Budgeting and Control Exam Preparation Guide
Course Introduction
This course explores the principles and practices of budgeting and control within organizations, focusing on the development, implementation, and management of budgets as essential tools for planning and monitoring business performance. Students will learn about different types of budgets, including operating, capital, and cash budgets, and examine their role in achieving organizational objectives. The course covers techniques for variance analysis, cost control, forecasting, and performance evaluation, as well as the behavioral and ethical considerations in budget preparation and management. Emphasis is placed on practical application through case studies and real-world examples, preparing students to make informed financial decisions and contribute to effective organizational control.
Recommended Textbook
Cornerstones of Cost Management 2nd Edition by Don R. Hansen
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20 Chapters
3210 Verified Questions
3210 Flashcards
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Chapter 1: Introduction to Cost Management
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157 Flashcards
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Sample Questions
Q1) An accountant certified to possess the minimal professional qualifications for an external auditor is a
A) CPA
B) CMA
C) CIA
D) all of these.
Answer: A
Q2) The setting of objectives and the identification of methods to achieve those objectives is called
A) planning.
B) controlling.
C) performance evaluation.
D) decision making.
Answer: A
Q3) Only Certified Public Accountants are permitted by law to serve as __________ .
Answer: external auditors
Q4) The cost management subsystem designed to assign costs to individual products and services is called the __________ information system.
Answer: cost accounting
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Chapter 2: Basic Cost Management Concepts
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Sample Questions
Q1) Which of the following items would be associated with both a functional-based cost accounting information system and an activity based cost information system?
A) Overhead is assigned on a plant-wide rate based on direct labor hours.
B) Customer service costs are assigned to products using number of complaints as the activity driver.
C) Direct labor cost is assigned to products using direct tracing.
D) None of these.
Answer: C
Q2) Which of the following methods of assigning costs is based on convenience or some assumed linkage, and reduces the overall accuracy of the cost assignments?
A) direct tracing
B) driver tracing
C) allocation
D) all of the above
Answer: C
Q3) In preparing an income statement, __________ and __________ costs are separated. or
Answer: production; nonproduction nonproductio n; production
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Page 4
Chapter 3: Cost Behavior
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Sample Questions
Q1) The percentage of variability in the dependent variable explained by an independent variable (i.e. measure of activity output) is called the coefficient of correlation.
A)True
B)False
Answer: False
Q2) Figure 3-3 The Sandoval Company has four process engineers that are each able to process 1,500 design changes. Last year 5,250 design changes were produced by the four engineers. Each engineer is paid $60,000 per year.
Refer to Figure 3-3. What is the unused capacity in dollars?
A) $60,000
B) $30,000
C) $240,000
D) $15,000
Answer: B
Q3) The Y in the equation Y = F + VX represents the __________, the dependent variable
Answer: total cost
Q4) Multiple regression has __________ or __________ independent variables. Answer: two; more
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Chapter 4: Activity-Based Costing
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Sample Questions
Q1) Which of the following quantities is an example of an activity driver in activity-based costing?
A) number of direct labor hours
B) number of labor transactions
C) number of machine hours
D) all of these
Q2) If activity-based costing is used, materials handling would be classified as a A) unit-level activity.
B) batch-level activity.
C) product-level activity.
D) facility-level activity.
Q3) The use of __________ activity drivers to assign costs tends to __________ high-volume products. or
Q4) If overhead is a significant proportion of the unit manufacturing costs, the distortion caused by using multi-level drivers can be serious.
A)True
B)False
Q5) A(n) __________ is a grouping of logically related information.
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Chapter 5: Product and Service Costing: Job-Order System
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Sample Questions
Q1) Direct labor costs are assigned to individual jobs using a source document known as a
A) job-order cost sheet.
B) payroll check.
C) time sheet.
D) requisition form.
Q2) When normal costing is used, actual overhead costs are
A) recorded in the work-in-process account.
B) recorded in the overhead control account.
C) recorded in the finished goods account.
D) not recorded.
Q3) Heterogeneity refers to the
A) nonphysical nature of services as opposed to products.
B) fact that production and consumption are inseparable for services.
C) greater chances for variation in the performance of services than in the production of products.
D) fact that services cannot be inventoried but must be consumed when performed.
Q4) What are the source documents used in a job-order costing system? How do the source documents relate to the job cost sheet? How do these documents inform work in process?
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Chapter 6: Process Costing
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Sample Questions
Q1) Spoilage in a process costing process means
A) fewer units leave the process than enter it.
B) fewer units enter a process than leave it.
C) a process is no longer viable.
D) products are receiving too much attention.
Q2) In operation costing, the process which produces batches of different products which are identical in many ways but differ in others is called __________ process
Q3) Which is NOT a difference between the job-order costing system and the process costing system?
A) They accumulate their costs to different cost objectives.
B) The number of work-in-process accounts is different.
C) One does not use the finished goods account.
D) all of the above.
Q4) The major benefit of the weighted average method is simplicity. The major disadvantage is that accuracy and performance measurements are impaired.
A)True
B)False
Q5) A key input to the cost of production report is __________ costs.
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Chapter 7: Allocating Costs of Support Departments and Joint Products
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Sample Questions
Q1) Figure 7-7 Garden of Eden Company manufactures two products, Brights and Dulls, from a joint process. A production run costs $50,000 and results in 250 units of Brights and 1,000 units of Dulls. Both products must be processed past the split-off point, incurring separable costs for Brights of $60 per unit and $40 per unit for Dulls. The market price is $250 for Brights and $200 for Dulls.
Refer to Figure 7-7. What is the amount of joint costs allocated to Brights using the net realizable value method?
A) $11,446
B) $11,906
C) $50,000
D) $-0-
Q2) Joint costs are allocated because of
A) financial reporting requirements.
B) tax reporting requirements.
C) IMA requirements.
D) both b and a.
Q3) Support department fixed costs are allocated on the basis of original capacity.
A)True
B)False
Page 9
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Chapter 8: Budgeting for Planning and Control Key
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Sample Questions
Q1) Alpha Beta Company has a sales budget for next month of $50,000. Cost of goods sold is expected to be 60 percent of sales. All goods are purchased in the month used and paid for in the month following their purchase. The beginning inventory of merchandise is $1,500 and an ending inventory of $2,000 is desired. Beginning accounts payable is $13,000. How much merchandise inventory will Alpha Beta Company need to purchase next month?
A) $29,000
B) $29,500
C) $30,000
D) $30,500
Q2) The budgeted income statement depends partly on information in the budgets in the master budget.
A)True
B)False
Q3) Refer to Figure 8-5. How many dollars are expected to be collected in December?
A) $30,500
B) $37,000
C) $26,500
D) $23,500
Q4) The __________ income statement is the culmination of the operating budget.
Page 10
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Chapter 9: Standard Costing: a Functional-Based Control Approach
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Sample Questions
Q1) During October, 10,000 direct labor hours were worked at a standard cost of $10 per hour. If the direct labor rate variance for October was $4,000 unfavorable, the actual cost per direct labor hour must be
A) $10.40.
B) $10.00.
C) $9.60.
D) $9.20.
Q2) A variable overhead efficiency variance could be caused by A) using a poor quality material that needs more labor time to meet production standards.
B) not taking a quantity discount.
C) paying more than the standard rate for labor.
D) price increases on the materials.
Q3) A production __________ would most likely be responsible for an unfavorable variable overhead efficiency variance.
Q4) The total budget variances are categorized into price variances and usage variances.
A)True
B)False
11
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Chapter 10: Decentralization: Responsibility Accounting,
Performance Evaluation, and Transfer Pricing
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Sample Questions
Q1) Multiple measures of performance are beneficial if they
A) are all financial measures.
B) include nonfinancial operating measures.
C) focus only on short-run factors.
D) all of these statements are true.
Q2) Which of the following departments would NOT be classified as a profit center?
A) hardware department
B) men's shoes department
C) accounting department
D) automotive department
Q3) The transfer price that would leave the buying division no worse off if an input is purchased from an internal division is(are) called:
A) The maximum transfer price
B) The minimum transfer price
C) The negotiated transfer price
D) Both a and c
Q4) Return on investment (ROI) refers to earnings before interest and income taxes.
A)True
B)False
Q5) How are accountability, information, and responsibility, related?
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Chapter 11: Strategic Cost Management
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151 Flashcards
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Sample Questions
Q1) Which of the following is NOT a trait of a traditional manufacturing system?
A) push-through system
B) short-term supplier contracts
C) value-added focus
D) total quality control
Q2) In traditional and JIT environments using direct tracing, the manufacturing costs assigned to products are the direct materials costs and the __________ costs.
Q3) Dot Company sells a product for $225 per unit. Its market share is 20 percent. The marketing manager feels that the market share can be increased to 30 percent with a reduction in price to $195. The product is currently earning a profit of $36 per unit. The president of Dot Company feels that the $36 profit per unit must be maintained. What is the target cost per unit?
A) $159
B) $195
C) $189
D) $225
Q4) Choosing alternative strategies that provide long-term growth involves __________ decision making.
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Chapter 12: Activity-Based Management
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Sample Questions
Q1) The responsibility accounting system that uses both operational and financial measures is called __________ responsibility. or
Q2) A financial-based responsibility accounting system focuses on the assignment of responsibility to organizational units and measures performance in financial terms.
A)True
B)False
Q3) The process which refers to the adoption of new processes to meet strategic objectives is called:
A) Process creation
B) Process innovation
C) Process improvement
D) Process efficiency
Q4) Reducing non-value added costs decreases activity deficiency.
A)True
B)False
Q5) The resources consumed by the activity in producing its output are called __________ .
Q6) What is process value analysis?
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Chapter 13: The Balanced Scorecard: Strategic-Based Control
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Sample Questions
Q1) Business strategy is concerned with
A) choosing market and customer segments.
B) identifying critical internal and business processes.
C) selecting individual and organizational properties required.
D) all of the above.
Q2) Activity-based evaluation and strategic-based evaluation incorporate some of the same elements. However, strategic-based responsibility adds some new elements to the common dimensions. What are the elements in common and what new elements are included?
Q3) In order for the balanced scorecard to succeed, the entire organization must be behind it.
A)True
B)False
Q4) The balanced scorecard becomes a means of communicating the strategy of the organization to its employees and managers. What might be a downside of communicating this information?
A) Employees will need direction about what is to be done.
B) Employees will need to understand where the organization is headed.
C) Sensitive information may end up in the hands of competitors.
D) all of the above.
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Chapter 14: Quality and Environmental Cost Management
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Sample Questions
Q1) Product inspection is a(n)
A) external failure cost.
B) internal failure cost.
C) appraisal cost.
D) prevention cost.
Q2) The costs of a consumer complaint department are
A) external failure costs.
B) internal failure costs.
C) appraisal costs.
D) prevention costs.
Q3) Within the robust view of strategy, describe the management strategy to reduce quality costs recommended by the American Society for Quality Control.
Q4) Internal failure costs incurred by failure of products to conform to specifications are discovered after sales take place.
A)True
B)False
Q5) The cost of processes which produce, market, delivers, and dispose of products are called __________ costs.
Q6) Costs incurred and paid for by the company are called __________ costs.
Page 16
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Chapter 15: Lean Accounting and Productivity Measurement
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Sample Questions
Q1) Identifying value streams may be accomplished by using a two-dimensional matrix where __________ are listed on one dimension, and __________ on a second dimension. or or
Q2) The point at which technical and allocative efficiency are achieved is called __________ efficiency.
Q3) Productivity is concerned with producing
A) output rapidly.
B) output efficiently.
C) the maximum quantity of output possible.
D) output effectively.
Q4) The component which provides a series or vector of separate and distinct partial operational measures is called:
A) Price recovery component
B) Profit-linked productivity measurement
C) Profile measurement
D) Total productivity measurement
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Q5) In a lean environment, many overhead costs are assigned to products as directly __________ costs.
Chapter 16: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Target after-tax profit must be converted into __________ profit to calculate units or revenue needed.
Q2) In multiple-product analysis, direct fixed costs can be __________ to each segment.
Q3) Assuming all other things are the same, if there was an increase in the break-even point, contribution margin per unit must have:
A) remained the same
B) increased first, then decreased
C) decreased
D) increased
Q4) Total contribution margin is calculated by subtracting A) cost of goods sold from total revenues.
B) fixed costs from total revenues.
C) total manufacturing costs from total revenues.
D) total variable costs from total revenues.
Q5) Increases in sales of low contribution margin products decrease the break-even point.
A)True
B)False
Q6) The __________ is where total revenues equal total costs.
Page 18
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Chapter 17: Activity Resource Usage Model and Tactical Decision Making
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Sample Questions
Q1) For flexible resources, if the demand for an activity changes across alternatives, then resource spending will remain the same and costs are relevant.
A)True
B)False
Q2) Choosing to make or buy may reduce the cost of producing the main product and increase the quality.
A)True
B)False
Q3) Relevant costs are
A) past costs.
B) future costs.
C) full costs.
D) cost drivers.
Q4) A tariff is a tax on exports levied by the federal government.
A)True
B)False
Q5) Describe the steps in the decision-making process. What is the role of qualitative factors in tactical decision-making?
Q6) Leasing or buying a building are examples of resources.
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Chapter 18: Pricing and Profitability Analysis
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Sample Questions
Q1) Compare and contrast the various pricing policies used by companies.
Q2) The market size variance is the difference between actual and budgeted industry sales in units, multiplied by the budgeted market share percentage, times the:
A) actual market share percentage
B) budgeted market share percentage
C) actual average unit contribution margin
D) budgeted average unit contribution margin
Q3) Profits are lower in the introductory phase because revenues are low and investment and learning may be high.
A)True
B)False
Q4) The sales mix variance tells managers what impact a difference between actual and expected percentages of products sold has on:
A) volume variance
B) sales variance
C) contribution margin
D) market share
Q5) The stage where revenues always decrease is the __________ stage.
Q6) One limitation to profitability analysis is its focus on __________ performance.
Page 20
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Chapter 19: Capital Investment
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Sample Questions
Q1) NVP measures the __________ in a firm's wealth caused by a project.
Q2) Anselmo Corp. is considering the purchase of a new machine for $76,000. The machine would generate an annual cash flow of $23,214 for five years. At the end of five years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention. What is the payback period in years for the machine approximated to two decimal points, assuming no taxes are paid?
A) 3.00
B) 3.27
C) 9.48
D) 4.00
Q3) The accounting rate of return considers the profitability of a project as well as the time value of money.
A)True
B)False
Q4) The payback period is the time required for a company to recover its initial investment.
A)True
B)False
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Chapter 20: Inventory Management: Economic Order
Quantity, Jit, and the Theory of Constraints
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Sample Questions
Q1) The shadow price
A) indicates the amount by which throughput will increase for one unit of unconstrained resource.
B) is the price paid on the black market for one unit of scarce resource.
C) is the price paid at night for a scarce resource.
D) indicates the amount by which contribution margin will increase for one unit of scarce resource.
Q2) JIT is a manufacturing approach focused on present demand rather than anticipated demand.
A)True
B)False
Q3) Throughput is the rate at which an organization generates money through sales.
A)True
B)False
Q4) The theory of constraints focuses on each of the following measures of organizational performance EXCEPT
A) revenues.
B) throughput.
C) operating expenses.
D) inventory.
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