1. Budget reports comparing actual results with planned objectives should be prepared only once a year.
2. If actual results are different from planned results, the difference must always be investigated by management to achieve effective budgetary control.
3. Certain budget reports are prepared monthly, whereas others are prepared more frequently depending on the activities being monitored.
4. The master budget is not used in the budgetary control process.
5. A master budget is most useful in evaluating a manager’s performance in controlling costs.
6. A static budget is one that is geared to one level of activity.
7. A static budget is changed only when actual activity is different from the level of activity expected.
8. A static budget is most useful for evaluating a manager’s performance in controlling variable costs.
9. A flexible budget can be prepared for each of the types of budgets included in the master budget.
10. A flexible budget is a series of static budgets at different levels of activities.
11. Flexible budgeting relies on the assumption that unit variable costs will remain constant within the relevant range of activity.
12. Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master budget.
13. A flexible budget is prepared before the master budget.
14. The activity index used in preparing a flexible budget should not influence the variable costs that are being budgeted.
15. A formula used in developing a flexible budget is: Total budgeted cost = fixed cost + (total variable cost per unit× activity level).
16. Flexible budgets are widely used in production and service departments.
7. A flexible budget report will show both actual and budget cost based on the actual activity level achieved.
18. Management by exception means that management will investigate areas where actual results differ from planned results if the items are material and controllable.
19. Policies regarding when a difference between actual and planned results should be investigated are generally more restrictive for noncontrollable items than for controllable items.
\20. A distinction should be made between controllable and noncontrollable costs when reporting information under responsibility accounting.
21. Cost centers, profit centers, and investment centers can all be classified as responsibility centers.
22. More costs become controllable as one moves down to each lower level of managerial responsibility.
23. In a responsibility accounting reporting system, as one moves up each level of responsibility in an organization, the responsibility reports become more summarized and show less detailed information.
24. A cost center incurs costs and generates revenues and cost center managers are evaluated on the profitability of their centers.
25. The terms “direct fixed costs” and “indirect fixed costs” are synonymous with “traceable costs” and “common costs,” respectively.
26. Controllable margin is subtracted from controllable fixed costs to get net income for a profit center.
27. The denominator in the formula for calculating the return on investment includes operating and nonoperating assets.
28. The formula for computing return on investment is controllable margin divided by average operating assets.
a29. When evaluating residual income, the calculation tells management what percentage return was generated by the particular division being evaluated.
a30. Residual income generates a dollar amount which represents the increase in value to the company beyond the cost necessary to pay for the financing of assets.
31. Budget reports provide the feedback needed by management to see whether actual operations are on course.
32. A static budget is an effective means to evaluate a manager’s ability to control costs, regardless of the actual activity level.
33. The flexible budget report evaluates a manager’s performance in two areas: (1) production and (2) costs.
34. The terms controllable costs and noncontrollable costs are synonymous with variable costs and fixed costs, respectively.
35. Most direct fixed costs are not controllable by the profit center manager.
36. The manager of an investment center can improve ROI by reducing average operating assets.
a37. Residual income and ROI are used as performance evaluation methods for profit center performance