Question 6: Multiple Choice (15 marks) 1. Break even point in sales dollars can be defined as: a) sales ($) are equal to contribution margin b) sales ($) are equal to variable costs and fixed costs. c) sales ($) are equal to operating income. d) sales ($) are equal to fixed costs only. 2. Prices are set by the competitive market when 0 a) the product is specially made for a customer. 11 b) a company can effectively differentiate its product from others. 12 c) a product is not easily distinguished from competing products. 13 d) there are no other producers capable of manufacturing a similar item. 14 15 3. What is a weakness of residual income? 16 a) It can be misleading when comparing divisions of different sizes. b) It routinely results in managers rejecting investment opportunities that would be 17 advantageous to the company as a whole. 18 c) It discourages goal congruence. 19 d) It does not take cost of capital into consideration. 20 4. What is the purpose of determining return on investment? a) to determine which costs are traceable b) to assess performance of an investment centre c) to assess a company's segment margin d) to determine profitability of a profit centre a 5. For what purpose is controllable/segment margin most useful? a) performance evaluation of profit centres b) preparing the master budget c) break-even analysis d) evaluating cost centres a 6. When is a cost considered to be traceable? a) only when it is a variable cost b) only if the cost is less than the budget amount c) only when the manager has the power to control the cost d) only when the amount changes based on different activity levels 38 7. Which one of the following is a reason that a company may have significant deviations from 39 budgeted performance? a) Actual results were compared to flexible budget amounts instead of static budget amounts. 40 41 b) Economic conditions may have changed since the plan was developed. 42 C) The budget was approved by the budget committee. 43 d) A company has substantial variable costs. 44 45 8. Which one of the following is true concerning a static budget? 46 a) It shows planned results at the original budgeted activity level. b) It is useful in evaluating a manager's performance by comparing actual variable costs and 47 planned variable costs. 48 c) It is prepared at the end of the accounting period once actual results are known. 49 d) It reflects the level of activity at which the company will be most profitable. 50 9. Which one of the following is a critical factor in budgeting for a service company? 51 52 a) determining how to allocate the disproportionate costs 53 b) coordinating staff needs with anticipated services 54 c) budgeting expenditures before anticipated receipts 55 d) determining client needs 56 10. Which one of the following expenses would most likely appear on a Selling and Administrative Expense Budget? a) sale commissions b) machine depreciation C) indirect labour 1 d) indirect materials 2 53 11. All of the following are common fixed costs EXCEPT for: -64 a) website maintence incurred by Lululemon's Head Office. 65 b) salary of the CEO of Blackberry Corporation. 66 c) Alberta Construction's Headquarters Office rent. 67 d) depreciation expense of the oven for the muffin product line at Lynda's Bakery. 68 69 70 12. An unfavourable variance for Revenues in a Static Budget could mean: 71 a) the selling price was lower than anticipated. 72 b) we sold less units than anticipated. 73 c) we sold more units than anticipated. 74 d) both a and b are correct. 75 76 a 6 13. A favourable variance for Fixed costs in a Flexible Budget could mean: B a) our landlord decreased the rent. 9 b) our supplier charged us less for direct materials (cost of goods sold) -0 C) our worker's were paid a lower wage (direct labour) 31 d) our landlord increased the rent. 32 33 14. The following information is available for products Alpha and Beta: 84 85 Segment Margin - Alpha $100,000; Beta $150,000 86 Segment Margin % - Alpha 12%; Beta 10% 87 88 Which of the following statements is true? 89 a) In relation to revenues, Beta is performing better than Alpha. 90 b) In relation to revenues, Alpha is performing better than Beta. 91 Note: This question only has two options - Answer "a" or "b" 92 93 15. Sales are $100,000. The Contribution Margin Ratio (%) is 25%. Assuming Fixed Costs remain constant, 94 if sales increase by 10%, operating income will increase by: 95 a) $15,000 96 b) $3,000 97 c) $85,000 98 d) $2,500 99