Accounting Chapter 10

the comparison of actual results with planned objectives.
A major element in budgetary control is
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the comparison of actual results with planned objectives.
the valuation of inventories.
approval of the budget by the stockholders.
the preparation of long-term plans.
all of these are correct
On the basis of the budget reports,
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management analyzes differences between actual and planned results.
management may take corrective action.
management may modify the future plans.
All of these answers are correct.
the materiality of the difference.
Top management’s reaction to a difference between budgeted and actual sales often depends on
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the personality of the top managers.
the materiality of the difference.
whether management anticipated the difference.
whether the difference is favorable or unfavorable
The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
What is the primary difference between a static budget and a flexible budget?
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The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management.
The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold.
The static budget contains only fixed costs, while the flexible budget contains only variable costs.
The actual results for 130,000 units with a new budget for 130,000 units.
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?
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The actual results for 130,000 units with last year’s actual results for 134,000 units.
It doesn’t matter. All of these choices are equally useful.
The actual results for 130,000 units with the original budget for 120,000 units.
The actual results for 130,000 units with a new budget for 130,000 units.
is a series of static budgets at different levels of activity.
The flexible budget
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eliminates the need for a master budget.
is a series of static budgets at different levels of activity.
is prepared before the master budget.
is relevant both within and outside the relevant range.
530000
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?
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$530,000
$480,000
$520,000
$650,000

2000 favorable
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?
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$2,000 unfavorable.
$2,000 favorable.
$8,000 favorable.
$6,000 unfavorable.
277500
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
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$225,000.
$202,500.
$270,000.
$277,500.

120000
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?
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$120,000
50%
20%
$300,000

a greater number of costs are controllable.
As one moves up to each higher level of managerial responsibility,
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fewer costs are controllable.
the responsibility for cost incurrence diminishes.
performance evaluation becomes less important.
a greater number of costs are controllable.
show only those costs that a manager can control.
A responsibility report should
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be prepared in accordance with generally accepted accounting principles.
only be prepared at the highest level of managerial responsibility.
show only those costs that a manager can control.
only show variable costs.
noncontrollable
Costs incurred indirectly and allocated to a responsibility level are considered to be
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nonmaterial.
noncontrollable.
controllable.
mixed.
profit center
The linens department of a large department store is
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not a responsibility center.
an investment center.
a profit center.
a cost center.
investment center
The foreign subsidiary of a large corporation is
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a cost center.
not a responsibility center.
an investment center.
a profit center.
cost center
The maintenance department of a manufacturing company is a(n)
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cost center.
profit center.
investment center.
segment.
a responsibility center that incurs costs and generates revenues.
A profit center is
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a responsibility center that always reports a profit.
a responsibility center that incurs costs and generates revenues.
evaluated by the rate of return earned on the investment allocated to the center.
referred to as a loss center when operations do not meet the company’s objectives.
performance evaluation of profit centers.
Controllable margin is most useful for
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performance evaluation of profit centers.
break-even analysis.
external financial reporting.
preparing the master budget.
10% below expectations
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
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is 10% below expectations.
is 10% above expectations.
cannot be determined from the information provided.
is equal to expectations.

15%
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
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60%
30%
50%
15%
22.5%
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?
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12.0%
45.0%
22.5%
15.0%

$12000
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?
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$540,000
$12,000
$48,000
$102,000

To maximize the amount of costs which are controllable
What is the goal of residual income?
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To maximize the total amount of residual income
To maximize the amount of costs which are controllable
To maximize controllable margin
To maximize profits
$20000
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?
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$320,000
$120,000
$20,000
$80,000
scrap report
A production manager in a manufacturing company would most likely receive a:
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scrap report.
selling expenses report.
income statement.
sales report.
a projection of budget data at a single level of activity
A static budget is

compared to a flexible budget in a budget report.

never appropriate in evaluating a manager’s effectiveness in controlling costs.

a projection of budget data at several levels of activity within the relevant range of activity.

a projection of budget data at a single level of activity.

30000 fixed plus $6 per direct labor hour variable
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

$60,000 fixed plus $3 per direct labor hour variable.

$60,000 fixed plus $6 per direct labor hour variable.

$30,000 fixed plus $6 per direct labor hour variable.

$30,000 fixed plus $9 per direct labor hour variable.

400 unfavorable
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

$1,000 unfavorable.

$1,000 favorable.

$400 unfavorable.

$400 favorable.

A cost is controllable if it is incurred directly in a manager’s division or segment
Which one of the statements is correct about controllable costs?

A cost is controllable if it is incurred directly in a manager’s division or segment.

More costs are controllable as one moves downward in management levels.

Variable costs are controllable and fixed costs are not.

Allocated costs are controllable.

Cost center
What type of center is the Human Resources department at a car dealership?

Investment center.

Segment.

Cost center.

Profit center.

260F
Boyce Manufacturing Co.’s operates 3 profit centers. The clothing center’s static budget at 6,000 units of production includes $30,000 for direct labor, $6,000 for direct materials, $12,000 for variable factory overhead, and controllable fixed costs of $24,000. Actual activity was 5,800 units with actual costs of $29,500 for direct labor, $11,500 for variable factory overhead, controllable fixed costs of $24,200, and $6,100 for direct materials. All units produced were budgeted to be sold for $16 each. Actual sales totaled $93,960. What variance will appear on the performance report for controllable margin?

$260F.

$900U.

$1,100F.

$760F.

It will decrease to 12.45%
Bajalia Company compiled the following information for the year:

Average operating assets $6,400,000
Controllable margin $ 800,000

Bajalia’s corporate office expects the division to earn a minimum return of 10%. If Bajalia buys a new machine costing $120,000 that is expected to generate additional controllable margin of $12,000, what happens to ROI?

The new return will decrease because the return of the investment in the machine is only 10%, determined by $12,000/$120,000.
Current ROI = $800,000/$6,400,000 = 12.5%
New ROI = [$800,000 + $12,000] / [$6,400,000 + $120,000] =

It will be 12.5%.

It will increase to 12.69%.

It will be 10%.

It will decrease to 12.45%.

reducing variable and/or controllable fixed costs
A manager of an investment center can improve ROI by

reducing sales.

increasing variable costs.

increasing average operating assets.

reducing variable and/or controllable fixed costs.

$42000
A division of Cream, Inc. had average operating assets of $2,600,000. The company requires a return on investment of at least 8%. The division earned controllable margin of $250,000 on sales of $3,200,000. How much is residual income?

The formula for Residual income = Controllable margin – (Minimum rate of return x Average operating assets). In this case, $250,000 – ($2,600,000 x 8%)

$208,000

$42,000

$292,000

$256,000

c)using static budgets but not flexible budgets.
Budgetary control involves all but one of the following:
(a)modifying future plans.
(b)analyzing differences.
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
(d)determining differences between actual and planned results
(d)All of the above.
Budget reports are prepared:
(a)daily.
(b)weekly.
(c)monthly.
(d)All of the above.
(c)scrap report.
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.
(b)a projection of budget data at a single level of activity.
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)fixed.
A static budget is useful in controlling costs when cost behavior is:
(a)mixed.
(b)fixed.
(c)variable.
(d)linear.
(a)$30,000 fixed plus $6 per direct labor hour variable.
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.

(d)$400 unfavorable.
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.
(a)directly controls.
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.
(d)All of the above.
Responsibility centers include:
(a)cost centers.
(b)profit centers.
(c)investment centers.
(d)All of the above.
(d)include only controllable costs.
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.
(a)a cost center.
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.
(c)controllable costs and revenues
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.
(b)controllable margin.
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 dollars and average operating assets.
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.
(d)reducing variable and/or controllable fixed costs.
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.