Final Exam

Question 1

Cash budgets are often prepared how often?

Answer 1

Monthly or even weekly

Question 2

A performance budget compares

Answer 2

actual costs with budgeted costs

Question 3

Variable overhead variance is affected by

Answer 3

input price changes and efficiency

Question 4

Materials price variance formula

Answer 4

= (AP x AQ) - (SP x AQ)

Question 5

On a segmented income statement, fixed costs are

Answer 5

broken down into direct fixed costs and common fixed costs

Question 6

Fixed overhead volume variance is

Answer 6

=AFOH - BFOH

Question 7

Turnover forumla

Answer 7

= sales / average operating assets

Question 8

Normal sequence for budget preparations

Answer 8

Sales Budget, Budgeted Income Statement, Budgeted Balance Sheet

Question 9

Required production =

Answer 9

= budgeted sales - beginning inventory + desired ending inventory

Question 10

Margin formula

Answer 10

= net operating income / sales

Question 11

A top-down approach to budgeting is one that is

Answer 11

imposed

Question 12

Formula for budgeted raw materials purchases

Answer 12

= materials needed for prod + ending raw materials - beginning raw materials inventory

Question 13

Budgeted direct labor hours

Answer 13

Budgeted production units x direct labor requirements per unit

Question 14

Purpose of a cash budget

Answer 14

help managers plan ahead to make certain they will have enough cash on hand to meet operating needs

Question 15

How to make a cash budget

Answer 15

Beginning cash balance + Budgeted cash collections - Budgeted cash payments +/-
Cash borrowed or repaid = Ending cash balance

Question 16

Comparing the master budget with the flexible budget creates

Answer 16

a volume variance

Question 17

Standard cost systems depend on which 2 types of standards?

Answer 17

Quantity and Price

Question 18

Labor efficiency variance formula

Answer 18

= SR x (SH - AH)

Question 19

Fixed overhead volume variance is

Answer 19

the difference between applied fixed overhead and budgeted fixed overhead

Question 20

Rate variance

Answer 20

= AH x (SR - AR)

Question 21

Cost center

Answer 21

responsibility center in which the manger does NOT have responsibility and authority over revenues

Question 22

Investment center

Answer 22

responsibility center in which the manager has responsibility and authority over revenues, costs and assets

Question 23

ROI formula

Answer 23

= operating income / average invested assets

= margin * turnover

Question 24

Profit margin

Answer 24

= operating income / sales revenue

Question 25

Turnover

Answer 25

= sales revenue / average invested assets

Question 26

If the ROI of a project is greater than the hurdle rate, the residual income will be

Answer 26

greater than zero

Question 27

Hurdle rate

Answer 27

minimum required return

Question 28

Transfer price

Answer 28

= additional cost outlay - opportunity cost per unit

Question 29

Residual Income (RI) formula

Answer 29

= operating income - (hurdle rate * operating assets)

Question 30

RI greater than zero

Answer 30

company is earning more than minimal rate of return

Question 31

Economic Value Added (EVA)

Answer 31

= net income after taxes - (cost of capital * total capital employed)

Question 32

Positive EVA

Answer 32

creating economic wealth

Question 33

Negative EVA

Answer 33

not generating enough after tax profit to cover cost of capital

Question 34

Decentralization benefits

Answer 34

frees up sr mgmt time, breaks big problems into smaller pieces, supports use of expert knowledge, improves customer relations, leads to faster decision making, improves motivation and retention, provides training

Question 35

Decentralization cons

Answer 35

duplication of costs, goal incongruence, suboptimal decision making

Question 36

ending finished goods budget supplies information needed for the

Answer 36

cost of goods sold budget

Question 37

Increasing sales will ___ the ROI (all else constant)

Answer 37

increase

Question 38

A revenue variance is favorable if

Answer 38

the actual revenue exceeds what the revenue should have been for the actual level of activity of the period.

Question 39

Contribution income statements are used to measure the performance of

Answer 39

both profit centers and investment centers

Question 40

Spending Variance is composed of

Answer 40

Budget v Actuals On manufacturing: Quantity variance and price variance On labor: Rate variance and hours variance

Question 41

Material price variances arise from

Answer 41

Untaken purchase discounts Using a different (better/worse)quality material Changes in market demand/supply Great/Poor negotiation by the procurement staff Better purchasing procedures, multiple bids Larger order better discount

Question 42

Material efficiency variances arise from

Answer 42

``` More experienced or inexperienced workers Lower or higher quality material Not making allowance for defects Workforce training Process automation/outdated equipment ```

Question 43

Labor price variances arise from

Answer 43

Overall wage rates rise or fall Hiring of more/less skilled labor (See offset in efficiency variance) Bad budgeting Ineffective/effective union negotiations

Question 44

Labor efficiency variances arise from

Answer 44

Hiring of more/less skilled labor Lower or higher quality material Higher or lower learning curve than anticipated Workforce training in improved production techniques Poor staff morale and motivation Excess idle time not charged correctly

Question 45

Transfer price when capacity is available

Answer 45

variable price

Question 46

Transfer price when operating at full capacity

Answer 46

selling price