Accounting Final Multiple Choice Practice

A company will improve job cost accuracy by using multiple overhead rates even if it cannot identify more than one overhead cost driver. True or False

False

A cost that differs from one month to another is known as a sunk cost. True or False

False

A direct cost is a cost that cannot be easily and conveniently traced to a specified cost object. True or False

False

Assume that a company closes out any manufacturing overhead overapplied or underapplied to cost of goods sold. Then in the Schedule of Cost of Goods Sold, Adjusted cost of goods sold = Unadjusted cost of goods sold + Overapplied overhead − Underapplied overhead. True or False

False

Depreciation is always considered a period cost for external financial reporting purposes in a manufacturing company. True or False

False

In a job-order cost system, indirect labor is assigned to a job using information from the employee time ticket. True or False

False

In a traditional format income statement for a merchandising company, cost of goods sold is a variable cost that is included in the "Variable expenses" portion of the income statement. True or False

False

Prime cost equals manufacturing overhead cost. True or False

False

The cost of shipping parts from a supplier is considered a period cost. True or False

False

The selling and administrative expense budget lists all costs of production other than direct materials and direct labor. True or False

False

When preparing a direct materials budget, beginning inventory for raw materials should be added to production needs, and desired ending inventory should be subtracted to determine the amount of raw materials to be purchased. True or False

False

In its first year of operations, Bronfren Corporation produced 800,000 sets and sold 780,000 sets of artificial tan lines. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.) - VC: No effect AC: Increase - VC: Decrease AC: Increase - VC: Decrease AC: Decrease - VC: No effect AC: Decrease

VC: No effect AC: Decrease

Which of the following statements is correct with regard to a Cost-Volume-Profit graph? - A Cost-Volume-Profit graph shows the maximum possible profit. - A Cost-Volume-Profit graph shows the break-even point as the intersection of the total sales revenue line and the total expense line. - A Cost-Volume-Profit graph assumes that total expense varies in direct proportion to unit sales. - A Cost-Volume-Profit graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.

A Cost-Volume-Profit graph shows the break-even point as the intersection of the total sales revenue line and the total expense line.

Which of the following statements is false when considering cost behavior within the relevant range? - A variable cost is constant if expressed on a per unit basis. - A fixed cost remains constant, in total, regardless of changes in the level of activity. - A variable cost remains constant, in total, as the activity level changes. - The average fixed cost per unit varies inversely with changes in the level of activity.

A variable cost remains constant, in total, as the activity level changes

Which of the following statements is true? Overhead can be applied slowly as a job is worked on. Overhead can be applied when the job is completed. Overhead should be applied to any job not completed at year-end in order to properly value the work in process inventory. - Only I is true - Only II is true - Only II and III are true - All are true

All are true

Which of the following statements is true with respect to a budgeted balance sheet? - Beginning retained earnings + net income + dividends = ending retained earnings. - Beginning retained earnings + net income − dividends = ending retained earnings. - Beginning retained earnings − net income + dividends = ending retained earnings. - Beginning retained earnings − net income − dividends = ending retained earnings.

Beginning retained earnings + net income − dividends = ending retained earnings.

The impact on net operating income of a small change in sales for a segment is best predicted by using: - CM ratio - Segment margin - ratio of SM to sales - Net sales less segment FC

CM ratio

Mossfeet Shoe Corporation is a single product firm. The company is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year? - CM ratio: Increase BE point: Decrease - CM ratio: Increase BE point: No effect - CM ratio: Decrease BE point: Decrease - CM ratio: Decrease BE point: No effect

CM ratio: Increase BE point: Decrease

The contribution margin ratio equals: - Sales ÷ variable expenses. - Contribution margin ÷ variable expenses. - Contribution margin ÷ sales. - Sales ÷ contribution margin.

Contribution margin ÷ sales.

Which of the following statements is true? - Contribution margin + net operating income = sales - Sales + variable expenses = contribution margin - Contribution margin ‒ fixed expenses = net operating income - Sales ‒ contribution margin = net operating income

Contribution margin ‒ fixed expenses = net operating income

How would the following costs be classified (product or period) under variable costing at a retail clothing store? - Cost of purchasing: Product Sale Commissions: Product - Cost of purchasing: Product Sale Commissions: Period - Cost of purchasing: Period Sale Commissions: Product - Cost of purchasing: Period Sale Commissions: Period

Cost of purchasing: Product Sale Commissions: Period

Which of the following costs at a manufacturing company would be treated as a product cost under variable costing? - DM cost Property taxes on factory building - Sales managers salary - Sales commissions

DM cost

The cost of lubricants used to grease a production machine in a manufacturing company is an example of a(n): - period cost - direct material cost - indirect material cost - opportunity cost

Indirect material cost

Which of the following statements is true regarding absorption costing? - It assigns all nonmanufacturing costs, both fixed and variable, to units of product. - It treats some nonmanufacturing costs as product costs and some as period costs. - It relies on a predetermined overhead rate to apply direct material cost to units of product. - It assigns all manufacturing costs, both fixed and variable, to units of product.

It assigns all manufacturing costs, both fixed and variable, to units of product.

Which of the following statements is false with respect to the selling and administrative expense budget? - It impacts the budgeted cost of goods sold reported on the income statement. - It includes depreciation expense even though it is not a cash flow. - It estimates the cash disbursements for selling and administrative expenses that appear in the cash budget. - It includes estimated variable and fixed selling and administrative expenses.

It impacts the budgeted cost of goods sold reported on the income statement.

Which of the following statements is true with respect to the labor rate variance? - It is computed based solely on the standard hourly rate. - It is computed using the actual hours worked. - It is computed using the difference between the actual hours worked and the standard hours allowed for the actual output. - It is computed using the standard hours allowed for the actual output.

It is computed using the actual hours worked.

Which of the following statements is true with respect to the labor efficiency variance? - It is computed using the difference between the actual and standard hourly rates. - It is computed based solely on the actual hours worked. - It is computed using the actual hourly rate. - It is computed using the standard hourly rate.

It is computed using the standard hourly rate.

Property taxes on a company's factory building would be classified as a(n): - Product cost - Opportunity cost - Period cost - Variable cost

Product cost

All the XYZ company workers earn the same rate per hour. Poorly trained workers could have an unfavorable effect on which of the following variances? - Labor Rate Variance: Yes Materials Quantity Variance: Yes - Labor Rate Variance: Yes Materials Quantity Variance: No - Labor Rate Variance: No Materials Quantity Variance: Yes - Labor Rate Variance: No Materials Quantity Variance: No

Labor Rate Variance: No Materials Quantity Variance: Yes

Which of the following statements is true? - Planning involves developing goals and preparing various budgets to achieve those goals. - Planning is usually done independent from the budgeting process. - Planning involves gathering feedback that enables organizations to make modifications as circumstances change. - The definition of planning states that managers should be held responsible for those items—and only those items—that the manager can actually control.

Planning involves developing goals and preparing various budgets to achieve those goals.

The usual starting point for a master budget is: - DM purchase budget - Budgeted income statement - Sales forecast or sales budget - Production budget

Sales forecast or sales budget

Which of the following statements is false? - Margin of safety is the excess of budgeted or actual dollar sales over the break-even dollar sales. - The break-even point is the level of sales at which the total contribution margin equals the total fixed costs. - Operating leverage is a measure of how sensitive net operating income is to a given percentage change in dollar sales. - Sales mix refers to the relative selling prices of a company's various products.

Sales mix refers to the relative selling prices of a company's various products.

Silver Corporation produces a single product. Last year, the company's variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true? - Under variable costing, the units in the ending inventory will be costed at $4.00 each. - The net operating income under absorption costing for the year will be $900 lower than the net operating income under variable costing. - The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing. - Under absorption costing, the units in ending inventory will be costed at $2.50 each.

The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.

Are fixed and varibale costs distinguished in this income statement format? - Traditional (yes) Contribution (no) - Traditional (no) Contribution (yes) - Traditional (yes) Contribution (yes) - Traditional (no) Contribution (no)

Traditional (no) Contribution (yes)

A company has two divisions, each selling several products. If segment reports are prepared for each product, the division managers' salaries should be considered as common fixed costs of the products. True or False

True

A continuous or perpetual budget is a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed. True or False

True

Activity Based Costing is a method that assigns all manufacturing overhead costs to products based on the activities performed to make those products. True or False

True

Common fixed expenses should not be allocated to business segments when performing break-even calculations and making decisions. True or False

True

In a traditional format income statement, the gross margin minus selling and administrative expenses equals net operating income. True or False

True

The budgeted income statement is typically prepared before the budgeted balance sheet. True or False

True

The margin of safety is the amount by which sales can decrease before losses are incurred by the company. True or False

True

Traditional format income statements are widely used for preparing external financial statements. True or False

True

Wages paid to production supervisors would be classified as manufacturing overhead. True or False

True

An example of a committed fixed cost is: - management training seminars - a long-term equipment lease - research and development - advertising

a long-term equipment lease

Manufacturing overhead includes: - all dm, dl, and administrative costs - all manufacturing costs except dl - all manufacturing costs except dl and dm - all selling and administrative costs

all manufacturing costs except dl and dm

Overapplied or underapplied overhead is computed: - at the beginning of the period and then again at the end of the period. - at the end of the period. - at the beginning of the period. - all throughout the period.

at the end of the period.

The cost of goods manufactured includes: - actual direct and indirect materials, but not applied direct and indirect materials. - applied manufacturing overhead, but not actual manufacturing overhead. - applied direct and indirect materials, but not actual direct and indirect materials. - actual manufacturing overhead, but not applied manufacturing overhead.

applied manufacturing overhead, but not actual manufacturing overhead.

Regarding a T account, what is the first thing you always put in it? - beginning balance - first debit to the account - first credit to the account - the first transaction amount

beginning balance

Which of the following statements is true? - period costs include indirect materials and indirect labor - period costs and fixed costs are synonyms - period costs are excluded from the calculation of gross margin - period costs may be included in inventory as reported on the balance sheet

period costs are excluded from the calculation of gross margin

When preparing a direct materials budget, the required purchases of raw materials in units equals: A. raw materials needed to meet the production schedule + desired ending inventory of raw materials − beginning inventory of raw materials. B. raw materials needed to meet the production schedule − desired ending inventory of raw materials − beginning inventory of raw materials. C. raw materials needed to meet the production schedule − desired ending inventory of raw materials + beginning inventory of raw materials. D. raw materials needed to meet the production schedule + desired ending inventory of raw materials + beginning inventory of raw materials.

raw materials needed to meet the production schedule + desired ending inventory of raw materials − beginning inventory of raw materials.

Assume that a company purchased a piece of equipment five years ago for $250,000. Now the company is deciding whether to replace this piece of equipment with a newer model. In this "keep or replace" decision, the purchase price of the old piece of equipment is an example of a: - sunk cost - opportunity cost - differential cost - incremental cost

sunk cost

Which of the following would most likely NOT be included as manufacturing overhead in a furniture factory? - the factory utilities of the department in which production takes place - the workman's compensation insurance of the supervisor who oversees production - the cost of glue in chair - the amount paid to the individual who stains a chair

the amount paid to the individual who stains a chair

The cost of goods manufactured is: - the amount transferred from Raw Materials to Finished Goods. - the amount transferred from Raw Materials to Work in Process. - the amount transferred from Work in Process to Finished Goods. - the amount transferred from Finished Goods to Cost of Goods Sold.

the amount transferred from Work in Process to Finished Goods.

A predetermined overhead rate includes: - the estimated total amount of the allocation base in the denominator. - the fixed portion of the estimated manufacturing overhead cost in the denominator. - the actual total amount of the allocation base in the denominator. - the fixed portion of the actual manufacturing overhead cost in the denominator.

the estimated total amount of the allocation base in the denominator.

Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that: - variable costing treats only direct materials, direct labor, the variable portion of manufacturing overhead, and the variable portion of selling and administrative expenses as product cost while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs. - variable costing treats only direct materials and direct labor as product cost while absorption costing treats direct materials, direct labor, and the variable portion of manufacturing overhead as product costs. - variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs. - variable costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs while absorption costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs.

variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.