ACC chap 6 and chap 7

Which group is likely to be uncomfortable using ABC allocations that are based on personnel interviews? -Board of directors -Auditors -Shareholders -Employees

Auditors

The first major step in implementing ABC is to identify the ______ that will form the foundation for the system.

activities

The amount of time required to perform an activity is measured by a(n) _____ driver.

duration

An activity cost pool accumulates costs for ______ activity measure(s). -exactly one -multiple -one or more

exactly one

Individual product costs calculated using ABC are not listed on ______ reports. -internal -external -product cost

external

In activity-based costing, the process of assigning overhead costs to activity cost pools is ______ stage allocation -first -fourth -third -second

first

In recent years, direct labor as a percentage of total cost began declining, which caused overhead to ________.

increase

The basis of benchmarking is comparing ______. -traditional and ABC systems -performance in different industries -performance within the same industry -manufacturing and nonmanufacturing costs

performance within the same industry

Which of the following is NOT a common mistake made in preparing segmented income statements? -Computing contribution margin instead of gross margin. -Arbitrarily dividing common costs among segments. -Using inappropriate allocations bases. -Omitting costs that should be included.

Computing contribution margin instead of gross margin.

Selling and administrative expenses ______. -are treated as period costs under variable costing only -may be treated as either product or period costs -are treated as period costs under absorption costing only -are always treated as period costs

are always treated as period costs

ABC is not used for external reporting because ______ would not be comfortable using allocations based on employee interviews.

auditors

Activity-based costing treats organization-sustaining costs as ______ expenses.

period

Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax for the store is a(n) ______ fixed cost for the store, and a(n) _____ fixed cost for each product line sold in the store

traceable, common

Segment contribution margin equals segment revenue minus the _____ expenses for the segment.

variable

What is the total amount of indirect factory wages if the amount allocated to product design was $200,000 and product design consumes 40% of indirect factory wages? -$80,000 -$200,000 -$500,000 -$800,000

$500,000 ($200,000 ÷ 0.40 = $500,000)

If the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product is $_____

$7800 (65 x 120)

The total cost in the Product Design cost pool is $200,000 with a total activity of 1,600 designs. The total cost assigned to a customer who had 7 designs done is $______

$875 ($200,000/1600 = $125 $125*7= $875)

Which of the following items are the same under both ABC and traditional costing? (multiple) -Total costs -Product margins -Net operating income -Total sales

-Total costs -Net operating income -Total sales

Activity-based management is focused on ______. (multiple) -eliminating waste -increasing processing time -pricing decisions -reducing defects

-eliminating waste -reducing defects

ABC does not conform to GAAP because it ______. (multiple) -excludes some manufacturing costs -includes some nonmanufacturing costs -includes direct materials and direct labor -excludes some nonmanufacturing costs

-excludes some manufacturing costs -includes some nonmanufacturing costs

Customer-level activities include ______. (multiple) -mailing catalogs -placing purchase orders -sales calls -advertising

-mailing catalogs -sales calls

Costs that can be easily traced to individual products include ______. (multiple) -sales commission -factory supervisor's salary -shipping costs -warranty repair costs

-sales commission -shipping costs -warranty repair costs

The two general costing approaches used by manufacturing companies to prepare income statements are ______ costing and ______ costing

absorption, variable

In ABC, any event that causes consumption of overhead resources is a(n) _______

activity

Under activity-based costing, overhead includes ______. -all indirect costs -both direct and indirect costs -only indirect manufacturing costs -only indirect non-manufacturing costs

all indirect costs

ABC is generally used for ______ reporting. -internal -both internal and external -external

internal

Individual customer _______ minus individual customer equals customer ______ margin

sales/revenues, costs/expenses

Power to run production equipment is a(n) ______ -level activity.

unit

Which of the following help companies channel their resources into the most profitable growth opportunities? -Balance sheet -Income statements -Activity based costing allocation reports -Product and customer profitability reports

Product and customer profitability reports

From a decision making point of view, ____ margin is most useful for major capacity decisions and _____ margin is most useful for short-term sales volume decisions.

Segment, Contribution

A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one segment is a(n) _____ fixed cost

common

An otherwise profitable segment may appear to be unprofitable if _____ fixed costs are allocated to it.

common

Variable costing treats fixed manufacturing overhead as a(n) _____ cost.

period

Decision-making problems that could occur when using absorption costing include inappropriate ______ decisions, and decisions made to ______ products that are, in fact, profitable. -reporting; add -production; focus upon -pricing; drop -strategy; produce

pricing; drop

A product's _________ is a function of sales and the direct and indirect costs that the product causes. -contribution margin -net profit -product margin -gross margin

product margin

Unit-level activities are ______. -performed for specific customers -proportional to the number of units produced -related to specific products produced -performed for each group of units

proportional to the number of units produced

Selling and administrative expenses are ______ on both the absorption and variable costing income statements. -reported the same way -the same amount and reported the same way -the same amount

the same amount

Advocates of ____ costing believe the matching principle dictates that fixed costs should be recognized as an expense in the current period.

variable

The number of units produced does not affect net operating income when using _____ costing

variable

Variable costing income statements separate _____ expenses from _____ expenses.

variable, fixed

Traditional cost systems allocate all manufacturing costs using ______ allocation base(s). -materials-related -volume-related -activity-related -overhead-related

volume-related

Costs of unused or idle capacity are assigned to products when using a(n) _______ costing system.

absorption

Activity rates are used to apply overhead costs to products and customers in the ______ -stage allocation

second

True or false: Absorption costing and variable costing always result in the same net operating income each year.

False

True or false: In an activity-based costing system, it is best to combine activities that are not highly correlated.

False

True or false: Traditional cost systems tend to undercost standard products and overcost specialty products.

False

True or false: Traditional cost systems tend to undercost standard products and overcost specialty products. True false question.

False

Which of the following is not essential for the successful implementation of an ABC system? -Top managers must design the ABC system. -A cross-functional team should be created to design and implement the ABC system. -Top managers must support the ABC system. -Top managers should ensure that ABC data is linked to how employees are evaluated and rewarded.

Top managers must design the ABC system.

Because nonmanufacturing costs are not included as costs of a product, the use of _____ costing can lead to the omission of segment costs.

absorption

Financial statement users need to be aware of changes in inventory levels when using _____ costing

absorption

Compared to traditional systems, activity-based costing uses ______ cost pools and unique measures of activity. -the same number of -fewer -more

more

The greater number of activities in an ABC system, the (more/less) _____ costly it is for the company to develop.

more

When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by units ______. -in ending inventory -produced -(produced - units sold) -sold

produced

The profit from a product is also called the _____ ______

product margin

In activity-based costing, ______ are different from those calculated using traditional costing. -product margins -direct labor costs -net operating incomes -sales

product margins

Absorption and variable costing net income are usually different due to the accounting for ______. -selling and administrative costs -fixed manufacturing overhead -all manufacturing overhead -variable manufacturing overhead -all product costs

fixed manufacturing overhead

Customer sales minus direct material, direct labor, and overhead cost pools used for each customer equal customer_______.

margin

Activity-based costing ______ include activities that do not relate to the number of units produced. -may not -may

may

U.S. GAAP and IFRS ______ publicly traded companies include segmented financial data prepared for external users that use the same methods used in internal segment reports. -require -recommend -do not recommend

require

Activity-based costing uses activity rates to apply overhead costs to products in ______ stage allocation. -third -second -fourth -first

second

Costs that can be traced directly to a segment ______. -may be treated as common costs -should be allocated to all segments -should not be allocated to other segments

should not be allocated to other segments

to reconcile ABC product margin to net income ______ -subtract overhead costs not assigned to products -do nothing; product margin is equal to net income/loss -add overhead costs not assigned to products

subtract overhead costs not assigned to products

Costs are separated between variable and fixed expenses when using ______ costing, whereas ______ costing separates costs between product and period. -absorption, variable -variable, absorption

variable, absorption

Costs assigned and/or traced when computing product margin in a traditional cost system are ______. (multiple) -direct material -direct labor -selling and administrative -manufacturing overhead

-direct material -direct labor -manufacturing overhead

In ABC, the greater the number of activities, the ______. -easier the system will be to implement and maintain -more costly the system will be to design -more accurate the costs are likely to be

-more costly the system will be to design -more accurate the costs are likely to be

Organization-sustaining activities include ______. (multiple) -arranging product shipments to customers -preparing annual reports -heating a factory -setting up a computer network

-preparing annual reports -heating a factory -setting up a computer network

In a traditional cost accounting system, what type of costs are assigned to products even if the costs are not caused by the products? -Both manufacturing and nonmanufacturing -Nonmanufacturing -Manufacturing

Manufacturing

Costs that are totally unaffected by which products are made during a period are ______ costs. -customer-level -manufacturing overhead -organization-sustaining -batch-level -unit-level

organization-sustaining

Usually, traditional costing ______ high-volume products and ______ low-volume products. -overcosts; overcosts -undercosts; overcosts -undercosts; undercosts -overcosts; undercosts

overcosts; undercosts

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ______ costs. -product -period

period

Variable costing income statements are based upon a ______ format. -traditional -product vs. period costs -contribution margin

contribution margin

Variable costing net income may be computed by multiplying the number of units sold by the _____ _____ per unit and subtracting total _____ expenses.

contribution margin, fixed

A traceable fixed cost ______. -varies with the activity level in a particular segment -supports the operations of more than one segment -is incurred because of the existence of the segment -will continue if the segment is discontinued

is incurred because of the existence of the segment

Activities that occur regardless of which customers are served, which products are produced or how many batches are run or units made are facility-level or ______-______ activities.

organization-sustaining

To assist in first-stage allocations in ABC, employees designated as indirect factory workers should provide the ______. -wages received for each employee activity -available capacity of the factory and equipment -percentage of employee time spent for each activity pool -non-personnel costs distributed to each cost pool

percentage of employee time spent for each activity pool

The final step in implementing ABC is ______. -assign overhead costs to cost objects -calculate activity rates -prepare management reports

prepare management reports

When a segment cannot cover its own costs, that segment should ______. -recalculate its segment margin without including common fixed costs -probably be dropped -be combined with another profitable segment

probably be dropped

A reason that activity-based costing is not often used for external reporting is ______. -the ABC system may not conform to GAAP -auditors prefer to base allocations on personnel interviews -individual product costs need to be reported on external reports -ABC product costs exclude nonmanufacturing costs

the ABC system may not conform to GAAP

The difference in net operating income between absorption costing and variable costing is due to the ______. -amount of selling and administrative cost expensed -amount of sales revenue reported -format of the income statements -time when fixed overhead is expensed

time when fixed overhead is expensed

Only costs that would disappear over time if a segment disappeared should be treated as _____ fixed costs.

traceable

Activity-based costing uses more cost _____ than traditional costing.

pools

A part or activity within an organization about which managers would like cost, revenue or profit data is called a(n) ______

segment

In activity-based costing, first-stage allocation assigns _____ costs to activity cost pools.

overhead

Some manufacturing costs may be excluded from product costs when using ______ costing. -activity-based -either traditional absorption or activity-based -neither traditional absorption nor activity-based -traditional absorption

activity-based

Focusing on activities to eliminate waste, decrease processing time, and reduce defects is the basis of _____ - ______ _______.

activity-based management

Under variable costing the cost of a unit of inventory does not contain ______. -fixed manufacturing overhead -variable manufacturing overhead -direct materials -direct labor

fixed manufacturing overhead

An example of a transaction driver is the ______. -time spent repairing equipment -number of hours spent setting up equipment -number of bills sent out to a customer -time spent preparing invoices

number of bills sent out to a customer

Segment break-even calculations include ______ fixed expenses. -only traceable -only common -both traceable and common

only traceable

Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which ______ is handled in absorption costing. -direct labor cost -fixed selling and administrative expense -fixed manufacturing overhead -variable manufacturing overhead

fixed manufacturing overhead

In activity-based costing, another term for allocation base or activity measure is ____ _____ .

cost driver

If ABC is not implemented correctly and organization-sustaining costs are included in product costs, then product costs will be ______ and margins will be ______. -overstated; overstated -understated; overstated -overstated; understated -understated; understated

overstated; understated

The most common reports prepared using ABC data are the product and customer ______ reports.

profitability

Arbot Co. manufactures appliances at three manufacturing facilities in the United States. Each location has a plant manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product manufactured in the plant. The salary of each plant manager is a ______ for the individual product lines made in the plant. -traceable fixed cost to the plant and a common fixed cost -common fixed cost for both the plant and -traceable fixed cost for both the plant and -common fixed cost for the plant and a traceable fixed cost

traceable fixed cost to the plant and a common fixed cost

The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is $_____

$20,376 (849 * 24)

Granny's Touch manufactures and sells cookbooks. The company's variable cost of goods sold is $39,200 and variable selling and administrative expense is $6,200. Fixed manufacturing overhead is $19,700 and fixed selling and administrative expense is $9,290. An income statement prepared using variable costing shows $ ______ as the total fixed expenses.

$28,990 (19,700 + 9,290)

True or false: Absorption costing net income may be computed by multiplying the number of units sold by the contribution margin per unit and subtracting total fixed expenses.

False

True or false: Segment margin is most useful in decisions involving short-run changes in sales volume such as pricing special orders

False

Costs should be allocated to segments for internal decision-making purposes ______ the allocation base actually drives the cost being allocated. -only when -whether or not

only when

Blink sells and manufactures frames for eyeglasses. The unit product cost for frame #47320 is $76.35. Last period, Blink produced 200 frames and sold 155 of them. Total cost of goods sold equals ______. -$3,435.75 -$15,270.00 -$231.35 -$11,834.25

$11,834.25 ($76.35 × 155)

Sleep Tight manufactures pillows. The company incurred $42,000 of fixed manufacturing overhead cost this year. Variable unit product cost was $17. Variable selling and administrative cost was $9 per unit and fixed selling and administrative expenses totaled $59,000. The company manufactured 28,000 pillows and sold 15,408. Total fixed expenses on the variable costing contribution format income statement equal ______. -$671,096 -$101,000 -$708,768 -$59,000

$101,000 ($42,000 + $59,000)

The customer orders cost pool uses 25% of indirect factory wages. If total indirect factory wages are $500,000, the amount allocated to this cost pool in the first-stage allocation is _____ -$150,000 -$120,000 -$500,000 -$125,000

$125,000 ($500,000 × 0.25 = $125,000)

Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit; Direct labor: $75/unit; Variable manufacturing overhead: $27/unit; Fixed manufacturing overhead: $30,000; Units produced: 10,000; Units sold: 6,000 -$157 -$152 -$128 -$155

$155 ($50 + $75 + $27 + ($30,000 ÷ 10,000))

A company assigns overhead using a plantwide rate. If total estimated manufacturing overhead is $900,000 and the total estimated activity is 30,000 machine-hours, the overhead cost assigned to a product using 12,000 machine-hours is ______. -$2,250,000 -$900,000 -$450,000 -$360,000

$360,000 (($900,000 ÷ 30,000) × 12,000 = $360,000)

A company has two segments with total sales of $500,000 and total variable costs of $343,750. Traceable fixed expenses are $50,000 and common fixed expenses are $80,000. The break even in dollars for the company as a whole equals $____

$416,000

A company has two activity cost pools—Customer Orders and Product Design. The activity rates are $300 per order for Customer Orders and $500 per design for Product Design. How much overhead cost would be assigned to a customer placing 4 orders and requiring 10 designs? -$800 -$6,200 -$8,000 -$5,000

$6,200 (($300 × $4) + ($500 × 10) = $6,200)

The activity rate for the Customer Orders activity pool is $20 per order. If there are 400 customer orders for a product, the total overhead cost assigned to this product for customer orders is $_____

$8000 (20 x 400)

What are some of the limitations of activity-based costing systems? (multiple) -The benefits of accuracy always outweigh the costs. -ABC requires substantial resources. -Managers and employees may resist the change to ABC. -ABC procedures produce numbers that do not match traditional costing.

-ABC requires substantial resources. -Managers and employees may resist the change to ABC. -ABC procedures produce numbers that do not match traditional costing.

What causes traditional and activity-based costing systems to report different product margins? (multiple) -The ABC system assigns nonmanufacturing overhead costs to products on a cause-and-effect basis as appropriate. -Traditional cost systems allocate all manufacturing overhead costs to products. -The traditional cost system assigns period costs to all products that are produced during the period. -Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base.

-The ABC system assigns nonmanufacturing overhead costs to products on a cause-and-effect basis as appropriate. -Traditional cost systems allocate all manufacturing overhead costs to products. -Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base.

An activity-based costing system ______. (multiple) -provides benefits of improved accuracy that always outweigh the costs -is costly to maintain -produces different numbers than a traditional system -requires substantial resources

-is costly to maintain -produces different numbers than a traditional system -requires substantial resources

Activity-based costing is not used for external reporting because ______. (multiple) -it is difficult to make changes in the existing accounting system -external reports are less detailed than internal reports -ABC does not comply with GAAP -it would not disclose enough information about products

-it is difficult to make changes in the existing accounting system -external reports are less detailed than internal reports -ABC does not comply with GAAP

Activity-based costing only charges products for the cost of the capacity used because ______. (multiple) -it results in a more stable unit product cost -products are only assigned the costs of resources they actually use -assigning costs of unused capacity artificially reduces product cost per unit

-it results in a more stable unit product cost -products are only assigned the costs of resources they actually use

In the 19th and 20th centuries, cost systems relied on allocation bases such as ______. (multiple) -the number of products sold -labor hours -machine hours -the number of products made

-labor hours -machine hours

Steps for implementing ABC in order

1. Define activities, activity cost pools, and activity measures 2. Assign overhead costs to activity cost pools 3. Calculate activity rates 4. Assign overhead costs to cost objects 5. Prepare management reports

A company has four cost pools—customer relations, order size, product design and customer orders. Indirect labor is used 15% for customer relations, 30% for order size, and 35% for product design. The percentage is used for customer orders is -10% -25% -20% -40%

20% (100% - (15% + 30% + 35%) = 20%)

Total estimated manufacturing overhead is $900,000 and total estimated activity is 30,000 machine-hours. The plantwide overhead rate is $_____ per machine hour.

30 (($900,000 / 30,000 = $30))

Why is CVP analysis more difficult when using absorption costing than when using variable costing? -Selling and administrative costs are ignored when performing CVP analysis. -CVP analysis requires costs to be broken down into product and period costs, which is not done in absorption costing. -CVP analysis requires costs to be broken down between variable and fixed which is not done in absorption costing. -Fixed manufacturing overhead is ignored when performing CVP analysis

CVP analysis requires costs to be broken down between variable and fixed which is not done in absorption costing.

Which of the following is NOT an ABC level of activity? -Unit -Organization -Batch -Employee -Customer

Employee

Which costing system does not assign selling and administrative costs to products when computing product margin? -Neither traditional nor activity-based -Both traditional and activity-based -Traditional -Activity-based

Traditional

Which costing method assigns only manufacturing costs to products? -Neither traditional absorption nor activity-based costing -Both traditional absorption and activity-based costing -Traditional absorption costing -Activity-based costing

Traditional absorption costing

A characteristic essential for successful implementation of ABC is ______. -a link to how people are evaluated and rewarded -top management design and implementation -strong support from a cross-functional team

a link to how people are evaluated and rewarded

A systematic approach that can identify improvement opportunities is ______. -benchmarking -activity analysis -traditional costing -process costing

benchmarking

Under absorption costing product costs consist of ______. -only variable manufacturing costs -all manufacturing and selling and administrative costs -only fixed manufacturing costs -both variable and fixed manufacturing costs

both variable and fixed manufacturing costs

The most appropriate activity measure for a cost pool consisting of the costs of resources consumed taking and processing individual customer sales is the number of ______. -customer orders -items sold -sales employees -customers

customer orders

A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity. -unit-level -batch-level -customer-level -product-level

customer-level

An example of a traceable fixed cost for General Motors' Corvette Division is the ______. -direct materials used in the production of the Corvettes -salary of the General Motors Chief Executive Officer -depreciation cost on the equipment used to manufacture the Corvettes -utilities cost of the General Motors corporate headquarters

depreciation cost on the equipment used to manufacture the Corvettes

In the 19th and 20th centuries ______. -direct labor hours was a satisfactory overhead allocation base -the most common allocation base was number of units produced -departmental overhead rates were rarely used

direct labor hours was a satisfactory overhead allocation base

Employees may be asked to estimate their time spent dealing with cost pool activities so that _____ -distribution of non-personnel costs can be determined -the availability of factory capacity can be determined -first-stage allocations will be more accurate -employees will understand their role in the company

first-stage allocations will be more accurate

An absorption costing income statement calculates ______. -contribution margin by deducting variable costs from sales -net income by deducting fixed costs from contribution margin -net income by deducting selling and administrative costs from contribution margin -gross margin by deducting cost of goods sold from sales

gross margin by deducting cost of goods sold from sales

When units produced exceed units sold, net income will generally be ______ costing -the same under both absorption costing and variable -higher under variable costing than under absorption -higher under absorption costing than under variable

higher under absorption costing than under variable

External reports are ______ (more/less) detailed than internal reports.

less

If some products are overcosted and some are undercosted the errors will ______. -cause cost of goods sold to be either overstated or understated -cause inventory valuations to be incorrect -offset each other in cost of goods sold and inventory valuations

offset each other in cost of goods sold and inventory valuations

In traditional costing, ______ costs are assigned to products. -only manufacturing -neither manufacturing nor selling and administrative -only selling and administrative -both manufacturing and selling and administrative

only manufacturing

An example of a duration driver is the ______. -time spent preparing invoices -number of bills sent out to a customer -number of children who attended day care orientation -number of employees who received training

time spent preparing invoices

The segment margin is obtained by deducting the ______ fixed costs of a segment from the segment's ______. -common; revenues -traceable; revenues -traceable; contribution margin -common; contribution margin

traceable; contribution margin

All manufacturing costs are assigned to products in ______ costing.

traditional/absorption

Simple counts of the number of times an activity occurs are _____ drivers.

transaction

When making decisions using ABC data ______. -unavoidable fixed costs should be ignored -all variable costs should be ignored -all assigned costs are relevant

unavoidable fixed costs should be ignored

In activity-based costing, what costs are not assigned to products? (multiple) -Organization-sustaining -Unused capacity -Direct labor -Sales commissions

-Organization-sustaining -Unused capacity

Absorption costing is ______. (multiple) -the preferred method for internal decision making -rarely used -required by GAAP and IFRS -used by most companies for both internal and external reports

-required by GAAP and IFRS -used by most companies for both internal and external reports

What is the benefit of a cross-functional team designing an ABC system? -The team can evaluate and reward employees. -Resistance to change is reduced. -The team feels powerful and can make executive decisions.

Resistance to change is reduced.

True or false: A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments.

True

True or false: Activity-based costing can be used for process improvement.

True

True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.

True

True or false: Some manufacturing costs may be excluded from product cost when using ABC.

True

True or false: Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

True

True or false: When a team is created to design and implement an ABC system, it should include members that represent many different functional areas.

True

In order to comply with GAAP and IFRS, the ______ costing method must be used for external reporting in the United States. -segmented -absorption -variable

absorption

Managers who believe that all manufacturing costs must be assigned to products in order to properly match the cost of production with sales are advocates of ____ costing

absorption

Activity-based costing data ______. -is well suited to decision making -can be easily misinterpreted -only assigns relevant costs

can be easily misinterpreted

When inventory decreases, cost of goods sold under absorption costing will generally be ______ cost of goods sold under variable costing. -equal to -more than -less than

more than

A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n) ______. -activity cost pool -duration driver -activity measure -transaction driver

activity cost pool

Total cost of each activity divided by the total activity is the computation of ______. -allocation bases -activity rates -cost pools -transaction drivers

activity rates

Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per unit and fixed manufacturing overhead cost is $19,000 in total. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing is ______ per unit. -$58 -$81.75 -$70.75 -$47

$47 ($22 + $18)

Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. The company produced 1,490 bottles this month and sold 1,203 of those bottles. Total cost of goods sold was ______. -$6,472.14 -$8,016.20 -$1,544.06

$6,472.14 ($5.38 × 1,203)

Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490. Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month, the total variable cost reported on the income statement for the month is $_____

$79,398 (72,490 + (22 * 314))

When the number of units produced equals the number of units sold, ______. (multiple) -absorption costing total expense is higher than variable costing total expense -absorption costing total expense is lower than variable costing total expense -all fixed overhead incurred flows to the income statement under both costing methods -absorption costing net income is equal to variable costing net income

-all fixed overhead incurred flows to the income statement under both costing methods -absorption costing net income is equal to variable costing net income

Advocates of variable costing believe fixed manufacturing costs ______. (multiple) -must be assigned to products -are period expenses -should be ignored when preparing income statements -are not caused by and cannot be meaningfully traced to specific units of production

-are period expenses -are not caused by and cannot be meaningfully traced to specific units of production

Which of the following is NOT an organizational sustaining cost? -Security guard wages -Plant administrative supplies -Plant controller's salary -Set-up labor wages

Set-up labor wages

Fixed manufacturing overhead costs are expensed as units are sold as part of cost of goods sold under _____ costing, and expensed in full with period costs under ______ costing.

absorption, variable

For external reporting, income statements are generally prepared using _____ costing, while ____ costing is used for internal decision making purposes

absorption, variable

Total cost of each activity divided by the total activity is the computation of ______. -cost pools -transaction drivers -allocation bases -activity rates

activity rates

Overhead includes both manufacturing and nonmanufacturing costs under ______ costing. -both activity-based and traditional absorption -neither activity-based or traditional absorption -activity-based -traditional absorption

activity-based

In activity-based costing, the consumption of overhead resources is caused by ______. -material purchases -overhead -an activity -direct labor

an activity

In activity based costing another term for activity measure is ______. -cost pool -cost driver -volume -overhead

cost driver

A company with three segments has $10,000 in common fixed expenses. All three segments are at the break-even point. As a result, the company ______. -has an overall net operating loss of $10,000 -has an overall net operating income of $10,000 -is at the break-even point

has an overall net operating loss of $10,000

The most appropriate activity measure for a cost pool consisting of equipment depreciation and power to run machines is ______. -machine hours -product designs -customer orders -direct labor hours

machine hours

Costs such as factory supplies and power to run machines could be combined in a cost pool based on the number of ______. -active customers -employees -products designed -units produced

units produced

Blissful Breeze manufactures and sells ceiling fans. Variable selling and administrative expense is $11.50 per fan and fixed selling and administrative expense is $7,800 per month. If Blissful Breeze produces 900 fans and sells 842 fans this month, total selling and administrative expenses will be $_____

$17,483 (842*11.50+7,800)

A company's products had sales of $750,000 and total costs of $360,000. If the net operating income for the company was $215,000, total overhead costs not assigned to products was $______

$175,000 (750,000 - 360,000 = 390,000390,000 - 215,000 = 175,000)

Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and total fixed manufacturing overhead cost per month is $15,000. The unit product cost of each frame using variable costing is $____

$68 (19+40+9)

A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. Using activity-based costing, calculate the appropriate activity rate(s). -$20 per customer call and $25 per development hour -$11.11 per customer call or per development hour -$8 per customer call and $15 per development hour

$8 per customer call and $15 per development hour ($200,000 ÷ 25,000 = $8 per customer call and $300,000 ÷ 20,000 = $15 per development hour)

Identifying the activities that will form the foundation for the system ______. (multiple) -is usually the easiest step in the process -can be time-consuming -often involves interviewing employees -involves a great deal of judgment

-can be time-consuming -often involves interviewing employees -involves a great deal of judgment

A segment should be discontinued when the segment ______. (multiple) -cannot cover its own costs -has a contribution margin that cannot cover traceable fixed costs -has a positive segment margin but cannot cover any common fixed costs -has important side effects on other segments

-cannot cover its own costs -has a contribution margin that cannot cover traceable fixed costs

When preparing a segment margin income statement ______. (multiple) -cost of goods sold consists of only variable manufacturing costs -common fixed expenses are excluded from the statement -fixed manufacturing costs are included in cost of goods sold -traceable fixed expenses are deducted from contribution margin

-cost of goods sold consists of only variable manufacturing costs -traceable fixed expenses are deducted from contribution margin

When managers allocate organization-sustaining and unused capacity costs to products ______. (multiple) -product margins will be overstated -prices will be more accurate than under traditional costing -costs will be overstated -incorrect decisions may be made

-costs will be overstated -incorrect decisions may be made

Incorrectly or arbitrarily assigning common costs to segments ______. (multiple) -ensures all common costs will be covered -distorts the profitability of segments -causes company net income to be reported incorrectly -could reduce the overall profits of the company -holds managers responsible for costs they cannot control

-distorts the profitability of segments -could reduce the overall profits of the company -holds managers responsible for costs they cannot control

On an absorption costing income statement, selling and administrative expenses ______. (multiple) -are separated into fixed and variable components -equal the amounts reported on a variable costing income statement -are reported as a single amount -are reported exactly the same way as on a variable costing income statement

-equal the amounts reported on a variable costing income statement -are reported as a single amount

GAAP and IFRS rules ______. (multiple) -require segmented financial data be included in annual reports -create problems in reconciling internal and external reports -require that the same method be used for both internal and external segment reporting -create incentives for companies to use the contribution margin format in segment reporting

-require segmented financial data be included in annual reports -create problems in reconciling internal and external reports -require that the same method be used for both internal and external segment reporting

Using absorption costing for segmented income statements can lead to ______. -the need to maintain two costing systems -under-costing of segments -omission of upstream and downstream costs -inconsistencies between internal and external reports

-under-costing of segments -omission of upstream and downstream costs

An activity-based costing system ______. (multiple) -uses numerous overhead cost pools -is used for external reporting -only assigns manufacturing costs to products -may exclude some manufacturing costs from product costs

-uses numerous overhead cost pools -may exclude some manufacturing costs from product costs

Absorption costing net income is calculated by subtracting selling and administrative expenses from _____ _____

gross margin

When there is no change in inventory, net operating income will be ______ costing -higher under variable than under absorption -the same under both absorption and variable -higher under absorption than under variable

the same under both absorption and variable

When allocating fixed manufacturing overhead cost to units under absorption costing, the total fixed overhead costs must be divided by the number of units ______

produced

Assigning common fixed costs to segments impacts ______. -segment margin only -total corporate profit only -neither segment margin nor total corporate profit -both segment margin and total corporate profit

segment margin only

A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as ______

segments

SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by ______. -$9,000 -$5,000 -$11,000 -$6,000

$11,000 ($100,000 × 10% ×$60,000 ÷ $100,000) is $6,000 + $5,000 saved from stopping catalog sales)

Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per unit, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is ______. -$90 -$125 -$119 -$105

$119 ($45 + $37 + $8 + ($58,000 ÷ 2,000))

The Quaint Quilt produces and sells handmade quilts. Variable manufacturing costs total $140 per quilt. Fixed manufacturing overhead totals $68,250 per quarter. Variable selling and administrative costs are $19 per quilt sold, and fixed selling and administrative costs are $50,000 per quarter. Last quarter, the company produced 910 quilts and sold 780 quilts. The total variable cost reported on Quaint Quilt's variable costing income statement is ______. -$124,020 -$167,700 -$109,200 -$144,690

$124,020 (($140 + $19) × 780 quilts sold)

JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40% and traceable fixed expenses of $70,000. Commercial has traceable fixed expenses of $50,000 and a contribution margin ratio of 55%. The company also has $30,000 of common fixed expenses. The break-even point in dollar sales for the Retail segment equals ______. -$250,000 -$175,000 -$212,500 -$116,667

$175,000 ($70,000 ÷ 40%)

Citrus Scents produces body sprays. Variable selling and administrative expense is $1.05 per bottle and fixed selling and administrative expense is $4,500 per month. The company produced 1,490 bottles this month, and sold 1,203 of those bottles. Total selling and administrative expense for the month was ______. -$6,064.50 -$5,763.15 -$1,564.50 -$4,500.00

$5,763.15 (($1.05 × 1,203) + $4,500)

Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 and a unit selling price of $190. If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be $_____

$94,304 (112 * 842)

Dollar break-even for a company is calculated as ______. -Common fixed expenses ÷ Overall CM ratio -(Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio -(Traceable fixed expenses - Common fixed expenses) ÷ Overall CM ratio -Traceable fixed expenses ÷ Overall CM ratio

(Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio

Which of the following statements are correct regarding income statements prepared under variable and absorption costing? (multiple) -The difference between the statements is how total manufacturing overhead is accounted for. -Absorption costing categorizes costs based on cost behavior. -Both income statements include product and period costs. -Reported net income on the statements often differ.

-Both income statements include product and period costs. -Reported net income on the statements often differ.

When a segment is eliminated, a ______. -common fixed cost will remain unchanged (multiple) -traceable fixed cost will disappear -traceable fixed cost will remain unchanged -common fixed cost will disappear

-common fixed cost will remain unchanged -traceable fixed cost will disappear

Common mistakes made by companies when assigning costs to segments include ______. (multiple) -inappropriately assigning traceable fixed costs -omitting costs that should be included -inappropriately allocating variable costs -arbitrarily allocating common fixed costs

-inappropriately assigning traceable fixed costs -omitting costs that should be included -arbitrarily allocating common fixed costs

When calculating the profit impact of discontinuing a segment, consider _____ (multiple) -common costs allocated to the segment -the segment's contribution margin -the segment's traceable fixed costs

-the segment's contribution margin -the segment's traceable fixed costs

Advocates of ____ costing believe fixed costs are an essential part of product production.

absorption

Net operating income under absorption costing is generally ______ net operating income under variable costing in periods in which inventory increases. -equal to -higher than -less than

higher than

The company-wide break-even sales will always be ______ the sum of the segment break-even sales. -either higher or lower than -higher than -equal to -lower than

higher than

When units sold exceed units produced, net income under variable costing will generally be _______ net income under absorption costing. -lower than -higher than -equal to

higher than

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ______ in total as the number of units produced increases. -increase -remain the same -decrease

increase

The segment margin represents the ______. -margin remaining after traceable and common fixed costs have been deducted -excess of the segment revenue over the segment cost of goods sold -margin available to cover fixed costs -margin available after a segment has covered all of its own costs

margin available after a segment has covered all of its own costs

Under activity-based costing, nonmanufacturing costs ______. -are never assigned to products -may be allocated to products based on cause -are always treated as period costs -are always assigned to products, regardless of cause

may be allocated to products based on cause

Segmented income statements ______. -may be prepared for activities at many levels in a company -may be prepared for the various departments in the company, but not for specific product lines -are best used to determine which locations are profitable, rather than which product lines are profitable -should only be used for profit centers

may be prepared for activities at many levels in a company

If a segment is entirely eliminated, common fixed costs will ______. -be eliminated -not change -decrease

not change

The variable costing income statement separates ______. -selling and administrative expenses -variable and fixed expenses -product and period costs -direct and indirect expenses

variable and fixed expenses