Deck 24: Budgetary Planning

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

Flexible budgets are widely used in production and service departments.

Question 7

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

Question 8

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

Question 9

A flexible budget is prepared before the master budget.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

A cost item is considered to be controllable if there is not a large difference between actual cost and budgeted cost for that item.

Question 24

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 25

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

Question 26

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

Question 27

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 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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 37

An advantage of the return on investment ratio is that no judgmental factors are involved.

Question 38

Budget reports should be prepared

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

Question 39

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

Question 40

Decentralization means that the control of operations is delegated by top management to many individuals throughout the organization.

Question 41

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 42

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 43

A department has budgeted monthly manufacturing overhead cost of $270,000 plus $3 per direct labor hour. If a flexible budget report reflects $522,000 for total budgeted manu-facturing cost for the month, the actual level of activity achieved during the month was

A) 264,000 direct labor hours.
B) 84,000 direct labor hours.
C) 174,000 direct labor hours.
D) Cannot be determined from the information provided.

Question 44

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 45

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 46

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 47

The master budget of Rondelli Company 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: A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead costs of

A) $494,000.
B) $420,000.
C) $504,000.
D) $454,000.

Question 48

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 49

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

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

Question 50

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 51

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 52

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 53

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 54

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.

Question 55

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 56

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 57

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 58

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 59

A static budget is appropriate for

A) variable overhead costs.
B) direct materials costs.
C) fixed overhead costs.
D) none of these.

Question 60

Ashcroft, Inc. prepared a 2010 budget for 60,000 units of product. Actual production in 2010 was 65,000 units. To be most useful, what amounts should a performance report for this company compare?

A) The actual results for 65,000 units with the original budget for 60,000 units
B) The actual results for 65,000 units with a new budget for 65,000 units.
C) The actual results for 65,000 units with last year's actual results for 67,000 units
D) It doesn't matter. All of these choices are equally useful.

Question 61

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 62

Cannon Company uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing overhead is: $48,000 variable and $135,000 fixed. If Cannon had actual overhead costs of $187,500 for 9,000 units produced, what is the difference between actual and budgeted costs?

A) $1,500 unfavorable
B) $1,500 favorable
C) $4,500 unfavorable
D) $6,000 favorable

Question 63

Hudson Roofing's budgeted manufacturing costs for 25,000 squares of shingles are:
Fixed manufacturing costs $15,000
Variable manufacturing costs $20.00 per square
Hudson produced 20,000 squares of shingles during March. How much are budgeted total manufacturing costs in March?

A) $400,000
B) $515,000
C) $500,000
D) $415,000

Question 64

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 65

In the Harrelson Company, indirect labor is budgeted for $36,000 and factory supervision is budgeted for $12,000 at normal capacity of 80,000 direct labor hours. If 90,000 direct labor hours are worked, flexible budget total for these costs is

A) $48,000.
B) $54,000.
C) $52,500.
D) $49,500.

Question 66

For June, Wynn Manufacturing estimated sales revenue at $200,000. It pays sales commissions that are 4% of sales. The sales manager's salary is $95,000, estimated shipping expenses total 1% of sales, and miscellaneous selling expenses are $5,000. How much are budgeted selling expenses for the month of July if sales are expected to be $180,000?

A) $14,000
B) $109,000
C) $9,000
D) $110,000

Question 67

True Masons budgeted costs for 25,000 linear feet of block are: True Masons installed 20,000 linear feet of block during March. How much is budgeted total manufacturing costs in March?

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

Question 68

Another name for the static budget is

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

Question 69

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 70

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 71

Yancey's Sipit Company budgeted manufacturing costs for 25,000 sipits are:
Fixed manufacturing costs $25,000 per month
Variable manufacturing costs $12.00 per sipit
Yancey's produced 20,000 sipits during March. How much is the flexible budget for total manufacturing costs for March?

A) $260,000
B) $325,000
C) $240,000
D) $265,000

Question 72

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 73

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: 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 74

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.

Question 75

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 76

If a company plans to sell 24,000 units of product but sells 30,000, 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) 27,000 units of activity.
C) 30,000 units of activity.
D) 24,000 units of activity.

Question 77

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

Question 78

Dryden Manufacturing Company prepared a fixed budget of 40,000 direct labor hours, with estimated overhead costs of $200,000 for variable overhead and $60,000 for fixed overhead. Dryden then prepared a flexible budget at 38,000 labor hours. How much is total overhead costs at this level of activity?

A) $190,000
B) $250,000
C) $247,000
D) $260,000

Question 79

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 80

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.