ACCT 3310 - Exam 2

7. The major cost management concept used in kaizen budgeting is that of a. eliminating inventories of every type but materials. b. refinements in the indirect-cost categories for costing systems. c. continuous improvement. d. sensitivity analysis using computer-based financial planning models.

c. continuous improvement.

5. Absorption costing enables managers to increase operating income in the short run by changing production schedules. Which statement is true regarding such action? a. The reason for increased operating income is the deferral of fixed manufacturing overhead contained in unsold inventory. b. A desirable effect of these changes in production is "cherry picking" the production line. c. This is done through decreases in the production schedule as customer demand for product falls. d. None of the above statements are true regarding the manager's action to increase operating income through changes in the production schedule.

a. The reason for increased operating income is the deferral of fixed manufacturing overhead contained in unsold inventory.

8. The basic principles and concepts of variance analysis can be applied to activity-based costing a. by application as to the levels of cost hierarchy. b. through careful classification of costs as direct and indirect as applied to the product or job. c. with use of standard costing systems only. d. only through those activities related to individual units of product or service.

a. by application as to the levels of cost hierarchy.

7. Performance evaluation using variance analysis should guard against a. emphasis on a single performance measure. b. emphasis on total company objectives. c. basing effect of a manager's action on total costs of the company as a whole. d. highlighting individual aspects of performance.

a. emphasis on a single performance measure.

8. Use of capacity levels based on demand a. hides the amount of unused capacity. b. highlights the cost of capacity acquired but not used. c. yields a cost rate that does not include a charge for unused capacity. d. results in a price that covers the cost of capacity customers expect to pay.

a. hides the amount of unused capacity.

2. In selecting a cost-allocation base for variable overhead, what criteria for the base is preferred? a. Ease of acquiring reliable information for accurate allocations b. A cause-and-effect relationship between the cost and the activity level c. A single base that will simplify the allocation process d. One that has been used in the past

b. A cause-and-effect relationship between the cost and the activity level

3. Which of the following is not a major benefit of budgets? a. Compels planning b. Eliminates innovation c. Provides performance criteria d. Promotes coordination and communication

b. Eliminates innovation

6. Which of the following does not pertain to financial planning models in software form? a. Reduces computational burden and time required to prepare budgets b. Eliminates need to update budgets as uncertainty resolved c. Assists managers with sensitivity analysis d. Performs calculations that are mathematical representations of relationships in master budget

b. Eliminates need to update budgets as uncertainty resolved

12. Which of the following is an example of a nonmanufacturing cost that may be analyzed using variances? a. Factory rent b. Product distribution costs c. Indirect labor d. Factory supplies

b. Product distribution costs

4. Which of the following is not an advantage for using standard costs for variance analysis? a. Standards simplify product costing. b. Standards are developed using past costs and are available at a relatively low cost. c. Standards are usually expressed on a per-unit basis. d. Standards can take into account expected changes planned to occur in the budgeted period.

b. Standards are developed using past costs and are available at a relatively low cost.

1. [CMA Adapted] Flexible budgets a. accommodate changes in the inflation rate. b. accommodate changes in activity levels. c. are used to evaluate capacity utilization. d. are static budgets that have been revised for changes in price(s).

b. accommodate changes in activity levels.

10. Budgetary slack a. is going to be included in budget estimates, so it should just be ignored. b. provides managers with a hedge against unexpected circumstances. c. should be totally eliminated from the budget. d. is not found in governmental budgets.

b. provides managers with a hedge against unexpected circumstances.

9. A company may experience the downward demand spiral when a. the use of theoretical capacity as a denominator level has contributed to budgets that project sales to be higher than actually attainable. b. spreading capacity costs over a small number of units and setting selling prices even higher to recover those costs. c. engaged in a cyclical business and after experiencing an upturn. d. the production-volume variance is unfavorable each time period during a year.

b. spreading capacity costs over a small number of units and setting selling prices even higher to recover those costs.

4. [CPA Adapted] Operating income using variable costing as compared to absorption costing would be higher a. when the quantity of beginning inventory equals the quantity of ending inventory. b. when the quantity of beginning inventory is more than the quantity of ending inventory. c. when the quantity of beginning inventory is less than the quantity of ending inventory. d. under no circumstances.

b. when the quantity of beginning inventory is more than the quantity of ending inventory.

11. Which of the following statements is true about overhead cost variance analysis using activity-based costing? a. Overhead cost variances are calculated only for output-unit level costs. b. Overhead cost variances are calculated only for variable manufacturing overhead costs. c. A 4-variance analysis can be conducted. d. Activity-based costing uses input measures for all activities, resulting in the inability to do flexible budgets needed for variance analysis.

c. A 4-variance analysis can be conducted.

7. The absolute minimum absorption-inventory cost that would be reported under the best conceivable operating conditions is a description of which type of denominator-level concept cost? a. Master-budget utilization b. Practical capacity c. Theoretical capacity d. Normal utilization

c. Theoretical capacity

1. The main difference between variable costing and absorption costing is a. the treatment of nonmanufacturing costs. b. the accounting for variable manufacturing costs. c. the accounting for fixed manufacturing costs. d. their value for decision makers.

c. the accounting for fixed manufacturing costs.

8. Which of the following statements does not describe responsibility accounting? a. It measures the plans and actions of each responsibility center. b. It budgets to emphasize that for which each responsibility center is accountable. c. It calculates variances between budgeted and actual accountability for each responsibility center. d. It identifies managers at fault for operating problems by reports for each responsibility center.

d. It identifies managers at fault for operating problems by reports for each responsibility center.

1. Which of the following pertains primarily to the planning of fixed overhead costs? a. A standard rate per output unit is developed. b. Only essential activities are to be undertaken. c. Activities are to be undertaken in the most efficient method. d. Key decisions are made at the start of the budget period determining the level of costs.

d. Key decisions are made at the start of the budget period determining the level of costs.

10. The manner in which a company deals with end-of-period variances will determine the effect production-volume variances have on the company's end-of-period operating income. When the chosen capacity level exceeds the actual production level, which approach to end-of-period variances results in an unfavorable production-volume variance affect on that period's operating income? a. Proration approach b. Adjusted allocation-rate approach c. Theoretical approach d. Write-off to cost-of-goods-sold approach

d. Write-off to cost-of-goods-sold approach

9. Controllability a. is always clear cut as to who has responsibility for a cost. b. is another term for responsibility. c. is the responsibility of the corporate controller. d. is the degree of influence a specific manager has over costs, revenues, and other items.

d. is the degree of influence a specific manager has over costs, revenues, and other items.

9. Benchmarking is a. relatively easy to do with the amount of available financial information about companies. b. best done with the best in their field regardless of type of company. c. simply reporting the magnitude of differences in costs or revenues across companies. d. making comparisons to direct attention to why differences in costs exist across companies.

d. making comparisons to direct attention to why differences in costs exist across companies.

1. Budgeting is the common accounting tool companies use for planning and controlling. Budgets a. provide a measure of planned financial results. b. are prepared independent of the company's long-term strategies. c. do not usually reflect actual results, so they are a useless exercise. d. serve as the financial expression of management's plans for the upcoming period.

d. serve as the financial expression of management's plans for the upcoming period.

6. The proponents of throughput costing a. maintain that variable costing undervalues inventories. b. maintain that it provides more incentive to produce for inventory than do either variable or absorption costing. c. argue that only direct materials and direct labor are "truly variable" and all indirect manufacturing costs be written off in the period in which they are incurred. d. treat all costs except those related to variable direct materials as costs of the period in which they are incurred.

d. treat all costs except those related to variable direct materials as costs of the period in which they are incurred.