ACC Chpt. 10

A major element in budgetary control is
A. the valuation of inventories.
B. the preparation of long-term plans.
C. the comparison of actual results with planned objectives.
D. approval of the budget by the stockholders.
C. the comparison of actual results with planned objectives.
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 answers are correct.
D. All of these answers are correct.
Top management’s reaction to a difference between budgeted and actual sales often depends on
A. the materiality of the difference.
B. the personality of the top managers.
C. whether management anticipated the difference.
D. whether the difference is favorable or unfavorable.
A. the materiality of the difference.
What is the primary difference between a static budget and a flexible budget?

A. The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold.
B. The static budget contains only fixed costs, while the flexible budget contains only variable costs.
C. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
D. The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management.

C. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
Boland Manufacturing prepared a 2016 budget for 120,000 units of product. Actual production in 2016 was 130,000 units. To be most useful, what amounts should a performance report for this company compare?
A. It doesn’t matter. All of these choices are equally useful.
B. The actual results for 130,000 units with last year’s actual results for 134,000 units.
C. The actual results for 130,000 units with the original budget for 120,000 units.
D. The actual results for 130,000 units with a new budget for 130,000 units.
D. The actual results for 130,000 units with a new budget for 130,000 units.
The flexible budget

A. is a series of static budgets at different levels of activity.
B. eliminates the need for a master budget.
C. is relevant both within and outside the relevant range.
D. is prepared before the master budget.

A. is a series of static budgets at different levels of activity.
Nikoto Steel Co. budgeted manufacturing costs for 50,000 tons of steel are:

Fixed manufacturing costs $50,000 per month
Variable manufacturing costs $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. $530,000
B. $480,000
C. $520,000
D. $650,000

A. $530,000
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. $8,000 favorable.
B. $2,000 unfavorable.
C. $2,000 favorable.
D. $6,000 unfavorable.

C. $2,000 favorable.
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. $277,500.
C. $270,000.
D. $225,000.

B. $277,500.
Power Manufacturing recorded operating data for its shoe division for the year.

Sales $1,500,000
Contribution margin 300,000
Controllable fixed costs 180,000
Average total operating assets 600,000

How much is controllable margin for the year?

A. 20%
B. 50%
C. $300,000
D. $120,000

D. $120,000
As one moves up to each higher level of managerial responsibility,

A. the responsibility for cost incurrence diminishes.
B. a greater number of costs are controllable.
C. performance evaluation becomes less important.
D. fewer costs are controllable.

B. a greater number of costs are controllable.
A responsibility report should
A. only show variable costs.
B. be prepared in accordance with generally accepted accounting principles.
C. show only those costs that a manager can control.
D. only be prepared at the highest level of managerial responsibility.
C. show only those costs that a manager can control.
Costs incurred indirectly and allocated to a responsibility level are considered to be

A. controllable.
B. noncontrollable.
C. nonmaterial.
D. mixed.

B. noncontrollable.
The linens department of a large department store is

A. a profit center.
B. a cost center.
C. an investment center.
D. not a responsibility center.

A. a profit center.
The foreign subsidiary of a large corporation is

A. a profit center.
B. not a responsibility center.
C. an investment center.
D. a cost center.

C. an investment center.
The maintenance department of a manufacturing company is a(n)

A. segment.
B. profit center.
C. cost center.
D. investment center.

C. cost center.
A profit center is

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

C. a responsibility center that incurs costs and generates revenues.
Controllable margin is most useful for

A. external financial reporting.
B. performance evaluation of profit centers.
C. break-even analysis.
D. preparing the master budget.

B. performance evaluation of profit centers.
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% below expectations.
B. is equal to expectations.
C. cannot be determined from the information provided.
D. is 10% above expectations.

A. is 10% below expectations.
Las Sendas, Inc. had average operating assets of $4,000,000 and sales of $2,000,000 in 2016. If the controllable margin was $600,000, the ROI was

A. 30%
B. 15%
C. 50%
D. 60%

B. 15%
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%

B. 22.5%
The following information is available for Halle Department Stores:

Average operating assets $600,000
Controllable margin 60,000
Contribution margin 150,000
Minimum rate of return 8%

How much is Halle’s residual income?

A. $12,000
B. $540,000
C. $102,000
D. $48,000

A. $12,000
What is the goal of residual income?

A. To maximize the total amount of residual income
B. To maximize controllable margin
C. To maximize the amount of costs which are controllable
D. To maximize profits

A. To maximize the total amount of residual income
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. $20,000
B. $80,000
C. $320,000
D. $120,000

A. $20,000
Budgetary control involves all but one of the following:
(a)modifying future plans.
(b)analyzing differences.
(c)using static budgets but not flexible budgets.
(d)determining differences between actual and planned results.
(c)using static budgets but not flexible budgets
Budget reports are prepared:
(a)daily.
(b)weekly.
(c)monthly.
(d)All of the above.
(d)All of the above.
A production manager in a manufacturing company would most likely receive a:
(a)sales report.
(b)income statement.
(c)scrap report.
(d)shipping department overhead report
(c)scrap report.
A static budget is:
(a)a projection of budget data at several levels of activity within the relevant range of activity
(b)a projection of budget data at a single level of activity.
(c)compared to a flexible budget in a budget report.
(d)never appropriate in evaluating a manager’s effectiveness in controlling costs.
(b)a projection of budget data at a single level of activity.
A static budget is useful in controlling costs when cost behavior is:
(a)mixed.
(b)fixed.
(c)variable.
(d)linear.
(b)fixed.
At zero direct labor hours in a flexible budget graph, the total budgeted cost line intersects the vertical axis at $30,000. At 10,000 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 $6 per direct labor hour variable.
(b)$30,000 fixed plus $9 per direct labor hour variable.
(c)$60,000 fixed plus $3 per direct labor hour variable.
(d)$60,000 fixed plus $6 per direct labor hour variable.
(a)$30,000 fixed plus $6 per direct labor hour variable.
At 9,000 direct labor hours, the flexible budget for indirect materials is $27,000. If $28,000 of indirect materials costs are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials:
(a)$1,000 unfavorable.
(b)$1,000 favorable.
(c)$400 favorable.
(d)$400 unfavorable.
(d)$400 unfavorable.
Budgeted indirect materials per direct labor hour (DLH) is $3 ($27,000/9,000). At an activity level of 9,200 direct labor hours, budgeted indirect materials are but actual indirect materials costs are $28,000, resulting in a $400 unfavorable difference. The other choices are therefore incorrect.
Under responsibility accounting, the evaluation of a manager’s performance is based on matters that the manager:
(a)directly controls.
(b)directly and indirectly controls.
(c)indirectly controls.
(d)has shared responsibility for with another manager.
(a)directly controls.
Responsibility centers include:
(a)cost centers.
(b)profit centers.
(c)investment centers.
(d)All of the above.
(d)All of the above.
Responsibility reports for cost centers:
(a)distinguish between fixed and variable costs.
(b)use static budget data.
(c)include both controllable and noncontrollable costs.
(d)include only controllable costs.
(d)include only controllable costs.
The accounting department of a manufacturing company is an example of:
(a)a cost center.
(b)a profit center.
(c)an investment center.
(d)a contribution center.
(a)a cost center.
To evaluate the performance of a profit center manager, upper management needs detailed information about:
(a)controllable costs.
(b)controllable revenues.
(c)controllable costs and revenues.
(d)controllable costs and revenues and average operating assets.
(c)controllable costs and revenues.
In a responsibility report for a profit center, controllable fixed costs are deducted from contribution margin to show:
(a)profit center margin.
(b)controllable margin.
(c)net income.
(d)income from operations.
(b)controllable margin.
In the formula for return on investment (ROI), the factors for controllable margin and operating assets are, respectively:
(a)controllable margin percentage and total operating assets.
(b)controllable margin dollars and average operating assets.
(c)controllable margin dollars and total assets.
(d)controllable margin percentage and average operating assets.
(b)controllable margin dollars and average operating assets.
A manager of an investment center can improve ROI by:
(a)increasing average operating assets.
(b)reducing sales.
(c)increasing variable costs.
(d)reducing variable and/or controllable fixed costs.
(d)reducing variable and/or controllable fixed costs.