1. Which of the following statement is TRUE regarding residual income?

   	A.	Residual income can be used to compare the performance of divisions of different sizes.
   	B.	Residual income is a better performance measure than return on investment.
   	C.	Some investment opportunities that should be accepted from the viewpoint of the entire company could be rejected by a manager if the manager is evaluated on the basis of residual income.
   	D.	Residual income motivates managers to pursue investments where the ROI associated with those investments exceeds the companys minimum required return but is less than the ROI currently earned by the managers.

2. Which of the following is TRUE regarding the master budget?

   	A.	Budgeted balance sheet is prepared after the budgeted income statement.
   	B.	The sales budget is prepared after the production budget.
   	C.	The budgeting process starts with the cash budget.
   	D.	The direct materials budget is prepared before the production budget.

3. Alice Supply Corporation manufactures and sells cotton gauze for $2 a box. Expected sales of gauze (in boxes) for upcoming months are as follows:

   	# of boxes
   August....................	60,000
   September..............	75,000
   October..................	100,000

   All sales are on credit. Suppose Alice collects 70% of credit sales in the month of sale, and collects 30% in the followingmonth. How much sales revenue will the company report for September?

   	A.	$176,500
   	B.	$141,000
   	C.	$150,000
   	D.	$165,000

4. A&B Co. provides house cleaning services. The company uses the number of jobs to measure activity. At the beginning of April, the company budgeted for 80 jobs, but the actual number of jobs turned out to be 90. A report comparing the budgeted revenues and costs to the actual revenues and costs appears below:

   A&B Co.
   For the Month Ended April 30
   		Revenue/Cost Formulas	Actual Results	Planning Budget
   Number of jobs (Q)			90	80
   Revenue		$100Q	8,900	8,000
   Expenses:
   	Variable expenses	?	3,800	3,200
   	Fixed expense	?	2,100	2,500
   Total expenses			5,900	5,700
   Net operating income			3,000	2,300

   What is the amount of spending variance for fixed expenses in A&Bs performance report for April?

   	A.	$312.5 favorable
   	B.	$400 favorable
   	C.	$0
   	D.	$400 unfavorable