Question 1

An investment opportunity with a residual income that equals or exceeds the company's required rate of return should be accepted.

Accepted Answer

A) True 
 B)False

Question 2

An important disadvantage of decentralization is that managers may engage in suboptimal behavior.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not typically found in a decentralized organization?

Accepted Answer

A)  Cost center 
B)  Decision center 
C)  Investment center 
D)  Profit center 
A)  Cost center 
B)  Decision center 
C)  Investment center 
D)  Profit center

Question 4

When would a variance be labeled as favorable?

Accepted Answer

A)  When actual costs are less than standard costs 
B)  When standard costs are equal to actual costs 
C)  When standard costs are less than actual costs 
D)  When estimated costs are greater than actual costs 
A)  When actual costs are less than standard costs 
B)  When standard costs are equal to actual costs 
C)  When standard costs are less than actual costs 
D)  When estimated costs are greater than actual costs

Question 5

Select the correct statement regarding flexible budgets.

Accepted Answer

A)  A flexible budget can only be prepared for a single level of activity. 
B)  A flexible budget is not used for planning. 
C)  A flexible budget shows expected revenues and costs at a variety of activity levels. 
D)  A flexible budget is also known as the master budget. 
A)  A flexible budget can only be prepared for a single level of activity. 
B)  A flexible budget is not used for planning. 
C)  A flexible budget shows expected revenues and costs at a variety of activity levels. 
D)  A flexible budget is also known as the master budget.

Question 6

Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year:   Terra Company has set a target return on investment (ROI) of 15% for both divisions. Based on ROI, which division appears to have performed better?

Accepted Answer

A)  Retail division. 
B)  Wholesale division. 
C)  Both divisions have the same results. 
D)  The answer cannot be determined using the information provided. 
A)  Retail division. 
B)  Wholesale division. 
C)  Both divisions have the same results. 
D)  The answer cannot be determined using the information provided.

Question 7

Clear lines of authority and responsibility are essential to establishing a responsibility accounting system.

Accepted Answer

A) True 
 B)False

Question 8

Burruss Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 8,000 units:   If actual production totals 10,000 units which is within the relevant range, the flexible budget would show fixed costs of:

Accepted Answer

A)  $16,000. 
B)  $2 per unit. 
C)  $20,000. 
D)  None of these answers is correct. 
A)  $16,000. 
B)  $2 per unit. 
C)  $20,000. 
D)  None of these answers is correct.

Question 9

Brookings Company evaluates its managers on the basis of return on investment. Division Three has a return on investment (ROI) of 15% while the company as a whole has an ROI of only 10%. Which of the following performance measures will motivate the manager of Division Three to accept a project earning a 12% return?

Accepted Answer

A)  ROI 
B)  Residual income 
C)  Both ROI and residual income will motivate the manager to accept the project. 
D)  Neither ROI nor residual income will motivate the manager to accept the project. 
A)  ROI 
B)  Residual income 
C)  Both ROI and residual income will motivate the manager to accept the project. 
D)  Neither ROI nor residual income will motivate the manager to accept the project.

Question 10

Contribution margin would be the most important variable in evaluating the performance of:

Accepted Answer

A)  A cost center. 
B)  A production center. 
C)  An investment center. 
D)  A profit center. 
A)  A cost center. 
B)  A production center. 
C)  An investment center. 
D)  A profit center.

Question 11

The sales volume variance is favorable if actual sales volume is higher than the budgeted.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements about residual income is true?

Accepted Answer

A)  Residual income = Operating Income − Sales 
B)  Residual income = Operating Income − Operating Assets 
C)  Residual income is the amount of income in excess of a target or desired return on investment 
D)  None of these. 
A)  Residual income = Operating Income − Sales 
B)  Residual income = Operating Income − Operating Assets 
C)  Residual income is the amount of income in excess of a target or desired return on investment 
D)  None of these.

Question 13

Management by exception means that only unfavorable cost variances are investigated.

Accepted Answer

A) True 
 B)False

Question 14

The general formula for return on investment is revenue divided by investment in assets.

Accepted Answer

A) True 
 B)False

Question 15

An organizational unit of a business that incurs costs and generates revenues is known as a(n):

Accepted Answer

A)  Cost center. 
B)  Sales center. 
C)  Profit center. 
D)  Investment center. 
A)  Cost center. 
B)  Sales center. 
C)  Profit center. 
D)  Investment center.

Question 16

A restaurant that is part of a retail store and managed by the retail manager would most likely be classified as a cost center.

Accepted Answer

A) True 
 B)False

Question 17

When using residual income as a project-screening tool, management should accept a project if the residual income is:

Accepted Answer

A)  positive. 
B)  negative. 
C)  equals the ROI. 
D)  greater than net income. 
A)  positive. 
B)  negative. 
C)  equals the ROI. 
D)  greater than net income.

Question 18

In an optimal responsibility accounting system, managers are evaluated on only the revenues and costs that are under their control.

Accepted Answer

A) True 
 B)False

Question 19

The following standard cost card is provided for Navid Company's Product A:   The fixed overhead rate is based on total budgeted fixed overhead of $12,000. During the period, the company produced and sold 5,800 units at the following costs:
Direct material 12,200 pounds @ $4.80 per pound
Direct labor 5,950 hours @ $8.00 per hour
Overhead $29,920
The standard manufacturing cost per unit is $23.00. What is the actual manufacturing cost per unit? (Do not round intermediate calculations.)

Accepted Answer

A)  $23.46. 
B)  $36.16. 
C)  $17.96. 
D)  Cannot be determined from the information provided. 
A)  $23.46. 
B)  $36.16. 
C)  $17.96. 
D)  Cannot be determined from the information provided.

Question 20

Select the incorrect statement regarding flexible budgets.

Accepted Answer

A)  Flexible budgets often show the estimated revenues and costs at multiple volume levels. 
B)  A flexible budget is used to compare actual to budgeted amounts. 
C)  A flexible budget is also known as a master budget. 
D)  Standard prices and costs are used in preparing a flexible budget. 
A)  Flexible budgets often show the estimated revenues and costs at multiple volume levels. 
B)  A flexible budget is used to compare actual to budgeted amounts. 
C)  A flexible budget is also known as a master budget. 
D)  Standard prices and costs are used in preparing a flexible budget.

An investment opportunity with a residual income that equals or exceeds the company's required rate of return should be accepted.

An important disadvantage of decentralization is that managers may engage in suboptimal behavior.

Which of the following is not typically found in a decentralized organization?

When would a variance be labeled as favorable?

Select the correct statement regarding flexible budgets.

Clear lines of authority and responsibility are essential to establishing a responsibility accounting system.

Burruss Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 8,000 units: If actual production totals 10,000 units which is within the relevant range, the flexible budget would show fixed costs of:

Contribution margin would be the most important variable in evaluating the performance of:

The sales volume variance is favorable if actual sales volume is higher than the budgeted.

Which of the following statements about residual income is true?

Management by exception means that only unfavorable cost variances are investigated.

The general formula for return on investment is revenue divided by investment in assets.

An organizational unit of a business that incurs costs and generates revenues is known as a(n):

A restaurant that is part of a retail store and managed by the retail manager would most likely be classified as a cost center.

When using residual income as a project-screening tool, management should accept a project if the residual income is:

In an optimal responsibility accounting system, managers are evaluated on only the revenues and costs that are under their control.

Select the incorrect statement regarding flexible budgets.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Planning for Capital Investments

Filters

Exam 15: Performance Evaluation

An investment opportunity with a residual income that equals or exceeds the company's required rate of return should be accepted.

An important disadvantage of decentralization is that managers may engage in suboptimal behavior.

Which of the following is not typically found in a decentralized organization?

When would a variance be labeled as favorable?

Select the correct statement regarding flexible budgets.

Clear lines of authority and responsibility are essential to establishing a responsibility accounting system.

Burruss Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 8,000 units: If actual production totals 10,000 units which is within the relevant range, the flexible budget would show fixed costs of:

Contribution margin would be the most important variable in evaluating the performance of:

The sales volume variance is favorable if actual sales volume is higher than the budgeted.

Which of the following statements about residual income is true?

Management by exception means that only unfavorable cost variances are investigated.

The general formula for return on investment is revenue divided by investment in assets.

An organizational unit of a business that incurs costs and generates revenues is known as a(n):

A restaurant that is part of a retail store and managed by the retail manager would most likely be classified as a cost center.

When using residual income as a project-screening tool, management should accept a project if the residual income is:

In an optimal responsibility accounting system, managers are evaluated on only the revenues and costs that are under their control.

Select the incorrect statement regarding flexible budgets.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Planning for Capital Investments

Filters