Which of the following is TRUE about a flexible budget

Sales margin is defined as ________.

ANSWER

correct

·         

Operating income – (Target rate of return × Total assets)

·         

YOU WERE SURE AND CORRECT

Operating income / Sales

·         

Operating income – Minimum acceptable income

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Operating income / Total assets

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I DON'T KNOW YET

which of the following is a disadvantage of decentralization?

ANSWER

INCORRECT

·         

Providing of training

·         

THE CORRECT ANSWER

Potential duplication of costs

·         

YOU WERE SURE AND INCORRECT

Improvement in motivation and retention of employees

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Improvement in customer relations

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I DON'T KNOW YET

Potential duplication of costs is a disadvantage of decentralization. The advantages of decentralization include improvement in customer relations, providing of training, and improvement in motivation and retention of employees.

Which of the following is TRUE about a flexible budget?

ANSWER

INCORRECT

·         

THE CORRECT ANSWER

A manager compares actual results against a flexible budget.

·         

A manager would never use a flexible budget for performance evaluation at the end of a period.

·         

YOU WERE SURE AND INCORRECT

A manager uses a variance budget to plan for uncertainties instead of a flexible budget.

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A flexible budget is prepared for the same level of volume as the one originally planned.

·         

I DON'T KNOW YET

A manager compares actual results against a flexible budget is a true statement. A manager uses a flexible budget to plan for uncertainties instead of a variance budget. A flexible budget is prepared for a different level of volume than the one originally planned. A manager would use a flexible budget for performance evaluation at the end of a period.

Operating income / Total assets is the computation for ________.

ANSWER

INCORRECT

·         

residual income (RI)

·         

THE CORRECT ANSWER

return on investment (ROI)

·         

sales margin

·         

YOU WERE SURE AND INCORRECT

capital turnover

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I DON'T KNOW YET

Operating income / Total assets is the computation for return on investment (ROI).

Sales margin focuses on profitability by showing how much operating income a division may earn on every $1 of sales revenue.

Capital turnover focuses on how efficiently the division uses its assets to generate sales revenue.

Residual income (RI) determines whether the division has created any excess income above and beyond management’s expectations.