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Exam 10: Budgetary Control and Responsibility Accounting

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Question 21

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On the basis of the budget reports,

A) management analyzes differences between actual and planned results.
B) management may take corrective action.
C) management may modify the future plans.
D) All of these answers are correct.

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Question 22

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Flexible budgeting relies on the assumption that unit variable costs will remain constant within the relevant range of activity.

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Question 23

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The following information is available for Halle Department Stores: $\begin{array}{lr}\text { Average operating assets } & \$ 600,000 \\\text { Controllable margin } & 60,000 \\\text { Contribution margin } & 150,000 \\\text { Minimum rate of return } & 8 \%\end{array}$ How much is Halle's residual income?

Quincy Corp. earned controllable margin of $500,000 on sales of $6,400,000. The division had average operating assets of $5,200,000. The company requires a return on investment of at least 8%. How much is residual income?

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?

A distinguishing characteristic of an investment center is that

The purpose of the departmental overhead cost report is to

Betsy Union is the Pika Division manager and her performance is evaluated by executive management based on Division ROI. The current controllable margin for Pika Division is $46,000. Its current operating assets total $210,000. The division is considering purchasing equipment for $40,000 that will increase sales by an estimated $10,000, with annual depreciation of $10,000. If the equipment is purchased, what will happen to the return on investment for the division?

The terms controllable costs and noncontrollable costs are synonymous with variable costs and fixed costs, respectively.

Which one of the following is a correct statement about residual income?

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

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?

The flexible budget

The foreign subsidiary of a large corporation is

For what purpose do companies calculate residual income?

Which one of the following does not impact the amount of residual income?

A master budget is most useful in evaluating a manager's performance in controlling costs.

Sales results that are evaluated by a static budget might show 1. favorable differences that are not justified. 2. unfavorable differences that are not justified.

What is the primary difference between a static budget and a flexible budget?

At 18,000 direct labor hours, the flexible budget for indirect materials is $36,000. If $37,400 are incurred at 18,400 direct labor hours, the flexible budget report should show the following difference for indirect materials: