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ACC202 Ch 10

A major element in budgetary control is
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the valuation of inventories.
approval of the budget by the stockholders.
the preparation of long-term plans.
the comparison of actual results with planned objectives.
the comparison of actual results with planned objectives.
On the basis of the budget reports,
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management analyzes differences between actual and planned results.
management may take corrective action.
management may modify the future plans.
All of these answers are correct.
All of these answers are correct.
Top management’s reaction to a difference between budgeted and actual sales often depends on
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whether the difference is favorable or unfavorable.
the personality of the top managers.
the materiality of the difference.
whether management anticipated the difference.
the materiality of the difference.
What is the primary difference between a static budget and a flexible budget?
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The static budget contains only fixed costs, while the flexible budget contains only variable costs.
The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management.
The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold.
The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
Boland Manufacturing prepared a 2016 budget for 120,000 units of product. Actual production in 2016 was 130,000 units. To be most useful, what amounts should a performance report for this company compare?
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The actual results for 130,000 units with last year’s actual results for 134,000 units.
It doesn’t matter. All of these choices are equally useful.
The actual results for 130,000 units with the original budget for 120,000 units.
The actual results for 130,000 units with a new budget for 130,000 units.
The actual results for 130,000 units with a new budget for 130,000 units.
The flexible budget
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eliminates the need for a master budget.
is relevant both within and outside the relevant range.
is a series of static budgets at different levels of activity.
is prepared before the master budget.
is a series of static budgets at different levels of activity.
As one moves up to each higher level of managerial responsibility,
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performance evaluation becomes less important.
fewer costs are controllable.
the responsibility for cost incurrence diminishes.
a greater number of costs are controllable.
a greater number of costs are controllable.
A responsibility report should
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only be prepared at the highest level of managerial responsibility.
show only those costs that a manager can control.
be prepared in accordance with generally accepted accounting principles.
only show variable costs.
show only those costs that a manager can control.
Costs incurred indirectly and allocated to a responsibility level are considered to be
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nonmaterial.
mixed.
noncontrollable.
controllable.
noncontrollable.
The linens department of a large department store is
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an investment center.
a profit center.
not a responsibility center.
a cost center.
a profit center.
The foreign subsidiary of a large corporation is
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not a responsibility center.
a cost center.
a profit center.
an investment center.
an investment center.
The maintenance department of a manufacturing company is a(n)
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investment center.
profit center.
cost center.
segment.
cost center.
A profit center is
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evaluated by the rate of return earned on the investment allocated to the center.
a responsibility center that always reports a profit.
a responsibility center that incurs costs and generates revenues.
referred to as a loss center when operations do not meet the company’s objectives.
a responsibility center that incurs costs and generates revenues.
Controllable margin is most useful for
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external financial reporting.
preparing the master budget.
break-even analysis.
performance evaluation of profit centers.
performance evaluation of profit centers.
What is the goal of residual income?
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To maximize controllable margin
To maximize the total amount of residual income
To maximize profits
To maximize the amount of costs which are controllable
To maximize the total amount of residual income

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