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Exam 21: Budgetary Control and Responsibility Accounting

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Question 21

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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.

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Question 22

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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.

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Question 23

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Le Sud Retailers 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?

Boland Manufacturing prepared a 2016 budget for 120,000 units of product. Actual production in 2016 was 130,000 units. To be most useful, what amounts should a performance report for this company compare?

Dingo Division's operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Dingo's required rate of return is 9%. Should Dingo accept this project?

Monte, Inc. recorded operating data for its Sandtrap division for the year. Monte requires its return to be 9%. $\begin{array} { l r } \text { Sales } & \$ 1,000,000 \\\text { Controllable margin } & 180,000 \\\text { Total average assets } & 600,000 \\\text { Fixed costs } & 60,000\end{array}$ How much is ROI for the year?

For June, Gold Corp. estimated sales revenue at $600,000. It pays sales commissions that are 4% of sales. The sales manager's salary is $285,000, estimated shipping expenses total 1% of sales, and miscellaneous selling expenses are $15,000. How much are budgeted selling expenses for the month of July if sales are expected to be $540,000?

Management by exception means that management will investigate areas where actual results differ from planned results if the items are material and controllable.

Which statement is true?

Pippen Co. recorded operating data for its shoe division for the year. The company's desired return is 5%. $\begin{array} { l r } \text { Sales } & \$ 1,000,000 \\\text { Contribution margin } & 200,000 \\\text { Total direct fixed costs } & 120,000 \\\text { Average total operating assets } & 400,000\end{array}$ Which one of the following reflects the controllable margin for the year?

Budget reports comparing actual results with planned objectives should be prepared only once a year.

A static budget is one that is geared to one level of activity.

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

A flexible budget is appropriate for

Which of the following are financial measures of performance? 1. Controllable margin 2. Product quality 3. Labor productivity

Shane Industries prepared a fixed budget of 60,000 direct labor hours, with estimated overhead costs of $300,000 for variable overhead and $90,000 for fixed overhead. Shane then prepared a flexible budget at 57,000 labor hours. How much is total overhead costs at this level of activity?

Stone Industries uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $48,000 variable and $270,000 fixed. If Stone had actual overhead costs of $321,000 for 18,000 units produced, what is the difference between actual and budgeted costs?

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 manufacturing overhead costs shown: $\begin{array}{lrlr}\text { Variable }&&\text { Fixed }\\\hline \text { Indirect materials } & \$ 120,000 & \text { Depreciation } & \$ 50,000 \\\text { Indirect labor } & 160,000 & \text { Taxes } & 10,000 \\\text { Factory supplies } & 20,000 & \text { Supervision } & 40,000\end{array}$ A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of

The activity index used in preparing the flexible budget

The manager of an investment center can improve ROI by reducing average operating assets.