0% (0 out of 30 correct)

Responses to questions are indicated by the

symbol.

1. Budget reports are prepared

A. daily.
B. weekly.
C. monthly.
D. all of these.

2. A production manager in a manufacturing company would most likely receive a:

A. sales report.
B. income statement.
C. scrap report.
D. selling expenses report.

3. Budgetary control involves

A. developing the budget.
B. analyzing differences between actual and budget.
C. taking corrective action.
D. all of these options are part of budgetary control.

4. A static budget report is appropriate for variable manufacturing costs.

A. True
B. False
A static budget report is appropriate for fixed, not variable, manufacturing costs.

5. Ace Company monitors its managers' performance using a static budget. Which one of the
following situations will provide the fairest evaluation for those managers?
A. When the master budget activity is less than the actual activity.
B. When the company performs at the same activity level as the static budget level.
C. When activity levels fluctuate from month to month.
D. When the actual costs incurred equal the amounts on the budget.

6. For which of the following costs is a static budget most appropriate?

A. Fixed overhead costs.
B. Variable overhead costs.
C. Uncontrollable costs.
D. Actual costs.

7. 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.

8. Management by exception means that top management will investigate every budget
difference.
A. True
B. False
Management by exception means that top management will investigate only material budget
differences.

9. What budgeted amounts appear on the flexible budget report?

A. Original budgeted amounts at the static budget activity level.
B. Budgeted amounts for the actual activity level achieved.
C. Actual costs for the budgeted activity level.
D. Actual costs for the estimated activity level.

10. Which one of the following is a step that management must perform when developing the
flexible budget?
A. Identify the activity index and the relevant range of activity.
B. Estimate the number of units to be produced.
C. Determine the expected costs outside of the relevant range.
D. All of the options are steps management must perform when developing the flexible
budget.

11. 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.

12. 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.

13. A projection of budget data for various levels of activity is a

A. flexible budget.
B. static budget.
C. variable budget.
D. fixed budget.

14. Cost centers are usually either production departments or service departments.
A. True
B. False
This statement is correct.

15. 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 top 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.

16. A company produces four reports in its responsibility reporting system, one for each level of

management: department managers, plant managers, division managers, and the company
vice president (listed in order of responsibility). Which statement is correct concerning the
content of the respective reports?
A. The plant managers see a summary of controllable costs for each division manager.
B. The department managers see a summary of controllable costs for each division
manager.
C. The department manager sees controllable costs of his or her respective department.
D. The vice president sees a summary of controllable costs for each department
manager.

17. Which one of the statements is correct about controllable costs?

A. A cost is controllable if it is incurred directly in a manager's division or segment.
B. More costs are controllable as one moves downward in management levels.
C. Variable costs are controllable and fixed costs are not.
D. Allocated costs are controllable.

18. 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.

19. Responsibility centers include

A. cost centers.
B. profit centers.
C. investment centers.
D. all of these.

20. 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.

21. Controllable margin is the excess of contribution margin over total fixed costs.

A. True
B. False
Controllable margin is the excess of contribution margin over controllable, not total, fixed
costs.

22. 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?
A. $900U.
B. $760F.
C. $1,100F.
D. $260F.

23. CEO, Inc.'s budgeted data for March when 2,400 units were budgeted to be produced and
sold are provided:

Actual profit in March totaled $47,000. How much is the variance in a month when 2,500
units are produced (assume sales revenue remains the same)?
A. $2,860 unfavorable.
B. $4,360 unfavorable.
C. $1,450 unfavorable.
D. $48,500 unfavorable.

24. 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.

25. Return on investment can be improved by increasing controllable margin and/or reducing
average operating assets.
A. True
B. False
This statement is correct.

26. Bajalia Company compiled the following information for the year:

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?
A. It will be 10%.
B. It will decrease to 12.45%.
C. It will be 12.5%.
D. It will increase to 12.69%.

27. Dax Pet Foods compiled the following information for the year for its dog division
Average operating assets = $3,500,000
Controllable margin = 315,000
Dax's corporate office expects the division to earn a minimum return of 8%. Suppose the
dog division invests in a new machine that will produce a new dog food product. The
machine is expected to generate $19,500 of controllable profit and will cost $150,000. If
Dax buys the new machine, what happens to ROI?
A. It will increase to 9.16%.
B. It will become 9.6%.
C. It will be 9%.
D. It will change to 13%.

28. In the formula for return on investment (ROI), the factors used are
A. contribution margin and total operating assets.
B. controllable margin and average operating assets.
C. controllable margin and total assets.
D. controllable margin and average operating assets.

29. 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.

30. 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?
A. $208,000
B. $42,000
C. $292,000
D. $256,000

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