To prepare the sales budget, multiply the forecasted sales units by the budgeted sales
price per unit.
The formula for the production budget is Budgeted Sales + Budgeted Beginning
Inventory – Budgeted Ending Inventory = Budgeted Production.
Offshoring means moving a company ‘s business processes to a foreign country.
Before a manager decides to drop an unprofitable customer, the manager should
evaluate all the implications of the action for the affected customer, for other customers,
and for the company.
The standard cost of labor consists of two components: standard quantity of direct labor
hours allowed for actual production and standard direct labor rate per hour.
In interpreting a statement of cash flows, excessive sales of property, plant and
equipment combined with a lack of cash from financing activities may indicate that the
company is selling productive assets to raise cash to cover operating expenses which, in
the long run, will limit future growth.
Costs incurred in a process costing system include direct material, direct labor and
overhead.
The fixed overhead spending variance is the difference between actual fixed overhead
cost and budgeted fixed overhead cost.
Activity-based costing is a costing technique that assigns costs to cost objects such as
products or customers, based on the activities those cost objects require.
Managerial accounting information provides feedback about how well the organization
is implementing its strategy and achieving its goals.
Budgetary slack is more common in a top-down approach to budgeting than in a
bottom-up approach.
Earnings per share, although taken from accounting reports, is a qualitative measure.
A key component of a positive ethical environment is
a.Legal requirements.
b.Regulatory requirements.
c.Industry requirement.
d.Tone at the top, or management ‘s commitment to ethical behavior.
Information from the manufacturing overhead budget flows to the
a. Ending inventory and costs of goods sold budget.
b. Cash budget.
c. Both to the ending inventory and costs of goods sold budget and to the cash budget.
d. Neither to the ending inventory and costs of goods sold budget nor to the cash
budget.
Which of the following is not a step in using activity-based costing?
a. Identify selling activities
b. Calculate activity cost pool rates
c. Calculate a predetermined overhead rate
d. Calculate customer profitability
Which of the following is typically held responsible for direct labor rate variances?
a. The human resources manager
b. The controller
c. The production manager
d. The line supervisor in the factory
Using the direct method of preparing the statement of cash flows, which of the
following information must we have to adjust the reported revenues and expenses?
a. The income statement only
b. The balance sheet only
c. Both the income statement and the balance sheet
d. Neither the income statement nor the balance sheet
EverGreen Company sells two types of air filters, Standard and Deluxe. The Standard
filter has a contribution margin of $10 while the Deluxe has a contribution margin of
$24. EverGreen sells 5 Standard filters to every 1 Deluxe filter. If fixed costs total
$148,000, how many Standard and Deluxe filters must be sold to breakeven?
a. 10,000 Standard; 2,000 Deluxe
b. 9,280 Standard; 2,300 Deluxe
c. 4,353 Standard; 6,167 Deluxe
d. 14,800 Standard; 6,167 Deluxe
When will the price/earnings ratio change?
a. At the end of each year.
b. Every time dividends are paid.
c. Every time a share of stock is traded.
d. Every time the stock price changes.
In a survey of global business executives, what percentage did Bain & Company find
were using a balanced scorecard?
a.Almost 50%
b.Almost 70%
c.Almost 75%
d.Almost 25%
The income statement for Otto Construction Company appears below:
Average total assets total $240,000. Otto’s income tax rate is 25%.
What is the return on assets?
a. 15.6%
b. 15.8%
c. 16.8%
d. 17.6%
Preparing a budget does not allow managers to
a. Eliminate any variances that would have been created without a budget.
b. Help divisions within the organization to communicate with one another.
c. Assess whether a division ‘s strategic direction is in line with corporate strategy.
d. All of these answer choices are things which preparing a budget allows managers to
do.
Which of the following is not used in the calculation of the direct labor rate variance?
a. Standard wage rate
b. Actual wage rate
c. Standard hours worked
d. Actual hours worked
The gross margin percentage is calculated as
a. Gross margin divided by cost of goods sold.
b. Gross margin divided by net sales revenue.
c. Gross margin divided by net income.
d. Net income divided by gross margin.
A manager who is responsible for both the revenue and the costs incurred in generating
a product or service is managing a
a. Cost center.
b. Product center.
c. Profit center.
d. Investment center.
The formula for calculating ROI is
a. Segment margin divided by internal rate of return.
b. Internal rate of return divided by average operating assets.
c. Operating income divided by average operating assets.
d. None of these answer choices are correct.
Paul Benny picked up the monthly report that Eve Lynch left on his desk. He was
pleased to see the favorable variance for operating income. He had pushed hard to
exceed budgeted monthly production by 325 units. But, Paul was puzzled by some of
line items in the report. He wonders whether it’s an error that most of the operating
expenses are higher than the budget after all his hard work to manage the production
line to improve efficiency and reduce costs. The report Paul reviewed is shown below:
Paul called Eve into his office to discuss all the unfavorable variances in the operating
costs. Paul is very confused about how the budgeted operating income for the month is
favorable, and yet there are so many unfavorable variances on the operating costs. Eve
has promised Paul to investigate and report back any findings. Eve has also gathered the
following additional information about the month’s performance.
-Direct materials purchased: 132,600 pounds at a total of $729,300
-Direct materials used: 132,600 pounds
-Direct labor hours worked: 34,450 at a total cost of $347,945
-Machine hours used: 53,235
Eve also found the standard cost card for a unit of product.
Required
a. Calculate the direct material price variance for the month.
b. Calculate the direct material quantity variance for the month.
c. Calculate the direct labor rate variance for the month.
d. Calculate the direct labor efficiency variance for the month.
e. Calculate the variable overhead spending variance for the month.
f. Calculate the variable overhead efficiency variance for the month.
g. Calculate the fixed overhead spending variance for the month.
h. Prepare a performance report that will assist Lexi in evaluating her efforts to control
production costs.
i. Based on your review of the performance report you prepared, do you think Lexi did
a good job of controlling production expenses during the month? Why or why not?
At the breakeven point the total contribution margin equals
a. Gross margin.
b. Variable costs.
c. Fixed costs.
d. Total costs.
The goal of the cost center manager is to minimize total costs and to maximize profit.
Cost-plus pricing implies that the cost of the seller’s operational inefficiencies should be
borne by the customer.
Discuss the importance of ethical behavior in managerial accounting
What are two tradeoffs between ideal standards and practical standards that a student
might be willing to accept for a Principles of Accounting class?
Variable and fixed selling expenses are incurred regardless of the level of sales.
Another way of evaluating a company’s performance is to compare it to other
companies. This is called benchmarking.
Required:
Explain benchmarking, including its definition, goal, and the items that benchmarking
focuses on.
Prepare the operating budget and describe the relationships among its components.