398 Module 47: Planning, Control, and Analysis

**10. Which one of the following is an advantage of using a. I and II.

variable costing? b. I and III.
c. II and III.
a. Variable costing complies with the US Internal Reve-
d. I, II, and III.
nue Code.
b. Variable costing complies with generally accepted ac- 14. In the budgeted profit/volume chart below, EG represents
counting principles. a two-product company’s profit path. EH and HG represent the
c. Variable costing makes cost-volume relationships profit paths of products #1 and #2, respectively.
more easily apparent. $
d. Variable costing is most relevant to long-run pricing Product #2
strategies. G
H
11. In the profit-volume chart below, EF and GH represent the Product #1
profit-volume graphs of a single-product company for 20X1 O Volume
and 20X2, respectively. F

(20X1) E
F Budget profit/volume chart

H (20X2)
Sales prices and cost behavior were as budgeted, actual total
O Volume sales equaled budgeted sales, and there were no inventories.
Actual profit was greater than budgeted profit. Which product
had actual sales in excess of budget, and what margin does OE
divided by OF represent?
G
Product with
excess sales OE/OF
E a. #1 Contribution margin
b. #1 Gross margin
If 20X1 and 20X2 unit sales prices are identical, how did total
c. #2 Contribution margin
fixed costs and unit variable costs of 20X2 change compared
d. #2 Gross margin
to 20X1?

20X2 total 20X2 unit B. Financial Planning

fixed costs variable costs
a. Decreased Increased 15. Which of the following is an output of a financial
b. Decreased Decreased planning model?
c. Increased Increased a. Strategic plan.
d. Increased Decreased b. Actual financial results.
c. Projected financial statements.
A.2. Breakeven: Multiproduct Firm d. Variance analysis.
12. Thomas Company sells products X, Y, and Z. Thomas sells
three units of X for each unit of Z, and two units of Y for each
unit of X. The contribution margins are $1.00 per unit of X, $1.50 C. Budgeting
per unit of Y, and $3.00 per unit of Z. Fixed costs are $600,000. 16. Mien Co. is budgeting sales of 53,000 units of product
How many units of X would Thomas sell at the breakeven point? Nous for October 2014. The manufacture of one unit of
a. 40,000 Nous requires four kilos of chemical Loire. During October
b. 120,000 2014, Mien plans to reduce the inventory of Loire by 50,000
c. 360,000 kilos and increase the finished goods inventory of Nous by
d. 400,000 6,000 units. There is no Nous work in process inventory.
How many kilos of Loire is Mien budgeting to purchase in
13. In calculating the breakeven point for a multiproduct com- October 2014?
pany, which of the following assumptions are commonly made?
a. 138,000
I. Sales volume equals production volume. b. 162,000
II. Variable costs are constant per unit. c. 186,000
III. A given sales mix is maintained for all volume changes. d. 238,000

** CMA adapted
 Module 47: Planning, Control, and Analysis 399

17. The master budget c. Detailed, short-term, responsibilities at all levels,

quantitative.
a. Shows forecasted and actual results.
d. Broad, long-term, broad responsibilities,
b. Reflects controllable costs only.
qualitative.
c. Can be used to determine manufacturing cost vari-
ances. 21. Which of the following budgeting systems focuses on im-
d. Contains the operating budget. proving operations?
Items 18 and 19 are based on the following information: a. Responsibility budgeting.
b. Activity-based budgeting.
Operational budgets are used by a retail company for plan- c. Operational budgeting.
ning and controlling its business activities. Data regarding the d. Kaizen budgeting.
company’s monthly sales for the last 6 months of the year and
its projected collection patterns are shown below. 22. Which of the following is included in a firm’s financial
The cost of merchandise averages 40% of its selling budget?
price. The company’s policy is to maintain an inventory equal a. Budgeted income statement.
to 25% of the next month’s forecasted sales. The inventory b. Capital budget.
balance at cost is $80,000 as of June 30. c. Production schedule.
d. Cost of goods sold budget.
Forecasted Sales
July $775,000 23. Rolling Wheels purchases bicycle components in the
August 750,000 month prior to assembling them into bicycles. Assembly is
September 825,000 scheduled one month prior to budgeted sales. Rolling pays
October 800,000 75% of component costs in the month of purchase and 25% of
November 850,000 the costs in the following month. Component cost included in
December 900,000 budgeted cost of sales are
Types of Sales
Cash sales 20% April May June July August
Credit sales 80% $5,000 $6,000 $7,000 $8,000 $8,000

Collection Pattern for Credit Sales What is Rolling’s budgeted cash payment for components in
In the month of sale 40% May?
In the first month following the sale 57% a. $5,750
Uncollectible 3% b. $6,750
c. $7,750
*18. The budgeted cost of the company’s purchases for the d. $8,000
month of August would be
24. A 2014 cash budget is being prepared for the purchase of
a. $302,500 Toyi, a merchandise item. Budgeted data are
b. $305,000
c. $307,500 Cost of goods sold for 2014 $300,000
d. $318,750 Accounts payable 1/1/14 20,000
*19. The company’s total cash receipts from sales and Inventory—1/1/14 30,000
collections on account that would be budgeted for the month 12/31/14 42,000
of September would be
Purchases will be made in twelve equal monthly amounts and
a. $757,500 paid for in the following month. What is the 2014 budgeted
b. $771,000 cash payment for purchases of Toyi?
c. $793,800
d. $856,500 a. $295,000
b. $300,000
**20. Which of the following best describes tactical profit c. $306,000
plans? d. $312,000
a. Detailed, short-term, broad responsibilities, **25. Trumbull Company budgeted sales on account of
qualitative. $120,000 for July, $211,000 for August, and $198,000 for Sep-
b. Broad, short-term, responsibilities at all levels, tember. Collection experience indicates that 60% of the bud-
quantitative. geted sales will be collected the month after the sale,

* CIA adapted
** CMA adapted
400 Module 47: Planning, Control, and Analysis

36% the second month, and 4% will be uncollectible. The Items 30 thru 32 are based on the following information:
cash from accounts receivable that should be budgeted for
In preparing the annual profit plan for the coming year,
September would be
Wilkens Company wants to determine the cost behavior
a. $169,800 pattern of the maintenance costs. Wilkens has decided to
b. $194,760 use linear regression by employing the equation y = a +
c. $197,880 bxx for maintenance costs. The prior year’s data regarding
d. $198,600 maintenance hours and costs, and the result of the regression
26. Cook Co.’s total costs of operating five sales offices analysis are given below.
last year were $500,000, of which $70,000 represented fixed
Average cost per hour $9.00
costs. Cook has determined that total costs are significantly
A 684.65
influenced by the number of sales offices operated. Last
B 7.2884
year’s costs and number of sales offices can be used as
Standard error of a 49.515
the bases for predicting annual costs. What would be the
Standard error of b .12126
budgeted costs for the coming year if Cook were to operate
Standard error of the estimate 34.469
seven sales offices?
R2 .99724
a. $700,000
b. $672,000 Hours of activity Maintenance costs
c. $614,000 January 480 $ 4,200
d. $586,000 February 320 3,000
March 400 3,600
April 300 2,820
D. Forecasting Methods May 500 4,350
*27. In regression analysis, which of the following correlation June 310 2,960
coefficients represents the strongest relationship between the July 320 3,030
independent and dependent variables? August 520 4,470
September 490 4,260
a. 1.03 October 470 4,050
b. –.02 November 350 3,300
c. –.89 December 340 3,160
d. .75 Sum 4,800 $43,200
*28. The internal auditor of a bank has developed a multiple Average 400 $ 3,600
regression model which has been used for a number of *30. In the standard regression equation y = a + bx, the letter b
years to estimate the amount of interest income from is best described as a(n)
commercial loans. During the current year, the auditor
applies the model and discovers that the R2 value has a. Independent variable.
decreased dramatically, but the model otherwise seems to b. Dependent variable.
be working okay. Which of the following conclusions are c. Constant coefficient.
justified by the change? d. Variable coefficient.
*31. The letter x in the standard regression equation is best de-
a. Changing to a cross-sectional regression analysis
should cause R2 to increase. scribed as a(n)
b. Regression analysis is no longer an appropriate tech- a. Independent variable.
nique to estimate interest income. b. Dependent variable.
c. Some new factors, not included in the model, are c. Constant coefficient.
causing interest income to change. d. Coefficient of determination.
d. A linear regression analysis would increase the
*32. Based upon the data derived from the regression
model’s reliability.
analysis, 420 maintenance hours in a month would mean the
*29. All of the following are useful for forecasting the needed
maintenance costs (rounded to the nearest dollar) would be
level of inventory except: budgeted at
a. Knowledge of the behavior of business cycles. a. $3,780
b. Internal accounting allocations of costs to different b. $3,600
segments of the company. c. $3,790
c. Information about seasonal variations in demand. d. $3,746
d. Econometric modeling.
Items 33 thru 36 are based on the following information:
Lackland Ski Resort uses multiple regression to predict ski lift
* CIA adapted revenue for the next week based on the forecasted number
 Module 47: Planning, Control, and Analysis 401

of dates with temperatures above 10 degrees and predicted c. Econometric models.

number of inches of snow. The following function has been d. Exponential smoothing.
developed:
38. Which of the following is a quantitative approach to de-
Sales = 10,902 + (255 × no. of days predicted above 10 veloping a sales forecast?
degrees) + (300 × no. of inches of snow predicted)
a. Delphi technique.
Other information generated from the analysis include b. Customer surveys.
c. Moving average.
d. Executive opinions.
Coefficient of determination
(Adjusted R squared) .6789 **39. A forecasting technique that is a combination of the last
Standard error 1,879 forecast and the last observed value is called
F-Statistic 6.279 with a significance
a. Delphi.
of .049
b. Least squares.
33. Which variables(s) in this function is (are) the dependent c. Regression.
variable(s)? d. Exponential smoothing.
a. Predicted number of days above 10 degrees. 40. Using regression analysis, Fairfield Co. graphed the
b. Predicted number of inches of snow. following relationship of its cheapest product line’s sales with
c. Revenue. its customers’ income levels:
d. Predicted number of days above 10 degrees and pre-
dicted number of inches of snow.
Sales
34. Assume that management predicts the number of days $
above 10 degrees for the next week to be 6 and the number
of inches of snow to be 12. Calculate the predicted amount of
revenue for the next week.
a. $10,902 Income levels increasing
b. $11,362
c. $16,032 If there is a strong statistical relationship between the sales
d. $20,547 and customers’ income levels, which of the following numbers
best represents the correlation coefficient for this relationship?
35. Which of the following represents an accurate
interpretation of the results of Lackland’s regression analysis? a. −9.00
b. −0.93
a. 6.279% of the variation in revenue is explained by the
c. +0.93
predicted number of days above 10 degrees and the
d. +9.00
number of inches of snow.
b. The relationships are not significant.
c. Predicted number of days above 10 degrees is a more E. Flexible Budgets
significant variable than number of inches of snow.
d. 67.89% of the variation in revenue is explained by the 41. The basic difference between a master budget and a
predicted number of days above 10 degrees and the flexible budget is that a master budget is
number of inches of snow. a. Only used before and during the budget period and a
36. Assume that Lackland’s model predicts revenue for a flexible budget is only used after the budget period.
week to be $13,400. Calculate the 95% confidence interval b. For an entire production facility and a flexible budget
for the amount of revenue for the week. (The 95% confidence is applicable to single departments only.
interval corresponds to the area representing 2.3436 deviations c. Based on one specific level of production and a
from the mean.) flexible budget can be prepared for any production
level within a relevant range.
a. $13,400 ± 6,279 d. Based on a fixed standard and a flexible budget allows
b. $13,400 ± 4,404 management latitude in meeting goals.
c. $13,400 ± 6,786
d. $13,400 ± 8,564 42. A flexible budget is appropriate for a

37. Which of the following is a quantitative approach used Marketing Direct material
to develop sales forecasts based on analysis of consumer budget usage budget
behavior? a. No No
b. No Yes
a. Markov techniques. c. Yes Yes
b. Regression analysis. d. Yes No

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402 Module 47: Planning, Control, and Analysis

43. When production levels are expected to increase within a considered with regard to standard hours allowed for output of
relevant range, and a flexible budget is used, what effect would one unit of product:
be anticipated with respect to each of the following costs?
Fixed costs Variable costs Hours
per unit per unit Average historical performance for the past three
a. Decrease Decrease years 1.85
b. No change No change Production level to satisfy average consumer
c. No change Decrease demand over a seasonal time span 1.60
d. Decrease No change Engineering estimates based on attainable
performance 1.50
Engineering estimates based on ideal performance 1.25
F. Responsibility Accounting
44. Controllable revenue would be included in a performance To measure controllable production inefficiencies, what is
report for a the best basis for Flint to use in establishing standard hours
allowed?
Profit center Cost center
a. No No a. 1.25
b. No Yes b. 1.50
c. Yes No c. 1.60
d. Yes Yes d. 1.85
45. The following is a summarized income statement of Carr 49. Which of the following standard costing variances would
Co.’s profit center No. 43 for March 2014: be least controllable by a production supervisor?
a. Overhead volume.
Contribution margin $70,000 b. Overhead efficiency.
Period expenses: c. Labor efficiency.
Manager’s salary $20,000 d. Material usage.
Facility depreciation 8,000
Corporate expense allocation 5,000 33,000 50. The standard direct material cost to produce a unit of
Profit center income $37,000 Lem is four meters of material at $2.50 per meter. During
May 2014, 4,200 meters of material costing $10,080 were
Which of the following amounts would most likely be subject purchased and used to produce 1,000 units of Lem. What was
to the control of the profit center’s manager? the material price variance for May 2014?

a. $70,000 a. $400 favorable.

b. $50,000 b. $420 favorable.
c. $37,000 c. $ 80 unfavorable.
d. $33,000 d. $480 unfavorable.

46. Wages earned by machine operators in producing the 51. Dahl Co. uses a standard costing system in connection
firm’s product should be categorized as with the manufacture of a “one size fits all” article of clothing.
Each unit of finished product contains two yards of direct
Direct Controllable by the machine material. However, a 20% direct material spoilage calculated
labor operators’ foreman on input quantities occurs during the manufacturing process.
a. Yes Yes The cost of the direct material is $3 per yard. The standard
b. Yes No direct material cost per unit of finished product is
c. No Yes
d. No No a. $4.80
b. $6.00
H. Standards and Variances c. $7.20
d. $7.50
47. Companies in what type of industry may use a standard
cost system for cost control? 52. Carr Co. had an unfavorable materials usage variance of
$900. What amounts of this variance should be charged to each
Mass production Service department?
industry industry
a. Yes Yes Purchasing Warehousing Manufacturing
b. Yes No a. $0 $0 $900
c. No No b. $0 $900 $0
d. No Yes c. $300 $300 $300
d. $900 $0 $0
48. In connection with a standard cost system being
developed by Flint Co., the following information is being