BUS105 Managerial Accounting (SAYA-0009) Exam Questions and Answers

Cash collections and payments for purchases are cash inflows and outflows that must be captured in the Cash Budget. The Cash Budget is a critical component of the master budget and is used to estimate the cash position of the company at various points during the budgeting period. This includes timing of cash collections from sales (accounts receivable) and cash disbursements for purchases, wages, overhead, and other expenses.

As per Saylor Academy BUS105: Managerial Accounting, Unit 9 – How Do Managers Use Budgets?, Section 9.3: Preparing a Cash Budget:

“The cash budget shows the company's expected cash inflows and outflows over a period of time. This includes all cash collected from sales and all payments made for expenses, purchases of direct materials, and other disbursements.”

Therefore:

Option A (Cash budget) is correct.

Option B (Budgeted income statement) records revenues and expenses, not timing of actual cash flows.

Option C (Manufacturing overhead budget) focuses on estimating overhead costs but not cash flow.

Option D (Direct materials purchases budget) estimates how much material to buy but does not directly reflect actual payments.

The Payback Period method calculates how long it will take to recover the original investment but does not consider the time value of money (i.e., it treats all cash inflows as equally valuable regardless of when they are received).

According to Saylor Academy BUS105:

“The payback method ignores the time value of money and therefore is not as reliable as methods such as NPV or IRR.”

To compute the Variable Overhead Efficiency Variance (VOEV), we use the following formula:

VOEV = (Actual Hours – Standard Hours Allowed) × Variable Overhead Rate

Step 1: Determine Actual Hours Worked

Actual Hours = 104,000 (from payroll records)

Step 2: Determine Standard Hours Allowed

Standard time per box = 0.10 hours

Units produced (sold) = 800,000 boxes

Standard Hours Allowed = 800,000 × 0.10 = 80,000 hours

Step 3: Variable Overhead Rate = $2.00/hour

Step 4: Apply the formula:

VOEV = (104,000 – 80,000) × $2.00

= 24,000 × $2.00 = $48,000 Unfavorable

Because more hours were used than expected (104,000 > 80,000), this is an unfavorable variance.

Answer: D

Comprehensive and Detailed Explanation:

The HR Manager's role is not directly tied to the production process, nor is it part of factory operations. It is part of corporate administration.

Direct Labor: Involves hands-on work on the product.

Indirect Labor: Involves factory support staff (e.g., supervisors).

Manufacturing Overhead: Includes costs related to the factory (e.g., factory maintenance).

General and Administrative Costs: Includes HR, accounting, legal.

Since HR is a support service, it falls under G&A.

Answer: D

Comprehensive and Detailed Explanation:

Capital budgeting evaluates long-term investments by comparing future expected cash inflows vs. future expected cash outflows. These decisions include purchasing equipment, launching new products, etc.

According to Saylor BUS105:

“Capital budgeting is the process of evaluating investment alternatives based on their expected future cash flows.”

Answer: D

Activity-Based Management (ABM) uses data from Activity-Based Costing (ABC) to improve operational efficiency and reduce costs by identifying and managing activities that add value.

Relocating the packaging department closer to shipping improves workflow, reduces non-value-added activities (like transportation time), and is an example of a decision driven by ABM.

Comprehensive and Detailed Explanation:

Flexible budgets adjust budgeted revenues and expenses based on actual activity levels. These budgets include all relevant costs, including variable and fixed S&A expenses.

According to Saylor BUS105:

“Flexible budgets are used after the period ends to evaluate performance by comparing actual results to a budget based on actual activity. They include selling and administrative expenses.”

Answer: C

Return on Investment (ROI) is a performance measure used to assess how effectively a division is using its assets to generate operating income. ROI = Operating Income / Average Operating Assets. According to Saylor Academy BUS105, Unit 11.2 – Measuring Performance:

“ROI provides a way to evaluate how well managers use the assets at their disposal to generate profits.”

All components used in the denominator (cash, accounts receivable, property, plant, and equipment, and inventory) are operating assets, so they are valid for ROI calculation.

Wycliff Corporation usescost pools for assembly and shipping to calculate a predetermined overhead rate for each department. This means the company calculates separate overhead rates for different departments (in this case, assembly and shipping) rather than using a single rate for the entire plant or allocating overhead based on individual activities.

According to Saylor Direct Credit Courses in Managerial Accounting (BUS105),Departmental Overhead Rate Methodis defined as follows:

"When a company has more than one department that incurs manufacturing overhead costs, it may be more accurate to use a departmental overhead rate for each department. Each department establishes its own overhead rate by dividing the total overhead costs for that department by the total amount ofits allocation base (such as machine hours or direct labor hours)."

(Reference: Saylor Academy BUS105, Unit 3: How Is Job Costing Used to Track Production Costs? Section 3.4 “Departmental and Plantwide Overhead Rates”)

This isdifferentfrom:

Activity-Based Costing (A), which uses multiple cost pools based on different activities, not necessarily departments.

Plantwide Rate (C), which uses a single overhead rate for the entire plant.

Process Costing (D), which is used for mass production of similar products, not overhead allocation per department.

Wycliff’s system fits theDepartmentalmethod, as they allocate costs bydepartment(assembly and shipping) rather than by activity (activity-based) or across the whole plant (plantwide).

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In a process costing system, when overhead is applied to production (in this case to the Assembly Department), the journal entry is:

Dr. Work in Process (for the specific department)

Cr. Manufacturing Overhead (applied)

This entry reflects the fact that the company is allocating (applying) manufacturing overhead costs from the overhead pool into the Work in Process account for that department.

Let’s evaluate each choice:

A.

Dr. Manufacturing Overhead

Cr. Work in Process – Assembly

⟶Incorrect: This reverses the correct direction of cost flow. Manufacturing overhead is being incorrectly debited rather than credited.

B.

Dr. Work in Process – Assembly

Cr. Manufacturing Overhead

⟶Correct: This entry correctly applies overhead to WIP for the Assembly department.

C.

Dr. Work in Process – Assembly

Cr. Wages Payable

⟶Incorrect: This would be the correct entry for applying direct labor, not overhead.

D.

Dr. Work in Process – Wages Payable

Cr. Work in Process – Assembly

⟶Incorrect: This is not a standard entry and incorrectly references "Work in Process – Wages Payable."

Therefore, the only correct entry for applying $3,180 of manufacturing overhead to the assembly department is:

Answer: B

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The Inventory Turnover Ratio measures how many times a company's inventory is sold and replaced over a period, and it is calculated using the following formula:

Inventory Turnover Ratio = Cost of Goods Sold ÷ Average Inventory

Step 1: Identify the values:

Cost of Goods Sold (COGS) = $1,525,000

Beginning Inventory (Year 1 ending) = $300,000

Ending Inventory (Year 2) = $350,000

Step 2: Compute Average Inventory:

Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2

= ($300,000 + $350,000) ÷ 2 = $650,000 ÷ 2 = $325,000

Step 3: Compute Inventory Turnover Ratio:

Inventory Turnover = COGS ÷ Average Inventory

= $1,525,000 ÷ $325,000 ≈ 4.692 → Rounded to one decimal = 4.7

Therefore:

Answer: C

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To assess the performance of division managers fairly, companies must evaluate performance in terms of relative efficiency—not absolute dollar amounts—especially when the divisions vary significantly in size, scope, or sales volume.

From the data:

Western location has the highest sales ($4,500,000) and highest net income ($2,720,000).

Eastern and Southern have significantly lower sales and net incomes.

While net income is a useful figure, it can be misleading in isolation when comparing divisions of unequal size. A larger division will naturally generate more profit, not necessarily due to better management, but simply due to scale.

To fairly compare performance, we should use measures like:

Return on Sales (ROS)

Profit Margin

ROI (Return on Investment)

Controllable Margin or Segment Margin

For example:

Western ROS = Net Income / Sales = 2,720,000 / 4,500,000 ≈ 60.4%

Eastern ROS = 774,200 / 1,250,000 ≈ 61.9%

Southern ROS = 668,800 / 1,120,000 ≈ 59.7%

→ Eastern actually has the highest profitability ratio.

Thus, using absolute net income alone would unfairly favor the Western location’s manager. It’s important to normalize the data across divisions of different size.

This aligns with Managerial Accounting best practices.