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Week 7 Quiz 6: Chapters 9 and 10 Chapter 9 TRUE-FALSE STATEMENTS 1.

Budgets are statements of management's plans stated in financial terms.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics 2.

A benefit of budgeting is that it provides definite objectives for evaluating performance.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics 3.

A budget can be a means of communicating a company's objectives to external parties.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics 4.

A budget can be used as a basis for evaluating performance.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics 5.

A well-developed budget can operate and enforce itself.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics 6.

The budget itself and the administration of the budget are the responsibility of the accounting department.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics


Budgetary Planning

9-2

7.

Effective budgeting requires clearly defined lines of authority and responsibility.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics 8.

The flow of input data for budgeting should be from the highest levels of responsibility to the lowest.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 9.

Budgets can have a positive or negative effect on human behavior depending on the manner in which the budget is developed and administered.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Management, AICPA PC: Interaction, IMA: Performance Measurement 10.

A budget can facilitate the coordination of activities among the segments of a large company.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 11.

The longer the budget period, the more reliable the estimates of future outcomes.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 12.

The budget committee has the responsibility for coordinating the preparation of the budget.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Budget Preparation 13.

The budget is developed within the framework of a sales forecast.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9-3

14.

Budgeting and long-range planning are two terms that describe the same process.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 15.

Long-range plans are used more as a review of progress toward long-term goals rather than an evaluation of specific results to be achieved.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 16.

The master budget reflects management's long-term plans encompassing five years or more.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 17.

The master budget consists of operating and financial budgets.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 18.

Financial budgets must be completed before the operating budgets can be prepared.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 19.

The direct materials budget must be completed before the production budget because the quantity of materials available for production must be known.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 20.

The number of direct labor hours needed for production is obtained from the production budget.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 21.

A manufacturing overhead budget is not needed if the company develops a predeter-mined overhead rate to apply overhead. FOR INSTRUCTOR USE ONLY


Budgetary Planning

9-4

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 22.

The manufacturing overhead budget generally has separate sections for variable, mixed, and fixed costs.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 23.

A production budget should be prepared before the sales budget.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 24.

The direct materials budget contains both quantity and cost data.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 25.

The budgeted income statement indicates the expected profitability of operations for the next year.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9-5

26.

If a monthly cash budget is prepared properly, there will never be a cash deficiency at the end of any month.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 27.

The budgeted balance sheet is prepared entirely from the budgets for the current year.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 28.

The starting point when budgeting for a not-for-profit organization is generally to budget expenditures first.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 29.

A merchandiser has a merchandise purchases budget rather than a production budget.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 30.

A critical factor in budgeting for a service firm is to determine the amount of products to purchase.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 31.

The budget itself and the administration of the budget are entirely accounting responsibilities.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 32.

Financial planning models and statistical and mathematical techniques may be used in forecasting sales.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9-6

33.

The direct materials budget is derived from the direct materials units required for production plus desired ending direct materials units less beginning direct materials units.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 34.

The manufacturing overhead budget shows the expected manufacturing overhead costs.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 35.

In order to develop a budgeted balance sheet, the previous year's balance sheet is needed.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 36.

In service enterprises, the critical factor in budgeting is coordinating materials and equipment with anticipated services.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9-7

MULTIPLE CHOICE QUESTIONS 37.

Why are budgets useful in the planning process? a. They provide management with information about the company's past performance. b. They help communicate goals and provide a basis for evaluation. c. They guarantee the company will be profitable if it meets its objectives. d. They enable the budget committee to earn their paycheck.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 38.

A budget a. is a substitute for management. b. is an aid to management. c. can operate or enforce itself. d. is the responsibility of the accounting department.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 39.

Accounting generally has the responsibility for a. setting company goals. b. expressing the budget in financial terms. c. enforcing the budget. d. administration of the budget.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics 40.

Which one of the following is not a benefit of budgeting? a. It facilitates the coordination of activities. b. It provides definite objectives for evaluating performance. c. It provides assurance that the company will achieve its objectives. d. It requires all levels of management to plan ahead on a recurring basis.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 41.

Budgeting is usually most closely associated with which management function? a. Planning b. Directing c. Motivating d. Controlling FOR INSTRUCTOR USE ONLY


Budgetary Planning

9-8

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9-9

42.

Which of the following items does not follow from the adoption of a budget? a. Promote efficiency b. Deterrent to waste c. Basis for performance evaluation d. Guarantee of accomplishing the profit objective

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 43.

Which is true of budgets? a. They are voted on and approved by stockholders. b. They are used in the planning, but not in the control, process. c. There is a standard form and structure for budgets. d. They are used in performance evaluation.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 44.

A common starting point in the budgeting process is a. expected future net income. b. past performance. c. to motivate the sales force. d. a clean slate, with no expectations.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 45.

If budgets are to be effective, all of the following must be present except a. acceptance at all levels of management. b. research and analysis in setting realistic goals. c. stockholders' approval of the budget. d. sound organizational structure.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Budget Preparation 46.

If budgets are to be effective, there must be a. a history of successful operations. b. independent verification of budget goals. c. an organizational structure with clearly defined lines of authority and responsibility. d. excess plant capacity.

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 10

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Budget Preparation 47.

It is important that budgets be accepted by a. division managers. b. department heads. c. supervisors. d. All of these.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 11

48.

Which of the following statements about budget acceptance in an organization is true? a. The most widely accepted budget by the organization is the one prepared by top management. b. The most widely accepted budget by the organization is the one prepared by the department heads. c. Budgets are hardly ever accepted by anyone except top management. d. Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Budget Preparation 49.

Top management notices a variation from budget and an investigation of the difference reveals that the department manager could not be expected to have controlled the variation. Which of the following statements is applicable? a. Department managers should be held accountable for all variances from budgets for their departments. b. Department managers should only be held accountable for controllable variances for their departments. c. Department managers should be credited for favorable variances even if they are beyond their control. d. Department managers' performances should not be evaluated based on actual results to budgeted results.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Professional Demeanor, IMA: Business Economics 50.

An unrealistic budget is more likely to result when it a. has been developed in a top down fashion. b. has been developed in a bottom up fashion. c. has been developed by all levels of management. d. is developed with performance appraisal usages in mind.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Business Economics 51.

A budget is most likely to be effective if a. it is used to assess blame when things do not occur according to plans. b. it is not used to evaluate a manager's performance. c. employees and managers at the lower levels do not get involved in the budgeting process. d. it has top management support.

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 12

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Budget Preparation 52.

In many companies, responsibility for coordinating the preparation of the budget is assigned to a. the company's independent certified public accountants. b. the company's internal auditors. c. the company's board of directors. d. a budget committee.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 13

53.

A budget period should be a. monthly. b. for a year or more. c. long-term. d. long enough to provide an obtainable goal under normal business conditions.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 54.

If a company has adopted continuous budgeting, the budget will show plans for a. every day. b. a full year ahead. c. the current year and the next year. d. at least five years.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 55.

The most common budget period is a. one month. b. three months. c. six months. d. one year.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 56.

Budget development for the coming year usually starts a. a year in advance. b. the first month of the year to be budgeted. c. several months before the end of the current year. d. the last month of the previous year.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Budget Preparation 57.

The budget committee would not normally include the a. research director. b. treasurer. c. sales manager. d. external auditor.

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 14

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Budget Preparation 58.

The budget committee in a company is often headed by the a. president. b. controller. c. treasurer. d. budget director.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Budget Preparation 59.

Long-range planning a. generally presents more detailed information than an annual budget. b. generally encompasses a longer period of time than an annual budget. c. is usually more accurate than an annual budget. d. is prepared on a quarterly basis if the budget is prepared on a quarterly basis.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 15

60.

Long-range planning usually encompasses a period of at least a. six months. b. 1 year. c. 5 years. d. 10 years.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 61.

Which of the following is not a proper match-up? a. Long range planning  Strategies b. Budgeting  Short-term goals c. Long-range planning  5 years d. Budgeting  Long-term goals

Ans: LO: 2, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 62.

Which is the last step in developing the master budget? a. Preparing the budgeted balance sheet b. Preparing the cost of goods manufactured budget c. Preparing the budgeted income statement d. Preparing the cash budget

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 63.

If there were 60,000 pounds of raw materials on hand on January 1, 120,000 pounds are desired for inventory at January 31, and 410,000 pounds are required for January production, how many pounds of raw materials should be purchased in January? a. 350,000 pounds b. 530,000 pounds c. 290,000 pounds d. 470,000 pounds

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 64.

The total direct labor hours required in preparing a direct labor budget are calculated using the a. sales forecast. b. production budget. c. direct materials budget. d. sales budget. FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 16

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 65.

The direct materials and direct labor budgets provide information for preparing the a. sales budget. b. production budget. c. manufacturing overhead budget. d. cash budget.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 17

66.

A sales forecast a. shows a forecast for the firm only. b. shows a forecast for the industry only. c. shows forecasts for the industry and for the firm. d. plays a minor role in the development of the master budget.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 67.

Which of the following is not an operating budget? a. Direct labor budget b. Sales budget c. Production budget d. Cash budget

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 68.

Which of the following is not a financial budget? a. Capital expenditure budget b. Cash budget c. Manufacturing overhead budget d. Budgeted balance sheet

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 69.

Which of the following is done to improve the reliability of the sales forecast? a. Employ financial planning models b. Lengthen the planning horizon to more than a year c. Rely solely on outside consultants d. Use the sales forecasts from the previous year

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 70.

The financial budgets include the a. cash budget and the selling and administrative expense budget. b. cash budget and the budgeted balance sheet. c. budgeted balance sheet and the budgeted income statement. d. cash budget and the production budget.

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 18

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 71.

The culmination of preparing operating budgets is the a. budgeted balance sheet. b. production budget. c. cash budget. d. budgeted income statement.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 19

72.

The following information is taken from the production budget for the first quarter: Beginning inventory in units Sales budgeted for the quarter Capacity in units of production facility

1,200 426,000 472,000

How many finished goods units should be produced during the quarter if the company desires 3,200 units available to start the next quarter? a. 428,000 b. 424,000 c. 474,000 d. 429,200 Ans: LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 73.

An overly optimistic sales budget may result in a. increases in selling prices late in the year. b. insufficient inventories. c. increased sales during the year. d. excessive inventories.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Budget Preparation 74.

In a production budget, total required production units are the budgeted sales units plus a. beginning finished goods units. b. desired ending finished goods units. c. desired ending finished goods units plus beginning finished goods units. d. desired ending finished goods units minus beginning finished goods units.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 75.

The direct materials budget details 1. the quantity of direct materials to be purchased. 2. the cost of direct materials to be purchased. a. 1 b. 2 c. both 1 and 2 d. neither 1 nor 2

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 20

76.

The production budget shows expected unit sales of 32,000. Beginning finished goods units are 3,600. Required production units are 33,600. What are the desired ending finished goods units? a. 2,000 b. 3,600 c. 6,400 d. 5,200

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 21

77.

The production budget shows expected unit sales are 100,000. The required production units are 104,000. What are the beginning and desired ending finished goods units, respectively? a. b. c. d.

Beginning Units 10,000 6,000 4,000 10,000

Ending Units 6,000 10,000 10,000 4,000

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 78.

The production budget shows that expected unit sales are 48,000. The total required units are 54,000. What are the required production units? a. 6,000 b. 9,000 c. 12,000 d. Cannot be determined from the data provided.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 79.

The direct materials budget shows: Units to be produced Total pounds needed for production Total materials required

3,000 9,000 9,900

What are the direct materials per unit? a. .33 pounds b. 3.0 pounds c. 3.3 pounds d. Cannot be determined from the data provided. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 80.

The direct materials budget shows: Desired ending direct materials Total materials required Direct materials purchases

48,000 pounds 69,000 pounds 63,200 pounds

The total direct materials needed for production is a. 21,000 pounds. b. 5,800 pounds. c. 15,200 pounds. FOR INSTRUCTOR USE ONLY


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d. 132,200 pounds. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


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81.

If the required direct materials purchases are 24,000 pounds, the direct materials required for production is three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct materials in pounds? a. 60,000 b. 12,000 c. 36,000 d. 24,000

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 82.

Dart, Inc. makes and sells umbrellas. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available: Variable Cost Per Unit Sold Monthly Fixed Cost Sales commissions $0.60 $ 6,000 Shipping 1.20 Advertising 0.30 Executive salaries 40,000 Depreciation on office equipment 8,000 Other 0.35 28,000 Expenses are paid in the month incurred. If the company has budgeted to sell 8,000 umbrellas in October, how much is the total budgeted variable selling and administrative expenses for October? a. $16,800 b. $18,400 c. $101,600 d. $19,600

Ans: LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 83.

Which of the following expenses would not appear on a selling and administrative expense budget? a. Sales commissions b. Depreciation c. Property taxes d. Indirect labor

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


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84.

Which of the following would not appear as a fixed expense on a selling and administrative expense budget? a. Freight-out b. Office salaries c. Property taxes d. Depreciation

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


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85.

A master budget consists of a. an interrelated long-term plan and operating budgets. b. financial budgets and a long-term plan. c. interrelated financial budgets and operating budgets. d. all the accounting journals and ledgers used by a company.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 86.

The starting point in preparing a master budget is the preparation of the a. production budget. b. sales budget. c. purchasing budget. d. personnel budget.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 87.

Which one of the following is not needed in preparing a production budget? a. Budgeted unit sales b. Budgeted raw materials c. Beginning finished goods units d. Ending finished goods units

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 88.

A company budgeted unit sales of 204,000 units for January, 2013 and 240,000 units for February 2013. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 61,200 units of inventory on hand on December 31, 2012, how many units should be produced in January, 2013 in order for the company to meet its goals? a. 214,800 units b. 204,000 units c. 193,200 units d. 276,000 units

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 89.

At January 1, 2013, Deer Corp. has beginning inventory of 2,000 surfboards. Deer estimates it will sell 10,000 units during the first quarter of 2013 with a 12% increase in sales each quarter. Deer’s policy is to maintain an ending inventory equal to 25% of the FOR INSTRUCTOR USE ONLY


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next quarter’s sales. Each surfboard costs $100 and is sold for $150. How much is budgeted sales revenue for the third quarter of 2013? a. $450,000 b. $1,950,000 c. $1,881,600 d. $12,544 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


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90.

Doe Manufacturing plans to sell 6,000 purple lawn chairs during May, 5,700 in June, and 6,000 during July. The company keeps 15% of the next month’s sales as ending inventory. How many units should Doe produce during June? a. 5,745 b. 6,600 c. 5,655 d. Not enough information to determine.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 91.

Strand Company is planning to sell 400 buckets and produce 380 buckets during March. Each bucket requires 500 grams of plastic and one-half hour of direct labor. Plastic costs $10 per 500 grams and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Strand has 300 kilos of plastic in beginning inventory and wants to have 200 kilos in ending inventory. How much is the total amount of budgeted direct labor for March? a. $3,000 b. $6,000 c. $2,850 d. $5,7000

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 92.

Teller Co. is planning to sell 900 boxes of ceramic tile, with production estimated at 870 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Teller has 3,900 pounds of clay mix in beginning inventory and wants to have 4,500 pounds in ending inventory. What is the total amount to be budgeted for manufacturing overhead for the month? a. $2,871 b. $2,970 c. $11,484 d. $11,880

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 93.

Teller Co. is planning to sell 900 boxes of ceramic tile, with production estimated at 870 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. FOR INSTRUCTOR USE ONLY


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Teller has 3,900 pounds of clay mix in beginning inventory and wants to have 4,500 pounds in ending inventory. What is the total amount to be budgeted for direct labor for the month? a. $2,610 b. $10,440 c. $2,700 d. $41,760 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


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94.

Teller Co. is planning to sell 900 boxes of ceramic tile, with production estimated at 870 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Teller has 3,900 pounds of clay mix in beginning inventory and wants to have 4,500 pounds in ending inventory. What is the total amount to be budgeted in pounds for direct materials to be purchased for the month? a. 38,280 b. 37,680 c. 38,880 d. 40,200

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 95.

Lorie Nursery plans to sell 320 potted plants during April and 240 units in May. Lorie Nursery keeps 15% of the next month’s sales as ending inventory. How many units should Lorie Nursery produce during April? a. 308 b. 332 c. 320 d. 356

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 96.

Comma Co. makes and sells widgets. The company is in the process of preparing its selling and administrative expense budget for the month. The following budget data are available: Item Variable Cost Per Unit Sold Sales commissions $1 Shipping $3 Advertising $4 Executive salaries Depreciation on office equipment Other $2

Monthly Fixed Cost $10,000 $120,000 $4,000 $6,000

Expenses are paid in the month incurred. If the company has budgeted to sell 80,000 widgets in October, how much is the total budgeted selling and administrative expenses for October? a. $940,000 b. $140,000 c. $930,000 d. $800,000 FOR INSTRUCTOR USE ONLY


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Ans: LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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97.

Comma Manufacturing budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels are planned for the fiscal year of July 1, 2012 to June 30, 2013: June 30, 2013 June 30, 2012 Raw Materials 3,000 kilos 2,000 kilos Three kilos of raw materials are needed to produce each unit of finished product. If Comma Manufacturing plans to produce 560,000 units during the 2012-2013 fiscal year, how many kilos of materials will the company need to purchase for its production during the year? a. 1,681,000 b. 1,686,000 c. 1,680,000 d. 1,678,000

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 98.

The following information is taken from the production budget for the first quarter: Beginning inventory in units Sales budgeted for the quarter Production capacity in units

1,200 456,000 472,000

How many finished goods units should be produced during the quarter if the company desires 3,200 units available to start the next quarter? a. 458,000 b. 454,000 c. 474,000 d. 459,200 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 99.

Off-Line Co. has 9,000 units in beginning finished goods. The sales budget shows expected sales to be 36,000 units. If the production budget shows that 42,000 units are required for production, what was the desired ending finished goods? a. 3,000. b. 9,000. c. 15,000. d. 27,000.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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100.

Lion Industries required production for June is 132,000 units. To make one unit of finished product, three pounds of direct material Z are required. Actual beginning and desired ending inventories of direct material Z are 300,000 and 330,000 pounds, respectively. How many pounds of direct material Z must be purchased? a. 378,000. b. 396,000. c. 408,000. d. 426,000.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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101.

Haft Construction Company determines that 54,000 pounds of direct materials are needed for production in July. There are 3,200 pounds of direct materials on hand at July 1 and the desired ending inventory is 2,800 pounds. If the cost per unit of direct materials is $3, what is the budgeted total cost of direct materials purchases? a. 158,400. b. 160,800. c. 163,200. d. 165,600.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 102.

Pell Manufacturing is preparing its direct labor budget for May. Projections for the month are that 33,400 units are to be produced and that direct labor time is three hours per unit. If the labor cost per hour is $12, what is the total budgeted direct labor cost for May? a. 1,159,200. b. 1,180,800. c. 1,202,400. d. 1,296,000.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 103.

Dolce Co. estimates its sales at 180,000 units in the first quarter and that sales will increase by 18,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale. Production in units for the third quarter should be budgeted at a. 220,500. b. 207,000. c. 274,500. d. 216,000.

Ans: LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 104.

Dolce Co. estimates its sales at 180,000 units in the first quarter and that sales will increase by 18,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale. Cash collections for the third quarter are budgeted at a. $3,051,000. b. $4,428,000. FOR INSTRUCTOR USE ONLY


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c. $5,319,000. d. $6,156,000. Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


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105.

Bear, Inc. estimates its sales at 200,000 units in the first quarter and that sales will increase by 20,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $35. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale. Production in units for the third quarter should be budgeted at a. 245,000. b. 230,000. c. 305,000. d. 240,000.

Ans: LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 106.

Bear, Inc. estimates its sales at 200,000 units in the first quarter and that sales will increase by 20,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $35. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale. Cash collections for the third quarter are budgeted at a. $4,746,000. b. $6,888,000. c. $8,274,000. d. $9,576,000.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 107.

A company determined that the budgeted cost of producing a product is $30 per unit. On June 1, there were 80,000 units on hand, the sales department budgeted sales of 300,000 units in June, and the company desires to have 120,000 units on hand on June 30. The budgeted cost of goods manufactured for June would be a. $7,800,000. b. $11,400,000. c. $9,000,000. d. $10,200,000.

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 108.

Of the following items, which one is not obtained from an individual operating budget? a. Selling and administrative expenses b. Accounts receivable c. Cost of goods sold d. Sales FOR INSTRUCTOR USE ONLY


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Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 109.

Which of the following statements about a budgeted income statement is not true? a. The budgeted income statement is prepared after the financial budgets are prepared. b. The budgeted income statement is prepared on the accrual basis of accounting. c. The budgeted income statement can be prepared in a multiple-step format. d. The budgeted income statement is prepared using the individual operating budgets.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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110.

A company has budgeted direct materials purchases of $300,000 in July and $480,000 in August. Past experience indicates that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month. During August, the following items were budgeted: Wages Expense Purchase of office equipment Selling and Administrative Expenses Depreciation Expense

$150,000 72,000 48,000 36,000

The budgeted cash disbursements for August are a. $648,000. b. $426,000. c. $696,000. d. $732,000. Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 111.

Astor Manufacturing has the following budgeted sales: January $120,000, February $180,000, and March $150,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 50% are collected in the month of sale, and 50% the next month. The total expected cash receipts during March are: a. $168,000. b. $159,000. c. $157,500. d. $150,000.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 112.

Garnett Co. expects to purchase $180,000 of materials in July and $210,000 of materials in August. Three-fourths of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August's cash disbursements for materials purchases be? a. $135,000 b. $157,500 c. $202,500 d. $210,000

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 113.

The single most important output in preparing financial budgets is the a. sales forecast. b. determination of the unit cost of the product. FOR INSTRUCTOR USE ONLY


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c. cash budget. d. budgeted income statement. Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 114.

Which of the following does not appear as a separate section on the cash budget? a. Cash receipts b. Cash disbursements c. Capital expenditures d. Financing

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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115.

The financing section of a cash budget is needed if there is a cash deficiency or if the ending cash balance is less than a. the prior years. b. management's minimum required balance. c. the amount needed to avoid a service charge at the bank. d. the industry average.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 116.

Beginning cash balance plus total receipts a. equals ending cash balance. b. must equal total disbursements. c. equals total available cash. d. is the excess of available cash over disbursements.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 117.

The projection of financial position at the end of the budget period is found on the a. budgeted income statement. b. cash budget. c. budgeted balance sheet. d. sales budget.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 118.

What is the proper preparation sequencing of the following budgets? 1. Budgeted Balance Sheet 2. Sales Budget 3. Selling and Administrative Budget 4. Budgeted Income Statement a. 1, 2, 3, 4 b. 2, 3, 1, 4 c. 2, 3, 4, 1 d. 2, 4, 1, 3

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 119.

Kam Department Store reported the following information for 2013: October

November

December

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Budgeted sales $1,240,000  

$1,160,000

$1,440,000

All sales are on credit. Customer amounts on account are collected 50% in the month of sale and 50% in the following month.

How much cash will Kam receive in November? a. $580,000 b. $1,300,000 c. $1,200,000 d. $1,160,000 Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


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120.

The following information was taken from Southgate Industry’s cash budget for the month of July: Beginning cash balance $480,000 Cash receipts 304,000 Cash disbursements 544,000 If the company has a policy of maintaining a minimum end of the month cash balance of $400,000, the amount the company would have to borrow is a. $160,000. b. $80,000. c. $240,000. d. $96,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 121.

The cash budget reflects a. all revenues and all expenses for a period. b. expected cash receipts and cash disbursements from all sources. c. all the items that appear on a budgeted income statement. d. all the items that appear on a budgeted balance sheet.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 122.

The following credit sales are budgeted by Terra Co.: January February March April

$204,000 300,000 420,000 360,000

The company's past experience indicates that 70% of the accounts receivable are collected in the month of sale, 20% in the month following the sale, and 8% in the second month following the sale. The anticipated cash inflow for the month of April is a. $370,320. b. $336,000. c. $360,000. d. $352,800. Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 123.

Hyde Corp.'s cash budget showed total available cash less cash disbursements. What does this amount equal? a. Ending cash balance FOR INSTRUCTOR USE ONLY


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b. Total cash receipts c. The excess of available cash over cash disbursements d. The amount of financing required Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 124.

Which one of the following sections would not appear on a cash budget? a. Cash receipts b. Financing c. Investing d. Cash disbursements

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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125.

A company's past experience indicates that 60% of its credit sales are collected in the month of sale, 30% in the next month, and 5% in the second month after the sale; the remainder is never collected. Budgeted credit sales were: January $360,000 February 216,000 March 540,000 The cash inflow in the month of March is expected to be a. $406,800. b. $307,800. c. $324,000. d. $388,800.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 126.

Which one of the following items would never appear on a cash budget? a. Office salaries expense b. Interest expense c. Depreciation expense d. Travel expense

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 127.

Correy Inc. reported the following information for 2013: October November Budgeted sales $460,000 $440,000 Budgeted purchases $240,000 $256,000     

December $540,000 $288,000

All sales are on credit. Customer amounts on account are collected 50% in the month of sale and 50% in the following month. Cost of goods sold is 35% of sales. Correy purchases and pays for merchandise 60% in the month of acquisition and 40% in the following month. Accounts payable is used only for inventory acquisitions.

How much cash will Correy receive during November? a. $220,000 b. $490,000 c. $450,000 d. $440,000 Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 7, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation FOR INSTRUCTOR USE ONLY


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128.

Correy Company reported the following information for 2013: Budgeted sales Budgeted purchases   

October $460,000 $240,000

November $440,000 $256,000

December $540,000 $288,000

Cost of goods sold is 35% of sales. Correy purchases and pays for merchandise 60% in the month of acquisition and 40% in the following month. Accounts payable is used only for inventory acquisitions.

How much is the budgeted balance for Accounts Payable at October 31, 2013? a. $96,000 b. $144,000 c. $204,000 d. $102,400 Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 129.

Petal Co. reported the following information for 2013: Budgeted sales  

October $930,000

November $870,000

December $1,080,000

All sales are on credit. Customer amounts on account are collected 50% in the month of sale and 50% in the following month.

How much is the November 30, 2013 budgeted Accounts Receivable? a. $900,000 b. $540,000 c. $465,000 d. $435,000 Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 130.

Bean Manufacturing reported the following information for 2013: Budgeted purchases   

October $240,000

November $256,000

December $288,000

Operating expenses are: Salaries, $100,000; Depreciation, $40,000; Rent, $20,000; Utilities, $28,000 Operating expenses are paid during the month incurred. Accounts payable is used only for inventory acquisitions.

How much is the budgeted amount of cash to be paid for operating expenses in November? FOR INSTRUCTOR USE ONLY


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a. b. c. d.

$404,000 $148,000 $188,000 $444,000

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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131.

During September, the capital expenditure budget indicates a $420,000 purchase of equipment. The ending September cash balance from operations is budgeted to be $60,000. The company wants to maintain a minimum cash balance of $30,000. What is the minimum cash loan that must be planned to be borrowed from the bank during September? a. $330,000 b. $360,000 c. $450,000 d. $390,000

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 132.

Young Co. has budgeted its activity for December according to the following information: 1. 2. 4. 5.

Sales at $600,000, all for cash. Budgeted depreciation for December is $15,000. The cash balance at December 1 was $15,000. Selling and administrative expenses are budgeted at $60,000 for December and are paid for in cash. 6. The planned merchandise inventory on December 31 and December 1 is $18,000. 7. The invoice cost for merchandise purchases represents 75% of the sales price. All purchases are paid in cash. How much are the budgeted cash disbursements for December? a. $345,000 b. $510,000 c. $525,000 d. $492,000 Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 133.

Dex Industries expects to purchase $120,000 of materials in March and $140,000 of materials in April. Three-fourths of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. In addition, a 2% discount is received for payments made in the month of purchase. How much will April's cash disbursements for materials purchases be? a. $88,200 b. $108,200 c. $132,900 d. $120,000

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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134.

On January 1, Witt Company has a beginning cash balance of $126,000. During the year, the company expects cash disbursements of $1,020,000 and cash receipts of $870,000. If Witt requires an ending cash balance of $120,000, Witt Company must borrow a. $96,000. b. $120,000. c. $144,000. d. $276,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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135.

Mapleview, Inc. has the following budgeted sales: July $200,000, August $300,000, and September $250,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 50% are collected in the month of sale, and 50% the next month. The total expected cash receipts during September are a. $280,000. b. $265,000. c. $262,500. d. $250,000.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 136.

Burr, Inc.'s direct materials budget shows total cost of direct materials purchases for April $400,000, May $480,000 and June $560,000. Cash payments are 60% in the month of purchase and 40% in the following month. The budgeted cash payments for June are a. $528,000. b. $512,000. c. $480,000. d. $416,000.

Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 137.

Which one of the following budgets would be prepared for a manufacturer but not for a merchandiser? a. Direct labor budget b. Cash budget c. Sales budget d. Budgeted income statement

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 138.

The formula for determining budgeted merchandise purchases is budgeted a. production + desired ending inventory – beginning inventory. b. sales + beginning inventory – desired ending inventory. c. cost of goods sold + desired ending inventory – beginning inventory. d. cost of goods sold + beginning inventory – desired ending inventory.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 139.

Which one of the following is a problem resulting from a service company being overstaffed? FOR INSTRUCTOR USE ONLY


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a. b. c. d.

Labor costs will be disproportionately low. Profits will be higher because of the additional salaries. Staff turnover may increase. Revenue may be lost.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 140.

The master budget for a service enterprise a. will have the same types of budgets as a merchandiser. b. may include a sales budget for sales revenue. c. will not include a budgeted income statement. d. includes a service revenue budget based on expected client billings.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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141.

Budgeting in not-for-profit organizations a. is not important because they are not profit-oriented. b. usually starts with budgeting expenditures, rather than receipts. c. is necessary only if some product is produced and sold. d. consists entirely of budgeted contributions.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 142.

For a merchandiser, the starting point in the development of the master budget is the a. cash budget. b. sales budget. c. selling and administrative expenses budget. d. budgeted income statement.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 143.

Instead of a production budget, a merchandiser will prepare a a. pseudo-production budget. b. merchandise purchases budget. c. master time sheet. d. sales forecast.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 144.

Orange Co. is a manufacturer and Pineapple Company is a merchandiser. What is the difference in the budgets the two entities will prepare? a. Orange Co. will prepare a production budget, and Pineapple Company will prepare a merchandise purchases budget. b. Orange Co. will prepare a sales forecast, and Pineapple Company will prepare a sales budget. c. Pineapple Company will prepare a production budget, and Orange Co. will prepare a merchandise purchases budget. d. Both companies will prepare the same types of budgets.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 145.

An appropriate activity index for a college or university for budgeting faculty positions would be the a. faculty hours worked. b. number of administrators. FOR INSTRUCTOR USE ONLY


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c. credit hours taught by a department. d. number of days in the school term. Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 146.

A critical factor in budgeting for a service firm is to a. hire professional staff to perform the budgeting work. b. coordinate professional staff needs with anticipated services. c. classify all personnel as either variable or fixed. d. budget expenditures before anticipated receipts.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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147.

The primary benefits of budgeting include all of the following except it a. requires only top management to plan ahead and formalize their future goals. b. provides definite objectives for evaluating performance. c. creates an early warning system for potential problems. d. motivates personnel throughout the organization.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 148.

The responsibility for expressing management's budgeting goals in financial terms is performed by the a. accounting department. b. top management. c. lower level of management. d. budget committee.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 149.

Coordinating the preparation of the budget is the responsibility of the a. treasurer. b. president. c. chief accountant. d. budget committee.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 150.

For better management acceptance, the flow of input data for budgeting should begin with the a. accounting department. b. top management. c. lower levels of management. d. budget committee.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 151.

In the direct materials budget, the quantity of direct materials to be purchased is computed by adding direct materials required for production to a. desired ending direct materials. b. beginning direct materials. c. desired ending direct materials less beginning direct materials. d. beginning direct materials less desired ending direct materials. FOR INSTRUCTOR USE ONLY


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Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 152.

Grey Company has 24,000 units in beginning finished goods. If sales are expected to be 120,000 units for the year and Grey desires ending finished goods of 30,000 units, how many units must the company produce? a. 114,000 b. 120,000 c. 126,000 d. 150,000

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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153.

The important end-product of the operating budgets is the a. budgeted income statement. b. cash budget. c. production budget. d. budgeted balance sheet.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 154.

On January 1, Kale Company has a beginning cash balance of $42,000. During the year, the company expects cash disbursements of $340,000 and cash receipts of $290,000. If Kale requires an ending cash balance of $40,000, the company must borrow a. $32,000. b. $40,000. c. $48,000. d. $92,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 155.

The budget that is often considered to be the most important financial budget is the a. cash budget. b. capital expenditure budget. c. budgeted income statement. d. budgeted balance sheet.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 156.

Lark Corp.'s direct materials budget shows total cost of direct materials purchases for January $250,000, February $300,000 and March $350,000. Cash payments are 60% in the month of purchase and 40% in the following month. The budgeted cash payments for March are a. $330,000. b. $320,000. c. $300,000. d. $260,000.

Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 157.

A purchases budget is used instead of a production budget by a. merchandising companies. b. service enterprises. FOR INSTRUCTOR USE ONLY


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c. not-for-profit organizations. d. manufacturing companies. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 158.

Which of the following statements is incorrect? a. A continuous twelve-month budget results from dropping the month just ended and adding a future month. b. The production budget is derived from the direct materials and direct labor budgets. c. The cash budget shows anticipated cash flows. d. In the budget process for not-for-profit organizations, the emphasis is on cash flow rather than on revenue and expenses.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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Chapter 10: TRUE-FALSE STATEMENTS 1.

Budget reports comparing actual results with planned objectives should be prepared only once a year.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 2.

If actual results are different from planned results, the difference must always be investigated by management to achieve effective budgetary control.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 3.

Certain budget reports are prepared monthly, whereas others are prepared more frequently depending on the activities being monitored.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 4.

The master budget is not used in the budgetary control process.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 5.

A master budget is most useful in evaluating a manager's performance in controlling costs.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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6.

A static budget is one that is geared to one level of activity.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 7.

A static budget is changed only when actual activity is different from the level of activity expected.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting 8.

A static budget is most useful for evaluating a manager's performance in controlling variable costs.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting 9.

A flexible budget can be prepared for each of the types of budgets included in the master budget.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting 10.

A flexible budget is a series of static budgets at different levels of activities.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting 11.

Flexible budgeting relies on the assumption that unit variable costs will remain constant within the relevant range of activity.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 12.

Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master budget.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 13.

A flexible budget is prepared before the master budget.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 14.

The activity index used in preparing a flexible budget should not influence the variable costs that are being budgeted. FOR INSTRUCTOR USE ONLY


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Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 15.

A formula used in developing a flexible budget is: Total budgeted cost = fixed cost + (total variable cost per unit × activity level).

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 16.

Flexible budgets are widely used in production and service departments.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 17.

A flexible budget report will show both actual and budget cost based on the actual activity level achieved.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting

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18.

Management by exception means that management will investigate areas where actual results differ from planned results if the items are material and controllable.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Internal Controls. 19.

Policies regarding when a difference between actual and planned results should be investigated are generally more restrictive for noncontrollable items than for controllable items.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Internal Controls 20.

A distinction should be made between controllable and noncontrollable costs when reporting information under responsibility accounting.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Internal Controls 21.

Cost centers, profit centers, and investment centers can all be classified as responsibility centers.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 22.

More costs become controllable as one moves down to each lower level of managerial responsibility.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 23.

In a responsibility accounting reporting system, as one moves up each level of responsibility in an organization, the responsibility reports become more summarized and show less detailed information.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 24.

A cost center incurs costs and generates revenues and cost center managers are evaluated on the profitability of their centers.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 25.

The terms "direct fixed costs" and "indirect fixed costs" are synonymous with "traceable costs" and "common costs," respectively.

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Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 26.

Controllable margin is subtracted from controllable fixed costs to get net income for a profit center.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 27.

The denominator in the formula for calculating the return on investment includes operating and nonoperating assets.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 28.

The formula for computing return on investment is controllable margin divided by average operating assets.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods a

29.

When evaluating residual income, the calculation tells management what percentage return was generated by the particular division being evaluated.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics a

30.

Residual income generates a dollar amount which represents the increase in value to the company beyond the cost necessary to pay for the financing of assets.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics 31.

Budget reports provide the feedback needed by management to see whether actual operations are on course.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 32.

A static budget is an effective means to evaluate a manager's ability to control costs, regardless of the actual activity level.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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33.

The flexible budget report evaluates a manager's performance in two areas: (1) production and (2) costs.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 34.

The terms controllable costs and noncontrollable costs are synonymous with variable costs and fixed costs, respectively.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 35.

Most direct fixed costs are not controllable by the profit center manager.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 36.

The manager of an investment center can improve ROI by reducing average operating assets.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation a

37.

Residual income and ROI are used as performance evaluation methods for profit center performance

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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MULTIPLE CHOICE QUESTIONS 38.

What is budgetary control? a. Another name for a flexible budget b. The degree to which the CFO controls the budget c. The use of budgets in controlling operations d. The process of providing information on budget differences to lower level managers

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 39.

A major element in budgetary control is a. the preparation of long-term plans. b. the comparison of actual results with planned objectives. c. the valuation of inventories. d. approval of the budget by the stockholders.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 40.

Budget reports should be prepared a. daily. b. monthly. c. weekly. d. as frequently as needed.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 41.

On the basis of the budget reports, a. management analyzes differences between actual and planned results. b. management may take corrective action. c. management may modify the future plans. d. All of these.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 42.

The purpose of the departmental overhead cost report is to a. control indirect labor costs. b. control selling expense. c. determine the efficient use of materials. d. control overhead costs.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY


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43.

The purpose of the sales budget report is to a. control selling expenses. b. determine whether income objectives are being met. c. determine whether sales goals are being met. d. control sales commissions.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 44.

The comparison of differences between actual and planned results a. is done by the external auditors. b. appears on the company's external financial statements. c. is usually done orally in departmental meetings. d. appears on periodic budget reports.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 45.

A static budget a. should not be prepared in a company. b. is useful in evaluating a manager's performance by comparing actual variable costs and planned variable costs. c. shows planned results at the original budgeted activity level. d. is changed only if the actual level of activity is different than originally budgeted.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 46.

A static budget report a. shows costs at only 2 or 3 different levels of activity. b. is appropriate in evaluating a manager's effectiveness in controlling variable costs. c. should be used when the actual level of activity is materially different from the master budget activity level. d. may be appropriate in evaluating a manager's effectiveness in controlling costs when the behavior of the costs in response to changes in activity is fixed.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 47.

A static budget is appropriate in evaluating a manager's performance if a. actual activity closely approximates the master budget activity. b. actual activity is less than the master budget activity. c. the company prepares reports on an annual basis. d. the company is a not-for-profit organization.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY


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48.

When budgeted and actual results are not the same amount, there is a budget a. error. b. difference. c. anomaly. d. by-product.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

FOR INSTRUCTOR USE ONLY


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49.

Top management's reaction to a difference between budgeted and actual sales often depends on a. whether the difference is favorable or unfavorable. b. whether management anticipated the difference. c. the materiality of the difference. d. the personality of the top managers.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 50.

If costs are not responsive to changes in activity level, then these costs can be best described as a. mixed. b. flexible. c. variable. d. fixed.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 51.

Assume that actual sales results exceed the planned results for the second quarter. This favorable difference is greater than the unfavorable difference reported for the first quarter sales. Which of the following statements about the sales budget report on June 30 is true? a. The year-to-date results will show a favorable difference. b. The year-to-date results will show an unfavorable difference. c. The difference for the first quarter can be ignored. d. The sales report is not useful if it shows a favorable and unfavorable difference for the two quarters.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 52.

A static budget is appropriate for a. variable overhead costs. b. direct materials costs. c. fixed overhead costs. d. None of these.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 53.

What is the primary difference between a static budget and a flexible budget? a. The static budget contains only fixed costs, while the flexible budget contains only variable costs. b. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels. c. The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management. FOR INSTRUCTOR USE ONLY


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d. The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold. Ans: LO: 2,3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

FOR INSTRUCTOR USE ONLY


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54.

Another name for the static budget is a. master budget. b. overhead budget. c. permanent budget. d. flexible budget.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 55.

The master budget of Windy Co. shows that the planned activity level for next year is expected to be 50,000 machine hours. At this level of activity, the following manufacturing overhead costs are expected: Indirect labor Machine supplies Indirect materials Depreciation on factory building Total manufacturing overhead

$720,000 180,000 210,000 150,000 $1,260,000

A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead costs of a. b. c. d.

$1,482,000. $1,260,000. $1,512,000. $1,362,000.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 56.

Boland Manufacturing prepared a 2013 budget for 120,000 units of product. Actual production in 2013 was 130,000 units. To be most useful, what amounts should a performance report for this company compare? a. The actual results for 130,000 units with the original budget for 120,000 units. b. The actual results for 130,000 units with a new budget for 130,000 units. c. The actual results for 130,000 units with last year's actual results for 134,000 units. d. It doesn't matter. All of these choices are equally useful.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 57.

A department has budgeted monthly manufacturing overhead cost of $540,000 plus $3 per direct labor hour. If a flexible budget report reflects $1,044,000 for total budgeted manufacturing cost for the month, the actual level of activity achieved during the month was a. 528,000 direct labor hours. b. 168,000 direct labor hours. FOR INSTRUCTOR USE ONLY


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c. 348,000 direct labor hours. d. Cannot be determined from the information provided. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

FOR INSTRUCTOR USE ONLY


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58.

Which one of the following would be the same total amount on a flexible budget and a static budget if the activity level is different for the two types of budgets? a. Direct materials cost b. Direct labor cost c. Variable manufacturing overhead d. Fixed manufacturing overhead

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 59.

In developing a flexible budget within a relevant range of activity, a. only fixed costs are included. b. it is necessary to relate variable cost data to the activity index chosen. c. it is necessary to prepare a budget at 1,000 unit increments. d. variable and fixed costs are combined and are reported as a total cost.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 60.

What budgeted amounts appear on the flexible budget? a. Original budgeted amounts at the static budget activity level b. Actual costs for the budgeted activity level c. Budgeted amounts for the actual activity level achieved d. Actual costs for the estimated activity level

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 61.

The flexible budget a. is prepared before the master budget. b. is relevant both within and outside the relevant range. c. eliminates the need for a master budget. d. is a series of static budgets at different levels of activity.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 62.

A flexible budget can be prepared for which of the following budgets comprising the master budget? a. Sales b. Overhead c. Direct materials d. All of these.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 63.

A flexible budget FOR INSTRUCTOR USE ONLY


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a. b. c. d.

is prepared when management cannot agree on objectives for the company. projects budget data for various levels of activity. is only useful in controlling fixed costs. cannot be used for evaluation purposes because budgeted data are adjusted to reflect actual results.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

FOR INSTRUCTOR USE ONLY


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64.

If a company plans to sell 48,000 units of product but sells 60,000, the most appropriate comparison of the cost data associated with the sales will be by a budget based on a. the original planned level of activity. b. 54,000 units of activity. c. 60,000 units of activity. d. 48,000 units of activity.

Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 65.

Within the relevant range of activity, the behavior of total costs is assumed to be a. linear and upward sloping. b. linear and downward sloping. c. curvilinear and upward sloping. d. linear to a point and then level off.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 66.

Sales results that are evaluated by a static budget might show 1. favorable differences that are not justified. 2. unfavorable differences that are not justified. a. b. c. d.

1 2 both 1 and 2. neither 1 nor 2.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 67.

The selection of levels of activity to depict a flexible budget 1. will be within the relevant range. 2. is largely a matter of expediency. 3. is governed by generally accepted accounting principles. a. b. c. d.

1 2 3 1 and 2

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 68.

Management by exception a. causes managers to be buried under voluminous paperwork. b. means that all differences will be investigated. c. means that only unfavorable differences will be investigated. FOR INSTRUCTOR USE ONLY


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d. means that material differences will be investigated. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 69.

Under management by exception, which differences between planned and actual results should be investigated? a. Material and noncontrollable b. Controllable and noncontrollable c. Material and controllable d. All differences should be investigated

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


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70.

Best Shingle's budgeted manufacturing costs for 50,000 squares of shingles are: Fixed manufacturing costs Variable manufacturing costs

$12,000 $16.00 per square

Best produced 40,000 squares of shingles during March. How much are budgeted total manufacturing costs in March? a. $640,000 b. $812,000 c. $800,000 d. $652,000 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 71.

A flexible budget depicted graphically a. is identical to a CVP graph. b. differs from a CVP graph in the way that fixed costs are shown. c. differs from a CVP graph in the way that variable costs are shown. d. differs from a CVP graph in that sales revenue is not shown.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 72.

The activity index used in preparing the flexible budget a. is prescribed by generally accepted accounting principles. b. is only applicable to fixed manufacturing costs. c. is the same for all departments. d. should significantly influence the costs that are being budgeted.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 73.

A static budget is not appropriate in evaluating a manager's effectiveness if a company has a. substantial fixed costs. b. substantial variable costs. c. planned activity levels that match actual activity levels. d. no variable costs.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 74.

Shane Industries prepared a fixed budget of 60,000 direct labor hours, with estimated overhead costs of $300,000 for variable overhead and $90,000 for fixed overhead. Shane then prepared a flexible budget at 57,000 labor hours. How much is total overhead costs at this level of activity? a. $285,000 b. $375,000 FOR INSTRUCTOR USE ONLY


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c. $370,500 d. $390,000 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

FOR INSTRUCTOR USE ONLY


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75.

For June, Gold Corp. estimated sales revenue at $600,000. It pays sales commissions that are 4% of sales. The sales manager's salary is $285,000, estimated shipping expenses total 1% of sales, and miscellaneous selling expenses are $15,000. How much are budgeted selling expenses for the month of July if sales are expected to be $540,000? a. $42,000 b. $327,000 c. $27,000 d. $330,000

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 76.

Nikoto Steel Co. budgeted manufacturing costs for 50,000 tons of steel are: Fixed manufacturing costs Variable manufacturing costs

$50,000 per month $12.00 per ton of steel

Nikoto produced 40,000 tons of steel during March. How much is the flexible budget for total manufacturing costs for March? a. $520,000 b. $650,000 c. $480,000 d. $530,000 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 77.

Smart Manufacturing budgeted costs for 50,000 linear feet of block are: Fixed manufacturing costs Variable manufacturing costs

$24,000 per month $16.00 per linear foot

Smart installed 40,000 linear feet of block during March. How much is budgeted total manufacturing costs in March? a. $640,000 b. $824,000 c. $800,000 d. $664,000 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 78.

In the Dichter Co., indirect labor is budgeted for $72,000 and factory supervision is budgeted for $24,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs is a. $96,000. b. $108,000. FOR INSTRUCTOR USE ONLY


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c. $105,000. d. $99,000. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

FOR INSTRUCTOR USE ONLY


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79.

Stone Industries uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $48,000 variable and $270,000 fixed. If Stone had actual overhead costs of $321,000 for 18,000 units produced, what is the difference between actual and budgeted costs? a. $3,000 unfavorable b. $3,000 favorable c. $9,000 unfavorable d. $12,000 favorable

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 80.

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: Variable Fixed Indirect materials $140,000 Depreciation $60,000 Indirect labor 200,000 Taxes 10,000 Factory supplies 20,000 Supervision 50,000 A flexible budget prepared at the 80,000 machine hours level of activity would show total manufacturing overhead costs of a. $288,000. b. $360,000. c. $384,000. d. $408,000.

Ans: LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 81.

In the Goblette Manufacturing Company, indirect labor is budgeted for $108,000 and factory supervision is budgeted for $36,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs is: a. $144,000. b. $162,000. c. $157,500. d. $148,500.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 82.

Chambers, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $64,000 variable and $180,000 fixed. If Chambers had actual overhead costs of $250,000 for 18,000 units produced, what is the difference between actual and budgeted costs? a. $2,000 unfavorable. FOR INSTRUCTOR USE ONLY


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b. $2,000 favorable. c. $6,000 unfavorable. d. $8,000 favorable. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

FOR INSTRUCTOR USE ONLY


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83.

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: Variable Fixed Indirect materials $120,000 Depreciation $50,000 Indirect labor 160,000 Taxes 10,000 Factory supplies 20,000 Supervision 40,000 A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of a. $270,000. b. $360,000. c. $370,000. d. $300,000.

Ans: LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 84.

Kevin Jarvis Industries produced 192,000 units in 90,000 direct labor hours. Production for the period was estimated at 198,000 units and 99,000 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at a. 96,000 hours and 99,000 hours. b. 99,000 hours and 90,000 hours. c. 96,000 hours and 90,000 hours. d. 90,000 hours and 90,000 hours.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 85.

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: Variable Fixed Indirect materials $90,000 Depreciation $37,500 Indirect labor 120,000 Taxes 7,500 Factory supplies 15,000 Supervision 30,000 A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of a. $202,500. b. $270,000. c. $277,500. d. $225,000.

Ans: LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

FOR INSTRUCTOR USE ONLY


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86.

Kathleen Corp. produced 320,000 units in 150,000 direct labor hours. Production for the period was estimated at 330,000 units and 165,000 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at a. 160,000 hours and 165,000 hours. b. 165,000 hours and 150,000 hours. c. 160,000 hours and 150,000 hours. d. 150,000 hours and 150,000 hours.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

FOR INSTRUCTOR USE ONLY


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87.

At zero direct labor hours in a flexible budget graph, the total budgeted cost line intersects the vertical axis at $30,000. At 15,000 direct labor hours, a horizontal line drawn from the total budgeted cost line intersects the vertical axis at $90,000. Fixed and variable costs may be expressed as: a. $30,000 fixed plus $4 per direct labor hour variable. b. $30,000 fixed plus $6 per direct labor hour variable. c. $60,000 fixed plus $2 per direct labor hour variable. d. $60,000 fixed plus $4 per direct labor hour variable.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 88.

At 18,000 direct labor hours, the flexible budget for indirect materials is $36,000. If $37,400 are incurred at 18,400 direct labor hours, the flexible budget report should show the following difference for indirect materials: a. $1,400 unfavorable. b. $1,400 favorable. c. $600 favorable. d. $600 unfavorable.

Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 89.

The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called a. static reporting. b. flexible accounting. c. responsibility accounting. d. master budgeting.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 90.

Power Manufacturing recorded operating data for its shoe division for the year. Sales Contribution margin Controllable fixed costs Average total operating assets

$1,500,000 300,000 180,000 600,000

How much is controllable margin for the year? a. 20% b. 50% c. $300,000 d. $120,000

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Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods 91.

A cost is considered controllable at a given level of managerial responsibility if a. the manager has the power to incur the cost within a given time period. b. the cost has not exceeded the budget amount in the master budget. c. it is a variable cost, but it is uncontrollable if it is a fixed cost. d. it changes in magnitude in a flexible budget.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


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92.

As one moves up to each higher level of managerial responsibility, a. fewer costs are controllable. b. the responsibility for cost incurrence diminishes. c. a greater number of costs are controllable. d. performance evaluation becomes less important.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 93.

A responsibility report should a. be prepared in accordance with generally accepted accounting principles. b. show only those costs that a manager can control. c. only show variable costs. d. only be prepared at the highest level of managerial responsibility.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 94.

Top management can control a. only controllable costs. b. only noncontrollable costs. c. all costs. d. some noncontrollable costs and all controllable costs.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 95.

Not-for-profit entities a. do not use responsibility accounting. b. utilize responsibility accounting in trying to maximize net income. c. utilize responsibility accounting in trying to minimize the cost of providing services. d. have only noncontrollable costs.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 96.

Which of the following is not a true statement? a. All costs are controllable at some level within a company. b. Responsibility accounting applies to both profit and not-for-profit entities. c. Fewer costs are controllable as one moves up to each higher level of managerial responsibility. d. The term segment is sometimes used to identify areas of responsibility in decentralized operations.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 97.

Costs incurred indirectly and allocated to a responsibility level are considered to be FOR INSTRUCTOR USE ONLY


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a. b. c. d.

nonmaterial. mixed. controllable. noncontrollable.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


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98.

Management by exception a. is most effective at top levels of management. b. can be implemented at each level of responsibility within an organization. c. can only be applied when comparing actual results with the master budget. d. is the opposite of goal congruence.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 99.

Which responsibility centers generate both revenues and costs? a. Investment and profit centers b. Profit and cost centers c. Cost and investment centers d. Only profit centers

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 100.

The linens department of a large department store is a. not a responsibility center. b. a profit center. c. a cost center. d. an investment center.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 101.

The foreign subsidiary of a large corporation is a. not a responsibility center. b. a profit center. c. a cost center. d. an investment center.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 102.

The maintenance department of a manufacturing company is a(n) a. segment. b. profit center. c. cost center. d. investment center.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 103.

Which of the following is not a correct match? 1. Incurs costs 2. Generates revenue FOR INSTRUCTOR USE ONLY


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a. b. c. d.

3. Controls investment funds Investment Center 1, 2, 3 Cost Center 1 Profit Center 1, 2, 3 All are correct matches.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


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104.

A cost center a. only incurs costs and does not directly generate revenues. b. incurs costs and generates revenues. c. is a responsibility center of a company which incurs losses. d. is a responsibility center which generates profits and evaluates the investment cost of earning the profit.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 105.

A manager of a cost center is evaluated mainly on a. the profit that the center generates. b. his or her ability to control costs. c. the amount of investment it takes to support the cost center. d. the amount of revenue that can be generated.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 106.

Performance reports for cost centers compare actual a. total costs with static budget data. b. total costs with flexible budget data. c. controllable costs with static budget data. d. controllable costs with flexible budget data.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 107.

In the performance report for cost centers, a. controllable and noncontrollable costs are reported. b. fixed costs are not reported. c. no distinction is made between fixed and variable costs. d. only materials and controllable costs are reported.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 108.

Of the following choices, which contain both a traceable fixed cost and a common fixed cost? a. Profit center manager's salary and timekeeping costs for a responsibility center's employees. b. Company president's salary and company personnel department costs. c. Company personnel department costs and timekeeping costs for a responsibility center's employees. d. Depreciation on a responsibility center's equipment and supervisory salaries for the center.

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Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 109.

Which of the following is not an indirect fixed cost? a. Company president's salary b. Depreciation on the company building housing several profit centers c. Company personnel department costs d. Profit center supervisory salaries

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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110.

A profit center is a. a responsibility center that always reports a profit. b. a responsibility center that incurs costs and generates revenues. c. evaluated by the rate of return earned on the investment allocated to the center. d. referred to as a loss center when operations do not meet the company's objectives.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 111.

The best measure of the performance of the manager of a profit center is the a. rate of return on investment. b. success in meeting budgeted goals for controllable costs. c. amount of controllable margin generated by the profit center. d. amount of contribution margin generated by the profit center.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 112.

Controllable margin is defined as a. sales minus variable costs. b. sales minus contribution margin. c. contribution margin less controllable fixed costs. d. contribution margin less noncontrollable fixed costs.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 113.

Controllable margin is most useful for a. external financial reporting. b. preparing the master budget. c. performance evaluation of profit centers. d. break-even analysis.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 114.

Which of the following will not result in an unfavorable controllable margin difference? a. Sales exceeding budget; costs under budget b. Sales exceeding budget; costs over budget c. Sales under budget; costs under budget d. Sales under budget; costs over budget

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 115.

Given below is an excerpt from a management performance report: Budget

Actual

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Difference


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Contribution margin Controllable fixed costs

$1,000,000 $ 500,000

$1,050,000 $ 450,000

$50,000 $50,000

The manager's overall performance a. is 20% below expectations. b. is 20% above expectations. c. is equal to expectations. d. cannot be determined from information given. Ans: LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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116.

Which of the following are financial measures of performance? 1. Controllable margin 2. Product quality 3. Labor productivity a. b. c. d.

1 2 3 1 and 3

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 117.

Given below is an excerpt from a management performance report: Contribution margin Controllable fixed costs

Budget $600,000 $200,000

Actual $580,000 $220,000

Difference $20,000 U $20,000 U

The manager's overall performance a. is 10% above expectations. b. is 10% below expectations. c. is equal to expectations. d. cannot be determined from the information provided. Ans: LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 118.

A responsibility report for a profit center will a. not show controllable fixed costs. b. not show indirect fixed costs. c. show noncontrollable fixed costs. d. not show cumulative year-to-date results.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 119.

The dollar amount of the controllable margin a. is usually higher than the contribution margin. b. is usually lower than the contribution margin. c. is always equal to the contribution margin. d. cannot be a negative figure.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 120.

Pippen Co. recorded operating data for its shoe division for the year. The company’s desired return is 5%. Sales

$1,000,000 FOR INSTRUCTOR USE ONLY


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Contribution margin Total direct fixed costs Average total operating assets

200,000 120,000 400,000

Which one of the following reflects the controllable margin for the year? a. 20% b. 50% c. $60,000 d. $80,000 Ans: LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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121.

Las Sendas, Inc. had average operating assets of $4,000,000 and sales of $2,000,000 in 2013. If the controllable margin was $600,000, the ROI was a. 60% b. 50% c. 30% d. 15%

Ans: LO: 7, Bloom: A, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 122.

Trails and Paths, Inc. had average operating assets of $6,000,000 and sales of $3,000,000 in 2013. If the controllable margin was $600,000, the ROI was a. 50% b. 40% c. 20% d. 10%

Ans: LO: 7, Bloom: A, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 123.

The area manager of the Red, White, and Brew Restaurants is considering two possible expansion alternatives. The required investments, expected controllable margins, and the ROIs of each are as follows: Project Phoenix Chicago

Investment $120,000 $540,000

Controllable Margin $30,000 $50,000

ROI 25% 9.25%

The Red, White, and Brew segment has currently $2,000,000 in invested capital and a controllable margin of $250,000. Which one of following projects will increase the Red, White, and Brew division’s ROI? a. Both the Phoenix and Chicago options b. Only the Phoenix option c. Only the Chicago option d. Neither the Phoenix nor the Chicago options Ans: LO: 7, Bloom: AN, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 124.

Bogey Co. recorded operating data for its Cheap division for the year. Bogey requires its return to be 10%. Sales Controllable margin Total average assets Fixed costs

$ 1,400,000 160,000 4,000,000 100,000

What is the ROI for the year? FOR INSTRUCTOR USE ONLY


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a. b. c. d.

4% 35% 6% 1.5%

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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125.

Dingo Division’s operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Dingo’s required rate of return is 9%. Should Dingo accept this project? a. Yes, ROI will drop by 6.6% which is still above the minimum required rate of return. b. No, the return is less than the required rate of 9%. c. Yes, ROI still exceeds the cost of capital. d. No, ROI will decrease to 7%.

Ans: LO: 7, Bloom: AN, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 126.

Grown Industries reported the following items for 2013: Income tax expense Contribution margin Controllable fixed costs Interest expense Total operating assets

$ 60,000 200,000 80,000 40,000 650,000

How much is controllable margin? a. $200,000 b. $120,000 c. $60,000 d. $20,000 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 127.

Griffin Corp. is evaluating its Piquette division, an investment center. The division has a $60,000 controllable margin and $400,000 of sales. How much will Griffin’s average operating assets be when its return on investment is 10%? a. $600,000 b. $660,000 c. $400,000 d. $340,000

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 128.

An investment center generated a contribution margin of $400,000, fixed costs of $200,000 and sales of $2,000,000. The center’s average operating assets were $800,000. How much is the return on investment? a. 25% b. 175% c. 50% d. 75% FOR INSTRUCTOR USE ONLY


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Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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129.

Rhein Manufacturing recorded operating data for its auto accessories division for the year. Sales $750,000 Contribution margin 150,000 Total direct fixed costs 90,000 Average total operating assets 400,000 How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant? a. 45.0% b. 22.5% c. 15.0% d. 12.0%

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 130.

The current controllable margin for Henry Division is $93,000. Its current operating assets are $300,000. The division is considering purchasing equipment for $90,000 that will increase annual controllable margin by an estimated $15,000. If the equipment is purchased, what will happen to the return on investment for Henry Division? a. An increase of 16.1% b. A decrease of 13.3% c. A decrease of 3.3% d. A decrease of 7.2%

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 131.

Monte, Inc. recorded operating data for its Sandtrap division for the year. Monte requires its return to be 9%. Sales Controllable margin Total average assets Fixed costs

$1,000,000 180,000 600,000 60,000

How much is ROI for the year? a. 10% b. 17% c. 20% d. 30% Ans: LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 132.

Betsy Union is the Pika Division manager and her performance is evaluated by executive management based on Division ROI. The current controllable margin for Pika Division is FOR INSTRUCTOR USE ONLY


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$46,000. Its current operating assets total $210,000. The division is considering purchasing equipment for $40,000 that will increase sales by an estimated $10,000, with annual depreciation of $10,000. If the equipment is purchased, what will happen to the return on investment for the division? a. An increase of 0.5% b. A decrease of 0.5% c. A decrease of 3.5% d. It will remain unchanged. Ans: LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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133.

Benet Division of United Refinery Company’s operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Benet Division’s ROI is 25%. Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000. Should management accept this new project? a. No, since ROI will be lowered. b. Yes, since ROI will increase. c. Yes, since additional sales always mean more customers. d. No, since a loss will be incurred.

Ans: LO: 7, Bloom: AN, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 134.

The Fulmar Division of Jayne Manufacturing had an ROI of 25% when sales were $3 million and controllable margin was $600,000. What were the average operating assets? a. $150,000 b. $750,000 c. $2,400,000 d. $12,000

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 135.

Naples, Inc. recorded operating data for its shoe division for the year. Sales Contribution margin Total fixed costs Average total operating assets

$750,000 135,000 90,000 300,000

How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant? a. 25% b. 18% c. 45% d. 12% Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 136.

A distinguishing characteristic of an investment center is that a. revenues are generated by selling and buying stocks and bonds. b. interest revenue is the major source of revenues. c. the profitability of the center is related to the funds invested in the center. d. it is a responsibility center which only generates revenues.

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Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Budget Preparation 137.

A measure frequently used to evaluate the performance of the manager of an investment center is a. the amount of profit generated. b. the rate of return on funds invested in the center. c. the percentage increase in profit over the previous year. d. departmental gross profit.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Budget Preparation

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138.

Return on investment is calculated by dividing a. contribution margin by sales. b. controllable margin by sales. c. contribution margin by average operating assets. d. controllable margin by average operating assets.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 139.

Which one of the following will not increase return on investment? a. Variable costs are increased b. An increase in sales c. Average operating assets are decreased d. Variable costs are decreased

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 140.

If an investment center has generated a controllable margin of $150,000 and sales of $600,000, what is the return on investment for the investment center if average operating assets were $1,000,000 during the period? a. 15% b. 25% c. 45% d. 60%

Ans: LO: 7, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 141.

Which statement is true? a. An investment center is responsible for revenues and expenses, as well as earning a return on assets. b. An investment center is only responsible for its investments. c. An investment center is only responsible for revenues and expenses. d. A profit center is evaluated using contribution margin, while an investment center is evaluated using ROI.

Ans: LO: 7, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Budget Preparation 142.

The denominator in the formula for return on investment calculation is a. investment center controllable margin. b. dependent on the specific type of profit center. c. investment center average operating assets. d. sales for the period.

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Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 143.

In the formula for ROI, idle plant assets are a. included in the calculation of controllable margin. b. included in the calculation of operating assets. c. excluded in the calculation of operating assets. d. excluded from total assets.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

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144.

In computing ROI, land held for future use a. will hurt the performance measurement of an investment center's manager. b. is important in evaluating the performance of a profit center manager. c. is included in the calculation of operating assets. d. is considered a nonoperating asset.

Ans: LO: 7, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 145.

Le Sud Retailers has a current return on investment of 10% and the company has established an 8% minimum rate of return for the division. The division manager has two investment projects available, for which the following estimates have been made: Project A - Annual controllable margin = $24,000, operating assets = $400,000 Project B - Annual controllable margin = $60,000, operating assets = $550,000 Which project should be funded? a. Both projects b. Project A c. Project B d. Neither project

Ans: LO: 7, Bloom: C, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 146.

If an investment center has a $90,000 controllable margin and $1,200,000 of sales, what average operating assets are needed to have a return on investment of 10%? a. $120,000 b. $210,000 c. $900,000 d. $1,200,000

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 147.

Which of the following valuations of operating assets is not readily available from the accounting records? a. Cost b. Book value c. Market value d. Both cost and market value

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation a

148. The following information is available for Halle Department Stores: Average operating assets

$600,000

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Controllable margin Contribution margin Minimum rate of return

60,000 150,000 8%

How much is Halle’s residual income? a. $102,000 b. $540,000 c. $12,000 d. $48,000 Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

FOR INSTRUCTOR USE ONLY


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149. What is the goal of residual income? a. To maximize the amount of costs which are controllable b. To maximize profits c. To maximize the total amount of residual income d. To maximize controllable margin

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting a

150. Which one of the following is a correct statement about residual income? a. Its goal is to maximize profits of an investment center. b. It is less effective for evaluating investment centers than ROI. c. It is the ratio of controllable margin to the minimum rate of return on average operating assets. d. It evaluates performance by comparing the return of an investment center with the company’s minimum rate of return.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting a

151. Which one of the following does not impact the amount of residual income? a. Contribution margin b. Net income c. Sales d. Controllable costs

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting a

152. For what purpose do companies calculate residual income? a. To determine whether decentralization is possible or not b. To motivate managers through possible termination c. To evaluate management performance d. To measure company profits

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting a

153. Lew Co. had sales of $400,000, variable costs of $200,000, and direct fixed costs totaling $100,000. The company’s operating assets total $800,000, and its required return is 10%. How much is the residual income? a. $120,000 b. $20,000 c. $80,000 FOR INSTRUCTOR USE ONLY


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d. $320,000 Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting a

154. Quincy Corp. earned controllable margin of $500,000 on sales of $6,400,000. The division had average operating assets of $5,200,000. The company requires a return on investment of at least 8%. How much is residual income? a. $416,000 b. $84,000 c. $584,000 d. $512,000

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Reporting

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155. The performance of the manager of Ottawa Division is measured by residual income. Which of the following would decrease the manager’s performance measure? a. Decrease in required rate of return b. Increase in amount of return on investment desired c. Increase in sales d. Increase in contribution margin

Ans: LO: 8, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement 156.

Which of the following would not be considered an aspect of budgetary control? a. It assists in the determination of differences between actual and planned results. b. It provides feedback value needed by management to see whether actual operations are on course. c. It assists management in controlling operations. d. It provides a guarantee for favorable results.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 157.

A static budget is usually appropriate in evaluating a manager's effectiveness in controlling a. fixed manufacturing costs and fixed selling and administrative expenses. b. variable manufacturing costs and variable selling and administrative expenses. c. fixed manufacturing costs and variable selling and administrative expenses. d. variable manufacturing costs and fixed selling and administrative expenses.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 158.

A static budget report is appropriate for a. fixed manufacturing costs. b. fixed selling and administrative expenses. c. variable selling and administrative expenses. d. both fixed manufacturing costs and fixed selling and administrative expenses.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 159.

Sydney, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is $128,000 variable and $360,000 fixed. If Sydney had actual overhead costs of $500,000 for 18,000 units produced, what is the difference between actual and budgeted costs? a. $4,000 unfavorable b. $4,000 favorable c. $12,000 unfavorable d. $16,000 favorable FOR INSTRUCTOR USE ONLY


Budgetary Planning

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Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 160.

To develop the flexible budget, management takes all of the following steps except identify the a. activity index and the relevant range of activity. b. variable costs and determine the budgeted variable cost per unit. c. fixed costs and determine the budgeted fixed cost per unit. d. All of these options are steps in developing the flexible budget.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

9 - 110

161.

A flexible budget is appropriate for a. b. c. d.

Direct Labor Costs No Yes Yes No

Manufacturing Overhead Costs No Yes No Yes

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting 162.

All of the following statements are correct about management by exception except it a. enables top management to focus on problem areas that need attention. b. means that management has to investigate every budget difference. c. requires that there must be some guidelines for identifying an exception. d. means that top management's review of a budget report is focused primarily on differences between actual results and planned objectives.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 163.

Controllable costs for responsibility accounting purposes are those costs that are directly influenced by a. a given manager within a given period of time. b. a change in activity. c. production volume. d. sales volume.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation 164.

All of the following statements are correct about controllable costs except a. all costs are controllable at some level of responsibility within a company. b. all costs are controllable by top management. c. fewer costs are controllable as one moves up to each higher level of managerial responsibility. d. costs incurred directly by a level of responsibility are controllable at that level.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Budget Preparation 165.

Which of the following will cause an increase in ROI? a. An increase in variable costs b. An increase in average operating assets c. An increase in sales d. An increase in controllable fixed costs

FOR INSTRUCTOR USE ONLY


Budgetary Planning

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Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Budget Preparation 166.

Costs that relate specifically to one center and are incurred for the sole benefit of that center are a. common fixed costs. b. direct fixed costs. c. indirect fixed costs. d. noncontrollable fixed costs.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Budgetary Planning

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167.

If controllable margin is $300,000 and the average investment center operating assets are $2,000,000, the return on investment is a. .67%. b. 6.66%. c. 20%. d. 15%.

Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY


Acc 560 week 7 quiz – strayer new