ACCT 204

Which of the following would be a reasonable basis for assigning the materials handling costs to the units produced in an activity-based costing (ABC) system?

number of components per completed unit

The gross margin for a manufacturing company is the excess of sales over

cost of goods sold, including fixed manufacturing overhead

The best objective when faced with limited resources is to maximize

the contribution margin per unit of the constraining resource

Suppose an investment has cash inflows of R dollars at the end of each year for two years. The present value of these cash inflows using a 12% discount rate will be:

less than under a 10% discount rate.

Weber Company computes net operating income under both the absorption costing approach and the variable costing approach. For a given year the absorption costing net operating income was greater than the variable costing net operating income. This fact suggests that

more units were produced during the year than were sold

The opportunity cost of making a component part in a factory with no excess capacity is the

net benefit foregone from the best alternative use of the capacity required

Which of the following costs at a sofa manufacturing company would be treated as a period cost under the variable costing method?

(B) Depreciation on sales vehicles (C) The salary of a factory manager

JB Lumber Corporation is downsizing operations and has to decide which of its large saws should be sold. JB currently has four saws but only needs to keep three. All four saws have a remaining useful life of 3 years and will all have a salvage value of zero at the end of those 3 years. Also, all four saws have equal annual operating costs and output efficiency. Information related to the four saws is provided below: Picture In order to maximize profits for the next three years, which machine would be most beneficial for JB to sell?

3

What is the cause of the difference between absorption costing net operating income and variable costing net operating income?

Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories; variable costing considers all fixed manufacturing costs to be period costs.

Fixed manufacturing overhead is included in product costs under

Absorption costing: yes Variable costing: No

Which of the following statements is (are) true regarding the potential effects of using reported product costs for decision making? (A) Traditional product costing systems (e.g., job and process costing) are designed primarily to accumulate cost information for financial reporting. (B) If a single cost driver is used as the allocation base, applied manufacturing overhead for product costing purposes may lead to inappropriate managerial decisions.

Both A and B are true

Freestone Company is considering renting Machine Y to replace Machine X. It is expected that Y will waste less direct materials than does X. If Y is rented, X will be sold on the open market. For this decision, which of the following factors is(are) relevant? I. Cost of direct materials used II. Resale value of Machine X

Both I and II

Which of the following items is qualitative?

Ease of integration of the new machine with existing machinery

Which of the following costs at a manufacturing company would be treated as a product cost under the absorption costing method?

Fire insurance cost on factory building

Which of the following are considered to be product costs under variable costing? I. Variable manufacturing overhead. II. Fixed manufacturing overhead. III. Selling and administrative expenses.

I

Which of the following are considered to be product costs under absorption costing? I. Variable manufacturing overhead. II. Fixed manufacturing overhead. III. Selling and administrative expenses.

I and II

In capital budgeting, what will be the effect on the following if there is an increase in the discount rate?

Net Present Value: Decrease Internal Rate of Return: No Effect

In a sell or process further decision, which of the following costs are relevant? I. A variable production cost incurred prior to the split-off point. II. An avoidable fixed production cost incurred after the split-off point

Only II

The benefits sacrificed when one alternative is chosen over another are referred to as

Opportunity costs

Select the correct statement regarding opportunity costs.

Opportunity costs are not recorded in the firm's financial accounting records

Cost pools are used with

Plant Wide Rates: Yes Department Rates: Yes

Which of the following statements is true for a company that uses variable costing?

Profit fluctuates with sales.

Activity analysis is one of the first stages in implementing an activity-based costing system. Which of the following steps in "activity analysis" is usually performed first?

Record, from start to finish, the activities used to complete the product or service

Select the correct statement regarding relevant costs and revenues.

Relevant costs are also known as avoidable costs. Relevant costs are future-oriented. Relevant revenues must differ between the alternatives

Select the correct statement regarding quantitative and qualitative information

Relevant information can have both quantitative and qualitative characteristics

Would the following activities at a manufacturer of canned soup be best classified as unit-level, batch-level, product-level, or organization-sustaining activities?

Researching new recipes: Product Shipping orders to grocery stores: batch

Which costs are relevant for equipment replacement decisions?

Unit-level costs Batch-level costs Product-level costs All of the above.

Activity-based costing (ABC) is a costing technique that uses a two stage allocation process. Which of the following statements best describes these two stages?

The costs are assigned to activities, and then to the products based upon their use of the activities

Which one of the following statements about the payback method of capital budgeting is correct?

The payback method does not consider the time value of money.

Which statement characterizes the time value of money concept?

The present value of a future dollar is less than one dollar

In a plant expansion capital budgeting decision, which of the following amounts would be affected by a change in the tax rate?

The present value of the cash inflows from increased sales. The present value of the tax savings from the depreciation tax shield. The present value of the cost of building repairs needed in Year 8 of the project. correct All of the above.

Which of the following statements describes the cost of capital?

The return that a company must pay its investors and creditors

Which capital budgeting technique defines returns in terms of income instead of cash flows?

The unadjusted rate of return method

Which of the following does not represent an advantage of the unadjusted rate of return over the payback method for evaluating capital projects?

The unadjusted rate of return method measures the recovery of the initial investment in the project.

Select the correct statement regarding relevant costs and revenues

To be relevant, a cost or revenue must be future-oriented and must differ between the alternatives

Tompkins Company has two investment opportunities. Both investments cost $5,000 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below: Picture Select the correct statement.

Tompkins should choose Investment II because it generates more immediate cash inflows

The cost that is avoided when a company eliminates a single item of a product or service is a:

Unit-level cost.

Which of the following measures is used by activity-based costing (ABC) systems as an allocation base for allocating overhead costs to the units produced?

Volume-related activities Batch-related activities Product-related activities Facility-related activities correct All of these are used by ABC systems

Selling and administrative expenses are considered to be

a period cost under variable costing

Under variable costing, costs that are treated as period costs include

all fixed costs

Which one of the following accounts is not used in an activity-based costing (ABC) system?

allocations incurred

The difference between an ordinary annuity and an annuity due is:

an ordinary annuity assumes the cash flows occur at the end of the period and an annuity due assumes the cash flows occur at the beginning of the period.

Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels?

batch-level activity

Setting up equipment is an example of a(n)

batch-level activity

The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a(n)

batch-level activity

A portion of the total fixed manufacturing overhead cost incurred during a period may

be excluded from cost of goods sold under absorption costing

If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will

be greater than net operating income under variable costing

For purposes of allocating joint costs to joint products, the estimated net realizable value at split-off is equal to

final sales price reduced by cost to complete after split-off

A general rule in relevant cost analysis is

differential future costs and revenues are always relevant

Assuming that direct labor is a variable cost, product costs under variable costing include only:

direct materials, direct labor, and variable manufacturing overhead.

The payback method measures:

how quickly investments dollars may be recovered

A weakness of the internal rate of return method for screening investment projects is that it:

implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return

The rate of return that equates the present value of cash inflows and outflows is the:

internal rate of return

Qualitative information is relevant when:

it makes a difference in the decision and it differs between the alternatives

If a cost object such as a product or customer has a positive yellow margin, then

its red margin may be either positive, negative, or zero

If a cost object such as a product or customer has a negative red margin, then

its yellow margin may be positive, negative, or zero

Jill currently works for a law firm full time and earns $60,000 a year. She is thinking of quitting her job to pursue a medical degree. Medical school will cost her $100,000 per year. If Jill quits her job and goes to medical school, the salary she currently earns would be considered what type of cost?

opportunity cost

Property taxes are an example of a cost that would be considered to be

organization-sustaining

Worker recreational facilities is an example of a cost that would ordinarily be considered to be

organization-sustaining

The length of time required to recover the initial cash outlay for a project is determined by using the

payback method

Rank the following methods of assigning overhead costs from least accurate to most accurate

plantwide rate, departmental rates, activity-based costing

Designing a new product is an example of a

product-level

Testing a prototype of a new product is an example of a(n)

product-level activity

A company using lean production methods likely would show approximately the same net operating income under both absorption and variable costing because

production is geared to sales under lean production and thus there would be little or no ending inventory

Cresol Corporation has a large number of potential investment opportunities that are acceptable. However, Cresol does not have enough investment funds to invest in all of them. Which calculation would be the best one for Cresol to use to determine which projects to choose?

project profitability index

When evaluating alternatives, what type of costs should be considered?

relevant costs

An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:

some nonmanufacturing costs are assigned to products. correct all of the above are reasons why an activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products. first-stage allocations may be based on subjective interview data.

A customary assumption in capital budgeting analysis is that:

the desired rate of return includes the effects of compounding. the cash inflows generated by the investment are reinvested at the desired rate of return. annual cash flows occur at the end of each period

All other things being equal, if a division's traceable fixed expenses increase

the divisions segment margin will decrease

If a company has computed the project profitability index of an investment project as 0.15, then

the project's internal rate of return is greater than the discount rate

A common cost that should not be assigned to a particular product on a segmented income statement is

the salary of the corporation president

Over an extended period of time in which the final ending inventories are zero, the accumulated net operating income figures reported under absorption costing will be

the same as those reported under variable costing

The management practice that increases profitability through the management of bottlenecks is known as

the theory of constraints

Net operating income computed using variable costing would exceed net operating income computed using absorption costing if: correct

units sold exceed units produced.

The costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques is:

variable costing

Segment margin is sales minus

variable expense and traceable fixed expenses

A cost that would be included in product costs under both absorption costing and variable costing would be

variable manufacturing costs.

The electricity used for production machinery would be classified as a

volume-related

Which of the following measures is used by traditional costing systems as an allocation base for allocating overhead costs to the units produced?

volume-related