HCM 416 FINAL STUDY GUIDE EXAM QUESTIONS AND
ANSWERS WITH COMPLETE SOLUTIONS VERIFIED
What are the formulas for volume variance?
Volume Variance = Static costs − Flexible costs
What method of cost allocation recognizes no intrasupport department services?
Direct
Winston Clinic is evaluating a project that costs $52,125 and has expected net
cash inflows of $12,000 per year for eight years. The first inflow occurs one year
after the cost outflow, and the project has a cost of capital of 12%. What is the
project's payback?
Year 5
What are the formulas for total variance for revenues and expenses?
Total variance for revenue = Actual revenues less Static budget for revenues
Describe the two approaches to budgeting (conventional vs. zero-based
budgeting).
In the conventional approach to budgeting, the previous, historical budget is used as the
starting point for creating each new budget. Each line on the old budget is examined,
and typically minor changes are made to reflect changes in circumstances. Also, in the
conventional approach, it is common for most budget changes to be applied more or
less equally across departments and programs. In essence, the traditional approach to
budgeting assumes that prior budgets are based on operational rationality, so the main
, issue is determining what changes (typically minor) must be made to the previous
budget.
Zero-based budgeting starts with a clean slate. Unit heads then must fully justify every
line item in their budgets. In effect, departments and programs must justify their very
existence each budget period. Thus, zero-based budgeting is much more effective than
conventional budgeting in controlling operating costs. However, it requires a much
larger expenditure of managerial resources.
Discuss the various methods of cost allocation various methods of cost
allocation and the differences between them?
The three primary methods of traditional cost allocation are (1) the direct method, (2)
the reciprocal method, and (3) the step-down method. Regardless of the method, all of
the support costs within an organization ultimately are allocated from support
departments to the departments that generate revenues for the organization, and hence
create the need for the support services.
The key differences among the methods are how support services provided by one
department are allocated to other support departments. The direct method totally
ignores services provided by one support department to another; the reciprocal method
recognizes all of the intrasupport department services; and the step-down method
represents a compromise that recognizes some, but not all, of the intrasupport
department services.
The dollar amount of overhead services to be allocated is called
Cost Pool
ANSWERS WITH COMPLETE SOLUTIONS VERIFIED
What are the formulas for volume variance?
Volume Variance = Static costs − Flexible costs
What method of cost allocation recognizes no intrasupport department services?
Direct
Winston Clinic is evaluating a project that costs $52,125 and has expected net
cash inflows of $12,000 per year for eight years. The first inflow occurs one year
after the cost outflow, and the project has a cost of capital of 12%. What is the
project's payback?
Year 5
What are the formulas for total variance for revenues and expenses?
Total variance for revenue = Actual revenues less Static budget for revenues
Describe the two approaches to budgeting (conventional vs. zero-based
budgeting).
In the conventional approach to budgeting, the previous, historical budget is used as the
starting point for creating each new budget. Each line on the old budget is examined,
and typically minor changes are made to reflect changes in circumstances. Also, in the
conventional approach, it is common for most budget changes to be applied more or
less equally across departments and programs. In essence, the traditional approach to
budgeting assumes that prior budgets are based on operational rationality, so the main
, issue is determining what changes (typically minor) must be made to the previous
budget.
Zero-based budgeting starts with a clean slate. Unit heads then must fully justify every
line item in their budgets. In effect, departments and programs must justify their very
existence each budget period. Thus, zero-based budgeting is much more effective than
conventional budgeting in controlling operating costs. However, it requires a much
larger expenditure of managerial resources.
Discuss the various methods of cost allocation various methods of cost
allocation and the differences between them?
The three primary methods of traditional cost allocation are (1) the direct method, (2)
the reciprocal method, and (3) the step-down method. Regardless of the method, all of
the support costs within an organization ultimately are allocated from support
departments to the departments that generate revenues for the organization, and hence
create the need for the support services.
The key differences among the methods are how support services provided by one
department are allocated to other support departments. The direct method totally
ignores services provided by one support department to another; the reciprocal method
recognizes all of the intrasupport department services; and the step-down method
represents a compromise that recognizes some, but not all, of the intrasupport
department services.
The dollar amount of overhead services to be allocated is called
Cost Pool
