ch11 questions Flashcards
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: Direct Materials $ 450,000 Direct Labour 225,000 Variable Overhead 1,125,000 Fixed Overhead 2,100,000 Actual Results: Machine Hours 160,000 hours Direct Materials $475,000 Direct Labour 245,000 Variable Overhead 1,150,000 Fixed Overhead 2,110,000 41. What was the budgeted variable costs per machine hour for variable overhead, rounded to the nearest whole cent? a. $7.03/machine hour b. $7.50/machine hour c. $19.53/machine hour d. $20.83/machine hour
b 7.50 per machine hour
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: Direct Materials $ 450,000 Direct Labour 225,000 Variable Overhead 1,125,000 Fixed Overhead 2,100,000 Actual Results: Machine Hours 160,000 hours Direct Materials $475,000 Direct Labour 245,000 Variable Overhead 1,150,000 Fixed Overhead 2,110,000 42. What is the budgeted Direct Labour cost at the actual level of activity? a. $245,000 b. $240,000 c. $210,938 d. $20,000
b $240,000
225,000 / 150,000 x 160,000
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: Direct Materials $ 450,000 Direct Labour 225,000 Variable Overhead 1,125,000 Fixed Overhead 2,100,000 Actual Results: Machine Hours 160,000 hours Direct Materials $475,000 Direct Labour 245,000 Variable Overhead 1,150,000 Fixed Overhead 2,110,000 43. What is the budgeted Fixed Overhead at the actual level of activity? a. $2,100,000 b. $2,110,000 c. $2,240,000 d. $3,260,000
key word is fixed
a. $2,100,000
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: Direct Materials $ 450,000 Direct Labour 225,000 Variable Overhead 1,125,000 Fixed Overhead 2,100,000 Actual Results: Machine Hours 160,000 hours Direct Materials $475,000 Direct Labour 245,000 Variable Overhead 1,150,000 Fixed Overhead 44. What was the difference between the actual and budgeted Direct Material costs at the actual level of activity? a. $25,000 unfavourable b. $25,000 favourable c. $5,000 unfavourable d. $5,000 favourable
d
480,000
495,000
- What possible reason could explain the difference between the actual fixed overhead costs and the budgeted fixed overhead costs?
a. EKPN Company’s actual machine hours were greater than the budgeted amount.
b. EKPN Company’s actual machine hours were less than the budgeted amount.
c. EKPN Company spent more on fixed costs than it expected.
d. EKPN Company spent less on fixed costs than expected
key word budgeted FIXED costs
c.
- Perot Manufacturing reported the following items for 2012:
Income tax expense $ 40,000 Contribution margin 125,000 Controllable fixed costs 30,000 Interest expense 10,000 Total operating assets 475,000
How much is controllable margin?
a. $125,000
b. $95,000
c. $85,000
d. $45,000
Controllable margin formula:
Contribution margin - controllable fixed costs
b. $95,000
- Kilroy Manufacturing prepared a 2012 budget for 40,000 units of product. Actual production in 2012 was 41,000 units. Which one of the following is the most useful comparison for this company?
a. The actual results for 41,000 units with a new budget for 41,000 units
b. The actual results for 41,000 units with the original budget for 40,000 units
c. The actual results for 41,000 units with the previous year’s actual results for 44,000 units
d. It doesn’t matter. All of these choices are equally useful.
a. the actual results for 41,000 units with a new budget for 41,000 units
- Which one of the following statements describes a budget report?
a. It is the preparation of long-term plans.
b. It is a comparison of actual results with planned objectives.
c. It includes the valuation of inventories.
d. It is voted on and approved by the stockholders.
b
- Which one of the following do budget reports provide for managers?
a. The cause of differences between actual and projected amounts
b. The nature of corrective action needed
c. Feedback on operations
d. Modification actions necessary
c
- What is the purpose of a departmental overhead cost report?
a. To control corporate labour costs
b. To allocate uncontrollable costs
c. To determine the cause of any misuse of costs
d. To control overhead costs
d
- What is the purpose of the sales budget report?
a. To control the cost of selling products in a company
b. To assess whether the company is profitable or not
c. To determine why sales goals were met or not met
d. To identify differences between planned and actual and take corrective action if necessary.
d
- Which one of the statements below is correct concerning the comparison of differences between actual and planned results?
a. The difference must be reported on external financial statements.
b. The differences always require investigation.
c. It reflects information from the static budget.
d. It enables managers to take corrective action when differences are material.
d
- Which one of the following is true concerning a static budget?
a. It is prepared at the end of the accounting period once actual results are known.
b. It is useful in evaluating a manager’s performance by comparing actual variable costs and planned variable costs.
c. It shows planned results at the original budgeted activity level.
d. It reflects the level of activity at which the company will be most profitable.
c
- When is a static budget most appropriate in evaluating a manager’s performance?
a. When the actual costs incurred equal the amounts in the budget
b. When the actual activity is less than the master budget activity
c. When the company performed at the same activity level as the static budget level
d. The static budget is not appropriate for evaluating managers.
c
- Which statement is true concerning a static budget report?
a. It considers performance at numerous activity levels.
b. It is appropriate in evaluating a manager’s effectiveness in controlling fixed costs.
c. It should be used when the actual level of activity is materially different from the master budget activity level.
d. It is most effective when evaluating a manager’s effectiveness in controlling variable costs.
b
- A manager determined that certain costs were not responsive to changes in activity level. What are these costs?
a. Mixed
b. Flexible
c. Variable
d. Fixed
d
- When is a cost considered to be controllable?
a. Only when the manager has the power to incur the cost within a given time period
b. Only if the cost is less than the budget amount
c. Only when it is a variable cost
d. Only when the amount changes based on different activity levels
a
- An investment centre generated a contribution margin of $200,000, fixed costs of $100,000 and sales of $1,000,000. The centre’s average operating assets were $400,000. How much is the return on investment?
a. 25%
b. 175%
c. 50%
d. 75%
a. 25%
Controllable margin / avg operating assets
Contribution margin - Controlalble FC
= Controllable margin
All operating assets added up / the number of oprating assets
- How can the manager of an investment centre improve ROI?
a. By decreasing average operating assets
b. By increasing controllable fixed costs
c. By decreasing contribution margin
d. By increasing variable costs
a
-
- The following information is available for Aggie Auto Sales:Average operating assets $750,000
Controllable margin 90,000
Contribution margin 175,000
Minimum rate of return 10%
- The following information is available for Aggie Auto Sales:Average operating assets $750,000
a. $125,000
b. $640,000
c. $15,000
d. $85,000
NEED HELP
- 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.
b
Use the following information to answer questions 133 to 136.
EKPN Company recorded the following operating data:
Sales $1,250,000
Contribution margin 485,000
Total direct fixed costs 400,300
Total operating assets Jan. 1, 2012 750,000
Total operating assets Dec. 31, 2012 790,000
EKPN Company’s desired return 12%
- What is EKPN Company’s average operating assets for 2012?
a. $770,000
b. $750,000
c. $790,000
d. $150,000
a
$770,000
(750,000 + 790,000 ) / 2
EKPN Company recorded the following operating data:
Sales $1,250,000
Contribution margin 485,000
Total direct fixed costs 400,300
Total operating assets Jan. 1, 2012 750,000
Total operating assets Dec. 31, 2012 790,000
EKPN Company’s desired return 12%
134. What is EKPN Company’s controllable margin?
a. $849,700
b. $765,000
c. $410,000
d. $$84,700
d
$84,700
EKPN Company recorded the following operating data:
Sales $1,250,000
Contribution margin 485,000
Total direct fixed costs 400,300
Total operating assets Jan. 1, 2012 750,000
Total operating assets Dec. 31, 2012 790,000
EKPN Company’s desired return 12%
135. What is EKPN Company’s ROI, rounded to the nearest whole number?
a. 11%
b. 12%
c. 53%
d. 55%
b
controllable margin/ avg.opearting assets
EKPN Company recorded the following operating data:
Sales $1,250,000
Contribution margin 485,000
Total direct fixed costs 400,300
Total operating assets Jan. 1, 2012 750,000
Total operating assets Dec. 31, 2012 790,000
EKPN Company’s desired return 12%
*136. What is EKPN Company’s residual income?
a. $2,200
b. ($2,200)
c. ($7,700)
d. ($10,100)
controllable margin - (min ROI x Avg Opearting assets)
$7,700
- Frame, Inc. requires a return for the Picture Division totalling 8%. Which projects would add value to the company?
Project Average Operating Assets Controllable Margin A $500,000 $40,000 B $450,000 $30,000 C $375,000 $32,000 D $425,000 $40,000 a. A, B, C, and D b. Projects A, C, and D c. Projects C and D d. Project A, B, and D
NEED HELP
answer: b
- 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%
Controllable margin = $62,000
Opearting assets = $200,000
Purchase equipment for 60,000
increase to Controllable margin by 10,000
Old ROI - 31%
62,000 + 10, 000 = 72,000
New ROI
200,000 + 60,000 = 260,000
72,000 / 260,000 = 27.7%
ANswer is C: 3.3% difference
Brief Exercise 170
Data for the Electric Division of Bowden Baseball Company which is operated as an investment centre follows:
Sales $2,750,000 Contribution Margin 900,000 Controllable Fixed Costs 400,000 Return on Investment 10%
Calculate controllable margin and average operating assets.
Controllable margin = 900,000 - 400,000 = 500,000
average operating assets
500,000 / 10% = $5,000,000
Brief Exercise 171
Clark Inc. reported the following items for 2012:
Controllable fixed costs $ 56,000 Contribution margin 235,000 Interest expense 35,000 Variable costs 157,000 Total assets 1,690,000
How much is controllable margin?
235,000 - 56,000 = 179,000
Brief Exercise 172
The data for an investment centre is given below.
January 1, 2012 December 31, 2012 Current Assets $ 700,000 $ 900,000 Plant Assets 2,500,000 2,700,000
The controllable margin is $680,000. How much is the return on investment for the centre for 2012?
avg current operating assets
700,000 + 900,000 / 2 = 800,000
2,500,000 + 2,700,000 / 2 = 2,600,000
800,000 + 2,600,000 = 3,400,000
ROI
680,000 / 3,400,000
= 20%
Brief Exercise 176
Hastings Manufacturing Co.’s static budget at 6,000 units of production includes $42,000 for direct labour and $6,000 for materials. Total fixed costs are $24,000. How much would appear on Hastings’s flexible budget for 2012 if 9,000 units are produced and sold?
7 + 1 + fixed costs
72,000 + 24,000 = 96,000
Brief Exercise 186 Custom Air Corporation’s manufacturing costs for July when production was 500 units appears below: Direct material $20 per unit Factory depreciation $8,000 Variable overhead 4,000 Direct labour 1,500 Factory supervisory salaries 5,800 Other fixed factory costs 1,500
How much is the flexible budget manufacturing cost amount for a month when 550 units are produced?
Solution Brief Exercise 186
Direct material ($20 x 550) $11,000
Direct labour [($1,500/500) x 550] 1,650
Variable overhead [$4,000/500 x 550] 4,400
Factory depreciation -fixed 8,000
Factory supervisory salaries - fixed 5,800
Other fixed factory costs - fixed 1,500
Total $32,350
Exercise 190
Ashley Sofa Store produces sofas. The following budgeted and actual amounts are for 2012:
Cost Budget at 7,000 units Actual Amounts at 7,500 units Direct materials $63,000 $64,000 Direct labour 49,000 49,500 Equipment depreciation 10,000 10,000 Indirect labour 5,600 5,700 Indirect materials 14,000 14,900 Rent and insurance15,000 15,100
Instructions
Prepare a performance report for Ashley Sofa Store for the year.
Budget Actual Differences
Direct materials $67,500 $64,000 $3,500 F
Direct labour 52,500 49,500 3,000 F
Equipment depreciation 10,000 10,000 0
Indirect labour 6,000 5,700 300 F
Indirect materials 15,000 14,900 100 F
Rent and insurance15,000 15,100 100 U
Total costs $166,000 $159,200$6,800 F
Exercise 193
Toto Dog Toys developed its annual manufacturing overhead budget for its master budget for 2012 as follows:
Expected annual operating capacity: 90,000 Direct Labour Hours Variable overhead costs Indirect labour $360,000 Indirect materials 27,000 Factory supplies 63,000 Total variable costs 450,000 Fixed overhead costs Depreciation 72,000 Supervision 70,000 Property taxes 12,000 Total fixed costs 154,000 Total costs $604,000
The relevant range for monthly activity is expected to be between 80,000 and 100,000 direct labour hours.
Instructions
Prepare a flexible budget for a monthly activity level of 85,000 direct labour hours.
Monthly Flexible Manufacturing Overhead Budget at 85,000 Direct Labour Hours
Variable overhead costs: Indirect labour $340,000 Indirect materials 25,500 Factory supplies 59,500 Total variable costs 425,000 Fixed overhead costs: Depreciation 72,000 Supervision 70,000 Property taxes 12,000 Total fixed costs 154,000 Total costs $579,000
Exercise 196 Outkast Company uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour is as follows: Indirect labour $0.50 Indirect materials 1.50 Maintenance .40 Utilities .20 Budgeted fixed overhead costs per month are: Supervision $4,000 Insurance 2,000 Property taxes 1,000 Depreciation 9,000 The company believes it will normally operate in a range of 28,000 to 35,000 machine hours per month. During the month of August, 2012, the company incurred the following manufacturing overhead costs:
Indirect Labour $14,800 Indirect Materials 44,000 Maintenance 12,000 Utilities 6,500 Supervision 4,200 Insurance 2,100 Property Taxes 800 Depreciation 8,600
Instructions
Prepare a flexible budget report, assuming that the company used 31,000 machine hours during August.
Budget at 31,000 Hours Actual at 31,000 Hours Difference F or U
Variable overhead costs
Indirect Labour$15,500$14,800 $ 700 F
Indirect Materials 46,500 44,000 2,500 F
Maintenance 12,400 12,000 400 F
Utilities 6,200 6,500 300 U
Total variable costs 80,600 77,300 3,300 F
Fixed overhead costs
Supervision 4,000 4,200 200 U
Insurance 2,000 2,100 100 U
Property Taxes 1,000 800 200 F
Depreciation 9,000 8,600 400 F
Total fixed costs 16,000 15,700 300 F
Total costs $96,600 $93,000 $3,600 F
