Deck 11: Budgetary Control and Responsibility Accounting

Question 1

The master budget is the basis of developing flexible budgets.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

A flexible budget is based on the master budget.

Question 21

Investment and profit centres generate both revenues and costs.

Question 22

Investment centres generate a return on operating assets.

Question 23

Return on investment is the primary basis for evaluating profit and investment centre managers.

Question 24

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

Question 25

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

Question 26

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

Question 27

Residual income is the income that remains after subtracting controllable costs from controllable margin.

Question 28

When evaluating residual income, the calculation tells management what percentage return was generated by the particular division being evaluated.

Question 29

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 30

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

Question 31

Direct fixed costs are synonymous with common costs.

Question 32

Decreasing the average operating assets can increase ROI.

Question 33

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

Question 34

Increasing either controllable margin or the average operating assets can raise ROI.

Question 35

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

Question 36

Residual income generates a dollar amount which represents the increase in value to the company beyond the cost necessary to pay for the financing of assets.

Question 37

When ROI is calculated, management would prefer a high percentage.

Question 38

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

Question 39

Investment centres rarely generate revenues by selling products.

Question 40

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 41

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 42

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 43

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 44

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 45

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 46

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 47

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 48

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 49

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 50

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 51

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 52

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 53

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 54

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 55

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 56

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 57

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 58

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 59

Kilroy Manufacturing prepared a 2016 budget for 40,000 units of product.Actual production in 2016 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 60

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 61

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 62

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 63

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: $\begin{array}{lr}\text { Direct Materials } & \$ 450,000 \\\text { Direct Labour } & 225,000 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & 2,100,000\\\\\text { Actual Results: } \\\text { Machine Hours } & \\\text { Direct Materials } & \$ 60,000 \text { hours } \\\text { Direct Labour } & \$ 475,000 \\\text { Variable Overhead } & 245,000 \\\text { Fixed Overhead } & 1,150,000 \\& 2,110,000\end{array}$

-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 64

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: $\begin{array}{lr}\text { Direct Materials } & \$ 450,000 \\\text { Direct Labour } & 225,000 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & 2,100,000\\\\\text { Actual Results: } \\\text { Machine Hours } & \\\text { Direct Materials } & \$ 60,000 \text { hours } \\\text { Direct Labour } & \$ 475,000 \\\text { Variable Overhead } & 245,000 \\\text { Fixed Overhead } & 1,150,000 \\& 2,110,000\end{array}$

-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 65

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 66

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 67

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 68

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 69

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 70

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: $\begin{array}{lr}\text { Direct Materials } & \$ 450,000 \\\text { Direct Labour } & 225,000 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & 2,100,000\\\\\text { Actual Results: } \\\text { Machine Hours } & \\\text { Direct Materials } & \$ 60,000 \text { hours } \\\text { Direct Labour } & \$ 475,000 \\\text { Variable Overhead } & 245,000 \\\text { Fixed Overhead } & 1,150,000 \\& 2,110,000\end{array}$

-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 71

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 72

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 73

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: $\begin{array}{lr}\text { Direct Materials } & \$ 450,000 \\\text { Direct Labour } & 225,000 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & 2,100,000\\\\\text { Actual Results: } \\\text { Machine Hours } & \\\text { Direct Materials } & \$ 60,000 \text { hours } \\\text { Direct Labour } & \$ 475,000 \\\text { Variable Overhead } & 245,000 \\\text { Fixed Overhead } & 1,150,000 \\& 2,110,000\end{array}$

-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 74

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 75

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 76

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 77

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 78

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: $\begin{array}{lr}\text { Direct Materials } & \$ 450,000 \\\text { Direct Labour } & 225,000 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & 2,100,000\\\\\text { Actual Results: } \\\text { Machine Hours } & \\\text { Direct Materials } & \$ 60,000 \text { hours } \\\text { Direct Labour } & \$ 475,000 \\\text { Variable Overhead } & 245,000 \\\text { Fixed Overhead } & 1,150,000 \\& 2,110,000\end{array}$

-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 79

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: $$\begin{array} { l r } \text { Indirect labour } & \$ 45,000 \\\text { Factory supplies } & 4,000 \\\text { Indirect materials } & 21,000 \\\text { Depreciation on factory building } & 15,000 \\\text { Total manufacturing overhead } & \$ 85,000\end{array}$$ 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 80

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.