Deck 23: Flexible Budgets and Performance Analysis

Question 1

A performance management and evaluation system allows a company to identify how well it is doing,where it is going,and what improvements will make it more profitable.

Answer 1

True

Question 2

Performance reports allow comparisons between actual performance and budget expectations.

Answer 2

True

Question 3

When developing performance measures,management must consider a number of different issues besides what to measure and how to measure.

Answer 3

True

Question 4

An organization chart assists in management control.

Question 5

When calculating ROI,assets invested represent the average of the beginning and ending asset balances for a given period.

Question 6

Flexible budgeting is utilized to evaluate a cost center's performance.

Question 7

If a performance report contains items that are in a manager's control,the entire responsibility accounting system can be called into question.

Question 8

Residual income is excess of operating income over net income.

Question 9

A responsibility center whose manager is held accountable for both revenues and costs and for the resulting operating income is called a revenue center.

Question 10

A performance management and evaluation system is mainly utilized to account for and report on financial performance.

Question 11

Managers at all levels are evaluated in terms of their ability to manage their areas of responsibility in keeping with organizational goals.

Question 12

A flexible budget is derived by dividing actual unit costs by the standard unit costs.

Question 13

Responsibility accounting is of least help to manufacturing companies.

Question 14

One of the drawback of the return on investment performance measure is that it considers both operating and nonoperating income.

Question 15

A report for a responsibility center includes costs and revenues that are not controlled by a manager.

Question 16

While measuring performance,managers must be able to distinguish between what is being measured and the actual measures used to monitor performance and compare results.

Question 17

All organizations use same performance measures in their day-to-day business operations.

Question 18

The concern of responsibility accounting is limited to nonmonetary information.

Question 19

ROI is a performance measure,which uses information only from a company's income statement.

Question 20

Performance measurement is the use of quantitative tools to gauge an organization's performance in relation to a specific goal or an expected outcome.

Question 21

Unlike ROI,residual income is expressed in dollars.

Question 22

The balanced scorecard links the perspectives of an organization's stakeholders with the organization's mission and vision,performance measures,strategic plan,and resources.

Question 23

The alignment of an organization's strategy with all the perspectives of the balanced scorecard results in performance objectives that benefit all stakeholders.

Question 24

For residual income figures to be comparable on a companywide basis,all investment centers must have equal access to resources and similar asset investment bases.

Question 25

Cash bonuses are usually given to encourage short-term performance.

Question 26

Cost of capital is the minimum desired rate of return on a particular investment.

Question 27

The economic value added performance measure focuses on long-term financial performance.

Question 28

Tying compensation incentives to performance targets decreases the likelihood that the goals of responsibility centers,managers,and the entire organization will be well coordinated.

Question 29

Variable costing is a method of reporting that deals only with a manager's controllable costs,variable costs.

Question 30

Profit-sharing plan is a common type of incentive compensation.

Question 31

The logical linking of goals to measurable objectives and targets,and the tying of appropriate compensation incentives to the achievement of such objectives and targets are critical to the successful coordination of goals.

Question 32

How effective a performance management and evaluation system is depends on how well the goals of individual responsibility centers,the entire company,and managers are coordinated.

Question 33

A manager can improve the economic value of an investment center by increasing sales.

Question 34

A variable costing income statement is also called a traditional income statement.

Question 35

The equation for economic value added excludes operating income and current liabilities.

Question 36

Economic value added is synonymous with shareholder wealth created by an investment center.

Question 37

To succeed,an organization must add value for all of its stakeholders in the short term only.

Question 38

It is necessary for managers to fully understand the causal relationship between their actions and the organization's overall performance to get results.

Question 39

An organization's four basic stakeholder groups include investors,employees,internal business processes,and customers.

Question 40

ROI,residual income,and economic value added all represent performance measures that can be utilized to determine investment center performance.

Question 41

The performance of Steve,the manager of Center B,is evaluated the end of every month,by comparing the amount spent on manufacturing overhead with the budgets prepared at the beginning of the month.What type of responsibility center is Center B?

A)Cost center
B)Discretionary cost center
C)Profit center
D)Revenue center

Question 42

The way in which the performance of a cost center is evaluated is similar to

A)job order costing.
B)standard costing.
C)process costing.
D)marginal costing.

Question 43

A responsibility accounting system ensures that

A)generally accepted accounting principles reporting requirements are met.
B)managers will not be held responsible for items they cannot change.
C)99 percent of businesses utilizing such a system will be profitable.
D)easy correlations between revenues and costs can be drawn.

Question 44

Variable costing allows a manager to classify controllable costs as

A)variable and fixed costs.
B)avoidable and unavoidable costs.
C)necessary and unnecessary costs.
D)short-term and long-term variable costs.

Question 45

A performance management and evaluation system is a set of procedures that account for and report on

A)qualitative performance.
B)standard performance.
C)employee performance.
D)financial and nonfinancial performance.

Question 46

Performance reports should include

A)all costs and revenues for a specific responsibility center.
B)all costs,revenues,and resources for a specific responsibility center.
C)noncontrollable costs for a specific responsibility center.
D)controllable costs,revenues,and resources for a specific responsibility center.

Question 47

A good example of a profit center would be

A)a car manufacturer's assembly line.
B)a local Home Depot store.
C)Avis Car Rental's national reservation center.
D)a manufacturer's human resources department.

Question 48

The manager of Center A of Harry International is responsible for generating cash inflows and incurring costs with the goal of generating returns for the company.The manager has no responsibility for assets.What type of responsibility center is Center A?

A)Cost center
B)Discretionary cost center
C)Profit center
D)Revenue center

Question 49

The manager of Center D designs,produces,and sells products to external parties.The manager makes both long-term and short-term decisions regarding resources.What type of responsibility center is Center D?

A)Cost center
B)Profit center
C)Revenue center
D)Investment center

Question 50

Standard costing would most often require which type of performance evaluation?

A)Flexible budgeting
B)Static budgeting
C)Variable costing
D)None of these choices

Question 51

Which of the following is a performance measure?

A)Quality of raw materials used in production
B)Number of orders shipped in a day
C)Level of customer satisfaction
D)All of these choices

Question 52

A responsibility center in which the relationship between resources and products or services produced is not well defined is known as a(n)

A)investment center.
B)profit center.
C)cost center.
D)discretionary cost center.

Question 53

The format of a variable costing income statement is similar to a(n)

A)contribution margin income statement.
B)traditional income statement.
C)audited income statement.
D)single-step income statement.

Question 54

The manager of Center E provides administrative activities for the other centers in the company.What type of responsibility center is Center E?

A)Cost center
B)Discretionary cost center
C)Revenue center
D)Investment center

Question 55

The manager of Center C is only responsible for generating and processing online orders of a large retailer.What type of responsibility center is Center C?

A)Discretionary cost center
B)Profit center
C)Revenue center
D)Investment center

Question 56

In general,there are ________ types of responsibility centers.

A)two
B)five
C)ten
D)three

Question 57

Which of the following statements is true of performance measurement?

A)It measures only qualitative information.
B)It uses both qualitative and quantitative tools to measure the performance.
C)It helps in understanding a company's performance related to a specific goal.
D)It cannot be used by service companies.

Question 58

The use of quantitative tools to gauge an organization's performance in relation to a specific goal or an expected outcome is known as

A)responsibility accounting.
B)an asset turnover.
C)a performance center.
D)a performance measurement.

Question 59

Many organizations utilize responsibility accounting

A)to increasing the responsibilities of the accountants.
B)to assist in performance management and evaluation.
C)as a substitute to performance measurement.
D)as an alternative to generally accepted accounting principles.

Question 60

A manufacturing company's human resource department is most likely a

A)cost center.
B)discretionary cost center.
C)revenue center.
D)profit center.

Question 61

Compute the July 2014 cost of capital (rounded to nearest percent)for an investment center with the following information:

A)5 percent
B)53 percent
C)10 percent
D)61 percent

Question 62

Use the following performance report for a cost center of the Dry Cat Food Division for the month ended December 31 to answer the questions below. Using the information provided for Dry Cat Food division,what is the actual total cost?

A)$521
B)$595
C)$744
D)$1,031

Question 63

Use the following performance report for a cost center of the Dry Cat Food Division for the month ended December 31 to answer the questions below. Using the information provided for Dry Cat Food division,what is the direct materials variance between the actual results and the flexible budget?

A)$14 (U)
B)$14 (F)
C)$30 (U)
D)$30 (F)

Question 64

For purposes of computing EVA,the minimum desired rate or return on an investment is known as

A)ROI.
B)cost of capital.
C)residual income.
D)profit margin.

Question 65

How is the contribution margin calculated when utilizing variable costing?

A)Sales less variable cost of goods sold
B)Sales less variable cost of goods sold,less variable selling and administrative expenses
C)Sales less cost of goods sold
D)Sales less variable cost of goods sold,less variable selling and administrative expenses,less fixed cost of goods sold,less fixed selling and administrative expenses

Question 66

Which of the following performance measures focus on short-term financial performance?

A)Economic value added
B)Residual income
C)ROI
D)All of these choices

Question 67

Dana Klammer is the manager of the Cutting Department in the Northwest Division of Steel Products.Which of the following costs is Dana's controllable cost?

A)Salaries of cutting workers
B)Cost of electricity for the Northwest Division
C)Lumber Department hauling costs
D)Vice president's salary

Question 68

Use the following performance report for a cost center of the Dry Cat Food Division for the month ended December 31 to answer the questions below. Using the information provided for Dry Cat Food division,what is the direct labor variance between the actual results and the flexible budget?

A)$10 (U)
B)$10 (F)
C)$60 (U)
D)$60 (F)

Question 69

Use the following performance report for a profit center of Portia Corporation for the month ended December 31 to answer the questions below. Using the information provided for Portia Corporation,what were the actual sales?

A)$185
B)$35
C)$190
D)$40

Question 70

Other things remaining constant,which of the following will improve the return on investment?

A)Decreasing assets
B)Increasing sales
C)Decreasing costs
D)All of these choices

Question 71

Bianca Publishing has a number of investment centers to track on a day-to-day basis.The following represent key figures related to one of Bianca's investment centers for February 2014: What is the investment center's ROI for February 2014 (rounded percentage answer to two decimal places)?

A)38.81 percent
B)76.40 percent
C)61.19 percent
D)23.60 percent

Question 72

A manager can improve EVA by

A)decreasing assets.
B)increasing tax expense.
C)increasing cost of capital.
D)decreasing current liabilities.

Question 73

Which of the following represents the number of sales dollars generated by each dollar invested in assets?

A)Asset turnover
B)Average assets invested
C)Profit margin
D)Operating income

Question 74

When compared with which of the following,the EVA of an investment center will be more meaningful?

A)Target EVAs
B)EVAs from other investment centers
C)EVAs from previous periods
D)All of these choices

Question 75

Determine the April 2014 residual income for an investment center with the following information:

A)$655,650
B)$688,000
C)$198,500
D)$704,750

Question 76

Use the following performance report for a profit center of Portia Corporation for the month ended December 31 to answer the questions below. Using the information provided for Portia Corporation,what was the actual profit center income?

A)$10
B)$6
C)$4
D)$54

Question 77

Variable costing is utilized to evaluate the performance of

A)investment centers.
B)revenue centers.
C)cost centers.
D)profit centers.

Question 78

Use the following performance report for a cost center of the Dry Cat Food Division for the month ended December 31 to answer the questions below. Using the information provided for Dry Cat Food division,the flexible budget is based on how many units produced?

A)0 units
B)30 units
C)70 units
D)100 units

Question 79

Determine the March 2014 residual income for an investment center with the following information:

A)$5,180,000
B)$3,094,000
C)$2,086,000
D)$8,806,000

Question 80

Determine the October 2014 ROI for an investment center with the following information: Round percentage answer to two decimal places.

A)26.8 percent
B)22.8 percent
C)24.8 percent
D)28.8 percent