ACCT EXAM 1 - 1
A company uses sandpaper to prepare its product for finishing. Most manufacturers would classify the sandpaper as direct material because it is physically consumed in the production process.
FALSE
A cost that is part selling cost and part manufacturing cost is referred to as a mixed cost.
FALSE
A low magnitude of operating leverage is best for most companies.
FALSE
A manufacturing business paid $3,000 to purchase inventory. As a result, assets would increase by $3,000.
FALSE
A margin of safety of 30% means that every dollar in revenue generates thirty cents in profit.
FALSE
Adams Company sells a product whose contribution margin is $10 and selling price is $25. If the company's break-even point is 100 units, its total fixed costs must be $500.
FALSE
All costs incurred prior to delivery of the product to the customer are referred to as upstream costs.
FALSE
As activity increases, the fixed cost per unit increases while the variable cost per unit remains constant.
FALSE
Cash paid to production workers should be recorded as Wages Expense in the income statement for the period incurred.
FALSE
Contribution margin can only be determined if costs are separated into product and period costs.
FALSE
Contribution margin cannot be calculated for a service-type business, and cost-volume-profit analysis is not applicable for a company that provides services rather than selling goods.
FALSE
During its first year of operations, a company that incurred $1,000 in production costs reported cost of goods sold of $800 and selling costs of $100. The company's ending finished goods inventory was $300.
FALSE
Ecco Company has total fixed costs of $5,000, sells a product whose contribution margin is $50 and selling price per unit is $125, and has current sales of $15,000. The company's margin of safety ratio is 20%.
FALSE
For a company using target costing, market price minus profit equals target price.
FALSE
For a mixed cost, total cost increases in direct proportion to volume
FALSE
For a mixed cost, total cost increases in direct proportion to volume.
FALSE
If revenues are expected to decline, management should attempt to convert its variable costs into fixed costs.
FALSE
Managerial accounting focuses primarily on the performance of the company as a whole.
FALSE
Managerial accounting is designed to satisfy needs of external users including creditors, investors, and governmental agencies.
FALSE
Most internal users of accounting information need primarily global information that reflects the performance of the company as a whole.
FALSE
No contribution margin is provided by selling one unit of a product at a price of $35 if variable production costs are $20, variable general and administrative costs are $5, and fixed costs are $10 per unit.
FALSE
On a cost-volume-profit graph, the total revenue line begins at the break-even point and slopes upward to the right.
FALSE
Potential problems associated with cost averaging can be reduced by averaging the cost over a shorter span of time.
FALSE
Preston Company sells a product whose contribution margin ratio is 20%. Assuming fixed costs don't change, incremental sales of $50,000 will generate $20,000 of additional profit.
FALSE
Product costs are immediately recorded in expense accounts when the products are manufactured.
FALSE
Target costing begins with determining the cost of the product and then focusing on developing ways to sell the product at a price that will enable the company to achieve its desired profit margin.
FALSE
Techpro has a selling price of $10 and variable costs of $6. If both the selling price and the variable costs increase by 10%, the break-even point will not change.
FALSE
The contribution margin format income statement is not widely used for external financial reporting, but is allowed by GAAP.
FALSE
The higher the magnitude of a company's operating leverage, the smaller the decrease in profit for a given percentage decrease in revenue.
FALSE
The variable cost per unit increases in direct proportion to the activity base.
FALSE
Upstream costs are classified as product costs and downstream costs are classified as period costs for financial reporting purposes.
FALSE
Variable costs will become fixed outside the relevant range.
FALSE
Wayans Company has a contribution margin ratio of 60%. This means that its variable costs are 60% of sales.
FALSE
When selecting the high and low observations under the high-low method of analyzing mixed costs, the selection should be based on the dependent variable (cost).
FALSE
A company can use target profit analysis to determine the level of sales required to earn a target loss.
TRUE
A disadvantage of the high-low method is that the high point and low point may not be representative of the total data set available.
TRUE
An advantage of using the scattergraph method over the high-low method is that all points of data are used in determining the cost line.
TRUE
An increase in total fixed costs increases the break-even point.
TRUE
Companies with low operating leverage will experience lower profits when sales increase than will companies with higher operating leverage.
TRUE
Contribution margin ratio will remain the same at various levels of sales even if total fixed costs are altered.
TRUE
Costs that are not classified as product costs are normally expensed in the period incurred.
TRUE
Depreciation on manufacturing equipment is an indirect product cost, while depreciation on office equipment is a period cost.
TRUE
Descriptions of cost behavior as fixed or variable pertain to a particular range of activity.
TRUE
For a company that sells several products, different sales mixes generally give rise to different break-even sales levels, even if overall sales volume remains unchanged.
TRUE
If a company is operating beyond its break-even point, sale of one more unit of product increases the company's profit by the amount of the unit contribution margin.
TRUE
If a company shifts its cost structure by decreasing fixed costs and increasing variable costs, it will lower both the level of risk and its potential for profits.
TRUE
If a profitable company has both fixed and variable costs, its operating leverage will always be greater than 1.
TRUE
If managers of a company do not understand the behavior of its costs, they are likely to make poor decisions about the company's operations.
TRUE
In order to perform cost-volume-profit analysis, a company must be able to identify its variable and fixed costs.
TRUE
In regression analysis, an r-square value of one indicates that there is a perfect fit between the independent and dependent variables.
TRUE
Jensen Company has a contribution margin ratio of 45%. This means that its variable costs are 55% of sales.
TRUE
Managerial accounting systems consider economic and non-financial data as well as financial statement data.
TRUE
On a cost-volume-profit graph, the total revenue line lies below the total cost line to the left of the break-even point.
TRUE
One of the advantages of target costing is that it specifically considers the probable market price for the product.
TRUE
One way that computing an average cost per unit facilitates management decision making is that managers are provided more timely and more relevant cost information.
TRUE
Product costs flow from the balance sheet to the income statement
TRUE
Senior executives focus on financial data when comparing the performance of their companies to that of competitors.
TRUE
Sensitivity analysis acknowledges that profitability is often affected by multidimensional forces.
TRUE
The biggest challenge in computing the total cost per unit of a product is determining the amount of overhead cost that should be assigned to each unit.
TRUE
The contribution margin format income statement classifies costs according to their behavior patterns.
TRUE
The higher the magnitude of a company's operating leverage, the more benefit the company will receive from a given percentage increase in revenue.
TRUE
The primary difference between manufacturing companies and service companies is that the products provided by service companies are consumed immediately.
TRUE
To find the break-even point for a company that sells several products, the analyst must make an assumption about what the sales mix will be and calculate a weighted average contribution margin based on that sales mix.
TRUE
Transportation costs incurred to transfer products to customers are downstream costs.
TRUE
Unlike direct material and direct labor costs, overhead costs must be allocated to products.
TRUE
Unlike manufacturers, service companies do not have an inventory of products.
TRUE
When computing the break-even point in units, a company should round to the next whole unit because partial units ordinarily are not sold.
TRUE
Within the relevant range, the fixed cost per unit can be expected to decrease with increases in volume.
TRUE
