Question

1. Cost, profit, and investment centers can all be classified as responsibility centers.T or F

2. Management decisions often include both financial and nonfinancial information. T or F

3. The total direct labor hours used for the direct labor budget comes from the: a.sales forecast. b.production budget. c. direct materials budget. d.sales budget.

4. Budgeting allows a service firm to a.hire professional staff to perform the budgeting work. b.coordinate professional staff needs with anticipated services. c.classify all personnel as either variable or fixed. d.budget expenditures before anticipated receipts.

5. Which of the following are the relevant costs in a special order decision? a.Variable costs b.Fixed costs c.Variable costs and fixed costs d.Variable costs and avoidable costs

6. Which of the following is important in the sell or process further decision? a.incremental revenue. b.incremental cost. c.both incremental revenue and incremental cost. d.neither incremental revenue nor incremental cost.

7. Order (1 to 5) the following budgets. Budget A.Sales B.Production C.Selling and administrative expense D.Capital expenditure budget E.Budgeted Balance Sheet

8. What is the return on investment for Las Sendas, Inc. for 2016 when: Sales:$2,000,000 Average operating assets:$4,000,000 Controllable margin:$600,000 a.60% b.50% c.30% d.15%

Answer 1

ANSWERS

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

TRUE - Responsibility accounting is a basic component of accounting systems followed by many companies nowadays. Its a process involving assignment of responsibility of accounting for a particular segment of the company to a specific individual or group.Often, businesses will use the segment structure to establish the responsibility accounting framework,thus five types of responsibility centers emerge,namely,cost center, revenue center, profit center, investment center and discretionary cost center.

2. Management decisions often include both financial and nonfinancial information.

TRUE - Managerial decisions are often based on both financial as well as non financial factors. Both types of information provide valuable insight that can help to yield profitable results if used correctly. Accounting information usually inclues both quantitative (financial) and qualitative (non financial) data to be used in decision making. The managerial team is required to transform this data into valuable information to effective plan and execute their business operations.

3. The total direct labor hours used for the direct labor budget comes from the:

b. PRODUCTION BUDGET - Direct labor budget is used for estimating the number of employees who will be needed for manufacture throughout the budget period.

Direct Labor budget is based on total number of labor hours required multiplied by driect labor cost per hour to arrive at the total cost of direct labor. To calculate the total number of labor hours needed, we will need to find out the number of units to be produced in the budget period. Thus, the total direct labor hours come from the production budget. They are the product of total units to be produced and direct labour hours taken to produce each unit.

4. Budgeting allows a service firm to :

d. BUDGET EXPENDITURES BEFORE ANTICIPATED RECEIPTS - Budgeting helps a business in planning its cash flow, reducing costs and improving profits.

It is an important tool for decision making and forecasting income and expenditures.It helps in setting up guidelines for the future plan of actions, to create a spending plan for your money. With proper budgeting one can manage limited resources efficiently. One of the main purpose of budgeting is that it helps you avoid debts and improve credit.

5. Which of the following are the relevant costs in a special order decision?

d. VARIABLE COSTS and AVOIDABLE COSTS - A Special order is a one time customer order. It can either be an extra order or for an item specially requested by customer. A special order requires one to decide which costs and revenues are relevant. Based on relevant information, the manufacturer can make a decision in order to maximize profits.

Fixed Costs are always excluded from special order decision as they are considered to be incurred regardless of the special order. They are known as sunk costs or committed costs.

Variable Costs are direct costs such as labor and material. They are always considered on per unit basis. So, any additional units made due to special order - variable costs will be relevant for them.

Avoidable Costs are relevant if the special order made calls for an item specially to be made for the customer. This may involve costs for a manufacturer not incurred on normal production. As these would be costs specific to the special order, they will be relevant to the decision.

6. Which of the following is important in the sell or process further decision?

c. BOTH INCREMENTAL REVENUE AND INCREMENTAL COSTS - The sell or process further decision is a choice between selling a product as it is or processing it further to earn additional revenue.The decision to sell a product or process it further is based on whether the incremental revenue exceeds incremental processing costs. Based on the incremental analysis, if the result is positive, the product must be processed further, otherwise not.

So the analysis to sell-or-process further is based on the incremental or differential approach which involves both incremental costs as well as incremental revenue and both these factors are important to the calculation.

7. Order(1 to 5) the following budgets :

1. A.Sales Budget

2. B.Production Budget

3. C.Selling and administrative expense

4. E.Budgeted Balance Sheet

5. D.Capital expenditure budget

In getting to the Comprehensive Master Budget, we first make budgets for various segments separately.

Firstly, prepare Functional Budget(s) in the following order of : Sales > Production > Direct Labor/Material > Factory Overheads > Cost of Production > Cost of Goods Sold > Selling and Administrative Budget

Next, we prepare Financial Budget(s) in order of : Budgeted Income Statement > Cash Budget > Budgeted Balance Sheet.

And finally, we compute the Capital Expenditure Budget.

8. What is the return on investment for Las Sendas, Inc. for 2016 when: Sales:$2,000,000 Average operating assets:$4,000,000 Controllable margin:$600,000

d. 15%

ROI = (Controllable Margin / Average Operating Assets) x 100

   = (600,000 / 4,000,000) x 100

   = 15%