Deck 11: Budgetary Control and Responsibility Accounting

Question 1

The amount of fixed costs which appear on the flexible budget is the same as those appearing on the master budget.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

Evaluating a manager's performance in controlling variable costs is effectively achieved using a static budget.

Question 5

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

Question 6

A flexible budget report will compare actual costs with the budgeted costs at the actual activity level achieved.

Question 7

A static budget considers that actual activity is often different from the level of activity expected.

Question 8

A flexible budget is based on the master budget.

Question 9

Flexible budgets are widely used in production departments, and least used in service departments.

Question 10

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

Question 11

A flexible budget is more useful in evaluating a manager's performance than a static budget.

Question 12

Budget reports comparing actual results with planned objectives should be prepared weekly to be most effective.

Question 13

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

Question 14

A static budget is one that is geared to the most profitable level of activity for a company.

Question 15

Cash budget reports are often prepared daily, whereas others are prepared less frequently depending on the activities being monitored.

Question 16

The master budget is the basis of developing flexible budgets.

Question 17

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

Question 18

If actual results are different from planned results by a large amount, the difference should be investigated by management to achieve effective budgetary control.

Question 19

Under responsibility accounting, both controllable and non-controllable costs receive the same attention.

Question 20

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

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:
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

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

Question 23

Kilroy Manufacturing prepared a 2012 budget for 40,000 units of product.Actual production in 2012 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 24

The area manager of the Steak House Restaurants is considering two possible expansion alternatives.The required investments, expected controllable margins, and the ROIs of each are as follows: The Steak House segment has currently $5,000,000 in invested capital and a controllable margin of $1,500,000.Which one of following projects will increase the Steak House division's ROI?

A)Both the Winnipeg and Regina options
B)Only the Winnipeg option
C)Only the Regina option
D)Neither the Winnipeg nor the Regina options

Question 25

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 26

"The buck stops here" implies that all costs and revenues are controllable at some level of responsibility within a company.

Question 27

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours:
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 28

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

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:
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 favourable
D)$5,000 favourable

Question 30

Direct fixed costs are synonymous with common costs.

Question 31

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours:
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/marchine hour
C)$19.53/machine hour
D)$20.83/machine hour

Question 32

More costs become controllable as one moves up to each higher level of managerial responsibility.

Question 33

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

Question 34

Perot Manufacturing reported the following items for 2012: How much is controllable margin?

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

Question 35

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours:
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 36

Cost centres are not classified as responsibility centres since there is no revenue responsibility.

Question 37

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 38

Since a profit centre is an independent entity, all fixed costs are controllable by its manager.

Question 39

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 40

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 and actual and take corrective action if necessary.

Question 41

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 42

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 43

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 44

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 45

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 46

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 47

What exists when budgeted costs exceed actual results?

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

Question 48

For which of the budgets in the master budget will 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 49

A department has budgeted monthly 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 50

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 51

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 52

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 53

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 54

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: 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 55

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 56

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

Question 57

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 58

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 59

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 60

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 61

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 62

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 63

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 64

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 65

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 66

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 67

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 68

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 69

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 70

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 71

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 72

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 73

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 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

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

Question 76

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 77

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 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

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 80

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