Question

1. Office Stuff produced 15,000 file cabinets at a cost of $80,000. Production for the period was estimated at 14,000 file cabinets at a cost of $75,000. On which of the following should the flexible budget be based? a. Budgeted costs of actual production b. Budgeted costs of budgeted production c. Actual costs of budgeted production d. Actual costs of actual production

2. Which of the following is false with regard to budgetary planning? a. The starting point for the budgets of a not-for-profit organization is generally receipts, rather than expenditures. b. A merchandising company uses a purchases budget instead of a production budget. c. Budgets may be used by manufacturing companies, merchandising companies, service enterprises, and not-for-profit organizations. d. For a service enterprise, the critical factor in budgeting is coordinating professional staff needs with anticipated services.

3. A static budget is a. applicable to cost budgets but not to a sales budget. b. modified or adjusted for changes in activity during the year. c. appropriate in evaluating a manager's effectiveness in controlling fixed costs. d. appropriate in evaluating a manager's effectiveness in controlling variable costs.

4. When considering controllable versus noncontrollable costs, a. costs allocated to, and thus identifiable with, a particular responsibility level are controllable. b. costs incurred directly by a level of responsibility are controllable at that level. c. controllable cost and noncontrollable cost, respectively, are synonymous with variable cost and fixed cost. d. more costs are controllable as one moves down to the lower levels where actual production takes place.

5. A responsibility report for a profit center shows a. gross profit and income from operations. b. contribution margin and controllable margin. c. contribution margin, controllable margin, and return on investment. d. gross profit, income from operations, and net income.

6. The ROI formula for an investment center is a. Controllable Margin ÷ Sales. b. Net Income ÷ Average Operating Assets. c. Contribution Margin ÷ Average Operating Assets. d. Controllable Margin ÷ Average Operating Assets. 7. The Florida Division of Right Enterprises had an ROI of 18% when sales were $1,500,000 and controllable margin was $118,800. What were the average operating assets? a. $270,000 b. $21,384 c. $291,384 d. $660,000

Answer 1

1. B. Flexible budget is based upon budgeted cost of actual production, the flexible budget changes with the level of activity. And is more useful than static budget.

2. A. Budgetary planning is important for NPO's and the starting point is generally expenditures not receipts.

3. C. Static budget is appropriate in evaluating a manager's ability to control fixed costs.

4. C. Controllable cost and non controllable cost are synonyms to variable and fixed cost such as ( variable cost are direct material, Labor etc and fixed cost are depreciation, rent etc.