acct 2302 Test 3

2) The budget process is a loop that consists of ________.
A) planning, acting, and controlling
B) developing strategies, planning, acting, and controlling
C) developing strategies, planning, and acting
D) developing strategies, acting, and controlling

B) developing strategies, planning, acting, and controlling

8) Which of the following statements is true of the budgeting process?
A) If a company carefully plans for its future, there will be no need to make modifications during the budget period.
B) It is a continuous process that encourages communication.
C) It shows the actual performance of the business.
D) Managers and employees are motivated to accept the budget’s goals because they enjoy having their work monitored and evaluated.

B) It is a continuous process that encourages communication.

9) Which of the following is an example of the planning function of the budgeting process?
A) A budget demands integrated input from different business units and functions.
B) Employees are motivated to achieve the goals set by the budget.
C) Budget figures are used to evaluate the performance of managers.
D) The budget outlines a specific course of action for the coming period.

D) The budget outlines a specific course of action for the coming period.

10) Which of the following is an example of the benchmarking function of the budgeting process?
A) A budget demands integrated input from different business units and functions.
B) Budgeting requires close cooperation between accountants and operational personnel.
C) Budget figures are used to evaluate the performance of managers.
D) The budget outlines a specific course of action for the coming period.

C) Budget figures are used to evaluate the performance of managers.

14) Which of the following is an example of the coordination and communication function of the budgeting process?
A) A budget demands integrated input from different business units and functions.
B) Employees are motivated to achieve the goals set by the budget.
C) Each department acts independently because the department manager will be evaluated on actual departmental results.
D) A budget adjustment in one department will have no effect on other departments.

A) A budget demands integrated input from different business units and functions.

15) The budgeting process ________.
A) usually begins about one month before the beginning of the budget period to allow for more current information to be considered
B) does not need input from all levels because it is the role of management to control costs and meet revenue goals
C) requires significant coordination among the company’s various business segments
D) is standard among all types of companies

C) requires significant coordination among the company’s various business segments

19) An intentional understatement of expected revenues or overstatement of expected expenses by managers in order to have a favorable performance evaluation is known as ________.
A) benchmarking
B) appropriation
C) budgetary slack
D) variance analysis

C) budgetary slack

11) The starting point in developing the master budget is the preparation of the ________.
A) cash budget
B) production budget
C) sales budget
D) budgeted income statement

C) sales budget

12) The ________ details how the business expects to go from the beginning cash balance to the desired ending cash balance.
A) capital expenditures budget
B) budgeted income statement
C) cash flow statement
D) cash budget

D) cash budget

13) The cash budget and the budgeted financial statements are collectively known as the ________.
A) operating budget
B) master budget
C) financial budget
D) production budget

C) financial budget

14) Which of the following statements is true of the operating budget?
A) It is a part of the financial budget.
B) It includes the capital expenditures budget.
C) It includes the sales budget.
D) Its final component is the cash budget.

C) It includes the sales budget.

15) Which of the following statements is true of the capital expenditures budget?
A) It is a part of the financial budget.
B) It must be completed after the budgeted income statement is prepared.
C) It includes the sales budget.
D) It must be completed before the cash budget is prepared.

D) It must be completed before the cash budget is prepared.

16) Which of the following describes the cash budget?
A) It aids in planning to ensure the company has adequate inventory and cash on hand.
B) It captures the variable and fixed expenses of the business.
C) It depicts the breakdown of sales based on terms of collection.
D) It helps in planning to ensure the business has adequate cash.

D) It helps in planning to ensure the business has adequate cash.

Which of the following is true of the sales budget?
A) It provides sales data that is used to prepare financial statements for external reporting purposes.
B) It captures the variable and fixed expenses of the business.
C) It is used in the production budget.
D) It shows the cost of expected production in a period.

C) It is used in the production budget.

10) Which of the following describes the production budget?
A) It aids in planning to ensure the company has adequate inventory and cash on hand.
B) It provides the quantity of finished goods to be produced during a budget period.
C) It depicts the breakdown of sales on the basis of terms and conditions of collection of sales revenue.
D) It helps in planning to ensure the business has adequate cash.

B) It provides the quantity of finished goods to be produced during a budget period.

16) The direct materials budget is prepared using information from the ________ budget.
A) cash
B) master
C) capital expenditure
D) production

D) production

23) When preparing the direct labor budget, ________.
A) the production manager projects the average direct labor costs
B) direct labor hours needed for production are multiplied by the direct labor cost per hour
C) the actual direct labor cost per hour must be known
D) budgeted units to be produced are multiplied by direct labor cost per hour to determine budgeted direct labor cost

B) direct labor hours needed for production are multiplied by the direct labor cost per hour

27) When preparing the operating budgets for a manufacturing company, the manufacturing overhead budget ________.
A) represents the last period cost to be considered
B) only includes variable manufacturing overhead
C) only computes the budgeted overhead cost for the year
D) includes costs that are projected by the cost accountant and the production manager

D) includes costs that are projected by the cost accountant and the production manager

28) Which of the following statements regarding the manufacturing overhead budget is incorrect?
A) Both fixed and variable manufacturing overhead costs are budgeted.
B) The manufacturing overhead budget calculates the budgeted overhead costs for the year and also the predetermined overhead allocation rate for the year.
C) The cost accountant and the production manager work together to project variable and fixed manufacturing costs.
D) Depreciation on manufacturing equipment is not included because the production manager has no control over that cost allocation.

D) Depreciation on manufacturing equipment is not included because the production manager has no control over that cost allocation.

When preparing the cost of goods sold budget, ________.
A) ignore balances in Finished Goods Inventory
B) start by calculating the projected cost to produce each unit
C) ignore the inventory costing method
D) multiply units produced by the total projected cost per unit

B) start by calculating the projected cost to produce each unit

33) Projected manufacturing cost per unit of product sold does not include ________ cost per unit.
A) sales commission
B) direct materials
C) variable manufacturing overhead
D) direct labor

A) sales commission

38) Which of the following describes the selling and administrative expenses budget?
A) It aids in planning to ensure the company has adequate inventory on hand.
B) It captures the variable and fixed components of selling and administrative expenses of the business.
C) It depicts the breakdown of sales based on terms of collection.
D) It shows the cash flows related to the selling and administrative expenses and helps in planning to ensure the business has adequate cash.

B) It captures the variable and fixed components of selling and administrative expenses of the business.

2) Which of the following statements regarding the capital expenditures budget is correct?
A) Installment payments related to the purchase of long-term assets are included in the capital expenditures budget.
B) Capital expenditures are purchases of long-term assets, such as office supplies.
C) The decision to purchase long-term assets is part of a strategic plan.
D) Capital expenditures are inexpensive assets.

C) The decision to purchase long-term assets is part of a strategic plan.

3) Which of the following statements regarding capital expenditures is incorrect?
A) Capital expenditures are purchases of long-term assets.
B) The decision to purchase long-term assets is part of a strategic plan.
C) Capital expenditures include delivery trucks, computer systems, and manufacturing equipment.
D) Installment payments related to the purchase of long-term assets are included in the capital expenditures budget.

D) Installment payments related to the purchase of long-term assets are included in the capital expenditures budget.

29) A company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet. While doing so, the Cash balance can be taken from the ________.
A) operational budget
B) budgeted income statement
C) cash budget
D) sales budget

C) cash budget

30) A company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet. The balance of Accounts Receivable can be obtained from the ________.
A) schedule of inventory, purchases, and cost of goods sold budget
B) cash receipts from customers
C) capital expenditures budget
D) selling and administrative expenses budget

B) cash receipts from customers

31) A company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet. The balance of Finished Goods Inventory can be taken from the ________.
A) production budget and cost of goods sold budget
B) financial budget
C) cash budget
D) selling and administrative expenses budget

A) production budget and cost of goods sold budget

32) A company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet. The balance of Accounts Payable can be taken from the ________.
A) inventory, purchases, and cost of goods sold budget
B) schedule of cash payments
C) direct materials budget
D) selling and administrative expenses budget

B) schedule of cash payments

45) Which of the following would not appear on a multiple-step budgeted income statement?
A) gross profit
B) income tax expense
C) operating income
D) salaries payable

D) salaries payable

46) The budgeted income statement________.
A) reports cash paid for purchases of direct materials
B) includes amounts from the sales, cost of goods sold, cash, and capital expenditures budgets
C) is accrual-based
D) does not include depreciation expense

C) is accrual-based

49) A company has prepared the operating budget, the cash budget, and the budgeted income statement and is now preparing the budgeted balance sheet. The balance of Retained Earnings can be taken from the ________.
A) inventory, purchases, and cost of goods sold budget
B) operating budget
C) cash budget
D) budgeted income statement and the balance sheet of the previous year

D) budgeted income statement and the balance sheet of the previous year

When a company is preparing a budgeted statement of cash flows, the payments to suppliers for purchases of direct materials can be obtained from the ________.
A) cash budget
B) sales budget
C) production budget
D) budgeted balance sheet

A) cash budget

When a company is preparing a budgeted statement of cash flows, the payments for selling and administrative expenses can be obtained from the ________.
A) budgeted payments for direct materials purchases
B) sales budget
C) cash budget
D) budgeted balance sheet

C) cash budget

Which of the following best describes the term "sensitivity analysis"?
A) It is a testing technique to determine how results would differ if key assumptions are changed.
B) It is an analysis of the emotional sensitivity of a company’s employees.
C) It is an evaluation of the accuracy of the assumptions.
D) It evaluates a company’s financial condition by doing financial statement analysis.

A) It is a testing technique to determine how results would differ if key assumptions are changed.

7) In a company with different business units, individual managers make decisions by changing various assumptions of its budget in order to determine how the modifications would affect the operational and financial results. This is an example of ________.
A) financial statement analysis
B) responsibility accounting
C) sensitivity analysis
D) zero-based budgeting

C) sensitivity analysis

8) Which of the following is useful to combine the data of different segments using different software for the purpose of creating companywide budgets?
A) accounting development manual
B) budgeting software
C) financial analysis software
D) budget creation manual

B) budgeting software

3) Regarding the sales budget, which of the following statements is incorrect?
A) The forecast of sales revenue is the cornerstone of the master budget.
B) The level of sales affects expenses and almost all other elements of the master budget.
C) The budgeted sales are carried from the sales budget to the balance sheet.
D) Budgeted total sales for each product equal the sales price multiplied by the expected number of units sold.

C) The budgeted sales are carried from the sales budget to the balance sheet.

8) When preparing the budgeted balance sheet of a merchandising company, the amount of Merchandise Inventory can be obtained from the ________.
A) merchandise inventory account
B) inventory, purchases, and cost of goods sold budget
C) production budget
D) capital expenditure budget and cash budget

B) inventory, purchases, and cost of goods sold budget

9) The final step in the process of creating the master budget is the preparation of the ________.
A) operating budget
B) budgeted balance sheet
C) budgeted statement of cash flows
D) cash budget

C) budgeted statement of cash flows

12) While preparing the budgeted income statement of a merchandising company, the amount of cost of goods sold can be taken from the ________.
A) budgeted balance sheet
B) budgeted cash flow statement
C) inventory, purchases, and cost of goods sold budget
D) capital expenditures budget

C) inventory, purchases, and cost of goods sold budget

13) Eleanor’s Mittens, Inc., a merchandising company, wants to prepare the budgeted balance sheet for the next budget period. For this purpose, the amount of ending cash balance can be retrieved from the ________.
A) capital expenditures budget
B) budgeted funds flow statement
C) cash budget
D) sales budget

C) cash budget

14) The amount of accumulated depreciation for the budgeted balance sheet can be obtained from the ________.
A) cash budget
B) selling and administrative expense budget and the prior balance sheet
C) cash payments for selling and administrative expense budget
D) financial budget

B) selling and administrative expense budget and the prior balance sheet

15) In the budgeted statement of cash flows, all cash receipts and payments are categorized into operating, financing, and ________ activities.
A) investing
B) merchandising
C) budgeting
D) controlling

A) investing

Which of the following amounts of a flexible budget remains constant, within the specified relevant range, when the sales volume changes?
A) total contribution margin
B) total fixed costs
C) total variable costs
D) total sales revenue

B) total fixed costs

Which of the following amounts of a flexible budget changes, within the specified relevant range, with changes in sales volume?
A) sales price per unit
B) total fixed costs
C) variable cost per unit
D) total contribution margin

D) total contribution margin

The sales volume variance is the difference between the ________.
A) actual results and the expected results in the flexible budget for the actual units sold
B) expected results in the flexible budget for the actual units sold and the static budget
C) static budget and actual amounts due to differences in sales price
D) flexible budget and static budget due to differences in fixed costs

B) expected results in the flexible budget for the actual units sold and the static budget

The flexible budget variance is the difference between the ________.
A) actual results and the expected results in the flexible budget for the actual units sold
B) expected results in the flexible budget for the units expected to be sold and the static budget
C) flexible budget and actual amounts due to differences in volumes
D) flexible budget and static budget due to differences in fixed costs

A) actual results and the expected results in the flexible budget for the actual units sold

33) A company is analyzing its month-end results by comparing it to both static and flexible budgets. During the previous month, the actual sales price was higher than the expected sales price as per the static budget. This difference results in a(n) ________.
A) favorable flexible budget variance for sales revenues
B) favorable sales volume variance for sales revenues
C) unfavorable flexible budget variance for sales revenues
D) unfavorable sales volume variance for sales revenues

A) favorable flexible budget variance for sales revenues

34) A company is analyzing its month-end results by comparing it to both static and flexible budgets. During the previous month, the actual variable costs per unit were lower than the expected variable costs per unit as per the static budget. This difference results in a(n) ________.
A) favorable flexible budget variance for variable costs
B) favorable sales volume variance for variable costs
C) unfavorable flexible budget variance for variable costs
D) unfavorable sales volume variance for variable costs

A) favorable flexible budget variance for variable costs

35) A company is analyzing its month-end results by comparing it to both static and flexible budgets. During the previous month, the actual fixed costs were lower than the expected fixed costs as per the static budget. This difference results in a(n) ________.
A) unfavorable flexible budget variance for fixed costs
B) favorable sales volume variance for fixed costs
C) favorable flexible budget variance for fixed costs
D) unfavorable sales volume variance for fixed costs

C) favorable flexible budget variance for fixed costs

36) A company is analyzing its month-end results by comparing it to both static and flexible budgets. During the previous month, the actual sales volume was lower than the expected sales volume as per the static budget. This difference results in an unfavorable ________.
A) flexible budget variance for variable costs
B) sales volume variance for variable costs
C) flexible budget variance for sales revenue
D) sales volume variance for sales revenue

D) sales volume variance for sales revenue

37) A favorable flexible budget variance in sales revenue suggests a(n) ________.
A) increase in sales price
B) increase in volume
C) decrease in variable cost per unit
D) decrease in fixed costs

A) increase in sales price

38) An unfavorable flexible budget variance in variable costs suggests a(n) ________.
A) increase in sales price per unit
B) decrease in sales volume
C) increase in variable cost per unit
D) decrease in fixed costs

C) increase in variable cost per unit

39) An unfavorable flexible budget variance in operating income might be due to a(n) ________.
A) increase in sales price per unit
B) decrease in sales volume
C) increase in variable cost per unit
D) decrease in fixed costs

C) increase in variable cost per unit

40) A favorable sales volume variance in sales revenue suggests a(n) ________.
A) increase in actual sales price per unit as compared to budgeted sales price
B) increase in number of actual units sold when compared to the expected number of units sold
C) increase in actual variable cost per unit as compared to expected variable cost per unit
D) decrease in actual fixed costs

B) increase in number of actual units sold when compared to the expected number of units sold

41) A favorable sales volume variance in variable costs suggests a(n) ________.
A) increase in number of actual units sold when compared to the expected number of units sold
B) decrease in number of actual units sold when compared to the expected number of units sold
C) increase in variable cost per unit
D) decrease in fixed costs

B) decrease in number of actual units sold when compared to the expected number of units sold

42) An unfavorable sales volume variance in operating income suggests a(n) ________.
A) increase in number of actual units sold when compared to the expected number of units sold
B) decrease in number of actual units sold when compared to the expected number of units sold
C) increase in variable cost per unit
D) decrease in fixed costs

B) decrease in number of actual units sold when compared to the expected number of units sold

20) Which of the following is a reason companies use standard costs?
A) to enhance customer loyalty
B) to set sales prices of products and services
C) to share best practices with other companies
D) to ensure the accuracy of the financial records

B) to set sales prices of products and services

21) Which of the following is a reason companies use standard costs?
A) to enhance customer loyalty
B) to ensure the accuracy of the financial records
C) to share best practices with other companies
D) to identify performance standards

D) to identify performance standards

29) What do cost variances measure?
A) the difference between the cost the company pays and the cost its competitors pay
B) the change in costs over time
C) how well the business keeps unit costs of material and labor inputs within standards
D) the volume discounts companies receive when ordering direct materials in large quantities

C) how well the business keeps unit costs of material and labor inputs within standards

20) The management technique whereby managers concentrate on results that are outside the accepted parameters is called management by ________.
A) variance
B) standard
C) exception
D) budget

C) exception

21) Which of the following statements about management by exception is incorrect?
A) Managers concentrate on results that are outside the accepted parameters.
B) There is no need to investigate variances that are less than 10%.
C) Exceptions can be expressed as a percentage of a budgeted amount or a dollar amount.
D) Many companies use a combination of percentages and dollar amounts.

B) There is no need to investigate variances that are less than 10%.

22) When using management by exception, the purchasing manager should be questioned for which of the following variances?
A) direct materials efficiency
B) variable overhead efficiency
C) direct materials cost
D) direct labor efficiency

C) direct materials cost

23) When using management by exception, which of the following variances would not affect the production manager?
A) direct materials efficiency
B) variable overhead efficiency
C) direct labor cost
D) direct labor efficiency

C) direct labor cost

9) Under a standard cost system, when recording the use of direct materials in the production process, the debit to Work-in-Process Inventory is ________.
A) standard quantity for actual production times standard cost per unit of direct materials
B) standard quantity for actual production times actual cost per unit of direct materials
C) actual quantity times standard cost per unit of direct materials
D) actual quantity times actual cost per unit of direct materials

A) standard quantity for actual production times standard cost per unit of direct materials

10) Under a standard cost system, the journal entry to record direct labor includes ________.
A) a debit for standard direct labor quantity for actual production times standard direct labor cost per hour
B) a credit for standard quantity usage for actual production times actual cost per hour
C) a debit for actual quantity times standard cost per hour
D) a credit for standard quantity for actual production times standard cost per hour

A) a debit for standard direct labor quantity for actual production times standard direct labor cost per hour

7) Which of the following is an advantage of decentralization?
A) Managers’ motivation and retention can be increased by empowering segment managers to make decisions.
B) Certain costs of activities may be duplicated.
C) Customer response time is generally decreased.
D) Top management can concentrate on decisions that relate to day-to-day operations of segments.

A) Managers’ motivation and retention can be increased by empowering segment managers to make decisions.

8) Which of the following is not an advantage of decentralization?
A) provides training
B) frees top management time
C) works to achieve goal congruence
D) supports the use of expert knowledge

C) works to achieve goal congruence

13) Which of the following is a disadvantage of decentralization?
A) It results in increased customer response time.
B) It allows only the top management to make decisions.
C) It does not motivate employees because the decision-making powers are not delegated.
D) It results in problems with achieving goal congruence.

D) It results in problems with achieving goal congruence.

14) The term goal congruence refers to the ________.
A) matching of financial goals of the company with its nonfinancial goals
B) aligning the goals of business segment managers with the goals of top management
C) achievement of the goals set by the management by utilizing the resources available
D) duplication of costs as a result of decentralization

B) aligning the goals of business segment managers with the goals of top management

20) The production line of a manufacturing company is most likely to be considered as a(n) ________.
A) cost center
B) profit center
C) revenue center
D) investment center

A) cost center

21) Profit center responsibility reports include ________.
A) revenues only
B) invested capital
C) both revenues and expenses
D) returns on investments

C) both revenues and expenses

22) Long-term investments are made by the investment center manager for the purpose of ________.
A) increasing profits
B) decreasing profits
C) increasing interest expense
D) decreasing plant assets

A) increasing profits

23) Which of the following would most likely be evaluated using residual income?
A) cost center
B) profit center
C) revenue center
D) investment center

D) investment center

24) Brad Turret, one of the managers of a multi-national company, is responsible for generating revenues and controlling costs in order to increase the operating income of his division. However, he is not concerned about investment-related decisions. Brad is most likely to be the manager of a(n) ________.
A) cost center
B) investment center
C) profit center
D) revenue center

C) profit center

25) The responsibility report of Keith Parker, the manager of one of the divisions of an auto parts manufacturing company, includes profits as well as return on investment and residual income. Keith is most likely the manager of a(n) ________.
A) investment center
B) profit center
C) cost center
D) revenue center

A) investment center

26) In a ________, the manager is responsible for generating revenues and controlling costs.
A) cost center
B) profit center
C) revenue center
D) transfer pricing center

B) profit center

27) The payroll department of a manufacturing company is most likely to be a(n) ________.
A) cost center
B) revenue center
C) investment center
D) profit center

A) cost center

28) Which of the following is a responsibility that is common to the managers of cost, profit, and investment centers?
A) generating revenues
B) generating profits
C) managing the invested capital
D) controlling costs

D) controlling costs

29) Qvoware, Inc. sells cosmetic products in the United States. Which one of the following is most likely to be a cost center for Qvoware?
A) a Qvoware retail store in Dallas
B) the Qvoware human resource department
C) a Qvoware kiosk at a mall for selling its products
D) the Qvoware product lines

B) the Qvoware human resource department

30) Which of the following managers is likely to have the most diverse responsibilities?
A) the manager of a cost center
B) the manager of a profit center
C) the manager of an investment center
D) the manager of a revenue center

C) the manager of an investment center

31) Which of the following managers is likely to have the least amount of responsibilities?
A) the manager of a cost center
B) the manager of a profit center
C) the manager of an investment center
D) the manager of a transfer pricing center

A) the manager of a cost center

32) Bernaise, Inc. sells cosmetic products in the United States. Which one of the following is most likely to be a revenue center for Bernaise?
A) a Bernaise retail store in Dallas
B) the Bernaise human resource department
C) a Bernaise kiosk at a mall for selling its products
D) the Bernaise product lines

C) a Bernaise kiosk at a mall for selling its products

33) Which of the following best describes the manager of a profit center?
A) The manager is only responsible for controlling costs.
B) The manager is responsible for generating profits and efficiently managing the center’s invested capital.
C) The manager is only responsible for generating revenues.
D) The manager is responsible for generating revenues and controlling costs.

D) The manager is responsible for generating revenues and controlling costs.

7) Uniox, Inc. intends to increase its profits by 50% in the next fiscal year. Which of the following is most likely to be a lag indicator in Uniox’s performance report?
A) return on investment
B) number of repeat customers
C) rate of on-time deliveries
D) defect rate

A) return on investment

8) Madsen, Inc. intends to increase its profits by 50% in the next fiscal year. Which of the following is most likely to be a lead indicator in Madsen’s performance report?
A) return on investment
B) number of repeat customers
C) net profit margin
D) sales revenue growth

B) number of repeat customers

13) The level of employee satisfaction is a key performance indicator of the ________ perspective of a balanced scorecard.
A) financial
B) learning and growth
C) internal business
D) customer

B) learning and growth

14) Which of the following is a key performance indicator of the internal business perspective of the balanced scorecard?
A) number of units produced per hour
B) employee turnover
C) cash flow
D) number of cross-trained employees

A) number of units produced per hour

15) One part of the balanced scorecard helps management answer the question, "How do we look to investors and creditors?" Which of the four perspectives is being described with this statement?
A) financial
B) customer
C) internal business
D) learning and growth

A) financial

16) Which of the following four perspectives of the balanced scorecard enables management to answer the question, "How can we continue to improve and create value?"
A) financial
B) customer
C) internal business
D) learning and growth

D) learning and growth

17) Which of the following internal business perspective key performance indicators (KPIs) is commonly used to assess the innovation process?
A) number of new products developed
B) number of warranty claims
C) employee turnover rate
D) rate of on-time deliveries

A) number of new products developed

18) Which of the following perspectives of the balanced scorecard focuses on the increase of company profits through increasing revenue growth and productivity?
A) financial
B) customer
C) internal business
D) learning and growth

A) financial

19) Sales revenue growth, gross margin growth, and return on investment are the key performance indicators for the ________.
A) financial perspective
B) customer perspective
C) internal business perspective
D) learning and growth perspective

A) financial perspective

20) Percentage of market share and rate of on-time deliveries are indicators of the ________ perspective.
A) quality management
B) internal business
C) customer
D) learning and growth

C) customer

21) Which of the following affects the company’s ability to make on-time deliveries?
A) return on investment
B) product’s price
C) warranty claims
D) production cycle time

D) production cycle time

22) A high rate of employee turnover indicates that ________.
A) employees of the organization leave their jobs frequently
B) pay packages of employees are at par with that of the industry
C) the employee retention ratio is also high
D) employees also participate in the decision making process

A) employees of the organization leave their jobs frequently

23) A company’s "climate for action" is a corporate culture ________.
A) that encourages communication, change, and growth
B) that is focused on strong, top-down command and control
C) that is aimed exclusively at period earnings
D) that discourages physical activity, sports, and recreation to improve employee health and morale

A) that encourages communication, change, and growth

24) Which of the following is a key performance indicator of the financial perspective in a balanced scorecard?
A) hours of employee training
B) number of warranty claims
C) percentage of market share
D) return on investment

D) return on investment

25) Which of the following is a key performance indicator of the internal business perspective in a balanced scorecard?
A) hours of employee training
B) number of warranty claims received
C) percentage of market share
D) return on investment

B) number of warranty claims received

26) The balanced scorecard system requires management to consider ________.
A) both financial and operational performance measures
B) only performance measures
C) only leading indicators
D) only financial and customer perspectives

A) both financial and operational performance measures

27) Which of the following is a key performance indicator of the customer perspective in a balanced scorecard?
A) defect rate
B) employee satisfaction
C) gross margin growth
D) number of repeat customers

D) number of repeat customers

3) The production manager is responsible for ________.
A) all product costs
B) decisions to acquire new equipment
C) his or her own salary
D) efficiently and effectively producing quality products

D) efficiently and effectively producing quality products

4) Regarding controllable costs, which of the following statements is incorrect?
A) The production manager cannot make the decision to replace older equipment.
B) All costs are ultimately controllable at the upper levels of management.
C) The production manager is not responsible for avoiding waste of direct materials.
D) The production manager must be able to control all costs of his or her department.

C) The production manager is not responsible for avoiding waste of direct materials.

15) Which of the following statements is true of performance reporting?
A) Responsibility reports should focus on the person responsible for unfavorable variances, rather than information.
B) Managers should not be held accountable for uncontrollable variances.
C) Only unfavorable variances should be explained in the reports.
D) Every variance, regardless of magnitude, must be investigated by the managers.

B) Managers should not be held accountable for uncontrollable variances.

16) A cost center responsibility report ________.
A) includes depreciation expense
B) typically focuses on the flexible budget variance
C) is the same as a performance report
D) shows all costs incurred by the department

B) typically focuses on the flexible budget variance

17) A profit center responsibility report ________.
A) should not include costs for which the profit center manager is not accountable
B) does not include revenues since that information only appears on the revenue center responsibility report
C) includes traceable fixed expenses
D) is the same as a performance report

A) should not include costs for which the profit center manager is not accountable

5) To evaluate the financial performance of an investment center, a business needs key performance indicators that measure ________.
A) manufacturing efficiency and product defect rate
B) operating income and the use of the center’s assets
C) customer satisfaction and market share
D) generation of sales revenues and control of operating expenses

B) operating income and the use of the center’s assets

6) The manager of which of the following centers has the authority to open new stores or close existing ones?
A) cost center
B) profit center
C) investment center
D) revenue center

C) investment center

14) Which of the following is the correct formula for calculating return on investment?
A) Net profit / Sales
B) Gross profit / Sales
C) Operating income / Average total assets
D) Earnings available to stockholders / Number of outstanding shares of stock

C) Operating income / Average total assets

23) Which of the following is an expanded form of calculating return on investment?
A) Profit margin ratio × Asset turnover ratio
B) Net profit ratio × Inventory turnover ratio
C) Gross profit ratio × EVA
D) Asset turnover ratio × Inventory turnover ratio

A) Profit margin ratio × Asset turnover ratio

24) Which of the following is the correct formula for the profit margin ratio?
A) Net profit / Sales
B) Net sales / Average total assets
C) Net profit × Capital invested
D) Operating income / Net sales

D) Operating income / Net sales

25) Which of the following is the correct formula for the asset turnover ratio?
A) Net sales / Average total assets
B) Net sales / Cost of goods sold
C) Net sales / Net assets
D) Net profit / Net sales

A) Net sales / Average total assets

27) Which of the following can increase a company’s return on investment?
A) decrease in operating income
B) decrease in total assets
C) decrease in asset turnover ratio
D) decrease in residual income

B) decrease in total assets

32) Which of the following is the correct formula for calculating residual income?
A) Weighted average cost of capital – Net operating profit after tax
B) Operating income – Minimum acceptable operating income
C) Historical cost of assets – Accumulated depreciation
D) Operating income / Average assets

B) Operating income – Minimum acceptable operating income

37) Residual income indicates how ________.
A) efficiently a division uses its average assets to generate sales and thereby profits
B) much operating income the division earns on every dollar of sales
C) much return a division generates on average assets
D) much extra operating income a division generates above the minimum acceptable level

D) much extra operating income a division generates above the minimum acceptable level

39) A company may prefer to use residual income over return on investment for performance evaluation because ________.
A) residual income is a ratio but return on investment is an absolute figure
B) residual income is more likely to lead to goal congruence than return on investment is
C) residual income is easier to calculate than return on investment
D) residual income considers three elements but return on investment considers only two elements

B) residual income is more likely to lead to goal congruence than return on investment is

46) Which of the following is a not a decision that management must make before calculating ROI and RI?
A) Should nonproductive assets be included in the average total asset calculation?
B) Should gross book value or net book value of assets be used?
C) Should a simple average of the beginning and ending total liabilities be used?
D) Should a short term focus be used?

C) Should a simple average of the beginning and ending total liabilities be used?

When using financial performance measures, which of the following statements is incorrect?
A) Most companies use a weighted-average to determine the amount of average inventory.
B) Average total assets are used for both ROI and RI computations.
C) The limitations of financial performance measures reinforce the importance of the balanced scorecard.
D) In general, calculating ROI based on the net book value of assets gives managers an incentive to continue using old, outdated equipment because its low net book value results in a higher ROI.

A) Most companies use a weighted-average to determine the amount of average inventory.

48) The limitations of financial performance measures ________.
A) lead management to use a time horizon of more than five years
B) make it difficult for companies to create goal congruence
C) lead management to use the gross book value of assets
D) can be overcome by taking a broader view of performance

D) can be overcome by taking a broader view of performance

4) The primary objective in setting transfer prices is to ________.
A) establish a system that determines the best transfer prices for the company as a whole
B) evaluate the managers of the responsibility centers involved
C) achieve goal congruence by selecting a price that will maximize overall company profits
D) make it easy for managers to select prices that maximize division profits

C) achieve goal congruence by selecting a price that will maximize overall company profits

10) When a division is operating at capacity, the transfer price should be ________.
A) based on opportunity cost
B) a market-based transfer price
C) a cost-based transfer price
D) the total manufacturing cost

B) a market-based transfer price

11) Opportunity cost is the benefit ________.
A) received by selling goods on behalf of another division
B) received by selling goods to one of the other divisions within the company
C) given up by purchasing goods at a price lower than its total manufacturing cost
D) given up by choosing an alternate course of action

D) given up by choosing an alternate course of action

12) A market-based transfer price considers the ________ when determining the transfer price.
A) variable costs
B) sales price of goods
C) cost of the goods
D) contribution margin

B) sales price of goods

15) Golden Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Golden uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows:

Direct materials: 2 pounds per unit; $3 per pound
Labor: 4 hours per unit; $20 per hour

During the first quarter, Golden produced 5,000 units of this product. At the end of the quarter, an examination of the direct materials records showed that the company used 9,500 pounds of direct materials and the direct materials cost variance was $3,750 U. Which of the following is a logical explanation for this variance?
A) The company used more labor hours than allowed by the standards.
B) The company paid a higher cost per hour for labor than allowed by the standards.
C) The company used a greater quantity of direct materials than allowed by the standards.
D) The company paid a higher cost for the direct materials than allowed by the standards.

D) The company paid a higher cost for the direct materials than allowed by the standards.

4) Which of the following best describes a standard?
A) a sales price, cost, or quantity that is expected under normal conditions
B) costs incurred to produce a product
C) budgeted amount for total product cost
D) actual sales price, cost, or quantity

A) a sales price, cost, or quantity that is expected under normal conditions