BEC - Part V - SP - A thru C
Spending variance =
(Actual price - Standard price) x Actual quantity
Variable overhead efficiency variance (VOHEV) =
(Actual quantity × Standard price) - (Standard quantity × Standard price)
Cyclical fluctuations, random variations, seasonal variations, and secular trend are all components of:
. time series analysis.
statements best describes material requirements planning (MRP)?
A planning system that is used to determine the amount and timing of inventories that are dependent on the demand for finished goods
Which of the following would be most impacted by the use of the percentage of sales forecasting method for budgeting purposes?
Accounts payable
Flexible budget variance =
Actual cost compared to Flexible budget cost
A static budget contains
Budgeted costs for budgeted output
budgets provides information for preparation of the owner's equity section of a budgeted balance sheet?
Budgeted income statement
types of budgets is the last budget to be produced during the budgeting process?
Cash
An investor uses risk analysis to measure the probability of the variability of future returns from a proposed investment. What is the approach that is based upon utility theory and compels the decision maker to choose at what point he or she is indifferent to the choice between a certain amount of money and the expected value of a risky amount?
Certainty equivalent adjustments
steps in the strategic planning process should be completed first
Create a mission statement. - A strategic plan is a document that assists a business with implementing its long-term goals and mission statement. In order to have a strategic plan, a business must first have a mission statement. After that, the strategic plan determines the actions to be taken in order to achieve the goals and objectives. Performance measures are indicators of whether or not the stated goals have been achieved.
When production levels are expected to increase within a relevant range and a flexible budget is used, what effect on each of the following costs would be anticipated?
Decrease in fixed costs per unit and no change in variable costs per unit
Which of the following types of variances would a purchasing manager most likely influence?
Direct materials price
Which tool would most likely be used to determine the best course of action under conditions of uncertainty?
Expected value (EV): applies estimated percentages of occurrence to estimated values such as sales or costs
Older data is weighted less than newer or more recent data when using the statistical tool known as which of the following?
Exponential smoothing
Which one of the following is a sales forecasting technique?
Exponential smoothing
Which of the following costs would decrease if production levels were increased within the relevant range?
Fixed costs per unit
Fargo Mfg., a small business, is developing a budget for next year. Which of the following steps should Fargo perform first?
Forecast Fargo's sales volume
not an integrating mechanism?
General personnel systems
Integrating mechanisms
Integrating mechanisms connect the information, tasks, and resources with the work groups in the organization. The major integrating mechanisms include: general management systems, increasing coordination potential, and reducing the need for coordination.
Controllable revenues would be included in the performance reports of which of the following types of responsibility centers?
Investment centers
What is strategic planning?
It establishes the general direction of the organization.
a disadvantage of participative budgeting?
It is more time consuming
Seacraft, Inc., received a request for a competitive bid for the sale of one of its unique boating products with a desired modification. Seacraft is now in the process of manufacturing this product but with a slightly different modification for another customer. These unique products are labor intensive and both will have long production runs. Which one of the following methods should Seacraft use to estimate the cost of the new competitive bid?
Learning curve analysis: Since the manufacturing processes for these unique products are new, are labor intensive and have long production runs, labor becomes more skilled, and hence more efficient, over time as the new processes are learned. This increased efficiency reduces the cost. Thus, the method that should be used to estimate the cost of the second process is learning curve analysis.
Wong Company utilizes both strategic planning and operational budgeting. items would normally be considered in a strategic plan?
Maintaining the image of the company as the industry leader
used to estimate how inventory warehouse costs are affected by both the number of shipments and the weight of materials handled?
Multiple regression analysis
Number of days in = Number of days + Number of days sales operating cycle sales in inventory in accounts receivable (purchase to collection (purchase to sale) (sale to collection) of cash)
N/A
external environment
Opportunities and threats
What does integrated planning accomplish?
Participation of stakeholders and affected departments = Integrated planning provides for the participation of stakeholders with affected departments within an organization. This participation helps the organization to examine costs and benefits of a plan of action.
assigned to goods that were either purchased or manufactured for resale?
Product cost: are "attached" or assigned to units produced in a manufacturing process. Product costs are direct materials, direct labor, and manufacturing overhead.
correct sequence for preparing budgets?
Production budget, material purchases budget, budgeted income statement, budgeted balance sheet
inputs would be most beneficial to consider when management is developing the capital budget?
Profit center equipment requests
a characteristic of a flexible budget?
Provides budgeted numbers for various activity levels
Material price variance =
Quantity purchased × (Standard price - Actual price)
The strategic planning process should focus on the firm's internal and external environment. An evaluation process that can be used to accomplish this is:
SWOT analysis.
Which of the following listings correctly describes the order in which the four types of budgets must be prepared?
Sales, production, direct materials purchases, cash disbursements
Which of the following is a technique for assessing the potential effect of risk in a capital budgeting project?
Sensitivity analysis involves testing the effects of various assumptions. Adjusting the required rate of return involves increasing the rate for more risky projects. Similarly, adjusting estimated future cash flows is to make them more conservative for more risky projects. Thus, all of these are techniques for dealing with risk in capital budgeting projects.
all operational or budgetary goals:
Setting a target of 12% return on sales Setting a market price per share of stock outstanding Distributing monthly reports for departmental variance analysis
changes would cause a company's breakeven point in sales to increase?
The company's total fixed costs increases. - Breakeven would increase if the numerator increased or the denominator decreased. (If fixed costs increase, more units will need to be sold to cover the additional cost.)
Correlation refers to the existence of a reliable relationship between two variables:
The dependent variable, the values that we would like to predict The independent variable, the values that we would like to use in the prediction process Reliable correlation must exist for regression analysis to be valid. The coefficient of correlation, r, is a measure of the relative relationship (not the variance) between the two variables.
To assist in an investment decision, Gift Co. selected the most likely sales volume from several possible outcomes. Which of the following attributes would selected sales volume reflect?
The greatest probability
Jackson Co. is considering a project that will use 2,000 square feet of storage space at one of its facilities to store used equipment. What will determine Jackson's opportunity cost?
The value of the next best use of the space
How many levels of interdependence are included in integrated planning?
Three levels: There are three levels of interdependence in integrated planning: Pooled Sequential Reciprocal
Using a real options approach in capital investments planning helps managers in dealing with ?
Uncertainty
In computing the reorder point for an item of inventory, which of the following is used?
Usage per day Lead time
Reorder point =
Usage per day × Lead time
In calculating the breakeven point for a multiproduct company, which of the following assumptions are commonly made when variable costing is used?
Variable costs are constant per unit. A given sales mix is maintained for all volume changes.
Strategic planning answers questions such as the following:
What product or service do we supply? Who are our customers? How can we perform well? The answers to these questions provide a general direction for the organization.
Certainty equivalent adjustments is
a risk analysis technique that is based upon utility theory.
Exponential smoothing is
a statistical method that is useful as a sales forecasting technique. This forecasting procedure is a special type of weighted moving average: it is reverse geometric progression in which the effect of past events (in this case sales) is discounted based on some multiple so that the effect which the past eve
Depreciation represents
a sunk cost that cannot be changed by the decision to use or rent the space.
Probability (risk) analysis is:
an extension of sensitivity analysis.
Probability analysis can be used with
an infinite number of outcomes, and 1.00 is the largest possible probability. It is helpful to combine probability analysis with sensitivity analysis to evaluate the sensitivity of various outcomes to risk.
The firm's product mix is
an internal factor.
All of the following are characteristics of the strategic planning process except the:
analysis and review of departmental budgets.
Typical product-costing systems synchronize the recording of accounting-system entries with the physical sequence of purchases and production. The alternative of delaying journal entries until after the physical sequences have occurred (which is normally used in high-speed automated environments) is referred to as:
backflush costing.
The opportunity cost of holding cash balances for the year is
calculated as the average cash balance multiplied by the opportunity cost percentage. In this case, the opportunity cost of holding cash balances is best indicated by the cost of borrowing money since this is the only interest rate given in the problem.
Sensitivity analysis in an investment project proposal:
calculates the change in the result due to a potential change in the project's cash flows.
Everything else being equal, the internal rate of return (IRR) of an investment project will be lower if:
cash inflows are received later in the life of the project
When using a flexible budget, a decrease in production levels within a relevant range:
decreases total costs
The steps to prepare a master budget are:
develop a sales forecast, determine the desired level of finished goods inventory, prepare a purchases or production budget, estimate selling, administrative, and other general expenses, organize the preceding information into an income statement, and prepare a cash forecast
A disadvantage of the net present value method of capital expenditure evaluation is that it
does not provide the true rate of return on investment.
A standard cost system may be used in:
either job order costing or process costing.
In statistical analysis, a weighted average using probabilities as weights is the:
expected value.
At the breakeven point, the contribution margin equals total:
fixed costs.
When a manager is concerned with monitoring total cost, total revenue, and net profit conditioned upon the level of productivity, an accountant would normally recommend:
flexible budgeting and standard costing.
The operating cycle extends
from the date inventory is purchased until the date it is finally converted back to cash (collection of accounts receivable).
Jago Co. has two products that use the same manufacturing facilities and cannot be subcontracted. Each product has sufficient orders to utilize the entire manufacturing capacity. For short-run profit maximization, Jago should manufacture the product with the:
greater contribution margin per hour of manufacturing capacity.
Sensitivity analysis determines
how the results will change if the original data or the underlying assumptions change. It is the process of identifying the data changes that alter optimal solutions and the decisions made based on that solution. Probability analysis combines the likelihood of various outcomes with sensitivity analysis.
Adjusting the required rate of return involves
increasing the rate for more risky projects.
An increase in production levels within a relevant range most likely would result in:
increasing the total cost. - The relevant range is the production range within which fixed costs are unchanged and variable costs are constant on a per-unit basis. Since additional variable costs will be incurred for each additional unit, with no change in total fixed costs, the total costs will increase.
Correlation is a term frequently used in conjunction with regression analysis, and is measured by the value of the coefficient of correlation, r. The best explanation of the value r is that it:
is a measure of the relative relationship between two variables.
Linear programming
is a model for the allocation of scarce resources.
Cost-volume-profit analysis
is a model used to aid decision making relating to product lines, pricing of products, marketing strategy, and utilization of production facilities.
Exponential smoothing
is a statistical method that is useful as a sales forecasting technique. This forecasting procedure is a special type of weighted moving average: it is reverse geometric progression in which the effect of past events (in this case sales) is discounted based on some multiple so that the effect which the past event has on current projections decreases as the time since the event increases.
Margin of safety
is the excess of actual or budgeted sales over breakeven point sales. It is the amount by which sales could decrease before losses occur. At breakeven there would be no income tax, so we can ignore the income tax information.
The time frame for strategic planning is:
long term.
adjusting estimated future cash flows is to
make them more conservative for more risky projects
Period costs are
not associated with the manufacturing process. They are expensed in the period incurred. Period costs are selling, general, or administrative expenses.
A firm's internal and external environment should not be evaluated simply
on a day-to-day basis.
The coefficient of determination, r squared, in a multiple regression equation is the:
percentage of variation in the dependent variable explained by the variation in the independent variables.
The economic order quantity formula assumes that:
periodic demand for the good is known
A company reported a significant material efficiency variance for the month of January. All of the following are possible explanations for this variance, except:
producing more units than planned for in the master budget.
In order for a firm to achieve its mission, it must develop a strategy. This involves analyzing the firm's internal and external environment. External factors include all of the following except:
product mix of the firm. The firm's product mix is an internal factor. It is the only one of the answer choices which is subject to management control and is one of the company's strengths or weaknesses. Business cycles are external factors. They are opportunities or threats. Competitors' actions are external factors. They represent threats and opportunities rather than strengths and weaknesses. Government regulation is an external factor and it presents either opportunities or threats for the firm.
A monthly time frame may be appropriate for
production or cash planning but is not really long enough for strategic planning.
In using regression analysis, which measure indicates the extent to which a change in the independent variable explains a change in the dependent variable?
r-squared - The coefficient of determination (r2) is a ratio that indicates the proportion of variance in the dependent variable determined by the independent variable using the regression equation.
The forecasting technique most relevant for analyzing data prior to creation of a flexible budget is:
regression analysis.
Queuing theory
relates to the balancing of the cost of waiting with the cost of service; for example, the cost of lost sales resulting from long lines at the cash register versus the cost of opening another cash register.
The proper discount rate to use in calculating certainty equivalent net present value is the:
risk-free rate.
Through the use of decision models, managers thoroughly analyze many alternatives and decide on the "best" alternative for the company. Often the actual results achieved from a particular decision are not what were expected when the decision was made. In addition, an alternative that was not selected may have actually been the best decision for the company. The appropriate technique to analyze the alternatives by using expected inputs and then altering them before a decision is made is:
sensitivity analysis.
internal environment consists of
strengths, weaknesses, and competitive advantages.
The four components of time series data are secular trend, cyclical variation, seasonality, and random variation. The seasonality in the data can be removed by:
taking the weighted average over four time periods
Sensitivity analysis involves
testing the effects of various assumptions
A negative correlation coefficient means
that as one variable increases, the other decreases
Opportunity costs are the earnings
that could have been received had the storage been used in their best alternative use, such as foregone rental income. The company could have earned $10,000 renting out the space, and they have lost that opportunity by using the space for production. It may have been the correct decision, however, because they could earn more by producing in the space than by renting the space. Even if it is the correct decision, they have still lost the opportunity to earn the $10,000 from rental.
net present value of the project represents
the discounted present value of future cash flows, not forgone income
Opportunity costs are the
the earnings that could have been received had the storage been used in their best alternative use, such as rental income that is forgone.
The external environment of a business is
the environment within which that business resides. It is influenced and controlled by outside factors which do not depend in any way on that firm's strengths and weaknesses. It includes limitations, opportunities, and threats coming from competitors, governmental agencies, and other external sources.
Internal rate of return of the project is
the interest rate implicit in the project, not forgone income
Relevant costs are
those expected to differ among alternative future courses of action. They are also known as incremental costs or differential costs.
Opportunity costs are
those revenues that will be lost if one action is chosen over another.
Economic order quantity seeks
to identify an optimum order quantity by equating order cost with carrying cost. In order to do this, the following values must be known or assumed: Cost of placing an order Cost of carrying inventory Periodic demand for product
The assumptions of breakeven analysis include over the relevant range:
unit revenues are linear (prices do not change). unit variable costs are unchanged (i.e., linear). total costs increase as number of units increase. fixed costs are constant (straight-line).
Breakeven analysis assumes that over the relevant range:
unit variable costs are unchanged.
The expected inflation rate of 5%
will affect items where the costs are being incurred due to activities taking place during the year, as opposed to being related to past actions or decisions. For example, the depreciation expense is based upon the systematic expensing of prior capital purchases. The interest expense is based upon a contract entered into sometime in the past.
y = A + Bx What is the symbol for the independent variable?
x A is the y intercept. B is the slope of the line. (Linear means a straight line, so the slope of the line is the same at any point on the line.) y is the dependent variable since it is determined based on the other three terms. x is the independent variable since it is an input to the equation, not based on the other terms.
Strategic planning is not limited to a
year-by-year analysis.