What is the goal of residual income?


  1. What is the primary difference between a static budget and a flexible budget?a.The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold.b.The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management.c.The static budget contains only fixed costs, while the flexible budget contains only variable costs.d.The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.

10 pointsQUESTION 2

  1. Rhein Manufacturing recorded operating data for its auto accessories division for the year.Sales $750,000Contribution margin 150,000Total direct fixed costs 90,000Average total operating assets 400,000
    How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?a.12.0%b.22.5%c.15.0%d.45.0%

10 pointsQUESTION 3

  1. Costs incurred indirectly and allocated to a responsibility level are considered to bea.nonmaterial.b.noncontrollable.c.controllable.d.mixed.

10 pointsQUESTION 4

  1. The master budget of Windy Co. shows that the planned activity level for next year is expected to be 50,000 machine hours. At this level of activity, the following manufacturing overhead costs are expected:Indirect labor $720,000Machine supplies 180,000Indirect materials 210,000Depreciation on factory building 150,000Total manufacturing overhead $1,260,000
    A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead costs ofa.$1,512,000.b.$1,260,000.c.$1,482,000.d.$1,362,000.

10 pointsQUESTION 5

  1. The following information is available for Halle Department Stores:Average operating assets $600,000Controllable margin 60,000Contribution margin 150,000Minimum rate of return 8%
    How much is Halle’s residual income?a.$48,000b.$102,000c.$540,000d.$12,000

10 pointsQUESTION 6

  1. If an investment center has generated a controllable margin of $150,000 and sales of $600,000, what is the return on investment for the investment center if average operating assets were $1,000,000 during the period?a.25%b.45%c.15%d.60%

10 pointsQUESTION 7

  1. If controllable margin is $300,000 and the average investment center operating assets are $2,000,000, the return on investment isa.67%b.15%c.6.66%d.20%.

10 pointsQUESTION 8

  1. A company’s planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs:Variable FixedIndirect materials $140,000 Depreciation $60,000Indirect labor 200,000 Taxes 10,000Factory supplies 20,000 Supervision 50,000
    A flexible budget prepared at the 80,000 machine hours level of activity would show total manufacturing overhead costs ofa.384,000.b.$360,000.c.$408,000.d.$288,000.

10 pointsQUESTION 9

  1. Betsy Union is the Pika Division manager and her performance is evaluated by executive management based on Division ROI. The current controllable margin for Pika Division is $46,000. Its current operating assets total $210,000. The division is considering purchasing equipment for $40,000 that will increase sales by an estimated $10,000, with annual depreciation of $10,000. If the equipment is purchased, what will happen to the return on investment for the division?a.A decrease of 0.5%b.It will remain unchanged.c.A decrease of 3.5%d.An increase of 0.5%

10 pointsQUESTION 10

  1. Sydney, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is $128,000 variable and $360,000 fixed. If Sydney had actual overhead costs of $500,000 for 18,000 units produced, what is the difference between actual and budgeted costs?a.$4,000 favorableb.$12,000 unfavorablec.$4,000 unfavorabled.$16,000 favorable

10 pointsQUESTION 11

  1. Dingo Division’s operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Dingo’s required rate of return is 9%. Should Dingo accept this project?a.No, the return is less than the required rate of 9%.b.No, ROI will decrease to 7%.c.Yes, ROI still exceeds the cost of capital.d.Yes, ROI will drop by 6.6% which is still above the minimum required rate of return.

10 pointsQUESTION 12

  1. At 18,000 direct labor hours, the flexible budget for indirect materials is $36,000. If $37,400 are incurred at 18,400 direct labor hours, the flexible budget report should show the following difference for indirect materials:a.$600 unfavorable.b.$600 favorable.c.$1,400 favorable.d.$1,400 unfavorable.

10 pointsQUESTION 13

  1. Power Manufacturing recorded operating data for its shoe division for the year.Sales $1,500,000Contribution margin 300,000Controllable fixed costs 180,000Average total operating assets 600,000
    How much is controllable margin for the year?a.$300,000b.20%c.50%d.$120,000

10 pointsQUESTION 14

  1. Controllable margin is defined asa.sales minus variable costs.b.contribution margin less controllable fixed costs.c.sales minus contribution margin.d.contribution margin less noncontrollable fixed costs.

10 pointsQUESTION 15

  1. What is the goal of residual income?a.To maximize profitsb.To maximize the amount of costs which are controllablec.To maximize controllable margind.To maximize the total amount of residual income

10 pointsQUESTION 16

  1. Bogey Co. recorded operating data for its Cheap division for the year. Bogey requires its return to be 10%.Sales $ 1,400,000Controllable margin 160,000Total average assets 4,000,000Fixed costs 100,000
    What is the ROI for the year?a.1.5%b.35%c.6%d.4%

10 pointsQUESTION 17

  1. Given below is an excerpt from a management performance report:Budget Actual DifferenceContribution margin $1,000,000 $1,050,000 $50,000Controllable fixed costs $ 500,000 $ 450,000 $50,000
    The manager’s overall performancea.cannot be determined from information given.b.is equal to expectations.c.is 20% below expectations.d.is 20% above expectations.

10 pointsQUESTION 18

  1. The flexible budgeta.is relevant both within and outside the relevant range.b.eliminates the need for a master budget.c.is a series of static budgets at different levels of activity.d.is prepared before the master budget.

10 pointsQUESTION 19

  1. Shane Industries prepared a fixed budget of 60,000 direct labor hours, with estimated overhead costs of $300,000 for variable overhead and $90,000 for fixed overhead. Shane then prepared a flexible budget at 57,000 labor hours. How much is total overhead costs at this level of activity?a.$285,000b.$375,000c.$370,500d.$390,000

10 pointsQUESTION 20

  1. Kathleen Corp. produced 320,000 units in 150,000 direct labor hours. Production for the period was estimated at 330,000 units and 165,000 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, ata.160,000 hours and 150,000 hours.b.165,000 hours and 150,000 hours.c.150,000 hours and 150,000 hours.d.160,000 hours and 165,000 hours.

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