Managerial Accounting II

Question 1

Consists of the organization’s operating and financial plans for a specified period.

Answer 1

Master budget

Question 2

The master budget consists of:

Answer 2

1) Operating plans

2) Financial plans

Question 3

The emphasis is on obtaining and using current resources.

Answer 3

Operating budget

Question 4

Operating budget contains the:

Answer 4

1) Sales budget,
2) Production budget,
3) Direct materials budget, etc.

Question 5

The emphasis is on obtaining the funds needed to purchase operating assets.

Answer 5

Financial budget

Question 6

Financial budget contains the:

Answer 6

1) Capital budget,
2) Cash budget,
3) Pro forma statement of financial position, etc.

Question 7

Is the starting point for the cycle that produces the annual profit plan (the master budget). It is based on the sales forecast.

Answer 7

Sales budget

Question 8

Follows directly from the sales budget. It is concerned with units only.

Answer 8

Production budget

Question 9

Is concerned with both units and input prices.

Answer 9

Direct materials budget

Question 10

Depends on wage rates, amounts and types of production, numbers and skill levels of employees to be hired.

Answer 10

Direct labor budget

Question 11

Reflects the nature of overhead as a mixed cost.

Answer 11

Manufacturing overhead budget

Question 12

Combines the projections for the three major inputs (materials, labor, and overhead). The result directly affects the pro forma income statement.

Answer 12

Cost of goods sold budget

Question 13

Is the largest cost for a manufacturer.

Answer 13

Cost of goods sold

Question 14

Consists of the individual budgets for R&D, design, marketing, distribution, customer service, and administrative costs.

Answer 14

Nonmanufacturing budget

Question 15

The variable and fixed portions of selling and administrative cost must be treated.

Answer 15

Separately

Question 16

Is used to decide whether the budgeted activities will result in an acceptable level of income.

Answer 16

Pro forma income statement

Question 17

Types of budget methodologies are:

Answer 17

1) Project budget,
2) Activity-based budgeting (ABB),
3) Zero-based budgeting (ZBB),
4) Continuous budget

Question 18

Consists of all the costs expected to attach to a particular project.

Answer 18

Project budget

Question 19

Applies activity-based costing principles to budgeting. It focuses on the numerous activities necessary to produce and market goods and services and requires analysis of cost drivers.

Answer 19

Activity-based budgeting (ABB)

Question 20

Is a budget and planning process in which each manager must justify his or her department’s entire budget every budget cycle.

Answer 20

Zero-based budgeting (ZBB)

Question 21

Is revised on a regular basis. Typically, such a budget is continuously extended for an additional month or quarter in accordance with new data as the current month or quarter ends.

Answer 21

Continuous budget

Question 22

Is a tool for understanding the interaction of revenues with fixed and variable costs.

Answer 22

Cost-volume-profit (CVP) analysis [also called breakeven analysis]

Question 23

Is the level of output at which all fixed costs and cumulative variable costs have been covered.

Answer 23

Breakeven point

Question 24

= Unit selling price - Unit variable cost

Answer 24

Unit contribution margin (UCM)

Question 25

= Fixed costs divided by UCM

Answer 25

Breakeven point in units

Question 26

= Fixed costs divided by Contribution margin ratio

Answer 26

Breakeven point in dollars

Question 27

Is the amount by which sales can decline before losses occur

Answer 27

Margin of safety

Question 28

= Total sales in dollars - Breakeven point in dollars

Answer 28

Margin of safety in dollars

Question 29

= Margin of safety (in dollars) divided by Total sales (in dollars)

Answer 29

Margin of safety (%)

Question 30

By treating target income as an additional fixed cost, CVP analysis can be used to calculate

Answer 30

Target unit volume

Question 31

= (Fixed costs divided by Target operating income) divided by UCM

Answer 31

Target unit volume

Question 32

= (Fixed costs divided by Target operating income) divided CMR

Answer 32

Target sales in dollars

Question 33

Operating income can be substituted with net income using the following formula:

Answer 33

Net income = Operating income x (1 - Tax rate)

Question 34

In decision making, an organization must focus only

Answer 34

Relevant revenues and costs

Question 35

To be relevant, the revenues and costs must:

Answer 35

1) Be made in the future,
2) Differ among the possible alternative courses of action, and
3) Be avoidable

Question 36

Terminates an operation, product or product line, business segment, branch, or major customer.

Answer 36

Disinvestment decisions

Question 37

In general, the firm should disinvest if.

Answer 37

The marginal cost of a project exceeds the marginal revenue.

Question 38

When a manufacturer has excess production capacity,

Answer 38

There is no opportunity cost involved when accepting a special order.

Question 39

When a manufacturer has excess production capacity: The company should accept the order if

Answer 39

The minimum price for the product is equal to the variable costs.

Question 40

When a manufacturer lacks excess production capacity,

Answer 40

The differential (marginal or incremental) costs of accepting the order must be considered

Question 41

The entity should use available resources as efficiently as possible before

Answer 41

Outsourcing

Question 42

In determining whether to sell a product at the split-off point or process the item further at additional cost, the joint cost of the product is

Answer 42

Irrelevant because it is a sunk cost

Question 43

The primary distinction between centralized and decentralized organizations is

Answer 43

The degree of freedom of decision making by managers at many levels

Question 44

A well-designed responsibility accounting system establishes responsibility centers. Their purposes are to:

Answer 44

1) Encourage managerial effort to attain organizational objectives,
2) Motivate managers to make decisions consistent with those objectives, and
3) Provide a basis for managerial compensation

Question 45

Responsibility centers are classified as:

Answer 45

1) Cost centers,
2) Revenue centers,
3) Profit centers, and
4) Investment centers.

Question 46

Are charged by one segment of an organization for goods and services it provides to another segment of the same organization.

Answer 46

Transfer prices

Question 47

Is used by profit and investment centers (a cost center’s costs are allocated to producing departments).

Answer 47

Transfer pricing

Question 48

There are three basic methods for determining transfer prices.

Answer 48

1) Cost plus pricing
2) Market pricing
3) Negotiated pricing

Question 49

Set price at the selling segment’s full cost of production plus reasonable markup.

Answer 49

Cost plus pricing

Question 50

Uses the price the selling segment could obtain on the open market.

Answer 50

Market pricing

Question 51

Gives the segments the freedom to bargain among themselves to agree on a price.

Answer 51

Negotiated pricing

Question 52

The minimum price that a seller is willing to accept is calculated as follows:

Answer 52

Minimum transfer price = Incremental cost to date divided by Opportunity cost of selling internally