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1. 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. 2. Budget reports should be prepared a. daily. b. monthly. c. weekly. d. as frequently as needed. 3. 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. 4. 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. 5. 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. 6. 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. 7. 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. 8. 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. 9. 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 10. When budgeted and actual results are not the same amount, there is a budget a. error. b. difference. c. anomaly. d. by-product. 11. 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. 12. 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. 13. 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. 14. A static budget is appropriate for a. variable overhead costs. b. direct material costs. c. fixed overhead costs. d. none of these. 15. A flexible budget a. is prepared when management can’t agree on objectives for the company. b. projects budget data for various levels of activity. c. is only useful in controlling fixed costs. d. cannot be used for evaluation purposes because budgeted data are adjusted to reflect actual results. 16. The master budget of Benedict Company 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 $360,000 Machine supplies 90,000 Indirect materials 105,000 Depreciation on factory building 75,000 Total manufacturing overhead $630,000 A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead costs of a. $741,000. b. $630,000. c. $756,000. d. $681,000. 17. A department has budgeted monthly manufacturing overhead cost of $90,000 plus $3 per direct labor hour. If a flexible budget report reflects $174,000 for total budgeted manufacturing
cost for the month, the actual level of activity achieved during the month was a. 88,000 direct labor hours. b. 28,000 direct labor hours. c. 58,000 direct labor hours. d. cannot be determined. 18. 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 19. 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. 20. 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. 21. 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 22. Another name for the static budget is a. master budget. b. overhead budget. c. permanent budget. d. flexible budget. 23. If a company plans to sell 16,000 units of product but sells 20,000, 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. 18,000 units of activity. c. 20,000 units of activity. d. 16,000 units of activity. 24. 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.
25. 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. 1 b. 2 c. both 1 and 2. d. neither 1 nor 2. 26. 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. 1 b. 2 c. 3 d. 1 and 2 27. 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. d. means that material differences will be investigated. 28. 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 29. 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. 30. 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. 31. 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. 32. 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. 33. 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. 34. 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. 35. 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. 36. Top management can control a. only controllable costs. b. only noncontrollable costs. c. all costs. d. some noncontrollable costs and all controllable costs. 37. 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. 38. Which of the following is not a true statement? a. All costs are controllable at some level with 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. 39. Costs incurred indirectly and allocated to a responsibility level are considered to be a. nonmaterial. b. mixed. c. controllable. d. noncontrollable. 40. 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.
41. 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. 42. 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. 43. The maintenance department of a manufacturing company is a(n) a. segment. b. profit center. c. cost center. d. investment center. 44. Which of the following is not a correct match? 1. Incurs costs 2. Generates revenue 3. Controls investment funds a. Investment Center 1, 2, 3 b. Cost Center 1 c. Profit Center 1, 2, 3 d. All are correct matches. 45. 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. 46. 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. 47. 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. 48. 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 material and controllable costs are reported.
49. 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. 50. 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 51. All of the following statements about a responsibility report are correct except that a. only controllable costs are included. b. it compares actual costs with flexible budget data. c. a distinction is made between variable and fixed costs. d. it continues the concept of management by exception. 52. 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. 53. 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. 54. 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. 55. 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 56. Given below is an excerpt from a management performance report: Budget Actual Difference Contribution margin $1,000,000 $1,050,000 $50,000 Controllable fixed costs $ 500,000 $ 450,000 $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. 57. Which of the following are financial measures of performance? 1. Controllable margin 2. Product quality 3. Labor productivity a. 1 b. 2 c. 3 d. 1 and 3 58. Given below is an excerpt from a management performance report: Budget Actual Difference Contribution margin $600,000 $580,000 $20,000 U Controllable fixed costs $200,000 $220,000 $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. 59. 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. 60. 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. 61. 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. 62. Each of the following are controllable by a profit center manager except a. variable costs. b. sales. c. indirect fixed costs. d. all of these options are controllable. 63. Direct fixed costs are a. also called common costs. b. not controllable by a profit center manager. c. costs that apply to more than one center. d. deducted from contribution margin on a responsibility report.
64. An indirect fixed cost is also called a a. common fixed cost. b. controllable fixed cost. c. direct fixed cost. d. traceable fixed cost. 65. All of the following statements about a profit center responsibility report are correct except that a. controllable fixed costs are deducted from controllable margin. b. it shows budgeted and actual controllable revenues and costs. c. noncontrollable fixed costs are not reported. d. it may include cumulative year-to-date results. 66. 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. average investment center operating assets. d. sales for the period. 67. 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. 68. 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. 69. If an investment center has a $15,000 controllable margin and $200,000 of sales, what average operating assets are needed to have a return on investment of 10%? a. $20,000. b. $25,000. c. $150,000. d. $200,000. 70. Which of the following valuations of operating assets are not readily available from the accounting records? a. Cost b. Book value c. Market value d. Both cost and market value 71. 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.
72. 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. 73. 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. 74. 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 75. If an investment center has generated a controllable margin of $60,000 and sales of $300,000, what is the return on investment for the investment center if average operating assets were $500,000 during the period? a. 12% b. 20% c. 48% d. 60% 76. The manager of an investment center can improve ROI by increasing a. average operating assets. b. controllable fixed costs. c. controllable margin. d. variable costs. 77. Behavioral principles included in performance evaluation include all of the following except that the a. evaluation should be based entirely on matters that are controllable by the manager being evaluated. b. top management should support the evaluation process. c. evaluation process must allow managers to respond to their evaluation. d. evaluation should identify only poor performance. 78. The following information is available for Louie Company: Average operating assets $500,000 Controllable margin 70,000 Contribution margin 100,000 Minimum rate of return 12% Louie’s residual income is a. $70,000. b. $40,000.
c. $30,000. d. $10,000. 79. Residual income is defined as a. contribution margin less controllable fixed costs. b. contribution margin less the minimum rate of return on average operating assets. c. controllable margin less the minimum rate of return on average operating assets. d. controllable margin divided by average operating assets. 80. All of the following are correct statements about residual income except that a. its goal is to maximize the total amount of residual income. b. it ignores the fact that one division’s operating assets might be substantially lower than another division’s assets. c. it is the difference between contribution margin and the minimum rate of return on average operating assets. d. it evaluates performance using a company’s minimum rate of return.