acct 2012 exam 2

Represents a level of performance that can be attained with reasonable effort.

Practical Standard

In making the decision about whether to accept a special order for pianos, which of the following costs should be considered?

Relevant costs to produce the pianos Relevant costs to sell the pianos

The costs that should be included in an outsourcing decision are the:

Relevant costs.

An example of an organization-level activity is

Renting factory space.

In the activity identification stage of implementing an activity-based costing system, defining activities in greater detail will

Require more monitoring.

An opportunity cost is the contribution margin of the next-best alternative use of the facilities.

true

If regular sales are given up to take a special order, the lost contribution margin on the regular sales must be subtracted from the contribution margin of the special order to arrive at the total impact on operating income.

true

Sunk costs are irrelevant in deciding between two alternatives because they are incurred in the past, not the future.

true

The costs of acquiring inventory are reported on the balance sheet as an asset labeled "inventory" and are expensed only when products are sold.

true

When a customer requests a special order and the supplier has capacity constraints, reducing the special order is not normally an option.

true

A common mistake managers make in deciding to close a division is

Allowing allocated fixed costs to influence his decision.

When a company is outsourcing a process, resources are freed up so they can be put to another use. The alternative use is considered to be

An opportunity cost

Which of the following is not relevant in the decision to accept a special order?

Depreciation on factory equipment.

With activity-based costing, the goal is to

Develop a product cost that captures the amount of each resource consumed by the activities performed to produce a specific product.

When information differs between alternatives

Differential

Which of the following would be considered a unit-level activity?

Direct labor Placing a UPC label on each package

Which of the following costs would be relevant in deciding whether to accept a special order?

Direct material Variable overhead

A cost that occurs only with the implemental of a particular alternative

Avoidable cost

A managerial tool that focuses on improving the efficiency and effectiveness of an organization's business processes through radical change.

Business process reengineering

A budget is an operating plan that may be expressed in either financial or non-financial terms.

FALSE - A budget is an operating plan that is expressed primarily in financial terms - that is, in dollars.

The direct materials price variance is calculated using the standard quantity of direct materials purchased, the actual price paid for the direct materials, and the standard price for the direct materials purchased.

FALSE - The direct materials price variance is calculated using the actual quantity of direct materials purchased, the actual price paid for the direct materials, and the standard price for the direct materials purchased.

The fabric used to manufacture a tote bag is an example of indirect material.

FALSE - The fabric used to in the manufacture of tote bags is an example of direct material.

In an activity-based costing system, which of the following is not a category in which activities are classified?

Factory-level Operations-level Industry-level

Signifies perfection

Ideal Standard

27. Which of the following is the most time consuming part of implementing an activity-based costing system?

Identifying activities

The first step in implementing an activity-based costing system begins with

Identifying activities

Which of the following is the step in implementing an activity-based costing system that can generate the greatest error?

Identifying activities

Which of the following activities would be classified as non-value added in the manufacture of wooden bird houses?

Moving materials

Activity based costing is a costing technique that assigns costs to cost objects such as products or customers, based on the activities those cost objects require.

True

Identifying the activities performed in the organization is the most time consuming part of implementing an activity-based costing system.

True

Under activity-based costing selling and administrative costs should be allocated to products if they are incurred to provide resources that are consumed by unit-level, batch-level, or product-level activities.

True

If the unit cost of direct materials is $20, direct labor is $12, variable overhead is $2, avoidable fixed costs are $6,000, unavoidable fixed costs are $5,000 and sunk costs are $9,000, what is the total relevant cost for 300 products?

$16,200

Logan Corporation is considering a eliminating a department that has incurred losses over the past several years. The department has a contribution margin of $32,000 per year. The fixed costs charged to the department total $37,000. $15,000 of the fixed costs is avoidable. If the department is eliminated, what would be the effect on the corporation's net income?

$17,000 decrease

Assume that activity cost totals $180,000. The company produced an average of 40 units per batch and the number of batches produced is 9,000. Calculate the activity rate.

$20 per batch

A&W Manufacturing uses an activity-based costing system for its cutting department. The activity cost totals $148,000. The number of cuts is the cost driver. The cutting department processed a total of 9,000 batches with an average cuts per batch of 6 and total cuts of 46,250. What is the activity rate for the cutting department?

$3.20 per cut

Assume that activity cost is $93,000, predetermined total overhead is $120,000, actual overhead is $98,000, and the company has three product lines, the activity rate is

$31,000 per product line

Cost that has been incurred in the past is referred to as

A sunk cost.

If a special order results in a positive contribution margin of $8 when the contribution margin for regular orders is $15, which of the following decisions is the most likely to be chosen?

Accept the order

If a special order is being considered when the product sells for $10 and relevant costs are $6 to produce a unit and $2 to sell the unit, which of the following decisions is the most likely to be chosen?

Accept the order if the sales price is $8 or more.

Which of the following is formula for calculating the activity rate in an activity-based costing system?

Activity cost pool resources divided by activity driver

Calculation similar to the pre-determined overhead rate under traditional job order costing.

Activity rate

A costing technique that assigns costs to cost objects such as products or customers, based on the activities those cost objects require.

Activity-based costing

The process of using activity-based costing information to manage a business's activities.

Activity-based management

Which of the following is a product- or service-related activity?

Batch-level

Activities that are performed all at once on groups of products.

Batch-level activity

A type of problem common in a bottom-up budget environment

Budgetary Slack

Which of the following is not a step in implementing an activity-based costing system?

Calculating pre-determined overhead rates

Shows when and how much cash is expected to be collected from the sale of products or services.

Cash Receipts Budget

In implementing an activity-based costing system, after all the activities have been identified and the appropriate level of detail selected, the activities are combined into activity cost pools based on their

Cost drivers

As non-value-added activities and their associated resources are eliminated, a company's

Costs will decrease.

Which of the following is not a product- or service-related activity?

Customer-level

Activities that are performed for specific customers.

Customer-level activity

Activities that are performed for specific customers are classified as a

Customer-level activity.

Processing a sales order is an example of a

Customer-level activity.

The final component of the operating budget.

Ending Inventory and Cost of Goods Sold Budget

Calculating the direct materials and direct labor cost that have been incurred to produce a product or deliver a service is a relatively complex process.

False - Calculating the direct materials and direct labor cost that have been incurred to produce a product or deliver a service is a relatively simple.

All variable costs are relevant and all fixed costs are irrelevant.

False - Cost behavior does not determine whether a cost is relevant.

In evaluating whether or not to accept a special order, decision makers need to consider only quantitative factors.

False - In evaluating whether or not to accept a special order, decision makers need to consider more than just quantitative factors.

Organizational-level activities provide identifiable benefits to specific products or services.

False - Organizational-level activities do not provide identifiable benefits to specific products or services, but without them there would be no business.

The option of accepting a special order should always be chosen if the price exceeds the relevant costs to produce and deliver the order to the customer.

False - Qualitative factors should be considered in the decision to accept a special order.

The total amount of manufacturing overhead allocated to a particular product will always be the same for both the traditional overhead allocation method based on direct labor hours and the activity-based costing overhead allocation.

False - The total amount of manufacturing overhead allocated to a product will differ between the two methods.

Even when direct materials and direct labor comprise the majority of product costs, manufacturing overhead allocation is still a major issue.

False - When direct materials and direct labor comprise the majority of product costs, manufacturing overhead allocation is not a major issue.

Which of the following would not be a relevant cost in a special order of expensive clocks?

Fixed overhead

If the actual cost of direct materials is $5.00 per unit while the standard cost of direct materials is $4.50 per unit

If actual DM cost/unit > standard DM cost/unit, the DM price variance will be unfavorable

Brandy Company is deciding whether or not to discontinue one of its divisions. The division's contribution margin is $27,000 per year. The fixed costs charged to the division total $32,000, but $15,000 would be eliminated if the division is discontinued. If the division is eliminated, the overall net operating income would

Increase by $12,000

Sunk cost are classified as

Irrelevant

Which of the following is a criterion of relevant information?

It differs between the alternatives Differences among alternatives will occur in the future.

Which of the following would be considered a batch-level activity?

Machine set-up Quality tests

Costs such as rent and the production manager's salary are examples of which type of cost?

Non-differential costs

Which of the following is not a characteristic of a non-value-added activity?

Non-value-added activities always relate to fixed costs.

Activities that consume resources but do not contribute to the value of a product.

Non-value-added activity

Which of the following would be the most appropriate cost driver for the purchasing department?

Number of orders placed

Which of the following combinations results in relevant information?

Occurs in the future and is avoidable

The first component of the master budget.

Operating Budget

When choosing between alternatives, the contribution margin of the next-best alternative is called

Opportunity cost.

Activities that are required to provide productive capacity and to keep the business in operation are

Organization-level activities

Activities required to provide productive capacity and to keep the business in operation.

Organizational-level activity

Also referred to as bottom-up budget.

Participative Budget

Calculating the activity rate is similar to the calculation of the

Predetermined overhead rate.

Based on assumed rather than actual results.

Pro-Forma Financial Statements

The examination of business processes to identify incremental changes that may reduce operating costs.

Process improvement

The examination of business processes to identify incremental changes that may reduce operating costs is referred to as

Process improvement.

Inspection would be classified as value-added in which of the following scenarios?

Processing meat for compliance with FDA regulations

Also referred to as product-sustaining activities.

Product-level activity

Activities that support the products or services a company provides is classified as a

Product-level activity.

Product-level activities are also referred to as

Product-sustaining activities.

A budget which always includes 12 months of data, but as one month ends, it is removed from the budget.

Rolling Budget

Which of the following is a reason that employees must estimate how much time employees spend performing each activity?

So that the resources consumed by the activities can be calculated

A cost that has been incurred in the past

Sunk cost

Depreciation on a factory machine is an example of which of the following types of cost?

Sunk cost

Which of the following might be a reason that allocating overhead under an activity-based approach might have less manufacturing overhead allocated to the products?

The general overhead cost pool is not allocated to products under activity-based costing

In the activity identification stage of implementing an activity-based costing system, the greater the level of detail

The greater the chance of misclassifying some costs and activities

Which of the following is not a criterion of relevant information?

The information always relates to variable costs.

The most efficient method of budget preparation.

Top-Down Budget

With activity-based costing, the goal is to develop a product cost that captures the amount of each resource consumed by the activities performed to produce a specific product.

True

Activities that are performed for each individual unit of product.

Unit-level activity

Those activities that create the product the customer wants to buy are referred to as

Value-added activities

Activities that create the product the customer wants to buy.

Value-added activityq

24) Which of the following activities would be classified as non-value added in the manufacture of decorative pillows?

storing

Which of the following would be classified as direct material for a furniture manufacturer?

wood