They are also appropriate inassessing a manager's effectiveness in controlling costs when a actual activity closelyapproximates the master budget activity level, and/or b the behavior of
Trang 1sg This question also appears in the Study Guide.
st This question also appears in a self-test at the student companion website
a This question covers a topic in an Appendix to the chapter
Trang 2SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S
SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE
Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Trang 3MC = Multiple Choice Ex = Exercise
The chapter also contains one set of twelve Matching questions and four Short-Answer Essayquestions
CHAPTER STUDY OBJECTIVES
1 Describe the concept of budgetary control Budgetary control consists of (a) preparing
periodic budget reports that compare actual results with planned objectives, (b) analyzing thedifferences to determine their causes, (c) taking appropriate corrective action, and (d)modifying future plans, if necessary
2 Evaluate the usefulness of static budget reports Static budget reports are useful in
evaluating the progress toward planned sales and profit goals They are also appropriate inassessing a manager's effectiveness in controlling costs when (a) actual activity closelyapproximates the master budget activity level, and/or (b) the behavior of the costs in response
to changes in activity is fixed
3 Explain the development of flexible budgets and the usefulness of flexible budget
reports To develop the flexible budget it is necessary to: (a) Identify the activity index and the
relevant range of activity; (b) Identify the variable costs, and determine the budgeted variablecost per unit of activity for each cost; (c) Identify the fixed costs, and determine the budgetedamount for each cost; (d) Prepare the budget for selected increments of activity within therelevant range Flexible budget reports permit an evaluation of a manager's performance incontrolling production and costs
4 Describe the concept of responsibility accounting Responsibility accounting involves
accumulating and reporting revenues and costs on the basis of the individual manager whohas the authority to make the day-to-day decisions about the items The evaluation of amanager's performance is based on the matters directly under the manager's control Inresponsibility accounting, it is necessary to distinguish between controllable and
Trang 4noncontrollable fixed costs and to identify three types of responsibility centers: cost, profit,and investment.
5 Indicate the features of responsibility reports for cost centers Responsibility reports for
cost centers compare actual costs with flexible budget data The reports show onlycontrollable costs, and no distinction is made between variable and fixed costs
6 Identify the content of responsibility reports for profit centers Responsibility reports
show contribution margin, controllable fixed costs, and controllable margin for each profitcenter
7 Explain the basis and formula used in evaluating performance in investment centers.
The primary basis for evaluating performance in investment centers is return on investment(ROI) The formula for computing ROI for investment centers is: Controllable margin ÷Average operating assets
a8 Explain the difference between ROI and residual income ROI is controllable margin
divided by average total assets Residual income is the income that remains after subtractingthe minimum rate of return on a company’s average operating assets ROI sometimesprovides misleading results because profitable investments are often rejected when theinvestment reduces ROI but increases overall profitability
4 The master budget is not used in the budgetary control process
5 A master budget is most useful in evaluating a manager's performance in controllingcosts
6 A static budget is one that is geared to one level of activity
7 A static budget is changed only when actual activity is different from the level of activityexpected
8 A static budget is most useful for evaluating a manager's performance in controllingvariable costs
9 A flexible budget can be prepared for each of the types of budgets included in the masterbudget
10 A flexible budget is a series of static budgets at different levels of activities
Trang 511 Flexible budgeting relies on the assumption that unit variable costs will remain constantwithin the relevant range of activity.
12 Total budgeted fixed costs appearing on a flexible budget will be the same amount as totalfixed costs on the master budget
13 A flexible budget is prepared before the master budget
14 The activity index used in preparing a flexible budget should not influence the variablecosts that are being budgeted
15 A formula used in developing a flexible budget is: Total budgeted cost = fixed cost + (totalvariable cost per unit × activity level)
16 Flexible budgets are widely used in production and service departments
17 A flexible budget report will show both actual and budget cost based on the actual activitylevel achieved
18 Management by exception means that management will investigate areas where actualresults differ from planned results if the items are material and controllable
19 Policies regarding when a difference between actual and planned results should beinvestigated are generally more restrictive for noncontrollable items than for controllableitems
20 A distinction should be made between controllable and noncontrollable costs whenreporting information under responsibility accounting
21 Cost centers, profit centers, and investment centers can all be classified as responsibilitycenters
22 More costs become controllable as one moves down to each lower level of managerialresponsibility
23 In a responsibility accounting reporting system, as one moves up each level ofresponsibility in an organization, the responsibility reports become more summarized andshow less detailed information
24 A cost center incurs costs and generates revenues and cost center managers areevaluated on the profitability of their centers
25 The terms "direct fixed costs" and "indirect fixed costs" are synonymous with "traceablecosts" and "common costs," respectively
26 Controllable margin is subtracted from controllable fixed costs to get net income for aprofit center
27 The denominator in the formula for calculating the return on investment includes operatingand nonoperating assets
28 The formula for computing return on investment is controllable margin divided by averageoperating assets
Trang 6a29 When evaluating residual income, the calculation tells management what percentage
return was generated by the particular division being evaluated
a30 Residual income generates a dollar amount which represents the increase in value to thecompany beyond the cost necessary to pay for the financing of assets
Additional True-False Questions
31 Budget reports provide the feedback needed by management to see whether actualoperations are on course
32 A static budget is an effective means to evaluate a manager's ability to control costs,regardless of the actual activity level
33 The flexible budget report evaluates a manager's performance in two areas: (1) duction and (2) costs
pro-34 The terms controllable costs and noncontrollable costs are synonymous with variablecosts and fixed costs, respectively
35 Most direct fixed costs are not controllable by the profit center manager
36 The manager of an investment center can improve ROI by reducing average operatingassets
a37 Residual income and ROI are used as performance evaluation methods for profit centerperformance
Answers to True-False Statements
Item Ans Item Ans Item Ans Item Ans Item Ans Item Ans Item Ans.
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
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
Trang 7d approval of the budget by the stockholders.
40 Budget reports should be prepared
a daily
b monthly
c weekly
d as frequently as needed
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
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
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
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
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 costsand 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
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 masterbudget activity level
d may be appropriate in evaluating a manager's effectiveness in controlling costs whenthe behavior of the costs in response to changes in activity is fixed
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
Trang 848 When budgeted and actual results are not the same amount, there is a budget
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
50 If costs are not responsive to changes in activity level, then these costs can be bestdescribed as
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 thetwo quarters
52 A static budget is appropriate for
a variable overhead costs
b direct materials costs
c fixed overhead costs
d none of these
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 onlyvariable costs
b The static budget is prepared for a single level of activity, while a flexible budget isadjusted 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
d The static budget is prepared only for units produced, while a flexible budget reflectsthe number of units sold
54 A flexible budget
a is prepared when management cannot 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 reflectactual results
Trang 955 The master budget of Benedict Company shows that the planned activity level for nextyear is expected to be 50,000 machine hours At this level of activity, the followingmanufacturing overhead costs are expected:
Depreciation on factory building 50,000
Total manufacturing overhead $420,000
A flexible budget for a level of activity of 60,000 machine hours would show totalmanufacturing overhead costs of
a $494,000
b $420,000
c $504,000
d $454,000
56 Rickets Crickets prepared a 2008 budget for 60,000 units of product Actual production in
2008 was 65,000 units To be most useful, what amounts should a performance report forthis company compare?
a The actual results for 65,000 units with the original budget for 60,000 units
b The actual results for 65,000 units with a new budget for 65,000 units
c The actual results for 65,000 units with last year's actual results for 67,000 units
d It doesn't matter All of these choices are equally useful
57 A department has budgeted monthly manufacturing overhead cost of $270,000 plus $3per direct labor hour If a flexible budget report reflects $522,000 for total budgeted manu-facturing cost for the month, the actual level of activity achieved during the month was
a 264,000 direct labor hours
b 84,000 direct labor hours
c 174,000 direct labor hours
d Cannot be determined from the information provided
58 Which one of the following would be the same total amount on a flexible budget and astatic 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
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
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
Trang 1061 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
62 A flexible budget can be prepared for which of the following budgets comprising themaster budget?
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
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 1
b 2
c both 1 and 2
d neither 1 nor 2
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 1
b 2
c 3
d 1 and 2
Trang 1168 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
69 Under management by exception, which differences between planned and actual resultsshould be investigated?
a Material and noncontrollable
b Controllable and noncontrollable
c Material and controllable
d All differences should be investigated
70 Romano Roofing's budgeted manufacturing costs for 25,000 squares of shingles are:
Fixed manufacturing costs $15,000
Variable manufacturing costs $20.00 per square
Romano produced 20,000 squares of shingles during March How much are budgetedtotal manufacturing costs in March?
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
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
73 A static budget is not appropriate in evaluating a manager's effectiveness if a companyhas
a substantial fixed costs
b substantial variable costs
c planned activity levels that match actual activity levels
d no variable costs
74 Trepid Manufacturing Company prepared a static budget of 40,000 direct labor hours, withestimated overhead costs of $200,000 for variable overhead and $60,000 for fixedoverhead Trepid then prepared a flexible budget at 38,000 labor hours How much is totaloverhead costs at this level of activity?
a $190,000
b $250,000
c $247,000
d $260,000
Trang 1275 For June, Mark Manufacturing estimated sales revenue at $200,000 It pays salescommissions that are 4% of sales The sales manager's salary is $95,000, estimatedshipping expenses total 1% of sales, and miscellaneous selling expenses are $5,000.How much are budgeted selling expenses for the month of July if sales are expected to be
76 Ziglar’s Sipit Company budgeted manufacturing costs for 25,000 sipits are:
Fixed manufacturing costs $25,000 per month
Variable manufacturing costs $12.00 per sipit
Ziglar’s produced 20,000 sipits during March How much is the flexible budget for totalmanufacturing costs for March?
a $260,000
b $325,000
c $240,000
d $265,000
77 True Masons budgeted costs for 25,000 linear feet of block are:
Fixed manufacturing costs $12,000 per month
Variable manufacturing costs $16.00 per linear
True Masons installed 20,000 linear feet of block during March How much is budgetedtotal manufacturing costs in March?
a $1,500 unfavorable
b $1,500 favorable
c $4,500 unfavorable
d $6,000 favorable
Trang 1380 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 overheadcosts:
Variable Fixed
A flexible budget prepared at the 80,000 machine hours level of activity would show totalmanufacturing overhead costs of
Average total operating assets 300,000
How much is controllable margin for the year?
a 20%
b 50%
c $150,000
d $60,000
83 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
84 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
85 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
Trang 1486 Top management can control
a only controllable costs
b only noncontrollable costs
c all costs
d some noncontrollable costs and all controllable costs
87 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
88 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 managerialresponsibility
d The term segment is sometimes used to identify areas of responsibility in
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
91 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
92 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
93 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
Trang 1594 The maintenance department of a manufacturing company is a(n)
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 ofearning the profit
97 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
98 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
99 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
100 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'semployees
b Company president's salary and company personnel department costs
c Company personnel department costs and timekeeping costs for a responsibilitycenter's employees
d Depreciation on a responsibility center's equipment and supervisory salaries for thecenter
Trang 16101 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
102 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
103 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
104 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
105 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
106 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
107 Given below is an excerpt from a management performance report:
Budget Actual Difference
Controllable fixed costs $ 500,000 $ 450,000 $50,000
The manager's overall performance
Trang 17108 Which of the following are financial measures of performance?
109 Given below is an excerpt from a management performance report:
Budget Actual Difference
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
110 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
111 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
112 Garrison Company recorded operating data for its shoe division for the year The
company’s desired return is 5%
Average total operating assets 200,000
Which one of the following reflects the controllable margin for the year?
a 20%
b 50%
c $30,000
d $40,000
113 The area manager of the Steak House Restaurants is considering two possible expansion
alternatives The required investments, expected controllable margins, and the ROIs ofeach are as follows:
Project Investment Controllable Margin ROI
Trang 18The Steak House segment has currently $2,000,000 in invested capital and a controllablemargin of $250,000 Which one of following projects will increase the Steak Housedivision’s ROI?
a Both the Charlotte and Richmond options
b Only the Charlotte option
c Only the Richmond option
d Neither the Charlotte nor the Richmond options
114 Timex Corporation recorded operating data for its Cheap division for the year Timex
requires its return to be 10%
115 Halpern Division’s operating results include: controllable margin of $150,000, sales
totaling $1,200,000, and average operating assets of $500,000 Halpern is considering aproject with sales of $100,000, expenses of $86,000, and an investment of averageoperating assets of $200,000 Halpern’s required rate of return is 9% Should Halpernaccept this project?
a Yes, ROI will drop by 6.6% which is still above the 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%
116 Perot Manufacturing reported the following items for 2008:
Income tax expense $ 30,000
Contribution margin 100,000
Controllable fixed costs 40,000
Total operating assets 325,000
How much is controllable margin?
a $100,000
b $60,000
c $30,000
d $10,000
117 Merck Pharmaceuticals is evaluating its Vioxx division, an investment center The division
has a $45,000 controllable margin and $300,000 of sales How much will Merck’s averageoperating assets be when its return on investment is 10%?
a $450,000
b $495,000
c $300,000
d $255,000
Trang 19118 An investment center generated a contribution margin of $200,000, fixed costs of
$100,000 and sales of $1,000,000 The center’s average operating assets were $400,000.How much is the return on investment?
Average total operating assets 200,000How much is ROI for the year if management is able to identify a way to improve thecontribution margin by $15,000, assuming fixed costs are held constant?
a 45.0%
b 22.5%
c 15.0%
d 12.0%
120 The current controllable margin for Claremont Division is $62,000 Its current operating
assets are $200,000 The division is considering purchasing equipment for $60,000 thatwill increase annual controllable margin by an estimated $10,000 If the equipment ispurchased, what will happen to the return on investment for Claremont 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%
121 CinRich Corporation recorded operating data for its Waterhole division for the year
CinRich requires its return to be 9%
122 Lou Alabassi is the North Division manager and his performance is evaluated by executive
management based on Division ROI The current controllable margin for North Division is
$46,000 Its current operating assets total $210,000 The division is consideringpurchasing equipment for $40,000 that will increase sales by an estimated $10,000, withannual depreciation of $10,000 If the equipment is purchased, what will happen to thereturn on investment for the division?
Trang 20123 Cruise Division of Harrah’s Company’s operating results include: controllable margin,
$200,000; sales $2,200,000; and operating assets, $800,000 The Cruise Division’s ROI is25% 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 Shouldmanagement 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
124 The Eastern Division of Flint Corp had an ROI of 25% when sales were $1 million and
controllable margin was $200,000 What were the average operating assets?
Average total operating assets 200,000
How much is ROI for the year if management is able to identify a way to improve thecontribution margin by $20,000, assuming fixed costs are held constant?
a 25%
b 18%
c 45%
d 12%
126 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
127 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
128 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
Trang 21129 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
130 If an investment center has generated a controllable margin of $75,000 and sales of
$300,000, what is the return on investment for the investment center if average operatingassets were $500,000 during the period?
a 15%
b 25%
c 45%
d 60%
131 Which statement is true?
a An investment center is responsible for revenues and expenses, as well as earning areturn 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 isevaluated using ROI
132 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
133 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
134 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
135 Dodge City Parts 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 twoinvestment projects available, for which the following estimates have been made:
Project A - Annual controllable margin = $24,000, operating assets = $400,000Project B - Annual controllable margin = $60,000, operating assets = $550,000Which project should be funded?
a Both projects
b Project A
c Project B
d Neither project
Trang 22136 If an investment center has a $45,000 controllable margin and $600,000 of sales, what
average operating assets are needed to have a return on investment of 10%?
d Both cost and market value
a138 The following information is available for Aggie Auto Sales:
Average operating assets $800,000
How much is Aggie Auto’s residual income?
a $136,000
b $720,000
c $16,000
d $64,000
a139 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
a140 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 operatingassets
d It evaluates performance by comparing the return of an investment center with thecompany’s minimum rate of return
a141 Which one of the following does not impact the amount of residual income?
a Contribution margin
b Net income
c Sales
d Controllable costs
a142 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
Trang 23a143 Niceville Company 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 requiredreturn is 10% How much is the residual income?
a $120,000
b $20,000
c $80,000
d $320,000
a144 Oxford Company earned controllable margin of $125,000 on sales of $1,600,000 The
division had average operating assets of $1,300,000 The company requires a return oninvestment of at least 8% How much is residual income?
a $104,000
b $21,000
c $146,000
d $128,000
a145 The performance of the manager of Purina 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
Additional Multiple Choice Questions
146 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 operationsare on course
c It assists management in controlling operations
d It provides a guarantee for favorable results
147 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
148 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
149 Weiser Company uses flexible budgets At normal capacity of 8,000 units, budgeted
manufacturing overhead is $64,000 variable and $180,000 fixed If Weiser had actualoverhead costs of $250,000 for 9,000 units produced, what is the difference betweenactual and budgeted costs?
a $2,000 unfavorable
b $2,000 favorable
c $6,000 unfavorable
d $8,000 favorable
Trang 24150 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
151 A flexible budget is appropriate for
Direct Labor Costs Manufacturing Overhead Costs
152 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 ondifferences between actual results and planned objectives
153 Controllable costs for responsibility accounting purposes are those costs that are directly
154 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 managerialresponsibility
d costs incurred directly by a level of responsibility are controllable at that level
155 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
156 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