Chapter 10 - test bank of managerial accounting book PDF

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CHAPTER 10 BUDGETARY CONTROL AND RESPONSIBILITY ACCOUNTING SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY I t e m

L O

BT I t e m

L O

BT I t e m

1 1 1 2 2 2 2 2

K C K K C C K C

3 3 3 3 3 3 3 3

C K K C C C K K

L O

BT

I t e m

L O

BT

5 6 7 7 8 8 1 2

K K K K C C K K

6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7

C AP C C AP AP AP AN AP AN AP AP AP AP AP AP AP AN AP AP C C K C K AP

177. 7 178. 8

AN AP

I t e m

L O

BT

33. 34. sg 35. sg 36. a, sg 37.

3 4 5 7 8

K C K K K

142. 143. 144. 145. 146. 147. a 148. a 149. a 150. a 151. a 152. a 153. a 154. a 155. sg 156. sg 157. st 158. sg 159. st 160. sg 161. st 162. sg 163. st 164. sg 165. st 166. sg 167.

7 7 7 7 7 7 8 8 8 8 8 8 8 8 1 2 2 3 3 3 3 4 4 6 7 7

K K AP C

True-False Statements 1. 2. 3. 4. 5. 6. 7. 8.

9. 10. 11. 12. 13. 14. 15. 16.

17. 18. 19. 20. 21. 22. 23. 24.

3 3 4 4 4 4 4 5

K K C C C C C K

25. 26. 27. 28. a 29. a 30. sg 31. sg 32.

sg

sg

Multiple Choice Questions 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63.

1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2,3 2 3 3 3 3 3 3 3 3 3

K C K C K K K C C C C C C C C C K AP AP AP C C K C C C

64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89.

3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 4

C K C C K K AP C C C AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP K

90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115.

4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 6 6 6 6 6 6

AP C C C K C C C C K C C C C K C C C C C K C K C C AP

116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141.

Brief Exercises 1687. 169.

3 3

AP AP

171. 172.

3 4

AP AP

174. 175.

7 7

AP AP

a

FOR INSTRUCTOR USE ONLY

C AP K C C C AP AP AP C K K AP K K K K K K K AP

10 - 2 170.

Test Bank for Managerial Accounting, Sixth Edition 3

AP

173.

6

AP

176.

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AP

a

179.

FOR INSTRUCTOR USE ONLY

8

AP

Budgetary Planning and Responsibility Accounting

10 - 3

SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY Exercises 180. 181. 182. 183. 184.

2 2,3 3 3 3

AP AP AP AP AP

185. 186. 187. 188. 189.

3 3 3 3 3

AP AP AP AP AP

190. 191. 192. 193. 194.

3 3,6 4,5 5 5

AP AP AP AN AP

195. 196. 197. 198. 199.

6 6 6,7 7 7

AN AN AP AP AP

4 7 7

K K K

200. 201. 202. 203. 204.

7 7 7 7 7

AP AN AN AN AN

Completion Statements 205. 206. 207.

1 1 1

K K K

208. 209. 210.

3 3 4

K K K

211. 212. 213.

4 4 4

K K K

214. 215. 216.

Matching 217.

1-7

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218. 219.

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Short-Answer Essay

sg st

220. 221.

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222. 223.

7 7

K K

This question also appears in the Study Guide. This question also appears in a self-test at the student companion website.

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE I t e m T y p e I t e m

T y p e I t e m

T y p e I t e m

T y p e I t e m

1. 2. 3.

TF TF TF

31. 38. 39.

TF MC MC

40. 41. 42.

4. 5. 6.

TF TF TF

7. 8. 32.

TF TF TF

45. 46. 47.

Learning Objective 1 MC 43. MC 205. MC 44. MC 206. MC 156. MC 207. Learning Objective 2 MC 48. MC 51. MC 49. MC 52. MC 50. MC 53.

63. 64. 65. 66. 67. 68. 69. 70. 71. 72.

Learning Objective 3 MC 73. MC 83. MC 74. MC 84. MC 75. MC 85. MC 76. MC 86. MC 77. MC 87. MC 78. MC 88. MC 79. MC 159. MC 80. MC 160. MC 81. MC 161. MC 82. MC 162.

9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

TF TF TF TF TF TF TF TF TF TF

33. 53. 55. 56. 57. 58. 59. 60. 61. 62.

TF MC MC MC MC MC MC MC MC MC

T y p e I t e m

T y pe I t e m

T y pe

C C C

217. 218.

MA S-A

MC MC MC

54. 157. 158.

MC MC MC

180. 181.

Ex Ex

MC MC MC MC MC MC MC MC MC MC

168. 169. 170. 171. 181. 182. 183. 184. 185. 186.

BE BE BE BE Ex Ex Ex Ex Ex Ex

187. 188. 189. 190. 191. 208. 209. 219.

Ex Ex Ex Ex Ex C C S-A

FOR INSTRUCTOR USE ONLY

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19. 20. 21. 22. 23.

Test Bank for Managerial Accounting, Sixth Edition

TF TF TF TF TF

34. 89. 90. 91. 92.

TF MC MC MC MC

93. 94. 95. 96. 97.

Learning Objective 4 MC 98. MC 103. MC 99. MC 104. MC 100. MC 163. MC 101. MC 164. MC 102. MC 172.

24. 25.

TF TF

35. 105.

TF MC

106. 107.

26. 110. 111.

TF MC MC

112. 113. 114.

MC MC MC

115. 116. 117.

27. 28. 36. 121. 122. 123. 124. 125.

TF TF TF MC MC MC MC MC

126. 127. 128. 129. 130. 131. 132. 133.

MC MC MC MC MC MC MC MC

134. 135. 136. 137. 138. 139. 140. 141.

Learning Objective 5 MC 108. MC 192. MC 109. MC 193. Learning Objective 6 MC 118. MC 165. MC 119. MC 173. MC 120. MC 191. Learning Objective 7 MC 142. MC 174. MC 143. MC 175. MC 144. MC 176. MC 145. MC 177. MC 146. MC 197. MC 147. MC 198. MC 166. MC 199. MC 167. MC 200.

149. 150.

Learning Objective 8a MC 151. MC 153. MC 152. MC 154.

29. 30.

TF TF

37. 148.

TF MC

Note: TF = True-False MC = Multiple Choice

BE = Brief Exercise Ex = Exercise

MC MC MC MC BE

192. 210. 211. 212. 213.

Ex C C C C

220. 221.

S-A S-A

Ex Ex

194.

Ex

MC BE Ex

193. 194. 195.

Ex Ex Ex

196. 197.

Ex Ex

BE BE BE BE Ex Ex Ex Ex

201. 202. 203. 204. 214. 215. 216. 222.

Ex Ex Ex Ex C C C K

223.

K

MC MC

155. 178.

MC BE

179.

BE

C = Completion S-A = Short-Answer

CHAPTER LEARNING OBJECTIVES 1. Describe the concept of budgetary control. Budgetary control consists of (a) preparing periodic budget reports that compare actual results with planned objectives, (b) analyzing the differences to determine their causes, (c) taking appropriate corrective action, and (d) modifying future plans, if necessary. 2. Evaluate the usefulness of static budget reports. Static budget reports are useful in evaluating the progress toward planned sales and profit goals. They are also appropriate in assessing a manager's effectiveness in controlling costs when (a) actual activity closely approximates the master budget activity level, and/or (b) the behavior of the costs in response to changes in activity is fixed. 3. Explain the development of flexible budgets and the usefulness of flexible budget reports. To develop the flexible budget, it is necessary to: (a) Identify the activity index and the relevant range of activity. (b) Identify the variable costs, and determine the budgeted variable cost per unit of activity for each cost. (c) Identify the fixed costs, and determine the budgeted amount for each cost. (d) Prepare the budget for selected increments of activity within the relevant range. Flexible budget reports permit an evaluation of a manager's performance in controlling production and costs. FOR INSTRUCTOR USE ONLY

Budgetary Planning and Responsibility Accounting 4

10 - 5

Describe the concept of responsibility accounting. Responsibility accounting involves accumulating and reporting revenues and costs on the basis of the individual manager who has the authority to make the day-to-day decisions about the items. The evaluation of a manager's performance is based on the matters directly under the manager's control. In responsibility accounting, it is necessary to distinguish between controllable and noncontrollable fixed costs and to identify three types of responsibility centers: cost, profit, and investment.

5. Indicate the features of responsibility reports for cost centers. Responsibility reports for cost centers compare actual costs with flexible budget data. The reports show only controllable costs, and no distinction is made between variable and fixed costs. 6. Identify the content of responsibility reports for profit centers. Responsibility reports show contribution margin, controllable fixed costs, and controllable margin for each profit center. 7. Explain the basis and formula used in evaluating performance in investment centers. The primary basis for evaluating performance in investment centers is return on investment (ROI). The formula for computing ROI for investment centers is: Controllable margin ÷ Average operating assets. a

8. Explain the difference between ROI and residual income. ROI is controllable margin divided by average operating assets. Residual income is the income that remains after subtracting the minimum rate of return on a company's average operating assets. ROI sometimes provides misleading results because profitable investments are often rejected when the investment reduces ROI but increases overall profitability.

TRUE-FALSE STATEMENTS 1.

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

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

2.

If actual results are different from planned results, the difference must always be investigated by management to achieve effective budgetary control.

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

3.

Certain budget reports are prepared monthly, whereas others are prepared more frequently depending on the activities being monitored.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

4.

The master budget is not used in the budgetary control process.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

5.

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

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

FOR INSTRUCTOR USE ONLY

10 - 6

Test Bank for Managerial Accounting, Sixth Edition

6.

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

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

7.

A static budget is changed only when actual activity is different from the level of activity expected.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting

8.

A static budget is most useful for evaluating a manager's performance in controlling variable costs.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting

9.

A flexible budget can be prepared for each of the types of budgets included in the master budget.

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting

10.

A flexible budget is a series of static budgets at different levels of activities.

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting

11.

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

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

12.

Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master budget.

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

13.

A flexible budget is prepared before the master budget.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

14.

The activity index used in preparing a flexible budget should not influence the variable costs that are being budgeted.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

15.

A formula used in developing a flexible budget is: Total budgeted cost = fixed cost + (total variable cost per unit × activity level).

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

16.

Flexible budgets are widely used in production and service departments.

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

17.

A flexible budget report will show both actual and budget cost based on the actual activity level achieved.

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting

FOR INSTRUCTOR USE ONLY

Budgetary Planning and Responsibility Accounting 18.

10 - 7

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

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Internal Controls.

19.

Policies regarding when a difference between actual and planned results should be investigated are generally more restrictive for noncontrollable items than for controllable items.

Ans: F, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Internal Controls

20.

A distinction should be made between controllable and noncontrollable costs when reporting information under responsibility accounting.

Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Internal Controls

21.

Cost centers, profit centers, and investment centers can all be classified as responsibility centers.

Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

22.

More costs become controllable as one moves down to each lower level of managerial responsibility.

Ans: F, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

23.

In a responsibility accounting reporting system, as one moves up each level of responsibility in an organization, the responsibility reports become more summarized and show less detailed information.

Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

24.

A cost center incurs costs and generates revenues and cost center managers are evaluated on the profitability of their centers.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

25.

The terms "direct fixed costs" and "indirect fixed costs" are synonymous with "traceable costs" and "common costs," respectively.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Budget Preparation

26.

Controllable margin is subtracted from controllable fixed costs to get net income for a profit center.

Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

27.

The denominator in the formula for calculating the return on investment includes operating and nonoperating assets.

Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

28.

The formula for computing return on investment is controllable margin divided by average operating assets.

Ans: T, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

FOR INSTRUCTOR USE ONLY

10 - 8 a

29.

Test Bank for Managerial Accounting, Sixth Edition When evaluating residual income, the calculation tells management what percentage return was generated by the particular division being evaluated.

Ans: F, LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Industry/Sector Perspective, AI...