1.

Budget reports provide the feedback needed by management to see whether actual operations are on course.

2.

A budget prepared for a single level of activity is called a static budget.

3.

A static budget is an effective means to evaluate a manager’s ability to control costs, regardless of the actual activity level.

4.

A flexible budget recognizes that the budgetary process has greater usefulness if it is adaptable to changed operating conditions.

5.

One of the steps in developing a flexible budget is the combining of variable and fixed costs into one lump-sum cost.

6.

The flexible budget report evaluates a manager’s performance in two areas: (1) production and (2) costs.

7.

Management by exception means that top management will investigate every difference.

8.

Under responsibility accounting, the evaluation of a manager’s performance is based on the matters directly under the manager’s control.

9.

Responsibility accounting is especially valuable in a centralized company.

10.

All costs are controllable by the top management of a company.

11.

The terms controllable costs and noncontrollable costs are synonymous with variable costs and fixed costs, respectively.

12.

The responsibility reporting system begins with the lowest level of responsibility and moves upward to each higher level.

13.

A responsibility reporting system permits management by exception at each level of responsibility within the organization.

14.

A profit center incurs costs (and expenses) but also generates revenues.

15.

A responsibility report for cost centers makes a clear distinction between variable and fixed costs.

16.

Most direct fixed costs are not controllable by the profit center manager.

17.

The formula for computing return on investment in responsibility accounting is controllable margin in dollars divided by average current assets.

18.

The manager of an investment center can improve ROI by reducing average operating assets.

19.

An advantage of the return on investment ratio is that no judgmental factors are involved.

20.

Performance evaluation is a management function that compares actual results with budget goals.