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introductory financial accounting
Questions and Answers of
Introductory Financial Accounting
Historical experience should be used with caution in setting standards because:a. most companies keep poor records.b. ideal standards are always better than historical standards.c. they may not be
What is target costing? Describe how costs are reduced so that the target cost can be met.Multiple-Choice Exercises
What is kaizen costing? On which part of the value chain does kaizen costing focus?
Suggest some possible causes of an unfavorable labor efficiency variance.
The labor rate variance is never controllable. Do you agree or disagree? Why?
The materials usage variance is always the responsibility of the production supervisor. Do you agree or disagree? Why?
Explain why the materials price variance is often computed at the point of purchase rather than at the point of issuance.
What are control limits, and how are they set?
When should a standard cost variance be investigated?
The budget variance for variable production costs is broken down into quantity and price variances. Explain why the quantity variance is more useful for control purposes than the price variance.
What is the purpose of a standard cost sheet?
Discuss the differences among actual costing, normal costing, and standard costing.
How does standard costing improve the control function?
Explain why standard costing systems are adopted.
What are ideal standards? Currently attainable standards? Of the two, which is usually adopted? Why?
Why is historical experience often a poor basis for establishing standards?
Describe the relationship that unit standards have with flexible budgeting.
Discuss the difference between budgets and standard costs.
(Appendix) Prepare journal entries for materials and labor variances.
Compute the labor variances, and explain how they are used for control.
Compute the materials variances, and explain how they are used for control.
BUDGETARY PERFORMANCE, REWARDS, ETHICAL BEHAVIOR Linda Ellis, division manager, is evaluated and rewarded on the basis of budgetary performance. Linda, her assistants, and the plant managers are all
CASH BUDGET Dr. Roger Jones is a successful dentist but he is experiencing recurring financial difficulties. For example, Dr. Jones owns his office building, which he leased to the professional
BUDGETING IN THE GOVERNMENT SECTOR, INTERNET RESEARCH In a similar sense as companies, the U.S. government must prepare a budget each year.However, unlike private, for-profit companies, the budget
CASH BUDGETING Bill Anderson owns The Eatery in Miami, Florida. The Eatery is an affordable restaurant located near tourist attractions. Bill accepts cash and checks. Checks are deposited
DIRECT MATERIALS AND DIRECT LABOR BUDGETS Chistosa Company produces stuffed toy animals; one of these is Betty Rabbit. Each rabbit takes 0.10 yards of fabric and three ounces of polyfiberfill. Fabric
MASTER BUDGET, COMPREHENSIVE REVIEW Optima Company is a high-technology organization that produces a mass-storage system. The design of Optima’s system is unique and represents a breakthrough in
CASH BUDGET The controller of Pratesh Company is gathering data to prepare the cash budget for July.He plans to develop the budget from the following information:a. Of all sales, 35 percent are cash
PARTICIPATIVE BUDGETING, NOT-FOR-PROFIT SETTING Dwight D. Eisenhower was the 34th president of the United States and the Supreme Commander of the Allied Forces during World War II. Much of his army
CASH BUDGET, PRO FORMA BALANCE SHEET Ryan Richards, controller for Grange Retailers, has assembled the following data to assist in the preparation of a cash budget for the third quarter of 2010:a.
OPERATING BUDGET, COMPREHENSIVE ANALYSIS Woodruff Manufacturing produces a subassembly used in the production of jet aircraft engines. The assembly is sold to engine manufacturers and aircraft
CASH BUDGET Morrissey Law Firm has found from past experience that 20 percent of its services are for cash. The remaining 80 percent are on credit. An aging schedule for accounts receivable reveals
CASH BUDGET The owner of a small mining supply company has requested a cash budget for June. After examining the records of the company, you find the following:a. Cash balance on June 1 is $830.b.
CASH PAYMENTS SCHEDULE Boger Company provided the following information relating to cash payments:a. Boger purchased direct materials on account in the following amounts:June 40,000 July 45,000
ACCOUNTS RECEIVABLE AGING SCHEDULE AND CASH BUDGET Janzen Inc. sells all of its product on account. Janzen has the following accounts receivable payment experience:Percent paid in the month of sale
ACCOUNTS RECEIVABLE AGING SCHEDULE AND CASH BUDGET Kotari Inc. found that about 15 percent of its sales during the month were for cash.Kotari has the following accounts receivable payment
PRODUCTION BUDGET AND DIRECT MATERIALS PURCHASES BUDGET Raylene Webber, owner of Raylene’s Flowers and Gifts, produces gift baskets for various special occasions. Each gift basket includes fruit or
SALES BUDGET Norton Inc. manufactures six models of leaf blowers and weed eaters. Norton’s budgeting team is finalizing the sales budget for the coming year. Sales in units and dollars for last
DIRECT LABOR BUDGET Pendel Company produces a variety of garden tools. The production budget for rakes is shown for the following months:Units March 50,000 April 60,000 May 30,000 June 28,000 Each
DIRECT MATERIALS PURCHASES BUDGET Lester Company produces a variety of labels, including iron-on name labels, which are sold to parents of camp-bound children. (The camps require campers to have
PRODUCTION BUDGET Jimison Inc. produces spiral-bound notebooks. The unit sales for the first four months of the year for this product is as follows:Unit Sales January 150,000 February 200,000 March
PRODUCTION BUDGET AND DIRECT MATERIALS PURCHASES BUDGETS Seafood Inc. produces shrimp in cans. The sales budget for the first four months of the year is as follows:Unit Sales Dollar Sales ($)January
PRODUCTION BUDGET Stillwater Designs produces two automotive subwoofers: S12L7 and S12L5. Projected sales (number of speakers) for the coming five quarters are as follows:S12L7 S12L5 First quarter,
SALES BUDGET Assume that Stillwater Designs produces two automotive subwoofers: S12L7 and S12L5. The S12L7 sells for $475, and the S12L5 sells for $300. Projected sales (number of speakers) for the
PLANNING AND CONTROLa. Dr. Jones, a dentist, wants to increase the size and profitability of his business by building a reputation for quality and timely service.b. To achieve this, he plans on
PREPARING A CASH BUDGET TNT Pizzeria provided the following information for the month of October:a. Sales are budgeted to be $120,000. About 15 percent of sales are cash; the remainder are on
PREPARING AN ACCOUNTS PAYABLE SCHEDULE Shetland, Inc. purchases raw materials on account for use in production. The direct materials purchases budget shows the following expected purchases on
PREPARING AN ACCOUNTS RECEIVABLE AGING SCHEDULE Don Gaspar and Company is a legal services firm. All sales of legal services are billed to the client (there are no cash sales). Don Gaspar expects
PREPARING A BUDGETED INCOME STATEMENT Lester Company provided the following information for the coming year:Units produced and sold 60,000 Cost of goods sold per unit $18 Selling price $27 Variable
PREPARING A SELLING AND ADMINISTRATIVE EXPENSES BUDGET Andrews Company makes and sells industrial solvents. In the coming year, Andrews expects to sell $34,500,000 of solvents. There is a 2 percent
PREPARING A COST OF GOODS SOLD BUDGET Toler Company manufactures a line of office chairs. Each chair takes $18 of direct materials and uses 1.3 direct labor hours at $15 per direct labor hour. The
PREPARING AN ENDING FINISHED GOODS INVENTORY BUDGET Toler Company manufactures a line of office chairs. Each chair takes $18 of direct materials and uses 1.3 direct labor hours at $15 per direct
PREPARING AN OVERHEAD BUDGET Sherwood, Inc. makes pet crates. Budgeted direct labor hours for the first three months of the coming year is:January 12,060 February 11,720 March 12,580 The variable
PREPARING A DIRECT LABOR BUDGET Sherwood, Inc. makes pet crates. Planned production in units for the first three months of the coming year is:January 30,150 February 29,300 March 31,450 Each crate
PREPARING A DIRECT MATERIALS PURCHASES BUDGET Sherwood, Inc. makes pet crates. Planned production in units for the first three months of the coming year is:January 30,150 February 29,300 March 31,450
PREPARING A PRODUCTION BUDGET Sherwood, Inc. makes pet crates. In the first four months of the coming year, Sherwood expects the following unit sales:January 30,000 February 29,000 March 31,000 April
PREPARING A SALES BUDGET Sherwood, Inc. sells crates for pets. Sherwood expects the following units to be sold in the first three months of the coming year:January 30,000 February 29,000 March 31,000
Which of the following items is not a possible example of myopic behavior?a. Promotion of deserving employeesb. Reducing expenditures on preventive maintenancec. Cutting back on new product
Which of the following is needed to prepare the production budget?a. Direct materials needed for productionb. Expected unit salesc. Direct labor needed for productiond. Units of materials in ending
The first step in preparing the sales budget is to:a. talk with past customers.b. review the production budget carefully.c. assess the desired ending inventory of finished goods.d. prepare a sales
Before a direct materials purchases budget can be prepared, you should first:a. prepare a sales budget.b. prepare a production budget.c. decide on the desired ending inventory of materials.d. obtain
Which of the following is not part of the operating budget?a. The capital budgetb. The cost of goods sold budgetc. The production budgetd. The direct labor budgete. The selling and administrative
A moving, 12-month budget that is updated monthly is:a. a waste of time and effort.b. a continuous budget.c. a master budget.d. not used by industrial firms.e. always used by firms that prepare a
The budget committee:a. reviews the budget.b. resolves differences that arise as the budget is prepared.c. approves the final budget.d. is directed (typically) by the controller.e. does all of the
Which of the following is not an advantage of budgeting?a. It forces managers to plan.b. It provides information for decision making.c. It guarantees an improvement in organizational efficiency.d. It
Which of the following is not part of the control process?a. Monitoring of actual activityb. Comparison of actual with planned activityc. Investigatingd. Developing a strategic plane. Taking
A budget:a. is a long-term plan.b. covers at least two years.c. is only a control tool.d. is necessary only for large firms.e. is a short-term financial plan.
Explain how a manager can milk the firm to improve budgetary performance.Multiple-Choice Exercises
Explain why a manager has an incentive to build slack into the budget.
What is the role of top management in participative budgeting?
A budget too easily achieved will lead to diminished performance. Do you agree?Explain.
What is participative budgeting? Discuss some of its advantages.
Discuss the roles of monetary and nonmonetary incentives. Do you believe that nonmonetary incentives are needed? Why?
Why is it important for a manager to receive frequent feedback on his or her performance?
Why is goal congruence important?
All budgets depend on the sales budget. Is this true? Explain.
Explain the role of a sales forecast in budgeting. What is the difference between a sales forecast and a sales budget?
What is a master budget? An operating budget? A financial budget?
Discuss some reasons for budgeting.
Describe the behavioral dimension of budgeting.
Define and prepare the financial budget, identify its major components, and explain the interrelationships of its various components.
Define and prepare the operating budget, identify its major components, and explain the interrelationships of its various components.
Define budgeting and discuss its role in planning, control, and decision making.
Which of the following is true with regard to contingent liabilities?a. IFRS and U.S. GAAP use the same terminology to refers to contingent liabilities.b. A contingent liability is recognized under
Which of the following is true?a. IFRS allows property, plant, and equipment to be revalued upward if fair value is higher than historical cost.b. IFRS contains more extensive guidance on revenue
Which of the following inventory costing methods is not allowed under IFRS?a. FIFOb. Specific Identificationc. Average Costd. LIFO
With regard to the presentation of financial information under IFRS, which of the following is true?a. The terminology on the balance sheet and the income statement is the same under IFRS and U.S.
Which of the following is not a disadvantage of IFRS?a. IFRS will require significantly more training and education than required for U.S.GAAP.b. The use of IFRS could be viewed as adopting a lower
Which of the following is not an advantage of IFRS?a. The use of IFRS should increase the comparability and transparency of financial information.b. The use of IFRS will make it easier to access
Which of the following organizations has the responsibility to create IFRS?a. Financial Accounting Standards Boardb. International Accounting Standards Committeec. International Accounting Standards
Convergence of U.S. GAAP and IFRS is best described as:a. The replacement of U.S. GAAP by IFRS.b. The replacement of IFRS by U.S. GAAP.c. Changing existing U.S. GAAP so that any differences in IFRS
Which of the following statements is true?a. The FASB has consistently resisted the adoption of IFRS in the United States for fear that it will lose its standard-setting authority.b. The requirement
Which of the following best describes international financial reporting standards?a. IFRS describes the generally accepted accounting principles that are currently used by all companies in the United
INSTALLMENT SALE Jeffrey’s Billiards sold a pool table to C. Cobbs on October 31, 2009. The terms of the sale are no money down and payments of $50 per month for 30 months, with the first payment
INSTALLMENT SALE Johnson Properties owns land on which natural gas wells are located. Columbus Gas Company signs a note to buy this land from Johnson on January 1, 2009. The note requires Columbus to
FUTURE VALUE OF A SINGLE CASH FLOW Shubert Products has just been paid $25,000 by Apex Enterprises, which has owed Shubert this amount for 30 months but been unable to pay because of financial
FUTURE VALUES OF AN ANNUITY Purdue Savings Bank pays 8 percent interest compounded weekly (0.154 percent per week) on savings accounts. The bank has asked your help in preparing a table to show
FUTURE VALUES OF AN ANNUITY On December 31, 2009, you sign a contract to make annual deposits of $4,200 in an investment account that earns 10 percent. The first deposit is made on December 31,
PRESENT VALUES You have an opportunity to purchase a government security that will pay $200,000 in five years.Required:. Calculate what you would pay for the security if the appropriate interest
PRESENT VALUES Ramon Company signed notes to make the following two purchases on January 1, 2009:a. a new truck for $60,000, with payment deferred until December 31, 2010. The appropriate interest
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