Budgeting and Forecasting Exam Review
Course Introduction
This course provides students with a comprehensive understanding of budgeting and forecasting processes within organizations. It covers the principles and techniques used to prepare, analyze, and manage budgets, as well as methods for projecting future financial outcomes. Students will learn how to develop operating and capital budgets, utilize forecasting tools, assess variances, and adjust plans based on changing circumstances. The course emphasizes the strategic role of budgeting and forecasting in resource allocation, decision-making, and organizational performance, preparing students to contribute effectively to financial planning and management in various professional contexts.
Recommended Textbook Cornerstones of Cost Management 2nd Edition by
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20 Chapters
3210 Verified Questions
3210 Flashcards
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Don R. Hansen
Page 2
Chapter 1: Introduction to Cost Management
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157 Verified Questions
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Sample Questions
Q1) Which of the following costing activities is associated with the financial accounting system?
A) determining the cost of a department
B) determining the cost of goods sold for financial statements
C) preparing budgets
D) determining the cost of a customer
Answer: B
Q2) In just-in-time (JIT) manufacturing, each operation produces only what is necessary for the succeeding operations.
A)True
B)False
Answer: True
Q3) Engaging in or supporting an activity that would discredit the profession would relate to which part of the IMA Code of Conduct?
A) competence
B) independence
C) integrity
D) credibility
Answer: C
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Page 3
Chapter 2: Basic Cost Management Concepts
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Sample Questions
Q1) If the total warehousing cost for the year amounts to $450,000, and 40 percent of the warehousing activity is associated with finished goods and 60 percent with direct materials, how much of the cost would be charged as a product cost?
A) $90,000
B) $180,000
C) $270,000
D) $450,000
Answer: C
Q2) Which of the following items is NEVER relevant to the cost flows of a service organization?
A) finished goods inventory
B) materials inventory
C) work-in-process inventory
D) all of the above are always relevant.
Answer: A
Q3) Generally, more managerial objectives can be met with an activity-based system than with a _________ system.
Answer: traditional
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4
Chapter 3: Cost Behavior
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Sample Questions
Q1) The hypothesis test of cost parameters
A) is not tested by the t-statistic.
B) indicates whether the parameters are different from zero.
C) tells the t-value of the significance achieved.
D) all of the above.
Answer: B
Q2) If production volume increases from 16,000 to 20,000 units,
A) total costs will increase by 20 percent.
B) total costs will increase by 25 percent.
C) total variable costs will increase by 25 percent.
D) mixed and variable costs will increase by 25 percent.
Answer: C
Q3) The high-low method preselects the two points that are used to compute the parameters F and X in the expression Y = F + VX
A)True
B)False
Answer: False
Q4) __________ are assumed to be the sole drivers of a traditional cost management system.
Answer: Unit based cost drivers
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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) Product costs can be distorted if a unit-based activity driver is used and A) non-unit-based overhead costs are a significant proportion of total overhead. B) the consumption ratios differ between unit-based and non-unit-based input categories.
C) both a and b.
D) neither a nor b.
Q3) The justification for not using a departmental rate for overhead cost assignment is that it increases accuracy.
A)True
B)False
Q4) The first step in designing an activity-based costing system is to identify activities.
A)True
B)False
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Chapter 5: Product and Service Costing: Job-Order System
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Sample Questions
Q1) The association of production costs with the units produced is called __________ .
Q2) 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?
Q3) Which of the following is a manufactured product?
A) bungee jumping
B) beauty salon
C) automobile
D) restaurant
Q4) Explain why actual costing systems are rarely used in practice.
Q5) cost assignment is the assignment of costs to products or services once the costs have been accumulated and measured.
A)True
B)False
Q6) The recognition and recording of costs is called:
A) Cost assignment
B) Cost measurement
C) Cost accumulation
D) Job order costing
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Chapter 6: Process Costing
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Sample Questions
Q1) When job-order costing is used to assign material costs and process costing is used to assign conversion costs, it is called
A) matrix costing.
B) blend costing.
C) operation costing.
D) variable costing.
Q2) In firms with ending work-in-process inventories, output is measured using equivalent units.
A)True
B)False
Q3) Many service organizations and just-in-time (JIT) manufacturing firms operate in an environment without work-in-process inventories.
A)True
B)False
Q4) The accounting system which accumulates production costs by process and uses a work-in-process account for each process is called __________ .
Q5) The process that determines the equality of the costs in beginning work in process and the costs incurred during the period is called __________ .
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Chapter 7: Allocating Costs of Support Departments and Joint Products
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Sample Questions
Q1) __________ are mutually beneficial costs to joint product costing.
Q2) 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 gross profit for Dulls assuming the constant gross margin percentage method is used?
A) $120,000
B) $150,000
C) $37,500
D) $200,000
Q3) Producing departments provide essential services for support departments.
A)True
B)False
Q4) The direct method is the most difficult way to allocate costs to the support departments.
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) The cash budget is the least priority budget in the master budget.
A)True
B)False
Q2) Activity-based budgeting is most useful when
A) output is homogeneous.
B) production processes are simple.
C) diverse products are produced.
D) volume levels are stable.
Q3) A functional-based approach to budgeting compares costs for functional line items such as
A) setups.
B) direct materials.
C) ordering.
D) inspections.
Q4) Which of the following is an operating budget?
A) budgeted statement of cash flows
B) capital expenditures budget
C) budgeted income statement
D) cash budget
Q5) The __________ budget shows the projected sales and prices.
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Chapter 9: Standard Costing: a Functional-Based Control Approach
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Sample Questions
Q1) Quantity price standards
A) are standard price multiplied by standard quantity.
B) specify how much of the quantity of input should be used for the standard price.
C) specify how much should be paid for the quantity of input to be used.
D) specify how much of the quantity of input should be used for the actual price.
Q2) The total budget variances are categorized into price variances and usage variances.
A)True
B)False
Q3) If a company produces fewer units than expected, there will be
A) a favorable budget variance.
B) an unfavorable spending variance.
C) a favorable volume variance.
D) an unfavorable volume variance.
Q4) The costing that establishes price and quantity standards for inputs is called __________ costing.
Q5) All variances accounts are __________ at the end of the operating year.
Page 11
Q6) __________ standards are the standards used for continuous improvement.
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Chapter 10: Decentralization: Responsibility Accounting,
Evaluation, and Transfer Pricing
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Sample Questions
Q1) The after-tax operating profit minus the total annual cost of capital equals the:
A) Residual income
B) EVA
C) ROI
D) Net income
Q2) Which of the following departments would NOT be a cost center?
A) advertising department
B) city police department
C) building and grounds department
D) sales department
Q3) The return on investment is computed as
A) operating income divided by sales.
B) operating income divided by average operating assets.
C) sales divided by average operating assets.
D) operating asset turnover divided by the operating income margin.
Q4) One disadvantage of ROI in evaluating performance is that it encourages managers to slack off.
A)True
B)False
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Chapter 11: Strategic Cost Management
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Sample Questions
Q1) Which of the following manufacturing costs is assigned to products in a traditional and JIT environment using allocation?
A) insurance and taxes
B) direct labor
C) supervision (department)
D) custodial services
Q2) Life-cycle costs are all costs associated with a product during the production viewpoint.
A)True
B)False
Q3) Acceptable quality level (AQL) allows defects to occur within predetermined parameters.
A)True
B)False
Q4) The difference between what a customer receives and what the customer gives up is called:
A) Customer value
B) Strategic cost management
C) Competitive advantage
D) Strategic decision making
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Chapter 12: Activity-Based Management
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Sample Questions
Q1) The responsibility accounting system developed for operations in a continuous improvement environment would be
A) financial-based responsibility accounting.
B) functional-based responsibility accounting.
C) activity-based responsibility accounting.
D) strategy-based responsibility accounting.
Q2) A firm's warranty costs are $125,000 per year. A competitor's warranty costs are $25,000 per year. The non-value-added costs are
A) $125,000.
B) $100,000.
C) $25,000.
D) $0.
Q3) Which of the following is an example of a value-added activity?
A) supervision of production workers
B) inspection of products
C) scheduling of production
D) All of these are value-added activities.
Q4) The resources consumed by the activity in producing its output are called
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Chapter 13: The Balanced Scorecard: Strategic-Based Control
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Sample Questions
Q1) Double-loop feedback occurs when managers get information about the effectiveness and the validity of the strategy.
A)True
B)False
Q2) For purposes of strategic alignment, incentive compensation should be based upon
A) expected performance of weighted targets for a given period.
B) expected financial performance of the company.
C) actual performance compared to weighted target values for a given period.
D) actual financial performance of the company.
Q3) Double-loop feedback can be defined as
A) feedback that deals with both the effectiveness of strategy implementation and the validity of the assumptions underlying the strategy.
B) feedback that emphasizes the effectiveness of strategy implementation and the costs of implementation.
C) feedback that emphasizes the validity and assumptions underlying the strategy and the costs of the strategy.
D) feedback on lead indicators and lag indicators.
Q4) Training hours is an example of a(n) __________ measure.
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Q5) Compare and contrast activity-based measures and strategic-based measures.
Chapter 14: Quality and Environmental Cost Management
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Sample Questions
Q1) A defective product is one that does NOT
A) appeal to customers.
B) pass inspection.
C) satisfy customers.
D) conform to specifications.
Q2) The lowest environmental costs are attainable at the
A) zero prevention point.
B) zero damage point.
C) revalorizing point.
D) sustainable development point.
Q3) From the operational content view, a quality product or service is one that meets or exceeds
A) customer expectations.
B) customer satisfaction.
C) company targets.
D) company standards.
Q4) Environmental cost redesign would not be a part of an __________ report.
Q5) Costs incurred and paid for by the company are called __________ costs.
Q6) What does quality mean and how has improving quality increased firm value?
Q7) The lowest environmental costs are attainable at the __________ point.
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Chapter 15: Lean Accounting and Productivity Measurement
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Sample Questions
Q1) Lean manufacturing is best defined as
A) an operating approach that reports on the effectiveness of the management of the organization.
B) an operating approach designed to eliminate waste and maximize customer value.
C) an operating approach that is designed to analyze the activities of the organization.
D) an operating approach that is designed to compute variances between expectations and actual performance.
Q2) Productivity is concerned with the efficiency of input usage in producing output. A)True B)False
Q3) The __________ is used by the lean control system to compare operational, capacity, and financial metrics.
Q4) Explain the difference between technical and input trade-off efficiency.
Q5) The process of producing output efficiently using the least amount of inputs is called __________ .
Q6) Discuss the linkage between quality and productivity.
Q7) Describe the objectives and characteristics of a Lean Manufacturing system.
Page 17
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Chapter 16: Cost-Volume-Profit Analysis
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Sample Questions
Q1) The contribution margin at the break-even point
A) equals total fixed costs.
B) is zero.
C) plus total fixed costs equals total revenues.
D) is greater than variable costs.
Q2) In a profit-volume graph, the slope of the profit line represents A) the selling price per unit.
B) the contribution margin per unit.
C) the variable cost per unit.
D) total contribution margin.
Q3) Bugatti, Inc. decided to institute an advertising campaign that would cost $75,000. Variable costs will remain at $15 per unit. Bugatti is currently selling 100,000 units of its product at $25 per unit. The marketing department is estimating that there will be a 10 percent increase in sales volume. With all else remaining the same, what will be the result of this decision?
A) An increase in sales of $25,000
B) A decrease in operating income of $75,000
C) An increase in operating income of $25,000
D) none of the above
Q4) The __________ ratio expresses variable costs in terms of sales dollars.
Page 18
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Chapter 17: Activity Resource Usage Model and Tactical Decision Making
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Sample Questions
Q1) Which of the following costs is NOT relevant to a decision to sell a product at split-off or process the product further and then sell the product?
A) joint costs allocated to the product
B) the selling price of the product at split-off
C) the additional processing costs after split-off
D) the selling price of the product after further processing
Q2) Which of the following items would be classified as flexible resources?
A) salaried employees
B) depreciation on building
C) fuel to generate electricity internally
D) lease on machinery
Q3) Tactical decision making includes decisions to make or buy a component.
A)True
B)False
Q4) Which of the following costs is relevant to a make-or-buy decision?
A) original cost of the production equipment
B) annual depreciation of the equipment
C) the amount that would be received if the production equipment were sold
D) the cost of direct materials purchased last month and used to manufacture the component
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Chapter 18: Pricing and Profitability Analysis
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Sample Questions
Q1) The stage where revenues always decrease is the __________ stage.
Q2) When a company charges different prices for the same product to different customers it is referred to as price __________ .
Q3) According to Hansen and Mowen, which of the following product life cycle stages comes first?
A) Introduction
B) Growth
C) Development
D) Decline
Q4) An alternative to the limitation of focusing on profits would be
A) communicating other measures are important but continue to base rewards on profits.
B) overstate the value of ending inventory in order to reduce cost of goods sold and improve operating income performance.
C) focus on long-term objectives and appropriate emphasis on profit.
D) analyze the product mix.
Q5) Compare and contrast the various pricing policies used by companies.
Q6) The __________ variance is the difference between actual and budgeted contribution margin.
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Chapter 19: Capital Investment
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Sample Questions
Q1) Capital investment decisions are concerned with planning, setting goals, arranging financing, and the selection of __________ assets. or
Q2) The difference between the present value of future cash flows and the initial investment outlay is called the __________ value.
Q3) Alberto Company is considering the purchase of a new machine for $110,000. The machine generates annual revenues of $68,750 and annual expenses of $41,250, which includes $8,250 of depreciation. What is the payback period in years on the machine approximated to one decimal point?
A) 1.6
B) 1.7
C) 3.1
D) 4.0
Q4) Mutually exclusive projects are those which preclude the acceptance of all other competing projects.
A)True
B)False
Q5) The __________ rate of return uses income instead of cash flows.
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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 model which expresses a constrained optimization problem as a linear objective function is called the __________ model.
Q2) The system that ensures that parts or materials are available when needed is called the __________ system.
Q3) Which of the following is NOT an example of an ordering cost?
A) receiving costs
B) salespeople's salaries costs
C) clerical costs of preparing documents
D) insurance costs on shipment
Q4) Strategic objectives of JIT include
A) increasing profits.
B) improving a firm's competitive position.
C) increasing inventory.
D) both a and b.
Q5) The major binding constraint in an organization is defined as the drummer, which sets the production rate for the whole plant.
A)True
B)False
Q6) The costs of holding inventory are called __________ costs.
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