ACCT T/F Statements

a) Within the relevant range, a change in activity results in a change in variable cost per unit and total fixed cost.

fale

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

false

Fixed costs are irrelevant in decisions about whether a product should be dropped

false

a) A cost driver is a factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes direct costs.

false

a) A job cost sheet is used to record how much a customer pays for the job once the job is completed.

false

a) Contribution margin and gross margin mean the same thing.

false

a) The cost of shipping parts from a supplier is considered a period cost.

false

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

false

a. A plantwide predetermined overhead rate based on direct labor-hours results in low overhead costs for products with a high direct labor-hour content and high overhead costs for products with a low direct labor-hour content.

false

a. A revenue variance is unfavorable if the revenue in the static planning budget is less than the revenue in the flexible budget.

false

a. A shift in the sales mix from low-margin items to high-margin items will decrease total profits even though total sales increase.

false

a. A spending variance is the difference between the amount of the cost in the static planning budget and the amount of the cost in the flexible budget.

false

a. All other things the same, if a division's traceable fixed expenses decrease, then the division's segment margin will decrease.

false

a. An activity rate is computed for each product.

false

a. Waste on the production line will result in an unfavorable materials price variance.

false

a. 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.

false

a. Buying inventory in large lots to take advantage of quantity discounts can be responsible for a high inventory turnover ratio.

false

a. Consistency demands that a cost that is relevant in one decision be regarded as relevant in other decisions as well.

false

a. Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes.

false

a. If a company closes any underapplied or overapplied manufacturing overhead to the Cost of Goods Sold account, then Cost of Goods Sold will be debited if manufacturing overhead is overapplied for the period.

false

a. If a company uses a predetermined overhead rate, actual manufacturing overhead costs of a period will be recorded in the Manufacturing Overhead account and will be recorded on the job cost sheets.

false

a. If a job is not completed at year end, then no manufacturing overhead cost would be applied to that job when a predetermined overhead rate is used.

false

a. If skilled workers with high hourly rates of pay are given duties that require little skill and call for lower hourly rates of pay, this will result in a favorable labor rate variance.

false

a. If the acid-test ratio is less than one, then paying off some current liabilities with cash will increase the acid-test (quick) ratio.

false

a. In a factory operating at capacity, every machine and person should be working at the maximum possible rate.

false

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

false

a. In a job-order costing system, costs are traced to individual units of product. The sum total of such traced costs is called the unit product cost.

false

a. In a process costing system, costs are traced directly to jobs.

false

a. In a process costing system, overhead is allocated to departments after being applied to units of product.

false

a. In a production budget, if the number of units in finished goods inventory at the end of the period is less than the number of units in finished goods inventory at the beginning of the period, then the expected number of units sold is less than the number of units to be produced during the period.

false

a. In a special order situation, any fixed cost associated with the order would be irrelevant.

false

a. In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure.

false

a. Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job.

false

a. On a CVP graph for a profitable company, the total expense line will be steeper than the total revenue line.

false

a. One of the weaknesses of budgets is that they are of little value in uncovering potential bottlenecks.

false

a. The activity rates in activity-based costing are computed by dividing the direct labor-hours for an activity cost pool by the measure of activity for the activity cost pool.

false

a. The activity rates in activity-based costing are used to determine how quickly a particular task should be done.

false

a. The degree of operating leverage in a company is smallest at the break-even point and increases as sales rise.

false

a. The disbursements section of a cash budget consists of all cash payments for the period except cash payments for dividends.

false

a. The entire difference between the actual manufacturing overhead cost for a period and the applied manufacturing overhead cost is typically closed to the Work In Process account.

false

a. The equivalent units in beginning work in process inventory plus the equivalent units in ending work in process inventory equals the units transferred out plus the equivalent units for the work done during the period.

false

a. The journal entry for cost of goods manufactured includes the costs of units that are partially completed.

false

a. The labor rate variance measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the standard hours allowed for the actual output.

false

a. The smaller the contribution margin ratio, the smaller the amount of sales required to cover a given amount of fixed expenses.

false

a. Two of the reasons why manufacturing overhead may be underapplied are: (1) the estimated total manufacturing overhead cost may have been too high; and (2) the estimated total amount of the allocation base may have been too low.

false

a. Under absorption costing, a portion of fixed manufacturing overhead cost is released from inventory when production volume exceeds sales volume.

false

a. Under the weighted-average method, the cost of ending work in process inventory is determined by dividing the equivalent units of production for ending inventory by the cost per equivalent unit for each cost category and then summing the result.

false

a. Under variable costing, an increase in fixed manufacturing overhead will affect the unit product cost.

false

a. When a company changes from a traditional costing system to an activity-based costing system, the unit product costs of high-volume products typically change more than the unit product costs of low-volume products.

false

a. When all materials are added at the beginning of the production process, under a weighted-average process costing system the equivalent units for materials is equal to the units completed and transferred out.

false

a. When computing the cost per equivalent unit, it is necessary to consider the percentage completion of the units in beginning inventory under the weighted-average method.

false

a. 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.

false

a. The cost reconciliation report has two sections: "Costs to be accounted for" followed by "Costs accounted for". The "Costs accounted for" portion of the cost reconciliation report includes the cost of ending work in process inventory and the cost of beginning work in process inventory.

flase

Conversion cost equals product cost less direct materials cost

true

Job-order costing systems often use allocation bases that do not reflect how jobs actually use overhead resources

true

The sum of all manufacturing costs except for direct materials and direct labor is called manufacturing overhead.

true

When raw materials are purchased, they are recorded as an asset.

true

a) b) The fact that one department may be labor intensive while another department is machine intensive explains in part why multiple predetermined overhead rates are often used in larger companies.

true

a. b. The direct labor budget begins with the required production in units from the production budget.

true

a. A company with high operating leverage will experience a larger reduction in net operating income in a period of declining sales than a company with low operating leverage.

true

a. A cost that is assigned to a product using activity-based costing may or may not be a relevant cost in a decision involving that product.

true

a. A credit balance in the Manufacturing Overhead account at the end of the year means that manufacturing overhead was overapplied.

true

a. Acquiring land by taking out a long-term mortgage will not affect the current ratio.

true

a. All other things the same, if long-term debt is exchanged for short-term debt, the debt-to-equity ratio will be unchanged.

true

a. All other things the same, if the company purchases equipment on credit, this transaction would have no impact on the company's book value per share.

true

a. An increase in the number of shares of common stock outstanding will increase a company's price-earnings ratio if the market price per share remains unchanged.

true

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

true

a. Facility-level costs cannot be traced on a cause-and-effect basis to individual products.

true

a. If demand is insufficient to keep everyone busy and workers are not laid off, an unfavorable (U) variable overhead efficiency variance often will be a result unless managers build excessive inventories.

true

a. If fixed expenses increase by $10,000 per year, then the sales needed to break even will generally increase by more than $10,000.

true

a. In activity-based costing, a separate activity rate (i.e., predetermined overhead rate) is computed for each activity cost pool by dividing the estimated overhead cost in the activity cost pool by the total expected activity for the activity cost pool.

true

a. In calculating cost per equivalent unit under the weighted-average method, prior period costs are combined with current period costs.

true

a. In the Schedule of Cost of Goods Manufactured, Cost of goods manufactured = Total manufacturing costs + Beginning work in process inventory - Ending work in process inventory.

true

a. In the manufacturing overhead budget, the non-cash charges (such as depreciation) are deducted from the total budgeted manufacturing overhead to determine the expected cash disbursements for manufacturing overhead.

true

a. In the merchandise purchases budget, the required purchases (in units) for a period can be determined by subtracting the beginning merchandise inventory (in units) from the budgeted sales (in units) and desired ending merchandise inventory (in units).

true

a. Job-order costing would be more likely to be used than process costing in situations where many different products or services are produced each period to customer specifications.

true

a. Payment of overtime to a worker in order to relax a production constraint could increase the profits of a company.

true

a. The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducting the beginning inventory.

true

a. The production budget is typically prepared before the direct materials budget.

true

a. The variable overhead efficiency variance does not actually measure how efficiently variable manufacturing overhead resources were used.

true

a. The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the fixed part of the predetermined overhead rate.

true

a. To estimate what the profit will be at various levels of activity, multiply the number of units to be sold above or below the break-even point by the unit contribution margin.

true

a. Under the absorption costing method, a company can increase profits simply by increasing the number of units produced.

true

a. Variable costing is more compatible with cost-volume-profit analysis than is absorption costing.

true

a. Variable costing net operating income is usually closer to the net cash flow of a period than is absorption costing net operating income.

true

a. Variable manufacturing overhead costs are treated as product costs under both absorption and variable costing.

true

a. When a company changes from a traditional costing system to an activity-based costing system, the unit product costs of low-volume products typically increase more than the unit product costs of high-volume products decrease.

true

a. When designing an activity-based costing system, related activities are frequently combined to reduce the amount of detail and record-keeping cost.

true

a. When expressed on a per unit basis, fixed costs can mislead decision makers into thinking of them as variable costs.

true

a. When production exceeds sales for the period, absorption costing net operating income will exceed variable costing net operating income.

true