When actual units sold is greater than budgeted sales volume
When actual units sold are less than budgeted sales volume
When the sales volume variance is favorable
Under any of the above conditions
Which of the following is a suggested technique for managing the budgeting process in a manner that increases employee motivation?
Measure the budget against performance only when assessing poor performers
Never alter the budget
Top management should disassociate itself from the budget
Emphasize the budget as a planning device
In a manufacturing setting, the purchase budget is based on:
The sales budget
The production budget
The manufacturing labor budget
The cash disbursements
Which of the following is not used in the formulation of economic value added (EVA)?
A minimum rate of return set by top management
After tax income
The weighted average cost of capital
Total net assets
______________ is the time a product exists–from conception to abandonment.
Product life cycle
Revenue producing life
Brown Division operates as a revenue center. Data for this year are as follows:
Sales in Units
Selling price per unit
Variable expenses per unit
What is the total revenue variance?
Which of the following situations gives rise to the need for a transfer price?
Two divisions of the same company sell to the same wholesaler
Two divisions of the same company sell competing products to the same customer
Two divisions of the same company sell to one another
Both B and C
When determining net present value, this is commonly done to consider higher than normal risk associated with a proposed investment:
Decrease the discount rate used in the analysis
Decrease the expected cash flows
Increase the discount rate used in the analysis
Increase the required payback period
Which of the following capital budgeting techniques provides the decision maker with answers expressed in dollars?
Internal rate of return
Net present value
None of the above
A flexible budget variance for a manufacturing cost is computed as the difference between:
Flexible budget costs and static budget costs
Actual costs and flexible budget costs
Departmental costs and cost center costs
Flexible budget costs and original budget costs
A precondition for effective capital budgeting requires having:
A clearly defined mission
A well-defined business strategy
All of the above
Structuring performance reports and addressing them to individuals as group members of an organization in a manner that emphasizes factors that can be controlled by them is accomplished by using which of the following?
Value chain analysis
Assume that the standard cost to make one unit of product includes 15 units of raw materials at a price of $3 per unit. In July, 34,000 units of raw materials were purchased for $100,800, and 30,600 units of raw materials were used to produce 2,000 units of finished product. What is the materials quantity variance?
Budgetary slack refers to:
Intentionally requesting more funds in the budget than needed
The time lag between budget preparation and actual operations.
Overspending the budget allowance
The time lag between budget discussions and actual preparation of budgets
A balanced scorecard typically includes:
Customer satisfaction measures
Internal processes measures
All of the above
The objective of standard cost variance analysis is:
To identify standard cost variances and to explain the reasons for their occurrences
To explore the reason or reasons for variation in sales prices of products offered in the company’s main line of business
To identify the standard deviation in budgeted numbers over a period of time
To purge cost data of the effects of inflation
Which of the following aspects related to budgeting and human behavior is not correct?
Budgets often produce strong reactions in people.
The preparation period for a participative budget is generally longer than that for an imposed budget.
A disadvantage of the use of budgets is that they always decrease employee motivation.
Personnel who do not participate in budget preparation are likely to lack a commitment in achieving their part of the budget.
Information for Tube division is as follows:
– Net earnings for division $40,000
– Asset base for division$100,000
– Target rate of return 16%
– Operating income margin 12%
– Weighted average cost of capital 8%.
What is Tube’s residual income?
Which of the following is not an advantage of ROI?
It encourages managers of departments with high ROIs to invest in average ROI projects.
It encourages managers to pay careful attention to the relationships among sales, expenses, and investment.
It encourages cost efficiency.
It discourages excessive investment in operating assets.
Bosworth Boots, Inc. is considering the production of a new line of boots. Based on preliminary market research, management has decided that each pair of boots should be priced at $225. Furthermore, management believes that the profit margin should be 30 percent of sales revenue.
What is the target cost?
Birchtown Company’s budgeted sales were 5,000 units at $400 per unit. Actual sales were 4,500 units at $420 per unit. Birchtown’s sales price variance was:
$ 34,000 (U)
$ 90,000 (F)
$ 45,000 (F)
The Rob Wallace Corporation has a sales budget for next month of $400,000. Cost of goods sold (all of which is merchandise) is expected to be $250,000. All goods are paid for in the month following their purchase. The beginning inventory of merchandise is $16,000, and an ending inventory of $12,000 is desired. Beginning accounts payable is $52,000. How much merchandise inventory will The Rob Wallace Corporation need to purchase next month?
The return on investment is computed as:
Operating income divided by sales
Operating income divided by average operating assets
Sales divided by average operating assets
Operating asset turnover divided by the operating income margin
Clarinet Publishing is considering the purchase of a used printing press costing $38,400. The printing press would generate a net cash inflow of $20,000 a year for 5 years. At the end of 5 years, the press would have no salvage value. The company’s cost of capital is 10 percent. The investment’s payback period in years (rounded to two decimal points) is:
Generally, the first of the following budgets to be prepared is the:
In a segment report for territories, the contribution margin less direct segment fixed costs is typically called the:
The internal rate of return:
Does not require a predetermined discount rate
Is often used to rank investment proposals
May be compared to the cost of capital in project evaluation
All of the above
Assume that the standard cost to make one finished unit includes 2 hour of direct labor at $8 per hour. During April, 22,000 direct labor-hours were worked, 10,500 units of product were manufactured, and total direct labor cost was $160,000. What is the labor rate variance for April?
$ 2,000 (U)
$ 2,000 (F)
Budgets based on the actual level of output, rather than the output originally budgeted, are called:
Cameo Company manufactures boxes. To manufacture a box, it takes 44 units of wood and 2 units of plastic. Scheduled production of boxes for the next two months is 2,100 and 2,500 boxes, respectively. Beginning inventory is 16,000 units of wood and 120 units of plastic. The ending inventory of wood is planned to decrease 4,000 units each of the next two months, and the plastic inventory is expected to increase 20 units each of the next two months. Based on this information, the number of units of wood that Cameo needs to purchase during the first month is:
When an outside market exists for an intermediate product that is perfectly competitive, the ideal method of transfer pricing is generally:
The one that creates the highest margin to the selling unit
The price at which the product sells in the external market
One that is higher than what the outside market is quoting
Based on management accounting numbers
What is residual income?
Excess income earned after budgeted income has been achieved
The excess of investment center income over the minimum return set by management
A percentage of income received by an organization for its participation in a joint venture
Income beyond the breakeven point determined by the product’s lifecycle
Read Publishing is considering the purchase of a used printing press costing $84,200. The printing press would generate a net cash inflow of $37,422 a year for 3 years. At the end of 3 years, the press would have no salvage value. The company’s cost of capital is 10 percent.
Present Value of $1.00 @ 10% per year
Determine the net present value for the investment. The investment’s net present value is:
______________ is (are) the difference between the sales price needed to capture a predetermined market share and the desired profit per unit.
A project under consideration has a net present value of $10,000 for a required investment of $60,000. There are no other investment options at this time. However, the assumed discount rate used to calculate the net present value is 20%. On the basis of this information alone, this project should:
Definitely be rejected because $10,000 is only 17% of $60,000
Be rejected on the basis that the project loses $50,000
Probably be approved since the net present value is greater than zero
Be accepted if the cost of capital is greater than or equal to 20 percent
Which of the following amounts would be classified as part of the disinvestment phase for a project?
Collections of accounts receivable from sales
Expenditure to return plant site to its pre-project condition
Retiring bonds issues to finance the project
________________ is a systematic approach to identifying the best practices to help an organization take action to improve performance.
Tom Gilgen is considering the production of a new line of jeans. Based on preliminary market research, management has decided that each pair of jeans should be priced at $170. Furthermore, management believes that the profit margin should be 25 percent of sales revenue. What is the target cost?
An awareness of the impact of today’s actions on tomorrow’s costs is a concept that underlies which of the following notions?
What is a transfer price?
The amount charged for a product or service that one division provides another
The amount charged for goods and services offered to the government
An amount charged to cover the costs associated with import/export taxes
The amount charged the final consumer to cover all costs incurred along the value chain
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