Chapter 10 Self Study 1. Budgetary control involves all but one of the following: modifying future plans.

ans. analyzing differences. determining differences between actual and planned results. using static budgets.

2. A static budget is useful in controlling costs when cost behavior is:

mixed. fixed. variable. linear.

3. At zero direct labor hours in a flexible budget graph, the total budgeted cost line intersects the vertical axis at $30,000. At 10,000 direct labor hours, a horizontal line drawn from the total budgeted cost line intersects the vertical axis at $90,000. Fixed and variable costs may be expressed as: $30,000 fixed plus $6 per direct labor hour variable. $60,000 fixed plus $6 per direct labor hour variable. $30,000 fixed plus $9 per direct labor hour variable. $60,000 fixed plus $3 per direct labor hour variable.

4. At 9,000 direct labor hours, the flexible budget for indirect materials is $27,000. If $28,000 of indirect materials costs are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials: $1,000 favorable. $400 favorable. $400 unfavorable. $1,000 unfavorable.

5. Under responsibility accounting, the evaluation of a manager's performance is based on matters that the manager: . has shared responsibility for with another manager. directly and indirectly controls. directly controls. indirectly controls.

6. Responsibility centers include: cost centers. profit centers. investment centers. all of the above.

7. Responsibility reports for cost centers: distinguish between fixed and variable costs. include both controllable and noncontrollable costs. use static budget data. include only controllable costs.

8. In a responsibility report for a profit center, controllable fixed costs are deducted from contribution margin to show: controllable margin. net income. income from operations. profit center margin.

9. In the formula for return on investment (ROI), the factors for controllable margin and operating assets are, respectively: controllable margin percentage and total operating assets. controllable margin dollars and total assets. controllable margin dollars and average operating assets. controllable margin percentage and average operating assets.

10. A manager of an investment center can improve ROI by: increasing average operating assets. reducing sales. reducing variable and/or controllable fixed costs. increasing variable costs.

Chapter 10 Self Test

1. The use of budgets in controlling operations is known as budgetary control. A. B. True False

2. A static budget report is appropriate for variable manufacturing costs. a. b. True False

3. A flexible budget projects budget data for one level of activity. A. B. True False

4. The first step in developing a flexible budget is to identify the activity index and the relevant range of activity. A. B. True False

5. Management by exception means that top management will investigate every budget difference. A. B. True False

6. Costs incurred indirectly and allocated to a responsibility level are considered to be noncontrollable at that level. A. B. True False

7. Cost centers are usually either production departments or service departments. A. B. True False

8. Controllable margin is the excess of contribution margin over total fixed costs. A. B. True False

9. The primary basis for evaluating the performance of a manager of an investment center is return on investment. A. B. True False

10. Return on investment can be improved by increasing controllable margin and/or reducing average operating assets. A. B. True False

11. Budgetary control involves all of the following except to: A. B. C. D. develop the budget. analyze differences between actual and budget. take corrective action. All of these options are part of budgetary control.

12. A projection of budget data at one level of activity is a: A. B. C. D. flexible budget. static budget. variable budget. fixed budget.

13. A static budget report is appropriate for: A. B. C. D. fixed manufacturing costs only. fixed selling and administrative expenses only. variable selling and administrative expenses. fixed manufacturing costs and fixed selling & administrative expenses.

14. A projection of budget data for various levels of activity is a: A. B. C. D. flexible budget. static budget. variable budget. fixed budget.

15. To develop the flexible budget, management takes all of the following steps except identify the: A. B. C. D. activity index and the relevant range of activity. variable costs and determine the budgeted variable cost per unit. fixed costs and determine the budgeted fixed cost per unit. All of these options are steps in developing the flexible budget.

16. In a flexible budget, a cost that would remain the same at each activity level is: A. B. C. D. indirect materials. indirect labor. supervision. utilities.

17. All of the following statements are correct about management by exception except it: A. B. C. D. enables top management to focus on problem areas that need attention. means that top management has to investigate every budget difference. requires that there must be some guidelines for identifying an exception. means that top management's review of a budget report is focused primarily on differences between actual results and planned objectives.

18. Costs over which a manager has control are called: A. B. C. D. controllable costs. common costs. noncontrollable costs. uncontrollable costs.

19. All of the following statements are correct about controllable costs except: A. B. C. All costs are controllable at some level of responsibility within a company. All costs are controllable by top management. 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. 20. A responsibility center that incurs costs and also generates revenues is a(n): A. B. C. D. cost center. investment center. profit center. segment.

21. Maintenance and human resources departments are examples of a(n): A. B. C. D. cost center. investment center. profit center. segment.

22. Fixed costs that relate specifically to one center and are incurred for the sole benefit of that center are: A. B. C. D. common fixed costs. direct fixed costs. indirect fixed costs. noncontrollable fixed costs.

23. In a responsibility report for a profit center, controllable margin is: A. B. C. D. sales less variable costs. sales less controllable fixed costs. contribution margin less controllable fixed costs. contribution margin less noncontrollable fixed costs.

24. The return on investment for an investment center is computed by dividing: A. B. C. D. net income by average operating assets. controllable margin by average operating assets. contribution margin by average operating assets. net income by ending operating assets.

25. The return on investment for an investment center can be improved by increasing: A. B. C. D. average operating assets. controllable margin. fixed costs. variable costs.

25a Controllable margin less the minimum rate of return on a company's average operating assets equals: A. B. C. D. operating income. residual income. controllable income. net income.

26. In-Step Manufacturing uses a flexible budget. It has the following budgeted manufacturing costs for 25,000 pairs of shoes: Fixed Manufacturing Costs, $12,000 and Variable Manufacturing Costs, $16.00 per pair of shoes. If In-Step Manufacturing makes 20,000 pairs of shoes this month, what are the total budgeted manufacturing cost for the month? A. B. C. D. $320,000. $412,000. $400,000. $332,000.

27. The processing department has monthly budgeted manufacturing overhead of $180,000 plus $3.00 per machine hour. If a flexible budget report shows $348,000 for total budgeted manufacturing overhead costs for the month, what was the actual level of activity achieved during the month? A. B. C. D. 176,000 machine hours. 116,000 machine hours. 56,000 machine hours. Cannot be determined from the data given.

28. Canada Company had the following operating data for the year for its computer division: Sales, $650,000; Contribution Margin, $140,000; Total Fixed Costs (Controllable), $100,000; and Average Total Operating Assets, $280,000. What is the controllable margin for the year? A. B. C. 50%. 14.3%. $40,000.

D. $140,000. 29. Banner Company had the following operating data for the current year: Sales, $500,000; Contribution Margin, $100,000; Total Fixed Costs (Controllable), $60,000; and Average Total Operating Assets, $200,000. If management is able to improve its contribution margin by $20,000 and hold its fixed costs constant, what would Banner's ROI be for the year? A. B. C. D. 20%. 30%. 50%. 12%.