139. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
Variable rate per
Overhead item Fixed Cost direct labor hour
Maintenance $10,000 $ 3.00
Power $ 1,500 $ 0.30
Indirect labor cost $12.00
Equipment lease $ 7,000
Total $18,500 $15.30
Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however, this year 19,000 units
were produced with the following actual costs:
Overhead item Actual costs
Maintenance $14,000
Power $ 2,200
Indirect labor cost $70,000
Equipment lease $ 7,000
Total costs $93,200
The total budgeted overhead for an expected activity level of 10,000 units is:
a. $139,400.
b. $64,400.
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c. $124,000.
d. $12,400.
e. None of these.
140. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
Variable rate per
Overhead item Fixed Cost direct labor hour
Maintenance $10,000 $ 3.00
Power $ 1,500 $ 0.30
Indirect labor cost $12.00
Equipment lease $ 7,000
Total $18,500 $15.30
Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units
were produced with the following actual costs:
Overhead item Actual costs
Maintenance $14,000
Power $ 2,200
Indirect labor cost $70,000
Equipment lease $ 7,000
Total costs $93,200
Calculate the after-the-fact budget for the actual level of activity.
a. $91,600
b. $115,000
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c. $118,600
d. $77,400
e. None of these.
141. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
Variable rate per
Overhead item Fixed Cost direct labor hour
Maintenance $10,000 $ 3.00
Power $ 1,500 $ 0.30
Indirect labor cost $12.00
Equipment lease $ 7,000
Total $18,500 $15.30
Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units
were produced with the following actual costs:
Overhead item Actual costs
Maintenance $14,000
Power $ 2,200
Indirect labor cost $70,000
Equipment lease $ 7,000
Total costs $93,200
Using an after-the-fact flexible budget, calculate the total budget variance.
a. $12,510 U
b. $3,600 U
c. $5,000 F
d. $12,510 F
e. None of these.
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142. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
Variable rate per
Overhead item Fixed Cost direct labor hour
Maintenance $10,000 $ 3.00
Power $ 1,500 $ 0.30
Indirect labor cost $12.00
Equipment lease $ 7,000
Total $18,500 $15.30
Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units
were produced with the following actual costs:
Overhead item Actual costs
Maintenance $14,000
Power $ 2,200
Indirect labor cost $70,000
Equipment lease $ 7,000
Total costs $93,200
Calculate the variance for maintenance using an after-the-fact flexible budget.
a. $13,000 U
b. $13,100 F
c. $11,000 U
d. $1,000 F
e. None of these.
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143. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
Variable rate per
Overhead item Fixed Cost direct labor hour
Maintenance $10,000 $ 3.00
Power $ 1,500 $ 0.30
Indirect labor cost $12.00
Equipment lease $ 7,000
Total $18,500 $15.30
Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units
were produced with the following actual costs:
Overhead item Actual costs
Maintenance $14,000
Power $ 2,200
Indirect labor cost $70,000
Equipment lease $ 7,000
Total costs $93,200
Using an after-the-fact flexible budget, calculate the variance for power.
a. $1,000 F
b. $1,010 U
c. $3,000 U
d. $1,010 F
e. None of these.
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144. Which of the following is true of goal congruence?
a. The alignment of managerial and organizational goals is often referred to as goal congruence.
b. Goal congruence occurs when a manager takes actions that improve budgetary performance in the short run but
bring long-run harm to the firm.
c. Participative budgeting usually results in a lower goal congruence..
d. Goal congruence occurs when top management has total control of the budgeting process, allowing only
superficial participation from lower-level managers.
e. An ideal budgetary system fails to achieve complete goal congruence and, simultaneously, leads to negative
behavior.
145. Which of the following is true of budgetary slack?
a. Budgetary slack occurs when a manager deliberately underestimates revenues or overestimates costs in order to
make budgeted expectations more easily achievable in the future.
b. Budgetary slack occurs when top management has total control of the budgeting process, allowing only
superficial participation from lower-level managers.
c. It occurs when top management simply obtains formal acceptance of the budget from subordinate managers
without seeking real input.
d. It reflects operating realities such as actual level of activity, seasonal variations, and general economic trends.
e. None of these
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146. Which of the following is true of myopic behavior?
a. Increased spending on research and development is a possible example of myopic behavior.
b. Budgetary measures alone can prevent myopic behavior.
c. Short-term nonfinancial measures contain myopic behavior.
d. It occurs when a manager takes actions that improve budgetary performance in the short run but bring long-run
harm to the firm.
e. Buying cheaper materials of the same quality to decrease the amount spent on raw materials results in myopic
behavior.
147. Which of the following is an advantage of participative budgeting?
a. It ensures only superficial participation from lower-level managers.
b. It rules out the possibility of building budgetary slack.
c. It helps managers to set the budgets that are either too loose or too tight.
d. It fosters a sense of responsibility and encourages creativity.
e. There are no advantages of participative budgeting.
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148. Which of the following is true of participative budgeting?
a. It always reflects operating realities such as actual levels of activity and seasonal variances.
b. It gives an opportunity to build slack into the budgets.
c. It results in achieving maximum organizational efficiency.
d. It is only in use by large firms that need to prepare cash budgets.
e. It can only be used by small firms.
149. Traditional organization theory uses which of the following to motivate workers?
a. Bonuses
b. Self-esteem
c. Nature of the work itself
d. Increased responsibility
e. Job satisfaction
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Completion
150. __________________ is looking ahead to see what actions should be taken to realize particular goals.
151. The ________________ plots a direction for an organization’s future activities and operations; it generally covers at
least five years.
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152. Budgets improve _________________.
153. The _________________ is the comprehensive financial plan for the organization as a whole.
154. A __________________ is a moving 12-month budget.
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155. The controller of the company usually serves as the __________________.
156. The cash budget and budgeted balance sheet are part of the ________________.
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157. The _______________ tells how many units must be produced to meet sales needs and to satisfy ending inventory
requirements.
158. The __________________ shows the expected cost of all production costs other than direct materials and direct
labor.
159. Salaries expense, advertising expense and depreciation expense would be included in the ______________________
budget.
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160. The basic structure of a ______________ includes cash receipts, cash disbursements, any excess or deficiency of
cash, and financing.
161. _________________ consists of beginning cash balance and the expected cash receipts.
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162. A _____________________ compares actual costs with budgeted costs.
163. A _______________ is a budget created in advance that is based on a particular level of activity.
164. A _________________ enables a firm to compute expected costs for a range of activity levels.
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165. Budgeted costs change because total variable costs go up as output increases, therefore flexible budgets are
sometimes referred to as _______________.
166. A difference between the actual amount and the flexible budget amount is known as the ____________________.
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167. The ____________________ budget gives expected outcomes for a range of activity levels.
168. The ________________ budget is based on the actual level of activity.
169. Often, the flexible budget formulas are based on ________________ instead of units.
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170. ______________ are the means an organization uses to influence a manager to exert effort to achieve an
organization’s goals.
171. ____________________ is individual behavior that is in basic conflict with the goals of the organization.
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172. _________________ are used to ensure that budgeted costs can be realistically compared with costs for actual levels
of activity.
173. _____________________ allows subordinate managers considerable say in how the budgets are established.
174. Examples of ________________ include job enrichment, increased responsibility and autonomy, and recognition
programs.
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175. ___________________ exists when a manager deliberately underestimates revenues or overestimates cost in an
effort to make the future period appear less attractive in the budget than they think it will be in reality.
176. When top management assumes total control of the budgeting process and only seeks superficial participation from
lower-level managers this is known as ________________.
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177. The alignment of managerial and organizational goals is often referred to as _______________.
178. Pseudoparticipation