ACCT EXAM 3

Cosden Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. Fixed Element per MonthVariable Element per Well ServicedRevenue $4,700Employee salaries and wages$41,300$1,000Servicing materials $600Other expenses$40,200 When the company prepared its planning budget at the beginning of May, it assumed that 29 wells would have been serviced. However, 31 wells were actually serviced during May. The total expenses in the flexible budget for May would have been closest to: Multiple Choice

131,100

Capelli Hospital bases its budgets on patient-visits. The hospital's static budget for August appears below: Budgeted number of patient-visits8,600Budgeted variable costs: Supplies (@$8.70 per patient-visit)$ 74,820Laundry (@$8.40 per patient-visit)72,240Total variable cost147,060Budgeted fixed costs: Wages and salaries99,660Occupancy costs107,660Total fixed cost207,320Total cost$354,380 The total variable cost at the activity level of 8,700 patient-visits per month should be:

148,770

Courington Detailing's cost formula for its materials and supplies is $1,870 per month plus $6 per vehicle. For the month of August, the company planned for activity of 82 vehicles, but the actual level of activity was 47 vehicles. The actual materials and supplies for the month was $2,250. The materials and supplies in the flexible budget for August would be closest to:

2152

Courington Detailing's cost formula for its materials and supplies is $1,920 per month plus $11 per vehicle. For the month of August, the company planned for activity of 87 vehicles, but the actual level of activity was 52 vehicles. The actual materials and supplies for the month was $2,130. The materials and supplies in the planning budget for August would be closest to:

2877

BR Company has a contribution margin of 9%. Sales are $477,000, net operating income is $42,930, and average operating assets are $134,000. What is the company's return on investment (ROI)?

32.0

If net operating income is $75,000, average operating assets are $375,000, and the minimum required rate of return is 11%, what is the residual income?

33750

Bustillo Incorporated is working on its cash budget for March. The budgeted beginning cash balance is $35,000. Budgeted cash receipts total $142,000 and budgeted cash disbursements total $151,000. The desired ending cash balance is $30,000. To attain its desired ending cash balance for March, the company needs to borrow:

4000

Parwin Corporation plans to sell 42,000 units during August. If the company has 17,500 units on hand at the start of the month, and plans to have 18,500 units on hand at the end of the month, how many units must be produced during the month?

43000

Thilking Midwifery's cost formula for its wages and salaries is $2,140 per month plus $454 per birth. For the month of August, the company planned for activity of 102 births, but the actual level of activity was 100 births. The actual wages and salaries for the month was $47,660. The wages and salaries in the flexible budget for August would be closest to:

47450

Cabell Products is a division of a major corporation. Last year the division had total sales of $20,070,000, net operating income of $1,063,710, and average operating assets of $4,415,400. The company's minimum required rate of return is 16%. The division's margin is closest to:

5.3

Agustin Industries is a division of a major corporation. Data concerning the most recent year appears below: Sales$ 18,120,000Net operating income$ 1,177,800Average operating assets$ 4,450,000 The division's margin is closest to:

6.5

Hamiter Framing's cost formula for its supplies cost is $1,640 per month plus $9 per frame. For the month of August, the company planned for activity of 572 frames, but the actual level of activity was 573 frames. The actual supplies cost for the month was $7,080. The supplies cost in the planning budget for August would be closest to:

6788

Sathre Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. Fixed Element per MonthVariable Element per Well ServicedRevenue $4,500Employee salaries and wages$56,400$ 900Servicing materials $ 700Other expenses$35,400 When the company prepared its planning budget at the beginning of December, it assumed that 34 wells would have been serviced. However, 32 wells were actually serviced during December. The "Employee salaries and wages" in the flexible budget for December would have been closest to:

85200

Which of the following would be considered an operating asset in return on investment computations?

ACCOUNTS RECIEVABLE

Which of the following will not result in an increase in return on investment (ROI), assuming other factors remain the same?

An increase in operating assets.

Which of the following may appear on a flexible budget performance report?

An unfavorable activity variance. A favorable revenue variance. An unfavorable spending variance. All of the above may appear on a flexible budget performance report.

When using a flexible budget, a decrease in activity within the relevant range:

DECREASES TOTAL COSTS

Which of the following segment performance measures will decrease if there is an increase in the interest expense for that segment?

DOES NOT AFFECT ROI OR RESIDUAL INCOME

All other things equal, which of the following would increase a division's residual income?

Decrease in average operating assets

A change in sales has no effect on margin and turnover.

FALSE

Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes.

FALSE

If activity is higher than expected, total fixed costs should be higher than expected. If activity is lower than expected, total fixed costs should be lower than expected.

FALSE

One disadvantage of budgeting is that budgeting makes it more difficult to coordinate the plans and activities of departmental managers.

FALSE

One of the weaknesses of budgets is that they are of little value in uncovering potential bottlenecks.

FALSE

Return on investment (ROI) equals margin multiplied by sales.

FALSE

Suppose a company evaluates divisional performance using both ROI and residual income. The company's minimum required rate of return for the purposes of residual income calculations is 12%. If a division has a residual income of $6,000, then its return on investment is less than 12%.

FALSE

The cash budget is the starting point in preparing the master budget.

FALSE

The production budget is typically prepared prior to the sales budget. Group starts

FALSE

When preparing a direct materials budget, beginning inventory for raw materials should be added to production needs, and desired ending inventory should be subtracted to determine the amount of raw materials to be purchased.

FALSE

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

FLEXIBLE BUDGET

Which of the following statements is true?

Fixed costs are often more controllable than variable costs.

Which of the following will not result in an increase in return on investment (ROI), assuming other factors remain the same?

INCREASE IN OPERATING ASSETS

There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget?

It is calculated based on the sales budget and the desired ending inventory.

Which of the following statements is NOT correct concerning the Cash Budget?

It is not necessary to prepare any other budgets before preparing the Cash Budge

The manager of a(n) Blank , center has control over both costs and revenues, but not over the use of investment funds

PROFIT

Any part of an organization whose manager has control over and is accountable for cost, profit, or investments is a(n

RESPONSIBILITY CENTER

To understand why actual net operating income differs from what it should have been at the actual level of activity, the Blank______ variances should be analyzed.

REVENUE AND SPENDING

A benefit from budgeting is that it forces managers to think about and plan for the future

TRUE

All other things the same, an increase in unit sales will normally result in an increase in the return on investment.

TRUE

An advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.

TRUE

Cash collections in a schedule of cash collections typically consist of collections on sales made to customers in prior periods plus collections on sales made in the current budget period.

TRUE

Comparing a static planning budget to actual costs is not a good way to assess whether variable costs are under control.

TRUE

In a flexible budget, when the activity declines, the total variable cost also declines.

TRUE

The budgeted income statement is typically prepared before the budgeted balance sheet

TRUE

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

The master budget consists of a number of separate but interdependent budgets.

TRUE

The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducting the beginning inventory.

TRUE

The use of return on investment (ROI) as a performance measure may lead managers to reject a project that would be favorable for the company as a whole.

TRUE

To help assess how well a manager has controlled costs, actual costs should be compared to what the costs should have been for the actual level of activity.

TRUE

Using a flexible budget, actual results can be compared to what costs should have been at the actual level of activity.

TRUE

In a flexible budget, what will happen to fixed costs as the activity level increases?

The fixed cost per unit will decrease.

in a flexible budget, what will happen to fixed costs as the activity level increases?

The fixed cost per unit will decrease.

The spending variance is labeled as favorable when the Blank______.

actual cost is less than what the cost should have been at the actual level of activity

When preparing a flexible budget, the level of activity

affects variable costs only

A favorable activity variance may not indicate good performance because a favorable activity varianc

for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activit

ROI is a method used to evaluate Blank______.

investment centers, but not cost or profit centers

The concept that focuses on important variances and ignores trivial ones is Blank______.

management by exception

When preparing a direct materials budget, the required purchases of raw materials in units equal

raw materials needed to meet the production schedule + desired ending inventory of raw materials − beginning inventory of raw materials.

The usual starting point for a master budget is

the sales forecast or sales budget.