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160 Cards in this Set
- Front
- Back
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Which of the following is not a benefit of budgeting?
(a) Management can plan ahead. (b) An early warning system is provided for potential problems. (c) It enables disciplinary action to be taken at every level of responsibility. (d) The coordination of activities is facilitated. |
(c) It enables disciplinary action to be taken at every level of responsibility.
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The essentials of effective budgeting to do include:
(a) top-down budgeting. (b) management acceptance. (c) research and analysis. (d) sound organizational structure. |
(a) top-down budgeting.
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Compared to budgeting, long-range planning generally has the:
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Longer time period.
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A sales budget is:
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Management's best estimate of sales revenue for the year.
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The formula for the production budget is budgeted sales in units plus:
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Desired ending finished goods units less beginning finished goods units.
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Direct materials inventories are kept in pounds in Byrd Company, and the total pounds of direct materials needed for production is 9,500. If the beginning inventory is 1,000 pounds and the desired ending inventory is 2,200 pounds, the total pounds to be purchased is:
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10,700
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The formula for computing the direct labor budget is to multiply the direct labor cost per hour by the:
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Total required direct labor hours.
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Each of the following budgets is used in preparing the budgeted income statement except the:
(a) sales budget. (b) selling and administrative budget. (c) capital expenditure budget. (d) direct labor budget. |
(c) capital expenditure budget.
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Expected direct materials purchases in Read Company are $70,000 in the first quarter and$90,000 in the second quarter. Fourty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are:
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$78,000
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The budget for a merchandiser differs from a budget for a manufacturer because:
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A merchandise purchases budget replaces the production budget and the manufacturing budgets are not applicable.
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Budgetary control involves all but one of the following:
(a) modifying future plans. (b) analyzing differences. (c) using static budgets. (d) determining differences between actual and planned results. |
(c) using static budgets
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A static budget is used in controlling costs when cost behavior is:
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fixed
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At 9,000 direct labor hours, the flexible budget for indirect materials is $27,000. If $28,000 of indrect materials costs are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials:
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$400 unfavorable
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Under responsibility accounting, the evaluation of a manager's performance is based on matters that the manager:
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Directly controls
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Responsibility centers include:
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Cost centers, profit centers, and investment centers.
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Responsibility reports for cost centers:
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Include only controllable costs
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In a responsibility report for a profit center controllable fixed costs are deducted from contribution margin to show:
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Controllable marging
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In the formula for return on investment (ROI), the factors for controllable margin and operating assets are respectively:
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Controllabel margin dollars and average operating assets
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A manager of an investment center can improve ROI by:
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Reducing variable and/or controllable fixed costs
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In the formula for residual income, the factors for computing residual income are:
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Controllable margin, average operating assets, and minimum rate of return.
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Standards differe from budgets in that:
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Budgets are a total amount and standards are a unit amount.
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The advantages of standard costs include all of the following except:
(a) management by exception may be used. (b) management planning is facilitated. (c) they may specify the costing of inventories. (d) management must use a static budget. |
(d) management must use a static budget.
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The setting of standard is:
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A management decision
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The materials price variance formula is:
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(AQ x AP) - (SQ x SP)
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In producing product AA, 6,300 pounds of direct materials were used at a cost of $1.10 per pound. The standard was 6,000 pounds at $1.00 per pound. The direct materials quantity variance is:
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$300 unfavoriable
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In producing product ZZ, 14,800 direct labor horus were used at a rate of $8.20 per hour. The standard was 15,000 hours at $8.00 per hour. Based on these data, the direct labor:
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quantity variabce is $1,600 favorable.
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Which of the following is incorrect about variance reports?
(a) They facilitate "management by exeption." (b) They should only be sent to the top level of management. (c) They should be prepared as soon as possible. (They may vary in form, content, and frequency among companies. |
(b) They should only be sent ot the top level of management.
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Which of the following would not be an objective used in the customer perspective of the balanced scorecard approach?
(a) Percentage of customers who would reccommend product to a friend. (b) Customer retention. (c) Brand recognition. (d) Earnings per share. |
(d) Earnings per share.
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Which of the following is incorrect about a standard cost accounting system?
(a) It is applicable ot job order costing. (b) It is applicable to process costing. (c) It is a single-entry sytem. (d) It keeps separate accounts for each variance. |
(c) It is a single-entry system.
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Which of the following is not an example of a capital budgeting decision?
(a) Decision to build a new plant. (b) Decision to renovate an existing facility. (c) Decision to buy a piece of machinery. (d) All of these are capital budgeting decisions. |
(d) All of these are capital budgeting decisions.
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What is the order of invovlement of the following parties in the capital budgeting authrization process?
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Plant managers, capital budget committee, officers, board of directors.
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What is a weakness of the cash payback approach?
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It ignores the time value of money and it ignors the useful life of alternative projects.
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Which os a true statement regarding using a higher discount rate to calculate the net present value of a project?
(a) It will make it less likely that the project will be accepted. (b) It will make it more likely tha tthe project will be accepted. (c) It is appropriate to use a higher rate if the project is perceived as being less risky than other projects being considered. (d) It is appropriate to use a higher rate if the project will have a short useful life relative to othe rprojects being considered. |
(a) It will make it less likely that the project will be accepted.
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A positive net present value means that the:
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Project's rate of return exceeds the requried rate of return.
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Wich of the following is not an alternative name for the discount rate?
(a) Hurdle rate. (b) Required rate of return. (c) Cutoff rate. (d) All of these are alternative names for the discount rate. |
(d) All fo these are alternative names for the discount rate.
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If a project has intabgible benefits whose value is hard to estimate, the best thing to do is:
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Include a conservative estimate of their value or ignore their value in your initial net present value calculation, but they estimate whether their potential value is worth at least the amount of the net present value decficiency.
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A post-audit of an investment project should be performed:
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On all significant capital expenditure projects.
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A project should be accepted if its internal rate of return exceeds:
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the company's requred rate of return.
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Which the the following is incorrect about the annual rate of return technique?
(a) The calculation is simple. (b) The accounting terms used are familiar to management. (c) The timing of the cash inflows is not considered. (d) The time value of money is considered. |
(d) The time value of money is considered.
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Which of the following is not an example of a capital budgeting decision?
(a) Decision to build a new plant. (b) Decision to renovate an existing facility. (c) Decision to buy a piece of machinery. (d) All of these are capital budgeting decisions. |
(d) All of these are capital budgeting decisions.
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What is the order of invovlement of the following parties in the capital budgeting authrization process?
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Plant managers, capital budget committee, officers, board of directors.
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What is a weakness of the cash payback approach?
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It ignores the time value of money and it ignors the useful life of alternative projects.
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Which os a true statement regarding using a higher discount rate to calculate the net present value of a project?
(a) It will make it less likely that the project will be accepted. (b) It will make it more likely tha tthe project will be accepted. (c) It is appropriate to use a higher rate if the project is perceived as being less risky than other projects being considered. (d) It is appropriate to use a higher rate if the project will have a short useful life relative to othe rprojects being considered. |
(a) It will make it less likely that the project will be accepted.
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A positive net present value means that the:
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Project's rate of return exceeds the requried rate of return.
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Wich of the following is not an alternative name for the discount rate?
(a) Hurdle rate. (b) Required rate of return. (c) Cutoff rate. (d) All of these are alternative names for the discount rate. |
(d) All fo these are alternative names for the discount rate.
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If a project has intabgible benefits whose value is hard to estimate, the best thing to do is:
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Include a conservative estimate of their value or ignore their value in your initial net present value calculation, but they estimate whether their potential value is worth at least the amount of the net present value decficiency.
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A post-audit of an investment project should be performed:
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On all significant capital expenditure projects.
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A project should be accepted if its internal rate of return exceeds:
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the company's requred rate of return.
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Which the the following is incorrect about the annual rate of return technique?
(a) The calculation is simple. (b) The accounting terms used are familiar to management. (c) The timing of the cash inflows is not considered. (d) The time value of money is considered. |
(d) The time value of money is considered.
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A formal written statemnt of management's plans for a specified future time period, expressed in financial terms.
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Budget
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A group responsible for coordinating the preparation of the budget.
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Budget Committee
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The amount by which a manager intentionally underestimates budgeted revenues or overestimates budgeted expenses in order to make it easier to achieve budgetary goals.
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Budgetary Slack
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A projection of financial position at the end of the budget period.
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Budgeted Balance Sheet
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An estimate of the expected profitability of operations for the budget period.
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Budgeted Income Statement
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A projection of anticipated cash flows.
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Cash budget
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A projection of the quantity and cost of direct labor necessary to meet produciton requirements.
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Direct labor Budget
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An estimate of the quantity and cost of direct materials to be purchased.
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Direct Materials Budget
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Individuals budgets that focus primarily on the cash resources needed to fund expected operations and planned capital expenditures.
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Financial Budgets
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A formalized process of selecting strategies to achieve long-term goals and developing policies and plance to implement to strategies.
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Long-Range Planning
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An estimate of expected manufacturing overhead costs for the budget period.
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Manufacturing Overhead Budget
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A set of interrelated budgets that constitutes a plan of action for a specific time period.
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Master Budget
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The estimated cost of goods to be purchased by a merchandiser to meet expected sales.
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Merchandise Purchases Budget
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Individual budgets that result in a budgeted income statement.
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Operating Budgets
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A budgetary appoach that starts with input from lower-level managers, and works upward so that managers at all levels participate.
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Participative Budgeting
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A formal written statemnt of management's plans for a specified future time period, expressed in financial terms.
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Budget
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A group responsible for coordinating the preparation of the budget.
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Budget Committee
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The amount by which a manager intentionally underestimates budgeted revenues or overestimates budgeted expenses in order to make it easier to achieve budgetary goals.
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Budgetary Slack
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A projection of financial position at the end of the budget period.
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Budgeted Balance Sheet
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An estimate of the expected profitability of operations for the budget period.
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Budgeted Income Statement
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A projection of anticipated cash flows.
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Cash budget
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A projection of the quantity and cost of direct labor necessary to meet produciton requirements.
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Direct labor Budget
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An estimate of the quantity and cost of direct materials to be purchased.
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Direct Materials Budget
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Individuals budgets that focus primarily on the cash resources needed to fund expected operations and planned capital expenditures.
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Financial Budgets
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A formalized process of selecting strategies to achieve long-term goals and developing policies and plance to implement to strategies.
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Long-Range Planning
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An estimate of expected manufacturing overhead costs for the budget period.
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Manufacturing Overhead Budget
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A set of interrelated budgets that constitutes a plan of action for a specific time period.
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Master Budget
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The estimated cost of goods to be purchased by a merchandiser to meet expected sales.
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Merchandise Purchases Budget
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Individual budgets that result in a budgeted income statement.
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Operating Budgets
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A budgetary appoach that starts with input from lower-level managers, and works upward so that managers at all levels participate.
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Participative Budgeting
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A projection of the units that must be produced to meet anticipated sales.
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Production Budget
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An estimate of expected sales for the budget perod.
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Sales Budget
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The projection of potential sales for the industry and the company's expected share of such sales.
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Sales Forecast
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A projection of anticipated selling and administrative expenses fo rthe budget period.
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Selling and Administrative Expense Budget
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The use of budgets to control operations
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Budgetary Control
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A cost over which a manager has control
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Controllable Cost
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Contribution margin less controllable fixed costs.
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Controllable Margin
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A responsibility center that incures costs bud does not directly generate revenues.
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Cost Center
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Control of operations is delegated to many managers throughout the organization.
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Decentralization
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Costs that relate specifically to a responsibility center and are incurred for the sole benefit of the center.
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Direct Fixed Costs
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A projection of budget data for various levels of activity.
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Flexible Budget
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Costs that are incurred for the benefit of more than one profit center.
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Indirect Fixed Costs
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A responsibility center that incurs costs, generates revenues, and has control over the investment funds available for use.
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Investment Center
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The review of budget reports by top management focused entirely or primarily on differences between actual results and planned objectives.
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Management by Exception
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Costs incurred indirectly and allocated to a responsibility center that are not controllable at that level.
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Noncontrollable Costs
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A responsibility center that incurs costs and also generates revenues.
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Profit Center
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The income that remains after subtracting from the controllable margin in the minimum rate of return on a company's operating assets.
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Residual Income
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A part of management accounting that invovles accumulating and resporting revenues and costs on the basis of the manager who has the authroity to make the day-to-day decisions about the items.
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Responsibility Accounting
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The preparation of reports for each level of responsibility in the company's organization chart.
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Responsibility Reporting System
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A mreasure of management's effectiveness in utilizing assets at its disposal in an investment center.
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Return on Investment (ROI)
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An area of responsibility in decentralized operations.
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Segment
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A projection of budget data at one level of activity.
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Static Budget
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An approach that incorporates financial and nonfinancial measures in an integrated system that links performance measurement and a company's strategic goals.
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Balanced Scorecard
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A viewpoint employed in the balanced scorecard to evaluate the company from the perspective of those people who buy and use its products or services.
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Customer Perspective
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The rate per hour that should be incurred for direct labor.
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Direct Labor Price Standard
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The time that should be requred to make one unit of product.
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Direct Labor Quantity Standard
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The cost per unit of direct materials that should be incurred.
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Direct Materials Price Standard
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The quantity of direct materials that should be used per unit of finished goods.
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Direct Materials Quantity Standard
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A viewpoint employed in the balanced scorecard to evaluate a company's performance using financial measures.
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Financial Perspective
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Standards based on the optimum level of performance under perfect operating conditions.
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Ideal Standards
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A viewpoint employed in the balanced scorecard to evaluate the effectiveness in the balancced scorecard to evaluate the effectiveness and efficiency of a company's value chain, including produuct development, production, delivery, and after-sale service.
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Internal Process Perspective
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A viwepoint employed in the balanced screcard to evaluate how well a company develops and retains its employees.
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Learning and Growth Perspective
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Standards based on an efficient level of performance that are attainable under expected operating conditions.
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Hormal Standards
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A double-entry system of accounting in which standard costs are used in making entries and variances are recognized in the accoutns.
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Standard Cost Accounting System
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Perdetermined unit costs which are used as measures of performance.
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Standard Costs
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The hours that should have been worked for the units produced.
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Standard Hours Allowed
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The difference between total actual costs and total standard costs.
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Variances
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The determiniation of the profitability of a capital expendeture, computed by:
Annual Net Income ∻ Average Investment |
Annual Rate of Return Method
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The process of making capital expenditure decisions in business.
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Capital Budgeting
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A capital budgeting technique that identifies the time perod required to recover the cost of a capital investment from the annual cash inflow produced by the investment.
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Cash Payback Technique
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The average rate of return that the firm must pay to obtain borrowed and equity funds.
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Cost of Capital
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A capital budgeting technique that considers both the estimated net cash flows from the investment and the time value of money.
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Discounted Cash Flow Technique
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The interest rate used in discounting the future net cash flows to determine present value.
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Discount Rate
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The rate that will cause the present value o fthe proposed capital expenditure to equal the present value fo the expected net annual cash flows.
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Internal Rate of Return (IRR)
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A method used in capital budgeting that results in finding the itnerest yield of the potential investment.
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Internal Rate of Return (IRR) Method
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The difference that results when the origional capital outlay is subtracted from the discounted net cash flows.
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Net Present Value (NPV)
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A method used in capital budgeting in which net cash flows are discounted to their present value and then compared to the capital outlay required by the investment.
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Net Present Value (NPV) Method
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A thorough evaluation of how well a project's actual performance matches the projections made when the project was proposed.
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Post-Audit
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A method of comparing alternative projects that takes into account both the size of the investment and its discounted future cash flows. It is computed by:
Net future cash flows ∻ Initial investment |
Profitability Index
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The determiniation of the profitability of a capital expendeture, computed by:
Annual Net Income ∻ Average Investment |
Annual Rate of Return Method
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The process of making capital expenditure decisions in business.
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Capital Budgeting
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A capital budgeting technique that identifies the time perod required to recover the cost of a capital investment from the annual cash inflow produced by the investment.
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Cash Payback Technique
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The average rate of return that the firm must pay to obtain borrowed and equity funds.
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Cost of Capital
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A capital budgeting technique that considers both the estimated net cash flows from the investment and the time value of money.
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Discounted Cash Flow Technique
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The interest rate used in discounting the future net cash flows to determine present value.
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Discount Rate
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The rate that will cause the present value o fthe proposed capital expenditure to equal the present value fo the expected net annual cash flows.
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Internal Rate of Return (IRR)
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A method used in capital budgeting that results in finding the itnerest yield of the potential investment.
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Internal Rate of Return (IRR) Method
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The difference that results when the origional capital outlay is subtracted from the discounted net cash flows.
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Net Present Value (NPV)
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A method used in capital budgeting in which net cash flows are discounted to their present value and then compared to the capital outlay required by the investment.
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Net Present Value (NPV) Method
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A thorough evaluation of how well a project's actual performance matches the projections made when the project was proposed.
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Post-Audit
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A method of comparing alternative projects that takes into account both the size of the investment and its discounted future cash flows. It is computed by:
Net future cash flows ∻ Initial investment |
Profitability Index
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Total Budgeted Costs (Formula)
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Fixed Costs + Variable Costs (VC per Unit x Activity Level)
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Steps to Flexible Budget
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1. Identify the activity index and the relevant range of activity.
2. Identify the variable costs, and determine the budgeted variable cost per unit of activity for each cost. 3. Identify the fixed costs, and determine the budgeted amount for each cost. 4. Prepare the budget for selected increments of actiity with in the relevant range. |
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Holding the individual responsible for the costs they control.
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Responsibility Accounting
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Total Materials Variance (formula)
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AQ X AP - SQ X SP
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Materials Price Variance (formula)
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AQ X AP - AQ X SP
AQ X (AP - SP) |
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Materials Quantity Variance (formula)
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AQ X SP - SQ X SP
SP X (AQ - SQ) |
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Total Labor Variance (formula)
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AQ X QP - SQ X SP
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Labor Price Variance (formula)
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AQ X AP - AQ X SP
AQ X (AP-SP) |
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Labor Quantity Variance (formula)
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AQ X AP - SQ X SP
SP X (AQ - SQ) |
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Cash Payback Period (formula)
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Cost of Capital Investment ∻ Net Annual Cash flow
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Net Present Value (formula)
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Present value of inflows - present value of outflows = NPV
NPV > 0: Accept |
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Present Value (formula)
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Future Value x Present Value Percentage (table)
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Net Present Value (formula)
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Present Value - Investment
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Present Value- Unequal
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Assumed net annual cash flows (list) x Discount Factor
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Net Present Value- Unequal
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Present Value - Investment
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Profitability Index (formula)
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Present Value ∻ Investment
Accept highest index |
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Interest Rate > Cost of Capital
Accept or Decline? |
Accept
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Internal Rate of Return (IRR) (formula)
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Investment ∻ Net Cash Inflow = IRR Factor
Use IRR Factor to find the closest value on table |
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Annual Rate of Return (ARR) (formula)
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Expected Annual Net Income ∻ Average Investment
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Average Investment (formula)
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(Original Investment + Value at End of Useful Life) ∻ 2
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