CHAPTER 10b

BUDGETARY AS A CONTROL TOOL

MULTIPLE CHOICE QUESTIONS
38.

What is budgetary control?

a. Another name for a flexible budget
b. The degree to which the CFO controls the budget
c. The use of budgets in controlling operations
d. The process of providing information on budget differences to lower level managers

39.

A major element in budgetary control is

a. the preparation of long-term plans.
b. the comparison of actual results with planned objectives.
c. the valuation of inventories.
d. approval of the budget by the stockholders.

40.

Budget reports should be prepared

a. daily.
b. monthly.
c. weekly.
d. as frequently as needed.

41.

On the basis of the budget reports,

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.

42.

The purpose of the departmental overhead cost report is to

a. control indirect labor costs.
b. control selling expense.
c. determine the efficient use of materials.
d. control overhead costs.

43.

The purpose of the sales budget report is to

a. control selling expenses.
b. determine whether income objectives are being met.
c. determine whether sales goals are being met.
d. control sales commissions.

44.

The comparison of differences between actual and planned results

a. is done by the external auditors.
b. appears on the company's external financial statements.
c. is usually done orally in departmental meetings.
d. appears on periodic budget reports.

45.

A static budget
a. should not be prepared in a company.
b. is useful in evaluating a manager's performance by comparing actual variable costs and planned variable
costs.
c. shows planned results at the original budgeted activity level.
d. is changed only if the actual level of activity is different than originally budgeted.

24 - 2

Test Bank for Accounting Principles, Eighth Edition

46.

A static budget report

a. shows costs at only 2 or 3 different levels of activity.
b. is appropriate in evaluating a manager's effectiveness in controlling variable costs.
c. should be used when the actual level of activity is materially different from the master budget activity
level.
d. may be appropriate in evaluating a manager's effectiveness in controlling costs when the behavior of the
costs in response to changes in activity is fixed.

47.

A static budget is appropriate in evaluating a manager's performance if

a. actual activity closely approximates the master budget activity.
b. actual activity is less than the master budget activity.
c. the company prepares reports on an annual basis.
d. the company is a not-for-profit organization

48.

When budgeted and actual results are not the same amount, there is a budget
a. error.
b. difference.
c. anomaly.
d. by-product.

49.

Top management's reaction to a difference between budgeted and actual sales often depends on
a. whether the difference is favorable or unfavorable.
b. whether management anticipated the difference.
c. the materiality of the difference.
d. the personality of the top managers.

50.

If costs are not responsive to changes in activity level, then these costs can be best described as
a. mixed.
b. flexible.
c. variable.
d. fixed.

51.

Assume that actual sales results exceed the planned results for the second quarter. This favorable difference is
greater than the unfavorable difference reported for the first quarter sales. Which of the following statements
about the sales budget report on June 30 is true?
a. The year-to-date results will show a favorable difference.
b. The year-to-date results will show an unfavorable difference.
c. The difference for the first quarter can be ignored.
d. The sales report is not useful if it shows a favorable and unfavorable difference for the two quarters.

52.

A static budget is appropriate for

a. variable overhead costs.
b. direct materials costs.
c. fixed overhead costs.
d. none of these.

53.

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

Budgetary Planning and Responsibility Accounting

24 - 3

54.

A flexible budget
a. is prepared when management cannot agree on objectives for the company.
b. projects budget data for various levels of activity.
c. is only useful in controlling fixed costs.
d. cannot be used for evaluation purposes because budgeted data are adjusted to reflect actual results.

55.

The master budget of Benedict Company 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
Machine supplies
Indirect materials
Depreciation on factory building
Total manufacturing overhead

$240,000
60,000
70,000
50,000
$420,000

A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead
costs of
a.
b.
c.
d.

$494,000.
$420,000.
$504,000.
$454,000.

56.

Rickets Crickets prepared a 2008 budget for 60,000 units of product. Actual production in 2008 was 65,000
units. To be most useful, what amounts should a performance report for this company compare?
a. The actual results for 65,000 units with the original budget for 60,000 units
b. The actual results for 65,000 units with a new budget for 65,000 units.
c. The actual results for 65,000 units with last year's actual results for 67,000 units
d. It doesn't matter. All of these choices are equally useful.

57.

A department has budgeted monthly manufacturing overhead cost of $270,000 plus $3 per direct labor hour.
If a flexible budget report reflects $522,000 for total budgeted manu-facturing cost for the month, the actual
level of activity achieved during the month was
a. 264,000 direct labor hours.
b. 84,000 direct labor hours.
c. 174,000 direct labor hours.
d. Cannot be determined from the information provided.

58.

Which one of the following would be the same total amount on a flexible budget and a static budget if the
activity level is different for the two types of budgets?
a. Direct materials cost
b. Direct labor cost
c. Variable manufacturing overhead
d. Fixed manufacturing overhead

59.

In developing a flexible budget within a relevant range of activity,

a. only fixed costs are included.
b. it is necessary to relate variable cost data to the activity index chosen.
c. it is necessary to prepare a budget at 1,000 unit increments.
d. variable and fixed costs are combined and are reported as a total cost.

60.

What budgeted amounts appear on the flexible budget?

a. Original budgeted amounts at the static budget activity level
b. Actual costs for the budgeted activity level
c. Budgeted amounts for the actual activity level achieved
d. Actual costs for the estimated activity level

Test Bank for Accounting Principles, Eighth Edition

24 - 4
61.

The flexible budget

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.

62.

A flexible budget can be prepared for which of the following budgets comprising the master budget?
a. Sales
b. Overhead
c. Direct materials
d. All of these

63.Another name for the static budget is

a. master budget.
b. overhead budget.
c. permanent budget.
d. flexible budget.
64.

If a company plans to sell 24,000 units of product but sells 30,000, the most appropriate comparison of the
cost data associated with the sales will be by a budget based on
a. the original planned level of activity.
b. 27,000 units of activity.
c. 30,000 units of activity.
d. 24,000 units of activity.

65.

Within the relevant range of activity, the behavior of total costs is assumed to be
a. linear and upward sloping.
b. linear and downward sloping.
c. curvilinear and upward sloping.
d. linear to a point and then level off.

66.

Sales results that are evaluated by a static budget might show

1.
2.
a.
b.
c.
d.

67.

1
2
both 1 and 2.
neither 1 nor 2.

The selection of levels of activity to depict a flexible budget

1.
2.
3.
a.
b.
c.
d.

68.

favorable differences that are not justified.

unfavorable differences that are not justified.

will be within the relevant range.

is largely a matter of expediency.
is governed by generally accepted accounting principles.

1
2
3
1 and 2

Management by exception
a. causes managers to be buried under voluminous paperwork.
b. means that all differences will be investigated.
c. means that only unfavorable differences will be investigated.
d. means that material differences will be investigated.

Budgetary Planning and Responsibility Accounting

24 - 5

69.

Under management by exception, which differences between planned and actual results should be
investigated?
a. Material and noncontrollable
b. Controllable and noncontrollable
c. Material and controllable
d. All differences should be investigated

70.

Romano Roofing's budgeted manufacturing costs for 25,000 squares of shingles are:
Fixed manufacturing costs $15,000
Variable manufacturing costs$20.00 per square
Romano produced 20,000 squares of shingles during March. How much are budgeted total manufacturing
costs in March?
a. $400,000
b. $515,000
c. $500,000
d. $415,000

71.

A flexible budget depicted graphically

a. is identical to a CVP graph.
b. differs from a CVP graph in the way that fixed costs are shown.
c. differs from a CVP graph in the way that variable costs are shown.
d. differs from a CVP graph in that sales revenue is not shown.

72.

The activity index used in preparing the flexible budget

a. is prescribed by generally accepted accounting principles.
b. is only applicable to fixed manufacturing costs.
c. is the same for all departments.
d. should significantly influence the costs that are being budgeted.

73.

A static budget is not appropriate in evaluating a manager's effectiveness if a company has

a. substantial fixed costs.
b. substantial variable costs.
c. planned activity levels that match actual activity levels.
d. no variable costs.

74.

Trepid Manufacturing Company prepared a fixed budget of 40,000 direct labor hours, with estimated
overhead costs of $200,000 for variable overhead and $60,000 for fixed overhead. Trepid then prepared a
flexible budget at 38,000 labor hours. How much is total overhead costs at this level of activity?
a. $190,000
b. $250,000
c. $247,000
d. $260,000

75.

For June, Mark Manufacturing estimated sales revenue at $200,000. It pays sales commissions that are 4% of
sales. The sales manager's salary is $95,000, estimated shipping expenses total 1% of sales, and
miscellaneous selling expenses are $5,000. How much are budgeted selling expenses for the month of July if
sales are expected to be $180,000?
a. $14,000
b. $109,000
c. $9,000
d. $110,000

24 - 6
76.

Test Bank for Accounting Principles, Eighth Edition

Ziglars Sipit Company budgeted manufacturing costs for 25,000 sipits are:
Fixed manufacturing costs
Variable manufacturing costs

$25,000 per month

$12.00 per sipit

Ziglars produced 20,000 sipits during March. How much is the flexible budget for total manufacturing costs
for March?
a. $260,000
b. $325,000
c. $240,000
d. $265,000
77.

True Masons budgeted costs for 25,000 linear feet of block are:
Fixed manufacturing costs
Variable manufacturing costs

$12,000 per month

$16.00 per linear

True Masons installed 20,000 linear feet of block during March. How much is budgeted total manufacturing
costs in March?
a. $320,000
b. $412,000
c. $400,000
d. $332,000
78.

In the Klugman Company, indirect labor is budgeted for $36,000 and factory supervision is budgeted for
$12,000 at normal capacity of 80,000 direct labor hours. If 90,000 direct labor hours are worked, flexible
budget total for these costs is
a. $48,000.
b. $54,000.
c. $52,500.
d. $49,500.

79.

Wayman Company uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing
overhead is: $48,000 variable and $135,000 fixed. If Wayman had actual overhead costs of $187,500 for
9,000 units produced, what is the difference between actual and budgeted costs?
a. $1,500 unfavorable
b. $1,500 favorable
c. $4,500 unfavorable
d. $6,000 favorable

80.

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. $288,000.
b. $360,000.
c. $384,000.
d. $408,000.

Budgetary Planning and Responsibility Accounting

24 - 7

81.

The accumulation of accounting data on the basis of the individual manager who has the authority to make
day-to-day decisions about activities in an area is called
a. static reporting.
b. flexible accounting.
c. responsibility accounting.
d. master budgeting.

82.

Cart Company recorded operating data for its shoe division for the year.
Sales
Contribution margin
Controllable fixed costs
Average total operating assets

$750,000
150,000
90,000
300,000

How much is controllable margin for the year?

a. 20%
b. 50%
c. $150,000
d. $60,000
83.

A cost is considered controllable at a given level of managerial responsibility if

a. the manager has the power to incur the cost within a given time period.
b. the cost has not exceeded the budget amount in the master budget.
c. it is a variable cost, but it is uncontrollable if it is a fixed cost.
d. it changes in magnitude in a flexible budget.

84.

As one moves up to each higher level of managerial responsibility,

a. fewer costs are controllable.
b. the responsibility for cost incurrence diminishes.
c. a greater number of costs are controllable.
d. performance evaluation becomes less important.

85.

A responsibility report should

a. be prepared in accordance with generally accepted accounting principles.
b. show only those costs that a manager can control.
c. only show variable costs.
d. only be prepared at the highest level of managerial responsibility.

86.

Top management can control

a. only controllable costs.
b. only noncontrollable costs.
c. all costs.
d. some noncontrollable costs and all controllable costs.

87.

Not-for-profit entities
a. do not use responsibility accounting.
b. utilize responsibility accounting in trying to maximize net income.
c. utilize responsibility accounting in trying to minimize the cost of providing services.
d. have only noncontrollable costs.

88.

Which of the following is not a true statement?

a. All costs are controllable at some level within a company.
b. Responsibility accounting applies to both profit and not-for-profit entities.
c. Fewer costs are controllable as one moves up to each higher level of managerial responsibility.
d. The term segment is sometimes used to identify areas of responsibility in decentralized operations.

24 - 8

Test Bank for Accounting Principles, Eighth Edition

89.

Costs incurred indirectly and allocated to a responsibility level are considered to be

a. nonmaterial.
b. mixed.
c. controllable.
d. noncontrollable.

90.

Management by exception
a. is most effective at top levels of management.
b. can be implemented at each level of responsibility within an organization.
c. can only be applied when comparing actual results with the master budget.
d. is the opposite of goal congruence.

91.

Which responsibility centers generate both revenues and costs?

a. Investment and profit centers
b. Profit and cost centers
c. Cost and investment centers
d. Only profit centers

92.

The linens department of a large department store is

a. not a responsibility center.
b. a profit center.
c. a cost center.
d. an investment center.

93.

The foreign subsidiary of a large corporation is

a. not a responsibility center.
b. a profit center.
c. a cost center.
d. an investment center.

94.

The maintenance department of a manufacturing company is a(n)

a. segment.
b. profit center.
c. cost center.
d. investment center.

95.

Which of the following is not a correct match?

1. Incurs costs
2. Generates revenue
3. Controls investment funds
a. Investment Center
1, 2, 3
b. Cost Center
1
c. Profit Center
1, 2, 3
d. All are correct matches.

96.A cost center

a. only incurs costs and does not directly generate revenues.
b. incurs costs and generates revenues.
c. is a responsibility center of a company which incurs losses.
d. is a responsibility center which generates profits and evaluates the investment cost of earning the profit.
97.

A manager of a cost center is evaluated mainly on

a. the profit that the center generates.
b. his or her ability to control costs.
c. the amount of investment it takes to support the cost center.
d. the amount of revenue that can be generated.

Budgetary Planning and Responsibility Accounting

98.

Performance reports for cost centers compare actual

a. total costs with static budget data.
b. total costs with flexible budget data.
c. controllable costs with static budget data.
d. controllable costs with flexible budget data.

99.

In the performance report for cost centers,

a. controllable and noncontrollable costs are reported.
b. fixed costs are not reported.
c. no distinction is made between fixed and variable costs.
d. only materials and controllable costs are reported.

24 - 9

100.

Of the following choices, which contain both a traceable fixed cost and a common fixed cost?
a. Profit center manager's salary and timekeeping costs for a responsibility center's employees.
b. Company president's salary and company personnel department costs.
c. Company personnel department costs and timekeeping costs for a responsibility center's employees.
d. Depreciation on a responsibility center's equipment and supervisory salaries for the center.

101.

Which of the following is not an indirect fixed cost?

a. Company president's salary
b. Depreciation on the company building housing several profit centers
c. Company personnel department costs
d. Profit center supervisory salaries

102.

A profit center is
a. a responsibility center that always reports a profit.
b. a responsibility center that incurs costs and generates revenues.
c. evaluated by the rate of return earned on the investment allocated to the center.
d. referred to as a loss center when operations do not meet the company's objectives.

103.

The best measure of the performance of the manager of a profit center is the
a. rate of return on investment.
b. success in meeting budgeted goals for controllable costs.
c. amount of controllable margin generated by the profit center.
d. amount of contribution margin generated by the profit center.

104.Controllable margin is defined as

a. sales minus variable costs.
b. sales minus contribution margin.
c. contribution margin less controllable fixed costs.
d. contribution margin less noncontrollable fixed costs.
105.

Controllable margin is most useful for

a. external financial reporting.
b. preparing the master budget.
c. performance evaluation of profit centers.
d. break-even analysis.

106.

Which of the following will not result in an unfavorable controllable margin difference?
a. Sales exceeding budget; costs under budget
b. Sales exceeding budget; costs over budget
c. Sales under budget; costs under budget
d. Sales under budget; costs over budget

24 - 10 Test Bank for Accounting Principles, Eighth Edition

107.

Given below is an excerpt from a management performance report:

Contribution margin
Controllable fixed costs

Budget
$1,000,000
$ 500,000

Actual
$1,050,000
$ 450,000

Difference
$50,000
$50,000

The manager's overall performance

a. is 20% below expectations.
b. is 20% above expectations.
c. is equal to expectations.
d. cannot be determined from information given.
108.

Which of the following are financial measures of performance?

1.
2.
3.
a.
b.
c.
d.

109.

Controllable margin
Product quality
Labor productivity

1
2
3
1 and 3

Given below is an excerpt from a management performance report:

Contribution margin
Controllable fixed costs

Budget
$600,000
$200,000

The manager's overall performance

a. is 10% above expectations.
b. is 10% below expectations.
c. is equal to expectations.
d. cannot be determined from the information provided.
110.A responsibility report for a profit center will
a. not show controllable fixed costs.
b. not show indirect fixed costs.
c. show noncontrollable fixed costs.
d. not show cumulative year-to-date results.
111.

The dollar amount of the controllable margin

a. is usually higher than the contribution margin.
b. is usually lower than the contribution margin.
c. is always equal to the contribution margin.
d. cannot be a negative figure.

Actual
$580,000
$220,000

Difference
$20,000 U
$20,000 U

Budgetary Planning and Responsibility Accounting

112.

24 - 11

Garrison Company recorded operating data for its shoe division for the year. The companys desired return is
5%.
Sales
Contribution margin
Total direct fixed costs
Average total operating assets

$500,000
100,000
60,000
200,000

Which one of the following reflects the controllable margin for the year?
a. 20%
b. 50%
c. $30,000
d. $40,000
113.

The area manager of the Steak House Restaurants is considering two possible expansion alternatives. The
required investments, expected controllable margins, and the ROIs of each are as follows:
Project
Charlotte
Richmond

Investment
$120,000
$540,000

Controllable Margin
$30,000
$50,000

ROI
25%
9.25%

The Steak House segment has currently $2,000,000 in invested capital and a controllable margin of
$250,000. Which one of following projects will increase the Steak House divisions ROI?
a. Both the Charlotte and Richmond options
b. Only the Charlotte option
c. Only the Richmond option
d. Neither the Charlotte nor the Richmond options
114.

Timex Corporation recorded operating data for its Cheap division for the year. Timex requires its return to be
10%.
Sales
Controllable margin
Total average assets
Fixed costs

700,000
80,000
2,000,000
50,000

What is the ROI for the year?

a. 4%
b. 35%
c. 6%
d. 1.5%
115.Halpern Divisions operating results include: controllable margin of $150,000, sales totaling $1,200,000, and
average operating assets of $500,000. Halpern is considering a project with sales of $100,000, expenses of
$86,000, and an investment of average operating assets of $200,000. Halperns required rate of return is 9%.
Should Halpern accept this project?
a. Yes, ROI will drop by 6.6% which is still above the required rate of return.
b. No, the return is less than the required rate of 9%.
c. Yes, ROI still exceeds the cost of capital.
d. No, ROI will decrease to 7%.

24 - 12 Test Bank for Accounting Principles, Eighth Edition

1 16.

Perot Manufacturing reported the following items for 2008:

Income tax expense
Contribution margin
Controllable fixed costs
Interest expense
Total operating assets

$ 30,000
100,000
40,000
20,000
325,000

How much is controllable margin?

a. $100,000
b. $60,000
c. $30,000
d. $10,000
117.Merck Pharmaceuticals is evaluating its Vioxx division, an investment center. The division has a $45,000
controllable margin and $300,000 of sales. How much will Mercks average operating assets be when its
return on investment is 10%?
a. $450,000
b. $495,000
c. $300,000
d. $255,000
118.An investment center generated a contribution margin of $200,000, fixed costs of $100,000 and sales of
$1,000,000. The centers average operating assets were $400,000. How much is the return on investment?
a. 25%
b. 175%
c. 50%
d. 75%
119.

Safety Seats Company recorded operating data for its auto accessories division for the year.
Sales
$375,000
Contribution margin
75,000
Total direct fixed costs
45,000
Average total operating assets
200,000
How much is ROI for the year if management is able to identify a way to improve the contribution margin by
$15,000, assuming fixed costs are held constant?
a. 45.0%
b. 22.5%
c. 15.0%
d. 12.0%

120.

The current controllable margin for Claremont Division is $62,000. Its current operating assets are $200,000.
The division is considering purchasing equipment for $60,000 that will increase annual controllable margin
by an estimated $10,000. If the equipment is purchased, what will happen to the return on investment for
Claremont Division?
a. An increase of 16.1%
b. A decrease of 13.3%
c. A decrease of 3.3%
d. A decrease of 7.2%

Budgetary Planning and Responsibility Accounting

121.

24 - 13

CinRich Corporation recorded operating data for its Waterhole division for the year. CinRich requires its
return to be 9%.
Sales
Controllable margin
Total average assets
Fixed costs

$500,000
90,000
300,000
30,000

How much is ROI for the year?

a. 10%
b. 16.7%
c. 20%
d. 30%
122.

Lou Alabassi is the North Division manager and his performance is evaluated by executive management
based on Division ROI. The current controllable margin for North 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. An increase of 0.5%
b. A decrease of 0.5%
c. A decrease of 3.5%
d. It will remain unchanged.

123.

Cruise Division of Harrahs Companys operating results include: controllable margin, $200,000; sales
$2,200,000; and operating assets, $800,000. The Cruise Divisions 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?
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.

124.

The Eastern Division of Flint Corp. had an ROI of 25% when sales were $1 million and controllable margin
was $200,000. What were the average operating assets?
a. $50,000
b. $250,000
c. $800,000
d. $4,000

125.Cart Company recorded operating data for its shoe division for the year.
Sales
Contribution margin
Total fixed costs
Average total operating assets

$500,000
90,000
60,000
200,000

How much is ROI for the year if management is able to identify a way to improve the contribution margin by
$20,000, assuming fixed costs are held constant?
a. 25%
b. 18%
c. 45%
d. 12%
126.A distinguishing characteristic of an investment center is that
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.

24 - 14 Test Bank for Accounting Principles, Eighth Edition

d.

it is a responsibility center which only generates revenues.

127.

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

128.

Return on investment is calculated by dividing

a. contribution margin by sales.
b. controllable margin by sales.
c. contribution margin by average operating assets.
d. controllable margin by average operating assets.

129.

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

a. Variable costs are increased
b. An increase in sales
c. Average operating assets are decreased
d. Variable costs are decreased

130.

If an investment center has generated a controllable margin of $75,000 and sales of $300,000, what is the
return on investment for the investment center if average operating assets were $500,000 during the period?
a. 15%
b. 25%
c. 45%
d. 60%

131.

Which statement is true?

a. An investment center is responsible for revenues and expenses, as well as earning a return on assets.
b. An investment center is only responsible for its investments.
c. An investment center is only responsible for revenues and expenses.
d. A profit center is evaluated using contribution margin, while an investment center is evaluated using
ROI.

132.

The denominator in the formula for return on investment calculation is

a. investment center controllable margin.
b. dependent on the specific type of profit center.
c. average investment center operating assets.
d. sales for the period.

133.

In the formula for ROI, idle plant assets are

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.

134.In computing ROI, land held for future use

a. will hurt the performance measurement of an investment center's manager.
b. is important in evaluating the performance of a profit center manager.
c. is included in the calculation of operating assets.
d. is considered a nonoperating asset.

Budgetary Planning and Responsibility Accounting

135.

24 - 15

Dodge City Parts has a current return on investment of 10% and the company has established an 8%
minimum rate of return for the division. The division manager has two investment projects available, for
which the following estimates have been made:
Project A - Annual controllable margin = $24,000, operating assets = $400,000
Project B - Annual controllable margin = $60,000, operating assets = $550,000
Which project should be funded?
a. Both projects
b. Project A
c. Project B
d. Neither project

136.

If an investment center has a $45,000 controllable margin and $600,000 of sales, what average operating
assets are needed to have a return on investment of 10%?
a. $60,000
b. $105,000
c. $450,000
d. $600,000

137.

Which of the following valuations of operating assets is not readily available from the accounting records?
a. Cost
b. Book value
c. Market value
d. Both cost and market value

Additional Multiple Choice Questions

138.

Which of the following would not be considered an aspect of budgetary control?

a. It assists in the determination of differences between actual and planned results.
b. It provides feedback value needed by management to see whether actual operations are on course.
c. It assists management in controlling operations.
d. It provides a guarantee for favorable results.

139.

A static budget is usually appropriate in evaluating a manager's effectiveness in controlling

a. fixed manufacturing costs and fixed selling and administrative expenses.
b. variable manufacturing costs and variable selling and administrative expenses.
c. fixed manufacturing costs and variable selling and administrative expenses.
d. variable manufacturing costs and fixed selling and administrative expenses.

140.

A static budget report is appropriate for

a. fixed manufacturing costs.
b. fixed selling and administrative expenses.
c. variable selling and administrative expenses.
d. both fixed manufacturing costs and fixed selling and administrative expenses.

141.

Weiser Company uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing overhead
is $64,000 variable and $180,000 fixed. If Weiser had actual overhead costs of $250,000 for 9,000 units
produced, what is the difference between actual and budgeted costs?
a. $2,000 unfavorable
b. $2,000 favorable
c. $6,000 unfavorable
d. $8,000 favorable

24 - 16 Test Bank for Accounting Principles, Eighth Edition

142.

To develop the flexible budget, management takes all of the following steps except identify the
a. activity index and the relevant range of activity.
b. variable costs and determine the budgeted variable cost per unit.
c. fixed costs and determine the budgeted fixed cost per unit.
d. All of these options are steps in developing the flexible budget.

143.

A flexible budget is appropriate for

a.
b.
c.
d.

Direct Labor Costs

No
Yes
Yes
No

Manufacturing Overhead Costs

No
Yes
No
Yes

144.All of the following statements are correct about management by exception except it
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.
145.

Controllable costs for responsibility accounting purposes are those costs that are directly influenced by
a. a given manager within a given period of time.
b. a change in activity.
c. production volume.
d. sales volume.

146.

All of the following statements are correct about controllable costs except
a. all costs are controllable at some level of responsibility within a company.
b. all costs are controllable by top management.
c. fewer costs are controllable as one moves up to each higher level of managerial responsibility.
d. costs incurred directly by a level of responsibility are controllable at that level.

147.

Which of the following will cause an increase in ROI?

a. An increase in variable costs
b. An increase in average operating assets
c. An increase in sales
d. An increase in controllable fixed costs

148.

Costs that relate specifically to one center and are incurred for the sole benefit of that center are
a. common fixed costs.
b. direct fixed costs.
c. indirect fixed costs.
d. noncontrollable fixed costs.

149.

If controllable margin is $300,000 and the average investment center operating assets are $1,000,000, the
return on investment is
a. .33%.
b. 3.33%.
c. 10%.
d. 30%.