Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

A measure frequently used to evaluate the performance of the manager of an investment center is

Accepted Answer

A) the amount of profit generated. 
B) the rate of return on funds invested in the center. 
C) the percentage increase in profit over the previous year. 
D) departmental gross profit. 
A) the amount of profit generated. 
B) the rate of return on funds invested in the center. 
C) the percentage increase in profit over the previous year. 
D) departmental gross profit.

Question 4

A distinguishing characteristic of an investment center is that

Accepted Answer

A) revenues are generated by selling and buying stocks and bonds. 
B) interest revenue is the major source of revenues. 
C) the profitability of the center is related to the funds invested in the center. 
D) it is a responsibility center which only generates revenues. 
A) revenues are generated by selling and buying stocks and bonds. 
B) interest revenue is the major source of revenues. 
C) the profitability of the center is related to the funds invested in the center. 
D) it is a responsibility center which only generates revenues.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The flexible budget

Accepted Answer

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. 
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 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Return on investment is calculated by dividing

Accepted Answer

A) contribution margin by sales. 
B) controllable margin by sales. 
C) contribution margin by average operating assets. 
D) controllable margin by average operating assets. 
A) contribution margin by sales. 
B) controllable margin by sales. 
C) contribution margin by average operating assets. 
D) controllable margin by average operating assets.

Question 13

Benet Division of United Refinery Company's operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Benet Division's ROI is 25%. Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000. Should management accept this new project?

Accepted Answer

A) No, since ROI will be lowered. 
B) Yes, since ROI will increase. 
C) Yes, since additional sales always mean more customers. 
D) No, since a loss will be incurred. 
A) No, since ROI will be lowered. 
B) Yes, since ROI will increase. 
C) Yes, since additional sales always mean more customers. 
D) No, since a loss will be incurred.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

All of the following statements are correct about management by exception except it

Accepted Answer

A) enables top management to focus on problem areas that need attention. 
B) means that management has to investigate every budget difference. 
C) requires that there must be some guidelines for identifying an exception. 
D) means that top management's review of a budget report is focused primarily on differences between actual results and planned objectives. 
A) enables top management to focus on problem areas that need attention. 
B) means that management has to investigate every budget difference. 
C) requires that there must be some guidelines for identifying an exception. 
D) means that top management's review of a budget report is focused primarily on differences between actual results and planned objectives.

Question 16

In the formula for ROI, idle plant assets are

Accepted Answer

A) included in the calculation of controllable margin. 
B) included in the calculation of operating assets. 
C) excluded in the calculation of operating assets. 
D) excluded from total assets. 
A) included in the calculation of controllable margin. 
B) included in the calculation of operating assets. 
C) excluded in the calculation of operating assets. 
D) excluded from total assets.

Question 17

An investment center generated a contribution margin of $400,000, fixed costs of $200,000 and sales of $2,000,000. The center's average operating assets were $800,000. How much is the return on investment?

Accepted Answer

A) 25% 
B) 175% 
C) 50% 
D) 75% 
A) 25% 
B) 175% 
C) 50% 
D) 75%

Question 18

The Fulmar Division of Jayne Manufacturing had an ROI of 25% when sales were $3 million and controllable margin was $600,000. What were the average operating assets?

Accepted Answer

A) $150,000 
B) $750,000 
C) $2,400,000 
D) $12,000 
A) $150,000 
B) $750,000 
C) $2,400,000 
D) $12,000

Question 19

Which one of the following will not increase return on investment?

Accepted Answer

A) Variable costs are increased 
B) An increase in sales 
C) Average operating assets are decreased 
D) Variable costs are decreased 
A) Variable costs are increased 
B) An increase in sales 
C) Average operating assets are decreased 
D) Variable costs are decreased

Question 20

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.

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 1 and 2 
A) 1 
B) 2 
C) 3 
D) 1 and 2

Exam 21: Budgetary Control and Responsibility Accounting

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

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.

A measure frequently used to evaluate the performance of the manager of an investment center is

A distinguishing characteristic of an investment center is that

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

The flexible budget

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

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

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

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

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

Return on investment is calculated by dividing

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

All of the following statements are correct about management by exception except it

In the formula for ROI, idle plant assets are

An investment center generated a contribution margin of $400,000, fixed costs of $200,000 and sales of $2,000,000. The center's average operating assets were $800,000. How much is the return on investment?

The Fulmar Division of Jayne Manufacturing had an ROI of 25% when sales were $3 million and controllable margin was $600,000. What were the average operating assets?

Which one of the following will not increase return on investment?

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.

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Standard Costs and Balanced Scorecard

Planning for Capital Investments

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