Deck 21: Budgetary Control and Responsibility Accounting

Question 1

Flexible budgets are widely used in production and service departments.

Answer 1

True

Question 2

Policies regarding when a difference between actual and planned results should be investigated are generally more restrictive for noncontrollable items than for controllable items.

Answer 2

False

Question 3

A flexible budget is a series of static budgets at different levels of activities.

Answer 3

True

Question 4

Management by exception means that management will investigate areas where actual results differ from planned results if the items are material and controllable.

Question 5

If actual results are different from planned results, the difference must always be investigated by management to achieve effective budgetary control.

Question 6

A static budget is most useful for evaluating a manager's performance in controlling variable costs.

Question 7

Certain budget reports are prepared monthly, whereas others are prepared more frequently depending on the activities being monitored.

Question 8

Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master budget.

Question 9

A distinction should be made between controllable and noncontrollable costs when reporting information under responsibility accounting.

Question 10

A flexible budget is prepared before the master budget.

Question 11

The activity index used in preparing a flexible budget should not influence the variable costs that are being budgeted.

Question 12

A formula used in developing a flexible budget is: Total budgeted cost = fixed cost + (total variable cost per unit × activity level).

Question 13

A static budget is one that is geared to one level of activity.

Question 14

Flexible budgeting relies on the assumption that unit variable costs will remain constant within the relevant range of activity.

Question 15

Budget reports comparing actual results with planned objectives should be prepared only once a year.

Question 16

A flexible budget report will show both actual and budget cost based on the actual activity level achieved.

Question 17

The master budget is not used in the budgetary control process.

Question 18

A flexible budget can be prepared for each of the types of budgets included in the master budget.

Question 19

A static budget is changed only when actual activity is different from the level of activity expected.

Question 20

A master budget is most useful in evaluating a manager's performance in controlling costs.

Question 21

A cost center incurs costs and generates revenues and cost center managers are evaluated on the profitability of their centers.

Question 22

The formula for computing return on investment is controllable margin divided by average operating assets.

Question 23

The purpose of the sales budget report is to

A)control selling expenses.
B)determine whether income objectives are being met.
C)determine whether sales goals are being met.
D)control sales commissions.

Question 24

What is budgetary control?

A)Another name for a flexible budget
B)The degree to which the CFO controls the budget
C)The use of budgets in controlling operations
D)The process of providing information on budget differences to lower level managers

Question 25

Cost centers, profit centers, and investment centers can all be classified as responsibility centers.

Question 26

The flexible budget report evaluates a manager's performance in two areas: (1) production and (2) costs.

Question 27

The purpose of the departmental overhead cost report is to

A)control indirect labor costs.
B)control selling expense.
C)determine the efficient use of materials.
D)control overhead costs.

Question 28

The manager of an investment center can improve ROI by reducing average operating assets.

Question 29

The terms controllable costs and noncontrollable costs are synonymous with variable costs and fixed costs, respectively.

Question 30

The denominator in the formula for calculating the return on investment includes operating and nonoperating assets.

Question 31

Budget reports should be prepared

A)daily.
B)monthly.
C)weekly.
D)as frequently as needed.

Question 32

In a responsibility accounting reporting system, as one moves up each level of responsibility in an organization, the responsibility reports become more summarized and show less detailed information.

Question 33

A major element in budgetary control is

A)the preparation of long-term plans.
B)the comparison of actual results with planned objectives.
C)the valuation of inventories.
D)approval of the budget by the stockholders.

Question 34

More costs become controllable as one moves down to each lower level of managerial responsibility.

Question 35

The terms "direct fixed costs" and "indirect fixed costs" are synonymous with "traceable costs" and "common costs," respectively.

Question 36

A static budget is an effective means to evaluate a manager's ability to control costs, regardless of the actual activity level.

Question 37

On the basis of the budget reports,

A)management analyzes differences between actual and planned results.
B)management may take corrective action.
C)management may modify the future plans.
D)All of these answers are correct.

Question 38

Most direct fixed costs are not controllable by the profit center manager.

Question 39

Controllable margin is subtracted from controllable fixed costs to get net income for a profit center.

Question 40

Budget reports provide the feedback needed by management to see whether actual operations are on course.

Question 41

Another name for the static budget is

A)master budget.
B)overhead budget.
C)permanent budget.
D)flexible budget.

Question 42

A department has budgeted monthly manufacturing overhead cost of $540,000 plus $3 per direct labor hour. If a flexible budget report reflects $1,044,000 for total budgeted manufacturing cost for the month, the actual level of activity achieved during the month was

A)528,000 direct labor hours.
B)168,000 direct labor hours.
C)348,000 direct labor hours.
D)Cannot be determined from the information provided.

Question 43

A flexible budget

A)is prepared when management cannot agree on objectives for the company.
B)projects budget data for various levels of activity.
C)is only useful in controlling fixed costs.
D)cannot be used for evaluation purposes because budgeted data are adjusted to reflect actual results.

Question 44

The flexible budget

A)is prepared before the master budget.
B)is relevant both within and outside the relevant range.
C)eliminates the need for a master budget.
D)is a series of static budgets at different levels of activity.

Question 45

The comparison of differences between actual and planned results

A)is done by the external auditors.
B)appears on the company's external financial statements.
C)is usually done orally in departmental meetings.
D)appears on periodic budget reports.

Question 46

A static budget

A)should not be prepared in a company.
B)is useful in evaluating a manager's performance by comparing actual variable costs and planned variable costs.
C)shows planned results at the original budgeted activity level.
D)is changed only if the actual level of activity is different than originally budgeted.

Question 47

Top management's reaction to a difference between budgeted and actual sales often depends on

A)whether the difference is favorable or unfavorable.
B)whether management anticipated the difference.
C)the materiality of the difference.
D)the personality of the top managers.

Question 48

Assume that actual sales results exceed the planned results for the second quarter. This favorable difference is greater than the unfavorable difference reported for the first quarter sales. Which of the following statements about the sales budget report on June 30 is true?

A)The year-to-date results will show a favorable difference.
B)The year-to-date results will show an unfavorable difference.
C)The difference for the first quarter can be ignored.
D)The sales report is not useful if it shows a favorable and unfavorable difference for the two quarters.

Question 49

A static budget report

A)shows costs at only 2 or 3 different levels of activity.
B)is appropriate in evaluating a manager's effectiveness in controlling variable costs.
C)should be used when the actual level of activity is materially different from the master budget activity level.
D)may be appropriate in evaluating a manager's effectiveness in controlling costs when the behavior of the costs in response to changes in activity is fixed.

Question 50

Boland Manufacturing prepared a 2016 budget for 120,000 units of product. Actual production in 2016 was 130,000 units. To be most useful, what amounts should a performance report for this company compare?

A)The actual results for 130,000 units with the original budget for 120,000 units.
B)The actual results for 130,000 units with a new budget for 130,000 units.
C)The actual results for 130,000 units with last year's actual results for 134,000 units.
D)It doesn't matter.All of these choices are equally useful.

Question 51

What is the primary difference between a static budget and a flexible budget?

A)The static budget contains only fixed costs, while the flexible budget contains only variable costs.
B)The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
C)The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management.
D)The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold.

Question 52

If costs are not responsive to changes in activity level, then these costs can be best described as

A)mixed.
B)flexible.
C)variable.
D)fixed.

Question 53

When budgeted and actual results are not the same amount, there is a budget

A)error.
B)difference.
C)anomaly.
D)by-product.

Question 54

A flexible budget can be prepared for which of the following budgets comprising the master budget?

A)Sales
B)Overhead
C)Direct materials
D)All of these answers are correct.

Question 55

The master budget of Windy Co. shows that the planned activity level for next year is expected to be 50,000 machine hours. At this level of activity, the following manufacturing overhead costs are expected: $$\begin{array} { l r } \text { Indirect labor } & \$ 720,000 \\\text { Machine supplies } & 180,000 \\\text { Indirect materials } & 210,000 \\\text { Depreciation on factory building } & 150,000 \\\text { Total manufacturing overhead } & \$1 , 260,000\end{array}$$ A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead costs of

A)$1,482,000.
B)$1,260,000.
C)$1,512,000.
D)$1,362,000.

Question 56

What budgeted amounts appear on the flexible budget?

A)Original budgeted amounts at the static budget activity level
B)Actual costs for the budgeted activity level
C)Budgeted amounts for the actual activity level achieved
D)Actual costs for the estimated activity level

Question 57

In developing a flexible budget within a relevant range of activity,

A)only fixed costs are included.
B)it is necessary to relate variable cost data to the activity index chosen.
C)it is necessary to prepare a budget at 1,000 unit increments.
D)variable and fixed costs are combined and are reported as a total cost.

Question 58

A static budget is appropriate for

A)variable overhead costs.
B)direct materials costs.
C)fixed overhead costs.
D)None of these answers are correct.

Question 59

A static budget is appropriate in evaluating a manager's performance if

A)actual activity closely approximates the master budget activity.
B)actual activity is less than the master budget activity.
C)the company prepares reports on an annual basis.
D)the company is a not-for-profit organization.

Question 60

Which one of the following would be the same total amount on a flexible budget and a static budget if the activity level is different for the two types of budgets?

A)Direct materials cost
B)Direct labor cost
C)Variable manufacturing overhead
D)Fixed manufacturing overhead

Question 61

Under management by exception, which differences between planned and actual results should be investigated?

A)Material and noncontrollable
B)Controllable and noncontrollable
C)Material and controllable
D)All differences should be investigated

Question 62

Smart Manufacturing budgeted costs for 50,000 linear feet of block are: $\begin{array}{lr}\text {Fixed manufacturing costs }&\text {\( \$ 24,000 \) per month }\\\text {Variable manufacturing costs }&\text {\( \$ 16.00 \) per line ar foot }\\\end{array}$
Smart installed 40,000 linear feet of block during March. How much is budgeted total manufacturing costs in March?

A)$640,000
B)$824,000
C)$800,000
D)$664,000

Question 63

For June, Gold Corp. estimated sales revenue at $600,000. It pays sales commissions that are 4% of sales. The sales manager's salary is $285,000, estimated shipping expenses total 1% of sales, and miscellaneous selling expenses are $15,000. How much are budgeted selling expenses for the month of July if sales are expected to be $540,000?

A)$42,000
B)$327,000
C)$27,000
D)$330,000

Question 64

Management by exception

A)causes managers to be buried under voluminous paperwork.
B)means that all differences will be investigated.
C)means that only unfavorable differences will be investigated.
D)means that material differences will be investigated.

Question 65

If a company plans to sell 48,000 units of product but sells 60,000, the most appropriate comparison of the cost data associated with the sales will be by a budget based on

A)the original planned level of activity.
B)54,000 units of activity.
C)60,000 units of activity.
D)48,000 units of activity.

Question 66

A flexible budget depicted graphically

A)is identical to a CVP graph.
B)differs from a CVP graph in the way that fixed costs are shown.
C)differs from a CVP graph in the way that variable costs are shown.
D)differs from a CVP graph in that sales revenue is not shown.

Question 67

The activity index used in preparing the flexible budget

A)is prescribed by generally accepted accounting principles.
B)is only applicable to fixed manufacturing costs.
C)is the same for all departments.
D)should significantly influence the costs that are being budgeted.

Question 68

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: $\begin{array}{lrlr}\text { Variable }&&\text { Fixed }\\\hline\text { Indirect materials } & \$ 140,000 & \text { Depreciation } & \$ 60,000 \\\text { Indirect labor } & 200,000 & \text { Taxes } & 10,000 \\\text { Factory supplies } & 20,000 & \text { Supervision } & 50,000\end{array}$ A flexible budget prepared at the 80,000 machine hours level of activity would show total manufacturing overhead costs of

A)$288,000.
B)$360,000.
C)$384,000.
D)$408,000.

Question 69

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the manufacturing overhead costs shown: $\begin{array}{lrlr}\text { Variable }&&\text { Fixed }\\\hline \text { Indirect materials } & \$ 120,000 & \text { Depreciation } & \$ 50,000 \\\text { Indirect labor } & 160,000 & \text { Taxes } & 10,000 \\\text { Factory supplies } & 20,000 & \text { Supervision } & 40,000\end{array}$ A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of

A)$270,000.
B)$360,000.
C)$370,000.
D)$300,000.

Question 70

In the Dichter Co., indirect labor is budgeted for $72,000 and factory supervision is budgeted for $24,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs is

A)$96,000.
B)$108,000.
C)$105,000.
D)$99,000.

Question 71

Chambers, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $64,000 variable and $180,000 fixed. If Chambers had actual overhead costs of $250,000 for 18,000 units produced, what is the difference between actual and budgeted costs?

A)$2,000 unfavorable.
B)$2,000 favorable.
C)$6,000 unfavorable.
D)$8,000 favorable.

Question 72

In the Goblette Manufacturing Company, indirect labor is budgeted for $108,000 and factory supervision is budgeted for $36,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs is:

A)$144,000.
B)$162,000.
C)$157,500.
D)$148,500.

Question 73

Best Shingle's budgeted manufacturing costs for 50,000 squares of shingles are: $\begin{array}{lr}\text {Fixed manufacturing costs }&\text { \( \$ 12,000 \)}\\\text {Variable manufacturing costs }&\text {\( \$ 16.00 \) per square }\\\end{array}$
Best produced 40,000 squares of shingles during March. How much are budgeted total manufacturing costs in March?

A)$640,000
B)$812,000
C)$800,000
D)$652,000

Question 74

Sales results that are evaluated by a static budget might show
1. favorable differences that are not justified.
2. unfavorable differences that are not justified.

A)1
B)2
C)both 1 and 2.
D)neither 1 nor 2.

Question 75

Shane Industries prepared a fixed budget of 60,000 direct labor hours, with estimated overhead costs of $300,000 for variable overhead and $90,000 for fixed overhead. Shane then prepared a flexible budget at 57,000 labor hours. How much is total overhead costs at this level of activity?

A)$285,000
B)$375,000
C)$370,500
D)$390,000

Question 76

Within the relevant range of activity, the behavior of total costs is assumed to be

A)linear and upward sloping.
B)linear and downward sloping.
C)curvilinear and upward sloping.
D)linear to a point and then level off.

Question 77

Stone Industries uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $48,000 variable and $270,000 fixed. If Stone had actual overhead costs of $321,000 for 18,000 units produced, what is the difference between actual and budgeted costs?

A)$3,000 unfavorable
B)$3,000 favorable
C)$9,000 unfavorable
D)$12,000 favorable

Question 78

The selection of levels of activity to depict a flexible budget
1. will be within the relevant range.
2. is largely a matter of expediency.
3. is governed by generally accepted accounting principles.

A)1
B)2
C)3
D)1 and 2

Question 79

Nikoto Steel Co. budgeted manufacturing costs for 50,000 tons of steel are: Fixed manufacturing costs $\quad \$ 50,000$ per month
Variable manufacturing costs $\quad \$ 12.00$ per ton of steel Nikoto produced 40,000 tons of steel during March. How much is the flexible budget for total manufacturing costs for March?

A)$520,000
B)$650,000
C)$480,000
D)$530,000

Question 80

A static budget is not appropriate in evaluating a manager's effectiveness if a company has

A)substantial fixed costs.
B)substantial variable costs.
C)planned activity levels that match actual activity levels.
D)no variable costs.