Deck 11: Budgetary Control and Responsibility Accounting

Question 1

What is the purpose of a departmental overhead cost report?

A)to control corporate labour costs
B)to allocate uncontrollable costs
C)to determine the cause of any misuse of costs
D)to control overhead costs

Answer 1

D

Question 2

What exists when budgeted costs exceed actual results?

A)a budgeting error
B)a favourable difference
C)an unfavourable difference
D)an excess profit

Answer 2

B

Question 3

A manager determined that certain costs were NOT responsive to changes in activity level.What are these costs?

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

Answer 3

D

Question 4

Management by exception means that management will investigate all areas where actual results are greater than planned results.

Question 5

A static budget

A)is one that is geared to the most profitable level of activity for a company.
B)is a projection of budget data at various levels of activity.
C)considers that actual activity is often different from the level of activity expected.
D)is a projection of budget data at one level of activity.

Question 6

Which one of the following do budget reports provide for managers?

A)the cause of differences between actual and projected amounts
B)the nature of corrective action needed
C)feedback on operations
D)modification actions necessary

Question 7

Operating assets include all those listed under Assets on an investment centre's balance sheet.

Question 8

Direct fixed costs are synonymous with common costs.

Question 9

The activity index used in preparing a flexible budget should be the basis of the variable costs that are being budgeted.

Question 10

What is the purpose of the sales budget report?

A)to control the cost of selling products in a company
B)to assess whether the company is profitable or not
C)to determine why sales goals were met or not met
D)to identify differences between planned sales and actual sales and take corrective action if necessary

Question 11

Which one of the following statements describes a budget report?

A)It is the preparation of long-term plans.
B)It is a comparison of actual results with planned objectives.
C)It includes the valuation of inventories.
D)It is voted on and approved by the stockholders.

Question 12

Residual income and ROI are used as performance evaluation methods for profit centre performance.

Question 13

What should be the reaction of upper level managers when a difference between budgeted and actual sales exists?

A)The difference should be investigated if it is unfavourable.
B)The difference should be ignored since economic conditions affect sales and cannot be controlled by the company's managers.
C)It depends on whether the difference is material or not.
D)It depends on management personalities.

Question 14

How often should a company prepare budget reports?

A)as often as demanded by the stockholders
B)as often as deemed necessary
C)annually is sufficient if the company is profitable
D)monthly to be sure the company is operating successfully

Question 15

Which one of the statements below is correct concerning the comparison of differences between actual and planned results?

A)The difference must be reported on external financial statements.
B)The differences always require investigation.
C)It reflects information from the static budget.
D)It enables managers to take corrective action when differences are material.

Question 16

Which statement is true concerning a static budget report?

A)It considers performance at numerous activity levels.
B)It is appropriate in evaluating a manager's effectiveness in controlling fixed costs.
C)It should be used when the actual level of activity is materially different from the master budget activity level.
D)It is most effective when evaluating a manager's effectiveness in controlling variable costs.

Question 17

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

Question 18

When is a static budget most appropriate in evaluating a manager's performance?

A)when the actual costs incurred equal the amounts in the budget
B)when the actual activity is less than the master budget activity
C)when the company performed at the same activity level as the static budget level
D)The static budget is not appropriate for evaluating managers.

Question 19

Cost centre managers are evaluated on the profitability of their centres.

Question 20

Which one of the following is true concerning a static budget?

A)It is prepared at the end of the accounting period once actual results are known.
B)It is useful in evaluating a manager's performance by comparing actual variable costs and planned variable costs.
C)It shows planned results at the original budgeted activity level.
D)It reflects the level of activity at which the company will be most profitable.

Question 21

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours:
$$\begin{array} { l l } \text { Direct Materials } & \$ 4 5 0 , 0 0 0 \\\text { Direct Labour } & 2 2 5 , 0 0 0 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 100,000\end{array}$$ $$\begin{array} { l l } \text { Actual Results: } & \\\text { Machine Hours } & 160,000 \text { hours } \\\text { Direct Materials } & \$ 475,000 \\\text { Direct Labaur } & 2 4 5 , 000 \\\text { Variable Overhead } & 1,150,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 110,000\end{array}$$

-What possible reason could explain the difference between the actual fixed overhead costs and the budgeted fixed overhead costs?

A)EKPN Company's actual machine hours were greater than the budgeted amount.
B)EKPN Company's actual machine hours were less than the budgeted amount.
C)EKPN Company spent more on fixed costs than it expected.
D)EKPN Company spent less on fixed costs than expected.

Question 22

A characteristic of a good budget is

A)that it is easy to understand by top management.
B)that is encompasses every account in the firm's accounting system.
C)that management is satisfied that it will provide shareholders with an adequate return on their investment.
D)that it is easy to understand and communicate to all within the firm.

Question 23

A flexible budget

A)is not as useful in evaluating a manager's performance as a static budget.
B)can be prepared for each of the types of budgets included in the master budget.
C)relies on the assumption that unit fixed costs will remain constant within the relevant range of activity.
D)reflects budget data for one level of activity only.

Question 24

Haroot Company's master budget shows that the planned activity level for next year is expected to be 20,000 machine hours.At this level of activity, the following manufacturing overhead costs are expected: $$\begin{array} { l l } \text { Indirect labour } & \$ 45,000 \\\text { Factory supplies } & 4,000 \\\text { Indirect materials } & 2 1 , 0 0 0 \\\text { Depreciation on factory building } &\underline{ 15,000 }\\ \text { Total manufactuing overhead } &\underline{\$85,000}\end{array}$$ Indirect labour, factory supplies, and indirect materials are variable costs.If the company operates at 21,000 machine hours, how much is allowed on a flexible budget for manufacturing overhead costs?

A)$89,250
B)$73,500
C)$88,500
D)$85,000

Question 25

Budgetary control means

A)that once a budget is agreed to by management there can be no deviation from it.
B)that once a budget is agreed to the controller of the company is now in charge of cost and profit controls.
C)that the difference between actual results and budgeted results are reported and assessed over time.
D)that the budget can be changed during the year to reflect actual results.

Question 26

Yellow Card Company compared its actual sales results with a static budget.Which of the following situations might result?

A)favourable differences that are not justified
B)unfavourable differences that are not justified
C)either favourable or unfavourable differences that are not justified
D)actual differences that are justified

Question 27

For which of the following costs is a static budget most appropriate?

A)uncontrollable costs
B)manufacturing costs
C)fixed overhead costs
D)variable overhead costs

Question 28

A flexible budget

A)is not based on the master budget.
B)is widely used in production departments, and least used in service departments.
C)report will compare actual costs with the budgeted costs at the actual activity level achieved.
D)cannot be prepared for each of the types of budgets included in the master budget.

Question 29

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours:
$$\begin{array} { l l } \text { Direct Materials } & \$ 4 5 0 , 0 0 0 \\\text { Direct Labour } & 2 2 5 , 0 0 0 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 100,000\end{array}$$ $$\begin{array} { l l } \text { Actual Results: } & \\\text { Machine Hours } & 160,000 \text { hours } \\\text { Direct Materials } & \$ 475,000 \\\text { Direct Labaur } & 2 4 5 , 000 \\\text { Variable Overhead } & 1,150,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 110,000\end{array}$$

-What is the budgeted direct labour cost at the actual level of activity?

A)$245,000
B)$240,000
C)$210,938
D)$20,000

Question 30

Dunellon Company's actual sales results exceeded the planned results for February.This amount exceeded the amount of an unfavourable difference reported for January sales.Which one of the following statements about the sales budget report for the two months ending February 28 is true?

A)The sales report is not useful since it shows a favourable and unfavourable difference for the two months.
B)The differences for the two months will offset each other so the differences should not be a concern.
C)The difference for February can be ignored since it is favourable.
D)The differences for both months should be investigated if the amounts are material.

Question 31

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 32

A static budget offers management the best results when

A)variable material costs are fixed by suppliers to the company.
B)fixed selling costs are established at the start of the budget process.
C)fixed manufacturing costs are established at the start of the budget process.
D)fixed manufacturing, selling, and administrative costs are established at the start of the budget process.

Question 33

In what situations will a static budget be most effective in evaluating a manager's effectiveness?

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

Question 34

Which one of the following is another name for the static budget?

A)flexible budget
B)operating budget
C)permanent budget
D)master budget

Question 35

Kilroy Manufacturing prepared a 2020 budget for 40,000 units of product.Actual production in 2020 was 41,000 units.Which one of the following is the most useful comparison for this company?

A)the actual results for 41,000 units with a new budget for 41,000 units
B)the actual results for 41,000 units with the original budget for 40,000 units
C)the actual results for 41,000 units with the previous year's actual results for 44,000 units
D)It doesn't matter.All of these choices are equally useful.

Question 36

Which one of the following is a reason that a company may have significant deviations from budgeted performance?

A)Actual results were compared to flexible budget amounts instead of static budget amounts.
B)The budget was approved by the budget committee.
C)Economic conditions may have changed since the plan was developed.
D)A company has substantial variable costs.

Question 37

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours:
$$\begin{array} { l l } \text { Direct Materials } & \$ 4 5 0 , 0 0 0 \\\text { Direct Labour } & 2 2 5 , 0 0 0 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 100,000\end{array}$$ $$\begin{array} { l l } \text { Actual Results: } & \\\text { Machine Hours } & 160,000 \text { hours } \\\text { Direct Materials } & \$ 475,000 \\\text { Direct Labaur } & 2 4 5 , 000 \\\text { Variable Overhead } & 1,150,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 110,000\end{array}$$

-What is the budgeted fixed overhead at the actual level of activity?

A)$2,100,000
B)$2,110,000
C)$2,240,000
D)$3,260,000

Question 38

Which one of the following is true of a flexible budget?

A)It is prepared when managers are unsure of activity levels.
B)It projects budget data at a pre-planned level of activity.
C)It is useful in controlling variable and fixed costs.
D)It shows no differences between actual and budgeted amounts because it is prepared after the actual results are determined.

Question 39

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours:
$$\begin{array} { l l } \text { Direct Materials } & \$ 4 5 0 , 0 0 0 \\\text { Direct Labour } & 2 2 5 , 0 0 0 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 100,000\end{array}$$ $$\begin{array} { l l } \text { Actual Results: } & \\\text { Machine Hours } & 160,000 \text { hours } \\\text { Direct Materials } & \$ 475,000 \\\text { Direct Labaur } & 2 4 5 , 000 \\\text { Variable Overhead } & 1,150,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 110,000\end{array}$$

-What was the budgeted variable costs per machine hour for variable overhead, rounded to the nearest whole cent?

A)$7.03/machine hour
B)$7.50/machine hour
C)$19.53/machine hour
D)$20.83/machine hour

Question 40

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours:
$$\begin{array} { l l } \text { Direct Materials } & \$ 4 5 0 , 0 0 0 \\\text { Direct Labour } & 2 2 5 , 0 0 0 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 100,000\end{array}$$ $$\begin{array} { l l } \text { Actual Results: } & \\\text { Machine Hours } & 160,000 \text { hours } \\\text { Direct Materials } & \$ 475,000 \\\text { Direct Labaur } & 2 4 5 , 000 \\\text { Variable Overhead } & 1,150,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 110,000\end{array}$$

-What was the difference between the actual and budgeted direct material costs at the actual level of activity?

A)$25,000 unfavourable
B)$25,000 favourable
C)$5,000 unfavourable
D)$5,000 favourable

Question 41

For which of the budgets in the master budget can a company prepare a flexible budget?

A)only the sales budget
B)only the income statement budget
C)only the budgets that reflect operations
D)all of the budgets

Question 42

Which statement is true concerning the selection of the level of activity used in the flexible budget?

A)The activity level should be the same as actually achieved.
B)The activity level should be the same as found in the master budget.
C)Any activity level can be used in the flexible budget.
D)The activity level should be the level which maximizes profit.

Question 43

Surf N Waves planned to sell 27,000 surfboards, however the actual number sold totalled 23,000.Which one of the following provides the best comparison of the cost data associated with the sales?

A)a budget based on the original planned level of activity
B)a budget of 27,000 units of activity
C)a budget of 23,000 units of activity
D)the master budget level of activity

Question 44

How does a graph of a flexible budget compare to a CVP graph?

A)Fixed costs appear differently.
B)Variable costs appear differently.
C)Sales revenues are not shown on a flexible budget graph.
D)The two are graphed identically.

Question 45

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 labour cost
B)indirect labour cost
C)fixed manufacturing overhead
D)variable manufacturing overhead

Question 46

What assumption about the behaviour of total costs occurs within the relevant range of activity?

A)linear and upward sloping
B)linear and downward sloping
C)curvilinear and upward sloping
D)horizontal

Question 47

Which one of the following statements is true concerning a flexible budget?

A)It is prepared once the actual activity level is determined.
B)It is relevant both within and outside the relevant range.
C)It replaces a master budget.
D)It is one of the financial budgets.

Question 48

Nextel Communications uses management by exception.Which differences between planned and actual results will it investigate?

A)those that are material and non-controllable
B)those that are controllable and non-controllable
C)those that are material and controllable
D)All differences should be investigated.

Question 49

Which statement is true concerning management by exception?

A)It is most effective on uncontrollable costs.
B)It enables management to focus on problem areas.
C)It allows managers to decide when they want to use budget guidelines.
D)It allows managers to concentrate on the uncontrollable costs.

Question 50

Under responsibility accounting,

A)both controllable and non-controllable costs receive the same attention.
B)cost centres are NOT classified as responsibility centres since there is no revenue responsibility.
C)as one moves up each level of responsibility in an organization, the responsibility reports become more detailed.
D)a manager's performance is evaluated based on matters that are directly under that manager's control.

Question 51

TrueMasons' budgeted costs for 25,000 linear metres of block are: $\begin{array}{llcc} \text { Fixed manufacturing costs } & \text { \( \$ 12,000 \) per month } \\ \text { Variable manufacturing costs } & \text { \( \$ 16.00 \) per linear metre} \\\end{array}$
True Masons installed 20,000 linear metres of block during March.How much is budgeted total manufacturing costs in March on TrueMason's flexible budget?

A)$320,000
B)$412,000
C)$400,000
D)$332,000

Question 52

Flexible budgets imply

A)that sales managers can have a wide latitude in modifying prices during the year.
B)that a firm will have different levels of activity and costs during a year.
C)the budget process may not be accurate at the beginning of the budget year.
D)each manager is free to change the budget as the year progresses.

Question 53

Which statement is true concerning management by exception?

A)It causes employee morale problems.
B)It requires that all differences will be investigated.
C)It requires management to investigate only unfavourable differences.
D)It requires investigation of all material differences whether favourable or not.

Question 54

Roasted Toasters prepared a 2020 budget for 40,000 units of product.Actual production in 2020 was 45,000 units.To be most useful, what amounts should a performance report for this company compare?

A)the actual results for 45,000 units with the original budget for 40,000 units
B)the actual results for 45,000 units with a new budget for 45,000 units
C)the actual results for 45,000 units with last year's actual results for 47,000 units
D)It doesn't matter.All of these choices are equally useful.

Question 55

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 56

Which one of the following statements is true in developing a flexible budget within a relevant range of activity?

A)The budget must reflect a fixed level of activity.
B)Total variable costs should be adjusted based on the activity index chosen.
C)Costs cannot increase when different levels of activity exist.
D)Fixed costs are not reported.

Question 57

Which of the following is true?

A)The evaluation of performance should be based on both uncontrollable and controllable costs.
B)Fewer costs become controllable as one moves up to each higher level of managerial responsibility.
C)Fewer costs are controllable as one moves down to each lower level of managerial responsibility.
D)Since a profit centre is an independent entity, all fixed costs are controllable by its manager.

Question 58

When setting a flexible budget it is important to know

A)the expected profit that a firm requires.
B)the expected return that the shareholders or owners require.
C)the relevant ranges of activity and cost.
D)the impact of inflation on the budget in the year to come.

Question 59

A department has budgeted monthly fixed manufacturing overhead cost of $40,000 plus $5 per direct labour hour.The flexible budget report reflects $120,000 for total budgeted manufacturing cost for the month.What is the budgeted level of activity to be achieved during the month?

A)32,000 direct labour hours
B)24,000 direct labour hours
C)16,000 direct labour hours
D)cannot be determined

Question 60

Which statement is true about the activity index used in preparing the flexible budget?

A)It applies only to fixed manufacturing costs.
B)It is the same for all departments of the company.
C)It significantly influences the variable costs that are being budgeted.
D)It is irrelevant to total costs.

Question 61

Which one of the statements about a responsibility report is correct?

A)It contains controllable and non-controllable costs.
B)It compares actual costs with static budget data.
C)A distinction is made between variable and fixed costs.
D)It is used to evaluate investment centres, but not cost or profit centres.

Question 62

Perot Manufacturing reported the following items for 2020: $\begin{array} { l l } \text { Income tax expense } & \$ 40,000 \\\text { Contributian margin } & 125,000 \\\text { Contrallable fixed costs } & 30,000 \\\text { Interest expense } & 10,000 \\\text { Total operating assets } & 475,000\end{array}$ How much is controllable margin?

A)$125,000
B)$95,000
C)$85,000
D)$45,000

Question 63

Which of the following is an indirect fixed cost?

A)depreciation on a profit centre's machinery
B)depreciation on the company's building which houses several profit centres
C)health insurance costs for employees
D)profit centre supervisory salaries

Question 64

Which type of centre is the theme park division of Walt Disney Company?

A)not a responsibility centre
B)a profit centre
C)a cost centre
D)an investment centre

Question 65

Which one of the following describes a responsibility report?

A)It is prepared using the CVP income statement format.
B)It shows all costs that relate to a particular manager's division.
C)It shows only the variable costs in a manager's division.
D)It is prepared at the highest level of managerial responsibility.

Question 66

What centres receive responsibility reports containing budgeted and actual controllable revenues and costs?

A)investment centres
B)profit centres
C)cost centres
D)investment, profit, and cost centres

Question 67

Of the following choices, which one is a common fixed cost?

A)profit centre manager's salary
B)sales clerks' salaries
C)costs from a central payroll department to create paycheques for a cost centre's employees
D)depreciation on a responsibility centre's equipment

Question 68

What is a segment?

A)a non-controllable cost
B)an area of responsibility in decentralized operations
C)another name for a cost centre
D)a division which contains both controllable and non-controllable costs

Question 69

Which of the following is a true statement?

A)All costs are controllable at some level with a company.
B)Responsibility accounting applies to only profitable divisions and segments.
C)A cost is controllable if it is incurred in a manager's division or segment.
D)More costs are controllable as one moves downward in management levels.

Question 70

Which one of the following is a suitable way to evaluate cost centres?

A)Compare the actual profit generated with expected profit.
B)Compare actual total costs with flexible budget data.
C)Compare actual controllable costs with static budget data.
D)Compare actual controllable costs with flexible budget data.

Question 71

On what is a manager of a profit centre evaluated?

A)the profit that the centre generates
B)his or her ability to control costs
C)the amount of return the centre's assets generate
D)the amount of revenue that can be generated

Question 72

What would you expect to find in a performance report for a cost centre?

A)both controllable and non-controllable costs
B)variable, but not fixed costs
C)only costs controllable by the managers of the centre
D)only material and labour costs

Question 73

Which of the following correctly indicates the responsibilities of the respective centre?

A)An investment centre incurs costs, and controls investment funds.
B)A cost centre incurs costs.
C)A profit centre incurs costs and controls investment funds.
D)None of these indicate the correct responsibilities.

Question 74

Which type of centre is the housekeeping department of a manufacturing company?

A)a segment
B)a profit centre
C)a cost centre
D)an investment centre

Question 75

What is the preparation of reports for each level of responsibility in the company's organization chart called?

A)static reporting
B)responsibility reporting
C)exception reporting
D)master budgeting analysis

Question 76

In which situation is responsibility accounting especially valuable?

A)when large amounts of uncontrollable costs exist
B)in not-for-profit companies
C)in decentralized companies
D)in cost centres

Question 77

Which type of centre is the toy department in a Wal-Mart store?

A)an exception centre
B)a profit centre
C)a cost centre
D)an investment centre

Question 78

Which one of the following decreases the controllability of a particular cost?

A)moving up to higher levels of managerial responsibility
B)an increase in the responsibility for costs incurred
C)a greater number of costs in a manager's division
D)moving down to lower levels of management

Question 79

Which statement is true concerning a cost centre?

A)It incurs costs and generates revenues.
B)It only exists in companies in which costs exceed revenues.
C)It is evaluated most effectively using ROI.
D)It is usually a production or service department.

Question 80

When is a cost considered to be controllable?

A)only when the manager has the power to incur the cost within a given time period
B)only if the cost is less than the budget amount
C)only when it is a variable cost
D)only when the amount changes based on different activity levels