Question 1

Wilson Company uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing overhead is: $32,000 variable and $90,000 fixed. If Wilson had actual overhead costs of $125,000 for 9,000 units produced, what is the difference between actual and budgeted costs?

Accepted Answer

The answer of Wilson Company uses flexible budgets. At normal...

Question 2

Which of the following is not a true statement?

Accepted Answer

C is incorrect because as one moves up to each higher level of managerial responsibility, more costs become controllable, not fewer. Higher-level managers typically have control over a broader range of costs than lower-level managers.

Question 3

Dobson Company recorded operating data for its shoe division for the year.  How much is controllable margin for the year?

Accepted Answer

The answer of Dobson Company recorded operating data for its...

Question 4

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

Accepted Answer

As one moves up to higher levels of managerial responsibility, they are given more control of resources, including costs. Therefore, a greater number of costs become controllable at higher levels of management.

Question 5

Pine Company produced 128,000 units in 60,000 direct labor hours. Production for the period was estimated at 132,000 units and 66,000 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at

Accepted Answer

The answer of Pine Company produced 128,000 units in 60,000...

Question 6

The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called

Accepted Answer

Responsibility accounting is a method of accounting that collects and reports financial data on the basis of individual managers who have the authority to make day-to-day decisions about activities in an area. This allows for managers to be held accountable for their performance and helps identify areas where improvements can be made. Static reporting refers to the use of fixed or predetermined budgets or schedules, while flexible accounting involves the use of budgets that can be adjusted as needed. Master budgeting involves the coordination of all the budgets within an organization to create a comprehensive financial plan.

Question 7

At zero direct labor hours in a flexible budget graph, the total budgeted cost line intersects the vertical axis at $20,000. At 10,000 direct labor hours, a horizontal line drawn from the total budgeted cost line intersects the vertical axis at $60,000. Fixed and variable costs may be expressed as:

Accepted Answer

The fixed cost is $20,000 (the intercept at zero hours). The variable cost per hour is calculated by the change in cost divided by the change in hours: ($60,000 - $20,000) / (10,000 - 0) = $4 per direct labor hour.

Question 8

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 following manufacturing overhead costs:  A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of

Accepted Answer

To prepare a flexible budget at 90,000 machine hours level of activity, we need to adjust the budgeted manufacturing overhead costs given for 100,000 machine hours level based on the changes in variable costs.

Variable costs per machine hour = Total variable costs / Total machine hours
= ($240,000 + $110,000) / 100,000 
= $3.50 per machine hour

At 90,000 machine hours, the total variable costs would be $3.50 per machine hour * 90,000 machine hours = $315,000.

Therefore, the total manufacturing overhead costs at 90,000 machine hours level of activity would be:
Fixed costs + Variable costs at 90,000 machine hours
= $145,000 + $315,000
= $460,000

Hence, the answer is C) $370,000.

Question 9

Not-for-profit entities

Accepted Answer

Not-for-profit entities utilize responsibility accounting in trying to minimize the cost of providing services. They are focused on providing services to their constituents rather than maximizing net income. Controlling and reducing costs allows them to provide more services to their constituents. Therefore, they utilize responsibility accounting to allocate costs to responsible individuals or departments and hold them accountable for cost control. Not-for-profit entities have both controllable and noncontrollable costs.

Question 10

A responsibility report should

Accepted Answer

Responsibility reports are designed to show costs and revenues for which a particular manager has control. This allows for better assessment of a manager's performance in managing the resources under their control. It is not limited to variable costs, does not need to adhere strictly to GAAP, and should be prepared at various levels of managerial responsibility, not just the highest level.

Question 11

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 following manufacturing overhead costs:  A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of

Accepted Answer

To prepare a flexible budget, we need to use the same cost per unit of activity (in this case, machine hours) for each cost item, and multiply it by the actual level of activity.

The budgeted cost per machine hour for each cost item is as follows:

- Variable costs: $2.25 (direct materials) + $1.20 (direct labor) + $0.80 (variable overhead) = $4.25 per machine hour
- Fixed costs: $90,000 (fixed overhead) + $6,750 (supervision and depreciation) = $96,750

Using the above cost per machine hour, we can prepare a flexible budget for the 90,000 machine hours level of activity as follows:

- Variable costs: $4.25 per machine hour x 90,000 machine hours = $382,500
- Fixed costs: $96,750

Total manufacturing overhead costs at 90,000 machine hours level of activity would be $382,500 + $96,750 = $479,250.

However, the question asks for the total manufacturing overhead costs at the 90,000 machine hours level of activity, which is the planned level of activity minus 10%. Therefore, we need to multiply the above calculated costs by 90% to get the answer:

$479,250 x 90% = $431,325

Therefore, the total manufacturing overhead costs at the 90,000 machine hours level of activity would be $431,325, which is closest to option C ($277,500).

Question 12

The linens department of a large department store is

Accepted Answer

The linens department of a large department store is typically considered a profit center because it is responsible for generating revenue through sales while also managing its own costs, aiming to produce a profit.

Question 13

Top management can control

Accepted Answer

The answer of Top management can control
...

Question 14

Costs incurred indirectly and allocated to a responsibility level are considered to be

Accepted Answer

Costs that are allocated to a responsibility level but are indirectly incurred are typically noncontrollable by the managers at that level, as they are not directly responsible for generating or managing those costs. Examples of such costs include corporate overhead expenses, interest expense, or depreciation on shared assets. While these costs may be necessary for the overall functioning of the organization, they are not directly tied to the performance of a specific manager or department, and therefore may not be controllable by them.

Question 15

At 9,000 direct labor hours, the flexible budget for indirect materials is $18,000. If $18,700 are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials:

Accepted Answer

First, we need to calculate the flexible budget rate for indirect materials:

Flexible budget rate = Total flexible budget / Total direct labor hours
Flexible budget rate = $18,000 / 9,000 hours
Flexible budget rate = $2 per direct labor hour

Next, we need to use the flexible budget rate to calculate the expected cost of indirect materials at 9,200 direct labor hours:

Expected cost of indirect materials = Flexible budget rate x Actual direct labor hours
Expected cost of indirect materials = $2 x 9,200 hours
Expected cost of indirect materials = $18,400

Finally, we can calculate the difference between the expected cost and the actual cost:

Difference = Actual cost - Expected cost
Difference = $18,700 - $18,400
Difference = $300 unfavorable

Therefore, the correct answer is D, $300 unfavorable.

Question 16

Which responsibility centers generate both revenues and costs?

Accepted Answer

Profit centers and investment centers both generate revenues and costs. Profit centers are responsible for both their costs and revenues, aiming to maximize the difference between them. Investment centers, in addition to being responsible for profits, also make decisions about the assets they use to generate those profits, affecting both their costs and revenues.

Question 17

In the Klugman Company, indirect labor is budgeted for $54,000 and factory supervision is budgeted for $18,000 at normal capacity of 80,000 direct labor hours. If 90,000 direct labor hours are worked, flexible budget total for these costs is:

Accepted Answer

The answer of In the Klugman Company, indirect labor is...

Question 18

Management by exception

Accepted Answer

Management by exception can be implemented at each level of responsibility within an organization to focus management's attention on areas that deviate significantly from expectations or standards. It involves identifying and addressing only significant deviations, rather than small or routine deviations. It can help managers save time and prioritize their efforts more effectively.

Question 19

Reed Company produced 160,000 units in 75,000 direct labor hours. Production for the period was estimated at 165,000 units and 82,500 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at

Accepted Answer

The answer of Reed Company produced 160,000 units in 75,000...

Question 20

A cost is considered controllable at a given level of managerial responsibility if

Accepted Answer

A cost is considered controllable if the manager has the power to incur or influence the cost within their level of responsibility. This means that they have the ability to take action to affect the cost, whether it is a variable or fixed cost. The budget amount or flexible budget changes do not necessarily determine controllability.

Quiz 24: Budgetary Planning