluate ROI, managers should compute both _________ __________and ___________ turnover.
profit margin. investment
The first step in the process of preparing the master budget is the ________ budget or forecast.
sales
The production budget is based upon the _______ budget.
sales
When creating the master budget, the ______ budget is prepared first
sales
The budget that shows the budgeted expenses for areas other than manufacturing is the ________ and _________ expense budget.
sales and admin
Budgeted expenses for costs related to selling the product and managing the business are shown on the ______ budget.
selling and administrative
The internal rate of return method indicates a discount rate ______.
that makes the PV of cash inflows equal the PV of cash outflows
When it comes to preparing budgets, ______.
the budgets needed depend upon the type of firm
The price charged when one segment of a company provides goods or services to another segment of the same company is the ______ price.
transfer
The amount that one division charges when it sells goods or services to another division of the same company is called a(n) ________ _________.
transfer price
The minimum acceptable transfer price using the cost-based method is ______.
variable cost
The discount rate should reflect a company's _______ of _______.
Cost, Capital
Budgets that are most likely to motivate employees ______.
are tight but attainable
The required rate of return is also known as the _______ rate.
hurdle
The manufacturing overhead budget includes ______.
- depreciation on production equipment - indirect manufacturing costs
Reducing operating costs as a percentage of sales will increase ______.
- profit margin - return on investment
Which of the following statements are true?
-Capital budgeting techniques that use time value of money are superior to those that don't. -Any capital budgeting technique can be used for screening decisions.
Which of the following budgets are needed to calculate unit product costs?
-Direct labor budget -Direct materials budget -Manufacturing overhead budget
A company can increase its return on investment (ROI) by ______.
-Increasing sales - decreasing operating expenses
Financial Performance Measures__________.
-focus on past, not future performance -may cause managers to make decisions that won't be optimal in the long run
The accounting rate of return is also called the ______ rate of return.
-annual -unadjusted -simple
The sections of the cash budget are ________.
-collections -disbursements -financing
The required rate of return ______.
-considers the risk of an investment -considers financing costs
Responsibilities of a profit center manager may include ________.
-contract negotiations -involvement in strategic initiatives related to product success -controlling division costs
Capital budgeting decisions include ______.
-deciding to replace old equipment -determining which equipment to purchase among available alternatives -acquiring a new facility to increase capacity -choosing to lease or buy new equipment
When calculating Return on Investment (ROI), net operating income ______.
-does not include interest expense -includes income from normal operations
Financial budgets ______.
-include the cash budget -include the capital expenditures budget -impact the budgeted balance sheet
A screening decision ______.
-is used to determine if a project is a candidate for further consideration -relates to whether a proposed project meets some minimum criteria
Residual income is equal to ______.
-net operating income - (average invested assets × hurdle rate)
ROI can be calculated as ______.
-profit margin × investment turnover -net operating income ÷ average invested assets
Advantages of budgeting include ______.
-providing lead time to solve potential problems -providing benchmarks for evaluating performance -forcing managers to think about and plan for the future -promoting cooperation and coordination among different areas within the organization
When an organization uses a top-down approach to budgeting, ____.
-top management sets the budget -the budget is imposed on lower levels of the organization
A detailed document that identifies resources and expenditures that will be required over a limited time (typically a year) is a(n) ______.
Budget
A decision-making process that managers use to determine how to invest the company's funds in major capital assets, such as new facilities, equipment, and research and development projects is called ________ ________.
Capital budget
Managers look back to determine whether goals were met and take corrective action to improve future results during the ______ part of the cycle.
Controlling
Which type of manager(s) have the authority to make purchase decisions regarding company assets?
Investment center mangers only
The net operating income that an investment center earns above the minimum amount needed to meet the required rate of return is its ________ __________ .
Residual income
Which of the following business segments would NOT be considered a cost center?
Retail outlet
When evaluating a lease or purchase decision, which of the following will be included in computing the NPV of the purchase option but not the lease option?
Salvage value
Which of the following statements is true?
Understanding the interrelationships of individual budgets is the key to developing a master budget.
A comprehensive performance measurement system that is derived from an organization's strategic vision is ______.
a balanced scorecard
Revenue center managers are evaluated primarily on their ______.
ability to meet sales goals
How much net income a potential project is expected to generate as a relative percentage of required investment is told by the _________ __________ of return.
accounting rate
A monthly house or car payment is an example of a(n) __________ .
annuity
Return on investment, residual income, and economic value added ______.
are all lagging measures of performance
The operating budgets feed directly into the ___________ ___________, which then feeds directly into the budgeted balance sheet.
cash budget
Budgets ______.
communicate management's plan throughout the organization
When a transfer price is based on cost plus a percentage markup, the method being used is ______.
cost-based
In a lease or buy decision, ______ is not relevant to the decision.
depreciation expense
Net present value is the ______.
difference between the present value of a project's cash inflows and the present value of the project's cash outflows
Present value problems involve ______ future cash flows.
discounting
Determining what an amount invested today will be worth in 5 years is a(n) ________ __________ problem.
future value
Multiply each year's accumulating value by (1 + Interest Rate) to compute the ______.
future value
Managers must try to find the "just-right" level of difficulty in setting budgetary goals so they ______.
have motivating effects on employee behavior
To calculate the direct labor requirement for each quarter, ______.
multiply the number of direct labor hours required per unit times the number of units to be produced
Deciding whether to purchase or lease a vehicle is an example of a(n) ______ project decision.
mutually exclusive
A transfer price that falls somewhere between the variable cost and the wholesale priced was most likely developed using the _________ method.
negotiation
Inside information about the other division's costs, capacity, and demand will impact setting a transfer price using the ______ method.
negotiation
When a manager is evaluated on residual income, an investment is acceptable when ______.
net operating income for the investment is above the minimum required return on average operating assets
The difference between the present value of the cash inflows and outflows of a project is call the _____ _______ _______.
net present value
The pro-forma income statement is based on the combined ______ budgets.
operating
The sales, production, and purchases budgets are all __________budgets.
operating
Managers are required to evaluate and compare more than one capital investment alternative when making a(n) ______ decision.
preference
When managers have to prioritize and select from capital budgeting alternatives they are making ______ decisions.
preference
Determining what an amount to be received next year is worth today is a(n) _______ _________ problem.
present value
Divide each year's declining value by (1 + Interest Rate) to compute the ______.
present value
The direct materials budget directly relies on the ______ budget.
production
The number of units needed to satisfy sales and provide the desired ending inventory is shown on the ______ budget.
production
The number of units that must be made to satisfy sales needs and to provide for the desired ending inventory is shown _________on the budget.
production
When prioritizing independent projects when limited investment funds are available, the best capital budgeting method to use is the ______.
profitability index
The net operating income that an investment center earns above the amount required to earn the minimum required rate of return is ______.
residual income
When a manager accepts a project because the net operating income from the investment exceeds the minimum acceptable profit based on required rate of return, the investment was evaluated based on _________ ___________ .
residual income
An area of business that a manager has control over and is accountable for is called a(n) _______ center.
responsibility
Managers are given charge over a particular part of the business and are then evaluated based on performance in that area in ______.
responsibility accounting
Investment turnover × profit margin = ______.
return on investment
Net operating income ÷ average invested assets = ______.
return on investment
Narrowing down a set of projects for further consideration is a(n) ________ decision.
screening
Sales revenue minus all costs that are directly attributable to a particular product line or region of a business is called the __________ ___________ .
segment margin
When the cost-based method of transfer pricing is used it is possible that the ______ could end up with zero incremental profit.
seller
The discount rate ______.
should reflect the company's cost of capital
When a manager creates a budget that understates expected revenues or overstates expected expenses, budgetary _________occurs.
slack
In decentralized organizations, decision-making authority is ______.
spread throughout the organization
The time value of money is the idea that ______.
the value of a dollar changes over time
The principle that money is more valuable today than it will be in the future is referred to as the______ ________ of money.
time value
Budgetary slack occurs when a manager submits a budget that is _______.
too easy to attain
