ATG 101 Chapter 15 Final Exam
A disadvantage of decentralization is that it fails to motivate managers to improve the productivity of their division.
False
A restaurant that is part of a retail store and managed by the retail manager would most likely be classified as a cost center
False
A static budget is one that shows estimated revenues and costs at multiple activity levels
False
An investment opportunity with a residual income that equals or exceeds the company's required rate of return should be accepted.
False
Decentralization encourages upper level management to concentrate on short-term decisions.
False
Flexible budget amounts for variable costs and revenues come from multiplying standard per unit amounts by the planned volume of production.
False
For performance evaluation, the amount of costs actually incurred should be compared to the costs that would have been incurred at the actual volume of activity rather than at the planned volume of activity.
False
If the master budget prepared at a volume level of 10,000 units includes direct labor of $10,000, a flexible budget based on a volume of 11,000 units would include direct labor of $10,000
False
Management by exception means that only unfavorable cost variances are investigated.
False
Suboptimization refers to actions taken by a manager that are in the best interest of the firm as a whole but not in his/her own best interest.
False
The general formula for return on investment is revenue divided by investment in assets
False
Under all circumstances, unfavorable variances are bad; favorable variances are good
False
Unfavorable flexible budget variances are those that are the result of lower than expected sales volume.
False
When a comparison of static and flexible budgets shows an unfavorable sales volume variance, the variable cost volume variances will also be unfavorable
False
A cost variance is unfavorable if actual cost exceeds standard cost.
True
A favorable flexible budget materials variance may indicate that the price per unit of materials was lower than expected and that less material was used than expected or either of these.
True
An important disadvantage of decentralization is that managers may engage in suboptimal behavior
True
Clear lines of authority and responsibility are essential to establishing a responsibility accounting system.
True
If Pascal Company's turnover (asset utilization) measure is 2.5 and its margin is 7.5%, its ROI is 18.75%
True
If the master budget prepared at a volume level of 10,000 units includes direct materials of $40,000, a flexible budget based on a volume of 12,000 units would include direct materials of $48,000.
True
If the master budget prepared at a volume level of 20,000 units includes factory rent of $40,000, a flexible budget based on a volume of 21,000 units would include factory rent of $40,000.
True
In an optimal responsibility accounting system, managers are evaluated on only the revenues and costs that are under their control
True
Investment centers are often evaluated on the basis of return on investment.
True
Sales volume variances are attributable to differences between planned and actual activity volumes, as well as differences in selling price
True
The differences between the standard and actual amounts are called variances.
True
The sales volume variance is favorable if actual sales volume is higher than the budgeted
True
The sales volume variance is the difference between sales revenue on the static budget and sales revenue on the flexible budget
True
The total sales variance includes both price and volume variances
True
Unless there are other factors to be considered, an investment opportunity with a return on investment that equals or exceeds the company's required rate of return would be accepted.
True