QUESTION 1
What is the primary difference between a static budget and a flexible budget?
a. The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold.
b. The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management.
c. The static budget contains only fixed costs, while the flexible budget contains only variable costs.
d. The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
QUESTION 2
Rhein Manufacturing recorded operating data for its auto accessories division for the year.
Sales $750,000
Contribution margin 150,000
Total direct fixed costs 90,000
Average total operating assets 400,000
How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?
a. 12.0%
b. 22.5%
c. 15.0%
d. 45.0%
QUESTION 3
Costs incurred indirectly and allocated to a responsibility level are considered to be
a. nonmaterial.
b. noncontrollable.
c. controllable.
d. mixed.
QUESTION 4
The master budget of Windy Co. 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:
Indirect labor $720,000
Machine supplies 180,000
Indirect materials 210,000
Depreciation on factory building 150,000
Total manufacturing overhead $1,260,000
A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead costs of
a. $1,512,000.
b. $1,260,000.
c. $1,482,000.
d. $1,362,000.
QUESTION 5
The following information is available for Halle Department Stores:
Average operating assets $600,000
Controllable margin 60,000
Contribution margin 150,000
Minimum rate of return 8%
How much is Halle's residual income?
a. $48,000
b. $102,000
c. $540,000
d. $12,000
QUESTION 6
If an investment center has generated a controllable margin of $150,000 and sales of $600,000, what is the return on investment for the investment center if average operating assets were $1,000,000 during the period?
a. 25%
b. 45%
c. 15%
d. 60%
QUESTION 7
If controllable margin is $300,000 and the average investment center operating assets are $2,000,000, the return on investment is
a. 67%
b. 15%
c. 6.66%
d. 20%.
QUESTION 8
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:
Variable Fixed
Indirect materials $140,000 Depreciation $60,000
Indirect labor 200,000 Taxes 10,000
Factory supplies 20,000 Supervision 50,000
A flexible budget prepared at the 80,000 machine hours level of activity would show total manufacturing overhead costs of
a. 384,000.
b. $360,000.
c. $408,000.
d. $288,000.
QUESTION 9
Betsy Union is the Pika Division manager and her performance is evaluated by executive management based on Division ROI. The current controllable margin for Pika Division is $46,000. Its current operating assets total $210,000. The division is considering purchasing equipment for $40,000 that will increase sales by an estimated $10,000, with annual depreciation of $10,000. If the equipment is purchased, what will happen to the return on investment for the division?
a. A decrease of 0.5%
b. It will remain unchanged.
c. A decrease of 3.5%
d. An increase of 0.5%
QUESTION 10
Sydney, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is $128,000 variable and $360,000 fixed. If Sydney had actual overhead costs of $500,000 for 18,000 units produced, what is the difference between actual and budgeted costs?
a. $4,000 favorable
b. $12,000 unfavorable
c. $4,000 unfavorable
d. $16,000 favorable
QUESTION 11
Dingo Division's operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Dingo's required rate of return is 9%. Should Dingo accept this project?
a. No, the return is less than the required rate of 9%.
b. No, ROI will decrease to 7%.
c. Yes, ROI still exceeds the cost of capital.
d. Yes, ROI will drop by 6.6% which is still above the minimum required rate of return.
QUESTION 12
At 18,000 direct labor hours, the flexible budget for indirect materials is $36,000. If $37,400 are incurred at 18,400 direct labor hours, the flexible budget report should show the following difference for indirect materials:
a. $600 unfavorable.
b. $600 favorable.
c. $1,400 favorable.
d. $1,400 unfavorable.
QUESTION 13
Power Manufacturing recorded operating data for its shoe division for the year.
Sales $1,500,000
Contribution margin 300,000
Controllable fixed costs 180,000
Average total operating assets 600,000
How much is controllable margin for the year?
a. $300,000
b. 20%
c. 50%
d. $120,000
QUESTION 14
Controllable margin is defined as
a. sales minus variable costs.
b. contribution margin less controllable fixed costs.
c. sales minus contribution margin.
d. contribution margin less noncontrollable fixed costs.
QUESTION 15
What is the goal of residual income?
a. To maximize profits
b. To maximize the amount of costs which are controllable
c. To maximize controllable margin
d. To maximize the total amount of residual income
QUESTION 16
Bogey Co. recorded operating data for its Cheap division for the year. Bogey requires its return to be 10%.
Sales $ 1,400,000
Controllable margin 160,000
Total average assets 4,000,000
Fixed costs 100,000
What is the ROI for the year?
a. 1.5%
b. 35%
c. 6%
d. 4%
QUESTION 17
Given below is an excerpt from a management performance report:
Budget Actual Difference
Contribution margin $1,000,000 $1,050,000 $50,000
Controllable fixed costs $ 500,000 $ 450,000 $50,000
The manager's overall performance
a. cannot be determined from information given.
b. is equal to expectations.
c. is 20% below expectations.
d. is 20% above expectations.
QUESTION 18
The flexible budget
a. is relevant both within and outside the relevant range.
b. eliminates the need for a master budget.
c. is a series of static budgets at different levels of activity.
d. is prepared before the master budget.
QUESTION 19
Shane Industries prepared a fixed budget of 60,000 direct labor hours, with estimated overhead costs of $300,000 for variable overhead and $90,000 for fixed overhead. Shane then prepared a flexible budget at 57,000 labor hours. How much is total overhead costs at this level of activity?
a. $285,000
b. $375,000
c. $370,500
d. $390,000
QUESTION 20
Kathleen Corp. produced 320,000 units in 150,000 direct labor hours. Production for the period was estimated at 330,000 units and 165,000 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at
a. 160,000 hours and 150,000 hours.
b. 165,000 hours and 150,000 hours.
c. 150,000 hours and 150,000 hours.
d. 160,000 hours and 165,000 hours.