The revenue and spending variances are the differences between the static planning budget and the flexible budget.

The revenue and spending variances are the differences between the static planning budget and the flexible budget. 

a. True
b. False


Answer: B

The activity variance for revenue is unfavorable if the actual revenue for the period is less than the revenue in the static planning budget.

The activity variance for revenue is unfavorable if the actual revenue for the period is less than the revenue in the static planning budget. 

a. True
b. False


Answer: B

An unfavorable activity variance for a cost indicates that spending was higher than it should have been for the actual level of activity for the period.

An unfavorable activity variance for a cost indicates that spending was higher than it should have been for the actual level of activity for the period. 

a. True
b. False

Answer: B

A flexible budget is an estimate of what revenues and costs should have been, given the level of activity that had been planned for the period.

A flexible budget is an estimate of what revenues and costs should have been, given the level of activity that had been planned for the period. 

a. True
b. False




Answer: B

A planning budget is prepared before the period begins and is valid for only the planned level of activity.

A planning budget is prepared before the period begins and is valid for only the planned level of activity. 

a. True
b. False




Answer: A

A problem with directly comparing a static planning budget to actual costs is that this comparison fails to distinguish between differences in costs that are due to changes in activity and differences that are due to how well costs were controlled.

A problem with directly comparing a static planning budget to actual costs is that this comparison fails to distinguish between differences in costs that are due to changes in activity and differences that are due to how well costs were controlled.

a. True
b. False



Answer: A

The main difference between a flexible budget and a static budget is that a flexible budget does not contain fixed costs.

The main difference between a flexible budget and a static budget is that a flexible budget does not contain fixed costs. 

a. True
b. False



Answer: B

Which of the following comparisons best isolates the impact that changes in prices of inputs and outputs have on performance?

Which of the following comparisons best isolates the impact that changes in prices of inputs and outputs have on performance? 

A. static planning budget and flexible budget
B. static planning budget and actual results
C. flexible budget and actual results
D. master budget and static planning budget


Answer: C

A flexible budget is a budget that:

A flexible budget is a budget that: 

A. is updated with actual costs as they occur during the period.
B. is updated to reflect the actual level of activity during the period.
C. is prepared using a computer spreadsheet application.
D. contains only variable production costs.



Answer: B

A flexible budget:

A flexible budget: 

A. classifies budget requests by activity and estimates the benefits arising from each activity.
B. presents a statement of expectations for a period of time but does not present a firm commitment.
C. presents the plan for only one level of activity and does not adjust to changes in the level of activity.
D. presents the plan for a range of activity so that the plan can be adjusted for changes in activity levels.

Answer: D

The excess or deficiency of cash available over disbursements on the cash budget is calculated as follows:

The excess or deficiency of cash available over disbursements on the cash budget is calculated as follows: 

A. The beginning balance less the expected cash receipts less the expected cash disbursements.
B. The cash available less the expected cash receipts plus the expected cash disbursements.
C. The beginning balance plus the expected cash receipts less the expected cash disbursements.
D. None of the above.



Answer: C

There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget?

There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget? 

A. It details the required direct labor hours.
B. It details the required raw materials purchases.
C. It is calculated based on the sales budget and the desired ending inventory.
D. It summarizes the costs of producing units for the budget period


Answer: C

Fairmont Inc. uses an accounting system that charges costs to the manager who has been delegated the authority to make decisions concerning the costs. For example, if the sales manager accepts a rush order that will result in higher than normal manufacturing costs, these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager. This type of accounting system is known as:

Fairmont Inc. uses an accounting system that charges costs to the manager who has been delegated the authority to make decisions concerning the costs. For example, if the sales manager accepts a rush order that will result in higher than normal manufacturing costs, these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager. This type of accounting system is known as: 

A. responsibility accounting.
B. contribution accounting.
C. absorption accounting.
D. operational budgeting.




Answer: A

The concept of responsibility accounting means that:

The concept of responsibility accounting means that: 

A. Budgetary data should be reviewed and approved by the budget committee.
B. Budgetary data should be reviewed and approved by all levels of management.
C. An employee's performance should be evaluated only on those items under his or her control.
D. An employee's performance should be evaluated only by his or her immediate supervisor

Answer: C

Which of the following is not a benefit of budgeting?

Which of the following is not a benefit of budgeting? 

A. It uncovers potential bottlenecks before they occur.
B. It coordinates the activities of the entire organization by integrating the plans and objectives of the various parts.
C. It ensures that accounting records comply with generally accepted accounting principles.
D. It provides benchmarks for evaluating subsequent performance.

Answer: C

The cash budget must be prepared before you can complete the:

The cash budget must be prepared before you can complete the: 

A. production budget.
B. budgeted balance sheet.
C. raw materials purchases budget.
D. schedule of cash disbursements.




Answer: B

The master budget process usually begins with the:

The master budget process usually begins with the: 

A. production budget.
B. operating budget.
C. sales budget.
D. cash budget.




Answer: C

The budget or schedule that provides necessary input data for the direct labor budget is the:

The budget or schedule that provides necessary input data for the direct labor budget is the: 

A. raw materials purchases budget.
B. production budget.
C. schedule of cash collections.
D. cash budget.


Answer: B

The materials purchase budget:

The materials purchase budget: 

A. is the beginning point in the budget process.
B. must provide for desired ending inventory as well as for production.
C. is accompanied by a schedule of cash collections.
D. is completed after the cash budget.


Answer: B

If variable overhead is applied on the basis of direct labor-hours and the variable overhead rate variance is favorable, then:

If variable overhead is applied on the basis of direct labor-hours and the variable overhead rate variance is favorable, then: 

A. actual variable overhead rate exceeded the standard rate.
B. standard variable overhead rate exceeded the actual rate.
C. actual direct labor-hours exceeded the standard direct labor-hours allowed for the actual output.
D. standard direct labor-hours allowed for the actual output exceeded the actual hours

Answer: B

If the actual labor hours worked exceed the standard labor hours allowed, what type of variance will occur?

If the actual labor hours worked exceed the standard labor hours allowed, what type of variance will occur? 

A. Favorable labor efficiency variance.
B. Favorable labor rate variance.
C. Unfavorable labor efficiency variance.
D. Unfavorable labor rate variance.


Answer: C

A favorable labor rate variance indicates that

A favorable labor rate variance indicates that 

A. actual hours exceed standard hours.
B. standard hours exceed actual hours.
C. the actual rate exceeds the standard rate.
D. the standard rate exceeds the actual rate.



Answer: D

A labor efficiency variance resulting from the use of poor quality materials should be charged to:

A labor efficiency variance resulting from the use of poor quality materials should be charged to: 

A. the production manager.
B. the purchasing agent.
C. manufacturing overhead.
D. the engineering department.


Answer: B

Under a standard cost system, the materials price variances are usually the responsibility of the:

Under a standard cost system, the materials price variances are usually the responsibility of the: 

A. production manager.
B. sales manager.
C. purchasing manager.
D. engineering manager.



Answer: C

A favorable materials price variance coupled with an unfavorable material usage variance would MOST likely result from:

A favorable materials price variance coupled with an unfavorable material usage variance would MOST likely result from: 

A. problems with processing machines.
B. the purchase of low quality materials.
C. problems with labor efficiency.
D. changes in the product mix.


Answer: B

A favorable materials price variance coupled with an unfavorable material usage variance would most likely result from:

A favorable materials price variance coupled with an unfavorable material usage variance would most likely result from: 

A. labor efficiency problems.
B. machine efficiency problems.
C. the purchase and use of higher than standard quality material.
D. the purchase and use of lower than standard quality material.


Answer: D

The materials price variance should be computed:

The materials price variance should be computed: 

A. when materials are purchased.
B. when materials are used in production.
C. based upon the amount of materials used in production when only a portion of materials purchased is actually used.
D. based upon the difference between the actual quantity of inputs and the standard quantity allowed for output times the standard price.

Answer: A

An unfavorable materials quantity variance indicates that:

An unfavorable materials quantity variance indicates that: 

A. actual usage of material exceeds the standard material allowed for output.
B. standard material allowed for output exceeds the actual usage of material.
C. actual material price exceeds standard price.
D. standard material price exceeds actual price




Answer: A

The general model for calculating a quantity variance is:

The general model for calculating a quantity variance is: 

A. actual quantity of inputs used x (actual price - standard price).
B. standard price x (actual quantity of inputs used - standard quantity allowed for output).
C. (actual quantity of inputs used at actual price) - (standard quantity allowed for output at standard price).
D. actual price x (actual quantity of inputs used - standard quantity allowed for output).

Answer: B

Which of the following statements concerning practical standards is incorrect?

Which of the following statements concerning practical standards is incorrect? 

A. Practical standards can be used for product costing and cash budgeting.
B. Practical standards can be attained by the average worker.
C. When practical standards are used, there is no reason to adjust standards if an old machine is replaced by a newer, faster machine.
D. Under practical standards, large variances are less likely than under ideal standards.

Answer: C

The standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times are referred to as:

The standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times are referred to as: 

A. normal standards.
B. practical standards.
C. ideal standards.
D. budgeted standards.


Answer: C

When closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true?

When closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true? 

A. Work in process will decrease.
B. Cost of goods sold will increase.
C. Net income will decrease.
D. Gross margin will increase.



Answer: D

Which of the following situations always results in underapplied overhead?

Which of the following situations always results in underapplied overhead? 

A. actual overhead is greater than applied overhead
B. actual overhead is less than applied overhead
C. estimated overhead is greater than actual overhead
D. estimated overhead is less than actual overhead

Answer: A

If a company applies overhead to jobs on the basis of a predetermined overhead rate, a credit balance in the Manufacturing Overhead account at the end of any period means that:

If a company applies overhead to jobs on the basis of a predetermined overhead rate, a credit balance in the Manufacturing Overhead account at the end of any period means that: 

A. more overhead cost has been charged to jobs than has been incurred during the period.
B. more overhead cost has been incurred during the period than has been charged to jobs.
C. the amount of overhead cost charged to jobs is greater than the estimated cost for the period.
D. the amount of overhead cost charged to jobs is less than the estimated overhead cost for the period.

Answer: A

In a job-order costing system, the amount of overhead cost that has been applied to a job that remains incomplete at the end of a period:

In a job-order costing system, the amount of overhead cost that has been applied to a job that remains incomplete at the end of a period: 

A. is deducted on the Income Statement as overapplied overhead.
B. is closed to Cost of Goods Sold.
C. is transferred to Finished Goods at the end of the period.
D. is part of the ending balance of the Work in Process inventory account.




Answer: D

When applying manufacturing overhead to jobs, the formula to calculate the amount is as follows:

When applying manufacturing overhead to jobs, the formula to calculate the amount is as follows: 

A. Predetermined overhead rate divided by the actual manufacturing overhead incurred on the particular job.
B. Predetermined overhead rate times the actual manufacturing overhead incurred on the particular job.
C. Predetermined overhead rate divided by the actual units of allocation base charged to the particular job.
D. Predetermined overhead rate times the actual units of allocation base charged to the particular job.

Answer: D

Which of the following accounts is debited when indirect labor is recorded?

Which of the following accounts is debited when indirect labor is recorded? 

A. Work in Process
B. Salaries and Wages Expense
C. Salaries and Wages Payable
D. Manufacturing Overhead




Answer: D

In a job-order costing system, the entry to record depreciation on manufacturing equipment would include:

In a job-order costing system, the entry to record depreciation on manufacturing equipment would include: 

A. a debit to the Work in Process inventory account.
B. a debit to the Depreciation Expense account.
C. a debit to the Manufacturing Overhead account.
D. a credit to the Work in Process inventory account.



Answer: C

In a job-order costing system, direct labor costs usually are recorded initially with a debit to:

In a job-order costing system, direct labor costs usually are recorded initially with a debit to: 

A. Manufacturing Overhead.
B. Finished Goods inventory.
C. Direct Labor Expense.
D. Work in Process.


Answer: D

In a job-order costing system, the use of indirect materials would usually be recorded as a debit to:

In a job-order costing system, the use of indirect materials would usually be recorded as a debit to: 

A. Raw Materials.
B. Work in Process.
C. Manufacturing Overhead.
D. Finished Goods.




Answer: C

In a job-order costing system, the journal entry to record the application of overhead cost to jobs would include:

In a job-order costing system, the journal entry to record the application of overhead cost to jobs would include: 

A. a credit to the Manufacturing Overhead account.
B. a credit to the Work in Process inventory account.
C. a debit to Cost of Goods Sold.
D. a debit to the Manufacturing Overhead account.



Answer: A

Choice of allocation base should be made based on:

Choice of allocation base should be made based on: 

A. the relative size of the base.
B. the base's relation to direct labor.
C. the base's activity.
D. whether the base actually drives the cost being allocated.



Answer: D

Which of the following documents is used to specify the type and quantity of materials drawn from the storeroom, and identifies the job to which the costs of the materials are to be charged?

Which of the following documents is used to specify the type and quantity of materials drawn from the storeroom, and identifies the job to which the costs of the materials are to be charged? 

A. Job Cost Sheet
B. Bill of Materials
C. Material Requisition Form
D. Purchase Order



Answer: C

In job-order costing, all of the following statements are correct with respect to labor time and cost except:

In job-order costing, all of the following statements are correct with respect to labor time and cost except: 

A. time tickets are kept by employees showing the amount of work on specific jobs.
B. the job cost sheet for a job will contain all direct labor charges to that particular job.
C. labor cost that can be traced to a job only with a great deal of effort is treated as part of manufacturing overhead.
D. a machine operator performing routine annual maintenance work on a piece of equipment would charge the maintenance time to a specific job.

Answer: D

For which situation(s) below would an organization be more likely to use a job-order costing system of accumulating product costs rather than a process costing system?

For which situation(s) below would an organization be more likely to use a job-order costing system of accumulating product costs rather than a process costing system? 

A. a steel factory that processes iron ore into steel bars
B. a factory that processes sugar and other ingredients into black licorice
C. a costume maker that makes specialty costumes for figure skaters
D. all of the above


Answer: C

Which of the following companies would be most likely to use a job-order costing system rather than a process costing system?

Which of the following companies would be most likely to use a job-order costing system rather than a process costing system? 

A. fast food restaurant
B. shipbuilding
C. crude oil refining
D. candy making



Answer: B

Which of the following situations is most likely to explain a net operating asset turnover that is higher than the industry norm?

Which of the following situations is most likely to explain a net operating asset turnover that is higher than the industry norm? 

A. The company has more recently purchased fixed assets
B. The company uses FIFO while competitors use LIFO
C. The company uses accelerated depreciation method while competitors use straight line
D. The company extends more credit to customers than competitors

Answer: C

Which of the following situations is most likely to explain an accounts receivable turnover that is lower than the industry norm?

Which of the following situations is most likely to explain an accounts receivable turnover that is lower than the industry norm? 

A. The company makes less credit sales than industry
B. The company gives customers less time to pay than its competitors
C. The company has been selling inferior products to competitors
D. The company is systematically over-estimating bad debts

Answer: C

Which of the following statements about the return on shareholders' investment (ROSI) is correct?

Which of the following statements about the return on shareholders' investment (ROSI) is correct? 

A. If book value of equity is less than market value, ROSI is greater than ROCE
B. ROSI will be higher the greater the dividend payout ratio
C. ROSI is likely to be more volatile than ROCE
D. ROSI normally equals ROCE

Answer: C

Which of the following statements about the equity growth rate is correct?

Which of the following statements about the equity growth rate is correct? 

I. the higher the ROCE the higher equity growth rate, all other things equal
II. the higher the dividend payout the higher the equity growth rate
III. the equity growth rate is unaffected by the cost of debt
IV. the equity growth rate indicates the expected growth in stock price each period



A. I, II, III and IV
B. I, II and III
C. I and III
D. I only

Answer: D

Which of the following statements about the relationship between RNOA and ROCE is correct?

Which of the following statements about the relationship between RNOA and ROCE is correct? 

A. ROCE is always greater than RNOA
B. ROCE is greater than RNOA if RNOA is greater than after-tax cost of dividends
C. ROCE is greater than RNOA if RNOA is greater than cost of debt
D. ROCE is greater than RNOA if RNOA is greater than after-tax cost of debt

Answer: D

Purchases divided by accounts payable provides information about:

Purchases divided by accounts payable provides information about: 

A. capital structure
B. management of working capital
C. gross profit margin
D. profitability

Answer: B

When considering the difference between the return on net operating assets (RNOA) and return on common shareholders' equity (ROCE), which of the following statements is incorrect?

When considering the difference between the return on net operating assets (RNOA) and return on common shareholders' equity (ROCE), which of the following statements is incorrect? 

A. Preferred dividends are deducted from the numerator when calculating ROCE but not when calculating RNOA
B. RNOA is a pre-interest measure but ROCE is not
C. RNOA is a post-interest measure but ROCE is not
D. RNOA is independent of the form of financing, but ROCE is not.

Answer: C

Cost of goods sold divided by inventory provides information about (choose one answer):

Cost of goods sold divided by inventory provides information about (choose one answer): 

A. profitability
B. capital structure
C. management of working capital
D. gross profit margin

Answer: C

If Yutter's dividend payout ratio increased to 50% after year 1 then:

If Yutter's dividend payout ratio increased to 50% after year 1 then: 

A. the sustainable equity growth rate would increase
B. the return on equity would increase
C. the value of the stock would decrease
D. the return on net operating assets would decrease

Answer: C

What is the value of Yutter's stock at the end of Year 1 using the dividend discount model assuming that the dividend payout ratio remains constant and Yutter grows at its sustainable equity growth rate?

What is the value of Yutter's stock at the end of Year 1 using the dividend discount model assuming that the dividend payout ratio remains constant and Yutter grows at its sustainable equity growth rate? 

A. $83,333
B. $157,642
C. $500,000
D. $557,000

Answer: D

Return on operating assets is a measure of which of the following?

Return on operating assets is a measure of which of the following? 

A. Profitability
B. Efficiency
C. Solvency
D. Liquidity

Answer: B

Which of the following is the best measure of operating efficiency?

Which of the following is the best measure of operating efficiency? 

A. Return on net operating assets
B. Return on equity
C. Return on sales
D. Return on inventory

Answer: A

Which of the following would explain an observed decrease in return on equity, all else equal?

Which of the following would explain an observed decrease in return on equity, all else equal? 

A. Decrease in tax rate
B. Increase in interest rate on debt
C. Stock split
D. Stock dividend

Answer: B

An increase in net operating income (NOPAT) will cause which of the following?

An increase in net operating income (NOPAT) will cause which of the following? 

A. Increase in the return on net operating assets
B. Decrease in the return on net operating assets
C. No change in the return on net operating assets
D. The change in the return on net operating assets is unclear, there is not sufficient information

Answer: D

Which of the following will increase the sustainable equity growth of a company, all other things equal?

Which of the following will increase the sustainable equity growth of a company, all other things equal? 

A. Increase dividend payout
B. Pay suppliers more quickly
C. Pay suppliers more slowly
D. Decrease dividend payout

Answer: D

Which of the following statements is correct concerning changes from year 1 to year 2 at Tricrop?

Which of the following statements is correct concerning changes from year 1 to year 2 at Tricrop? 

A. Despite favorable changes in the tax rate return on net operating assets has decreased
B. Despite favorable changes in net operating asset utilization return on net operating assets has decreased
C. Largely because of favorable changes in tax rates return on net operating assets has increased
D. Largely due to favorable changes in leverage return on net operating assets has increased

Answer: A

When calculating return on net operating assets, interest expense net of tax is added back to net income for purposes of calculating the numerator. What tax rate should be used?

When calculating return on net operating assets, interest expense net of tax is added back to net income for purposes of calculating the numerator. What tax rate should be used? 

A. effective tax rate
B. marginal tax rate
C. statutory federal tax rate
D. statutory federal tax rate plus statutory state tax rate

Answer: B

Eyster Corporation reported $10M in earnings and paid dividends of $3M for fiscal 2005.Return on equity and dividend payout are expected to remain constant for the foreseeable future. Net book value at the end of fiscal 2004 was 100M. Cost of equity is 10%. Using the residual income method, the intrinsic value of Eyster's stock at the end of 2005 should be:

Eyster Corporation reported $10M in earnings and paid dividends of $3M for fiscal 2005.Return on equity and dividend payout are expected to remain constant for the foreseeable future. Net book value at the end of fiscal 2004 was 100M. Cost of equity is 10%. Using the residual income method, the intrinsic value of Eyster's stock at the end of 2005 should be: 

A. $110M
B. $107M
C. $100M
D. not determinable

Answer: B

Which of the following could cause the return on net operating assets to increase, all things other equal?

Which of the following could cause the return on net operating assets to increase, all things other equal? 

A. A decrease in interest rate on debt
B. Increase in days accounts receivable are outstanding
C. Increase in inventory turnover
D. Decrease in gross margin

Answer: C

Err Company has a major lawsuit against them for unsafe products. It recognizes a huge liability in 2004 of $300M. The effect of this liability is to decrease stockholders' equity by 50%. In 2005, the effect of recognizing this liability, all else equal, is:

Err Company has a major lawsuit against them for unsafe products. It recognizes a huge liability in 2004 of $300M. The effect of this liability is to decrease stockholders' equity by 50%. In 2005, the effect of recognizing this liability, all else equal, is: 

A. Return on net operating assets will increase dramatically
B. Return on net operating assets will decrease dramatically
C. Return on equity will increase dramatically
D. Return on equity will decrease dramatically

Answer: C

Which of the following could explain a decrease in net operating asset turnover for a company?

Which of the following could explain a decrease in net operating asset turnover for a company? 

A. Switching from straight line to accelerated depreciation for financial reporting purposes
B. An increase in the financial leverage of the company
C. Addition of a new plant for production purposes
D. Decrease cost of production inputs

Answer: C

Which of the following statements is correct?

Which of the following statements is correct? 

A. Net operating profit margin divided by net operating asset turnover equals return on net operating assets
B. Return on net operating assets can be disaggregated into net operating profit margin and leverage
C. Return on equity equals return on net operating assets less interest, net of tax
D. Return on equity can be disaggregated into net operating profit margin, net operating asset turnover and leverage

Answer: D

Which of the following ratios best measures the profitability of a company?

Which of the following ratios best measures the profitability of a company? 

A. Return on equity
B. Gross margin
C. Current ratio
D. Net operating asset turnover

Answer: A