Lesson 14 Managerial Accounting II: Application Self-Test I. True and False Questions 1.

Decision making is a distinct management activity that should be separated from budgeting, directing, and controlling activities. (F) 2. The concept of the relevant range does not apply to fixed costs. (F) 3. A cost formula may not be valid outside the relevant range of activity. (T) 4. The high-low method is generally less accurate than the least-squares regression method for analyzing the behaviour of mixed costs. (T) 5. The high-low method should be preceded by a scatter graph plot. (T) 6. Because the least-squares regression method is more accurate, a scattergraph plot is unnecessary. (F) 7. The break-even point in units can be obtained by dividing total fixed expenses by the contribution margin ratio. (F) 8. For a given level of sales, a low contribution margin ratio will produce less net income than a high contribution margin ratio. (T) 9. The formula for the break-even point is the same as the formula to attain a given target profit for the special case where the target profit is zero. (T) 10. The margin of safety percentage is equal to the margin of safety in dollars divided by total sales in dollars. (T) 11. The usual starting point in budgeting is to make a forecast of cash receipts and cash disbursements. (F) 12. Budgets are used for planning rather than for control of operations. (F) 13. A production budget is to a manufacturing firm as a merchandise purchases budget is to a merchandising firm. (T) 14. Zero-based budgeting requires managers to justify all costs of programs as if these programs were being proposed for the first time. (T) 15. The material quantity variance is computed based on the quantity of all materials purchased during the period. (F) 16. Standard costs should generally be based on the actual costs of prior periods. (F) 17. Purchase of poor quality materials will generally result in a favourable materials price variance and an unfavourable labour rate variance. (F) 18. A flexible budget is "flexible" in the sense that a budget can be prepared for any level of activity, but once a budget is set the budget figures are not changed if actual activity later proves to be different than budgeted activity. (F) 19. In responsibility accounting, each segment in an organization should be charged with the costs for which it is responsible and over which it has control plus its share of common organizational costs. (F) II. Multiple Choice Questions 1. Management plans are expressed formally in which of the following documents? (C) A. Performance reports. For more solutions visit scholaranswer

B. The annual report to shareholders. C. Budgets. D. All of the above. 2. What would be an example of a performance report? (B) A. An income statement reporting actual results for the past month. B. A production report showing budgeted and actual production for the past month. C. An income statement showing the amounts budgeted for the past month. D. A balance sheet showing the actual financial position at the end of the past month. 3. The linear equation Y = a + bX is often used to express cost formulas. Which of the following representations in this equation is correct? (D) A. The a term represents variable cost in total. B. The X term represents total costs. C. The Y term represents total fixed costs. D. The b term represents variable cost per unit of activity. 4. Contribution margin is the excess of revenues over which of the following? (B) A. Cost of goods sold. B. All variable costs. C. Manufacturing cost. D. All direct costs. 5. The break-even in units sold will decrease if there is an increase in which of the following? (B) A. Unit sales volume. B. Selling price. C. Unit variable expenses. D. Total fixed expenses. 6. The margin of safety is equal to which of the following formulas? (A) A. Sales - (Fixed expenses/Contribution margin ratio). B. Sales - Net income. C. Sales - (Variable expenses/Contribution margin). D. Sales - (Variable expenses + Fixed expenses). 7. The cash budget must be prepared before you can complete which of the following? (A) A. Budgeted balance sheet. B. Production budget. C. Raw materials purchases budget. D. Schedule of cash disbursements. 8. The master budget process usually begins with which of the following? (B) A. Production budget. B. Sales budget. C. Operating budget. D. Cash budget. 9. What does an unfavourable labour efficiency variance indicate? (D) A. The actual labour rate was higher than the standard labour rate. B. The labour rate variance must also be unfavourable. C. Overtime labour was used during the period. D. Actual labour hours worked exceeded standard labour hours for the production level achieved. 10. If the actual labour hours worked exceed the standard labour hours allowed, what type of For more solutions visit scholaranswer

variance will occur? (A) A. Unfavourable labour efficiency variance. B. Favourable labour rate variance. C. Favourable labour efficiency variance. D. Unfavourable labour rate variance. 11. Which department is usually held responsible for an unfavourable materials quantity variance? (C) A. Marketing. B. Purchasing. C. Production. D. Engineering. 12. Which of the following best describes a segment of a business responsible for both revenues and expenses? (D) A. A cost centre. B. An investment centre. C. A residual income centre D. A profit centre. Please visit scholaranswer.com for more solution files.

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