Final Exam

Question 1

Static Budget

Answer 1

• The master budget, sometimes called a static budget, is based solely on the planned volume of activity. The master budget is a group of detailed budgets and schedules representing the company’s operating and financial plans for a future accounting period.

Question 2

Flex Budget

Answer 2

• Flexible budgets (what if scenarios) differ from static budgets in that they show expected revenues and costs at a variety of volume levels.

Question 3

Cost Center

Answer 3

1- A cost center is an organizational unit that incurs expenses but does not generate revenue.
Textbook example: In Panther Holding Company the finishing department and the production department are cost centers. Cost centers normally fall on the lower levels of an organization chart. Managers are judged on their ability to control costs.

Question 4

Profit Center

Answer 4

2- A profit center incurs costs but also generates revenue.
Textbook example: In Panther Holding Company, Wilson Carpet, Selma Sofa, and Tables Incorporated are considered profit centers. Managers of profit centers are judged on their ability to produce revenue in excess of expenses.

Question 5

Investment Center

Answer 5

Investment center managers are responsible for revenues, expenses, and the investment of capital.
Textbook example: In Panther Holding Company, the Lumber Manufacturing Division, Home Building Division, and Furniture Manufacturing Division are investment centers. Managers of investment centers are accountable for assets and liabilities as well as earnings.

Question 6

ROI Return on Income

Answer 6

Operating Income / Operating Assets

Higher ROI = Better performance

Question 7

Residual Income

Answer 7

Operating income - Minimum desired income

Question 8

Minimum desired income

Answer 8

= Operating assets X desired ROI

Question 9

Annuity

Answer 9

An annuity is a series of equal periodic payments over a limited period of time
Properties of an annuity: a series of cash flows must satisfy all 3 conditions:
1- Each cash flow is equal
2- Fixed intervals: the number of periods = number of payments (number of occurrence).
3- Limited period.

Question 10

Annuity example

Answer 10

• Example of annuity: Le company just signed a lease contract that it will pay rent of $2,000 on the first day of each month for the next 12- month period.
  + Equal payment: yes, each payment is the same = $2,000
  + Fixed intervals: 12 periods (each month = one period), 12 payments
  + Limited period: there are limited periods (12 periods)

Question 11

Job-order costing example

Answer 11

1. Walt disney and the production of a film
2. Engineers and the building of a home
3. Boeing and the production of a plane

Question 12

Process Costing System examples

Answer 12

1. Texaco in its oil-refining operations
2. Dow Chemical in the manufacturing of chemicals
3. General mill in the manufacturing of cereal

Question 13

Job Order

Answer 13

Accumulates costs by individual products

Question 14

Process costing system

Answer 14

Allocates costs evenly to homogeneous products

Question 15

CFO Cash flows from operating activities

Answer 15

From the main business, examples: inflow receipts from sales. Outflow salaries and wages.

Question 16

CFI Cash flows from investing activities

Answer 16

Selling and purchasing long term assets. Inflows selling property. Outflows purchasing property/equipment.

Question 17

CFF Cash flows from financing activities

Answer 17

Borrowing issuing stock. Inflows issuing stock. Outflows paying dividends.

Question 18

IRR Internal Rate of Return

Answer 18

Cash inflow 1 year / cost = factor. Look on table at factor and number of years to determine %.