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Exam 10: Reporting and Analyzing Liabilities

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Question 71

Multiple Choice

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A distinguishing characteristic of an investment center is that

A) revenues are generated by selling and buying stocks and bonds.
B) interest revenue is the major source of revenues.
C) the profitability of the center is related to the funds invested in the center.
D) it is a responsibility center which only generates revenues.

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Question 72

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A flexible budget

A) is prepared when management cannot agree on objectives for the company.
B) projects budget data for various levels of activity.
C) is only useful in controlling fixed costs.
D) cannot be used for evaluation purposes because budgeted data are adjusted to reflect actual results.

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Question 73

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Rhein Manufacturing recorded operating data for its auto accessories division for the year. $\begin{array} { l r } \text { Sales } & \$ 750,000 \\\text { Contribution margin } & 150,000 \\\text { Total direct fixed costs } & 90,000 \\\text { Average total operating assets } & 400,000\end{array}$ How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?

Sales results that are evaluated by a static budget might show 1. favorable differences that are not justified. 2. unfavorable differences that are not justified.

Nikoto Steel Co.budgeted manufacturing costs for 50,000 tons of steel are: Fixed manufacturing costs $\quad \$ 50,000$ per month Variable manufacturing costs $\quad \$ 12.00$ per ton of steel Nikoto produced 40,000 tons of steel during March.How much is the flexible budget for total manufacturing costs for March?

Budget reports should be prepared

The flexible budget

Which one of the following does not impact the amount of residual income?

A cost center

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

Dingo Division's operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000.Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000.Dingo's required rate of return is 9%.Should Dingo accept this project?

Benet Division of United Refinery Company's operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000.The Benet Division's ROI is 25%.Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000.Should management accept this new project?

The Fulmar Division of Jayne Manufacturing had an ROI of 25% when sales were $3 million and controllable margin was $600,000.What were the average operating assets?

Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master budget.

Controllable margin is most useful for

Bogey Co.recorded operating data for its Cheap division for the year.Bogey requires its return to be 10%. $\begin{array}{lr}\text { Sales } & \$ 1,400,000 \\\text { Controllable margin } & 160,000 \\\text { Total average assets } & 4,000,000 \\\text { Fixed costs } & 100,000\end{array}$ What is the ROI for the year?

A flexible budget can be prepared for each of the types of budgets included in the master budget.

A static budget is appropriate in evaluating a manager's performance if

The comparison of differences between actual and planned results

What is the primary difference between a static budget and a flexible budget?