Question 1

The foreign subsidiary of a large corporation is

Accepted Answer

A)  not a responsibility center. 
B)  a profit center. 
C)  a cost center. 
D)  an investment center. 
A)  not a responsibility center. 
B)  a profit center. 
C)  a cost center. 
D)  an investment center.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The purpose of the departmental overhead cost report is to

Accepted Answer

A)  control indirect labor costs. 
B)  control selling expense. 
C)  determine the efficient use of materials. 
D)  control overhead costs. 
A)  control indirect labor costs. 
B)  control selling expense. 
C)  determine the efficient use of materials. 
D)  control overhead costs.

Question 4

Pippen Co. recorded operating data for its shoe division for the year. The company's desired return is 5%. $$\begin{array} { l r } 
\text { Sales } & \$ 1,000,000 \
\text { Contribution margin } & 200,000 \
\text { Total direct fixed costs } & 120,000 \
\text { Average total operating assets } & 400,000
\end{array}$$ Which one of the following reflects the controllable margin for the year?

Accepted Answer

A)  20% 
B)  50% 
C)  $60,000 
D)  $80,000 
A)  20% 
B)  50% 
C)  $60,000 
D)  $80,000

Question 5

Which one of the following is a correct statement about residual income?

Accepted Answer

A)  Its goal is to maximize profits of an investment center. 
B)  It is less effective for evaluating investment centers than ROI. 
C)  It is the ratio of controllable margin to the minimum rate of return on average operating assets. 
D)  It evaluates performance by comparing the return of an investment center with the company's minimum rate of return. 
A)  Its goal is to maximize profits of an investment center. 
B)  It is less effective for evaluating investment centers than ROI. 
C)  It is the ratio of controllable margin to the minimum rate of return on average operating assets. 
D)  It evaluates performance by comparing the return of an investment center with the company's minimum rate of return.

Question 6

The following information is available for Halle Department Stores: $\begin{array}{lr}
\text { Average operating assets } & \$ 600,000 \
\text { Controllable margin } & 60,000 \
\text { Contribution margin } & 150,000 \
\text { Minimum rate of return } & 8 \%
\end{array}$ How much is Halle's residual income?

Accepted Answer

A)  $102,000 
B)  $540,000 
C)  $12,000 
D)  $48,000 
A)  $102,000 
B)  $540,000 
C)  $12,000 
D)  $48,000

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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:

Accepted Answer

A)  $1,400 unfavorable. 
B)  $1,400 favorable. 
C)  $600 favorable. 
D)  $600 unfavorable. 
A)  $1,400 unfavorable. 
B)  $1,400 favorable. 
C)  $600 favorable. 
D)  $600 unfavorable.

Question 9

Monte, Inc. recorded operating data for its Sandtrap division for the year. Monte requires its return to be 9%. $$\begin{array} { l r } 
\text { Sales } & \$ 1,000,000 \
\text { Controllable margin } & 180,000 \
\text { Total average assets } & 600,000 \
\text { Fixed costs } & 60,000
\end{array}$$ How much is ROI for the year?

Accepted Answer

A)  10% 
B)  17% 
C)  20% 
D)  30% 
A)  10% 
B)  17% 
C)  20% 
D)  30%

Question 10

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 11

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 12

What is the primary difference between a static budget and a flexible budget?

Accepted Answer

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. 
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 13

For what purpose do companies calculate residual income?

Accepted Answer

A)  To determine whether decentralization is possible or not 
B)  To motivate managers through possible termination 
C)  To evaluate management performance 
D)  To measure company profits 
A)  To determine whether decentralization is possible or not 
B)  To motivate managers through possible termination 
C)  To evaluate management performance 
D)  To measure company profits

Question 14

On the basis of the budget reports,

Accepted Answer

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 answers are correct. 
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 answers are correct.

Question 15

Which one of the following does not impact the amount of residual income?

Accepted Answer

A)  Contribution margin 
B)  Net income 
C)  Sales 
D)  Controllable costs 
A)  Contribution margin 
B)  Net income 
C)  Sales 
D)  Controllable costs

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Quincy Corp. earned controllable margin of $500,000 on sales of $6,400,000. The division had average operating assets of $5,200,000. The company requires a return on investment of at least 8%. How much is residual income?

Accepted Answer

A)  $416,000 
B)  $84,000 
C)  $584,000 
D)  $512,000 
A)  $416,000 
B)  $84,000 
C)  $584,000 
D)  $512,000

Question 19

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?

Accepted Answer

A)  An increase of 0.5% 
B)  A decrease of 0.5% 
C)  A decrease of 3.5% 
D)  It will remain unchanged. 
A)  An increase of 0.5% 
B)  A decrease of 0.5% 
C)  A decrease of 3.5% 
D)  It will remain unchanged.

Question 20

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.

Accepted Answer

A) 	1 
B) 	2 
C) 	both 1 and 2. 
D) 	neither 1 nor 2. 
A) 	1 
B) 	2 
C) 	both 1 and 2. 
D) 	neither 1 nor 2.

The foreign subsidiary of a large corporation is

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

The purpose of the departmental overhead cost report is to

Pippen Co. recorded operating data for its shoe division for the year. The company's desired return is 5%. Sales \ 1,000,000 Contribution margin 200,000 Total direct fixed costs 120,000 Average total operating assets 400,000 Which one of the following reflects the controllable margin for the year?

Which one of the following is a correct statement about residual income?

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?

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

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:

Monte, Inc. recorded operating data for its Sandtrap division for the year. Monte requires its return to be 9%. Sales \ 1,000,000 Controllable margin 180,000 Total average assets 600,000 Fixed costs 60,000 How much is ROI for the year?

The flexible budget

A distinguishing characteristic of an investment center is that

What is the primary difference between a static budget and a flexible budget?

For what purpose do companies calculate residual income?

On the basis of the budget reports,

Which one of the following does not impact the amount of residual income?

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

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

Quincy Corp. earned controllable margin of $500,000 on sales of $6,400,000. The division had average operating assets of $5,200,000. The company requires a return on investment of at least 8%. How much is residual income?

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.

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Pricing

Budgetary Planning

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Statement of Cash Flows

Financial Statement Analysis

Filters

Exam 10: Budgetary Control and Responsibility Accounting

The foreign subsidiary of a large corporation is

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

The purpose of the departmental overhead cost report is to

Pippen Co. recorded operating data for its shoe division for the year. The company's desired return is 5%. Sales \ 1,000,000 Contribution margin 200,000 Total direct fixed costs 120,000 Average total operating assets 400,000 Which one of the following reflects the controllable margin for the year?

Which one of the following is a correct statement about residual income?

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?

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

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:

Monte, Inc. recorded operating data for its Sandtrap division for the year. Monte requires its return to be 9%. Sales \ 1,000,000 Controllable margin 180,000 Total average assets 600,000 Fixed costs 60,000 How much is ROI for the year?

The flexible budget

A distinguishing characteristic of an investment center is that

What is the primary difference between a static budget and a flexible budget?

For what purpose do companies calculate residual income?

On the basis of the budget reports,

Which one of the following does not impact the amount of residual income?

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

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

Quincy Corp. earned controllable margin of $500,000 on sales of $6,400,000. The division had average operating assets of $5,200,000. The company requires a return on investment of at least 8%. How much is residual income?

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.

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Pricing

Budgetary Planning

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Statement of Cash Flows

Financial Statement Analysis

Filters