Act Test 2

The calculation of the budget variance uses

-Actual fixed overhead -Budgeted fixed overhead

Which of the following statements are correct regarding income statements prepared under variable and absorption costing?

-Both income statements include product and period costs -Reported net income on the statements often differ

The difference between reported net income on variable costing and absorption costing income statements is based on how:

Fixed overhead is accounted for

Net operating income under absorption costing is generally___ net operating income under variable costing fin periods in which inventory increases

Higher than

In a manufacturing company, the ____ ____ budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories

direct materials

The cost of unsold units is computed on the ____ budget

ending finished goods inventory

The cash budget included four major sections: receipts, disbursements, the cash excess or deficiency, and ____

financing

What costs and revenues should be for the actual level of activity is shown on a(n) ____ budget

flexible

A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budgetted

income statement

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will ___ as the number of units produced increases

increase in total

SR(AH-SH) is the formula for the ____ variance

labor efficiency

A number of separate, but interdependent, budgets that formally Aly out the company's sales, production, and financial goals are contained in the ____ budget

master

Most accurate estimates and higher motivation are generally the result of using a(n) ____ budget

participative

A budget that is prepared at the beginning of the period for a specific level of activity is a ____ budget

planning

Developing goals and preparing various budgets to achieve those goals is part of the ____ process

planning

Decision-making problems that could occur when using absorption costing include inappropriate ___ decisions, and decisions made to ____ products that are, in fact, profitable.

price; drop

absorption costing treats fixed manufacturing overhead as a ___ cost

product

In a manufacturing company, the _____ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory

production

The segment margin is a valuable tool for assessing the long-run____ of a segment

profitability

The difference between the amount of an input used and the amount that should have been used, all evaluated at the standard price for the input, is called a(n) ____ variance

quantity

Because all other parts of the budget depend on it, if the ____ budget is inaccurate, the rest of the budget will be inaccurate

sales

When preparing a CVP graph, the horizontal axis represents___

sales volume

Budgeted expenses for areas other than manufacturing are shown on the ____ budget

selling and administrative

The amount of direct-labor hours that should be used to produce one unit of finished goods is the ____ hours per unit

standard

Costs are separated between variable and fixed expenses when using___ costing, whereas ____ costing separates costs between product and period

variable; absorption

Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is

$184,000-$85,000=$99,000

Given the following information, calculate the unit product cost under absorption costing Direct Materials: $50/unit Direct Labor: $75/unit Variable manufacturing overhead: $27/unit Fixed manufacturing overhead: $30,000 Units produced: 10,000 Units Sold: 6,000

$50+$75+$27+(30,000/10,000)= $155 per unit

A product has a selling price $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. IF 10,000 units are sold, net operating income will be $____

($10-$6)x10,000-$35,000=$5,000

The spending variance is:

(AQxAP)-(SQXSP)

Limitations of self-imposed budgeting include:

-Budgetary slack -Suboptimal budget recommendations

A segment should be discontinued when the segment:

-Cannot cover its own costs -Has a contribution margin that cannot cover traceable fixed costs

Standars are:

-Compared to the actual quantities and costs of inputs -Benchmarks for measuring performance -Set for each major production input or task

Which of the following are assumption of cost-volume-profit analysis

-Cost are linear and can be accurately divided into variable and fixed elements -In multi product companies, the sales mix is constant

Incorrectly or arbitrarily assigning common costs to segments:

-Distorts the profitability of segments -Holds managers responsible for costs they cannot control -Could reduce the overall profits of the company

A variable;e costing income statement

-Focuses on fixed and variable expenses; while an absorption costing income statement focuses on period and product costs -calculate contribution margin while the absorption costing income statement calculate gross margin

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increases in sales_____

-Net operating income will increase by $0.70 -Total contribution margin will increase by $0.70

Which of the following is needed to calculate raw materials to be purchased on the direct materials budget

-Raw materials required per unit -Beginning inventory of raw materials

Which of the following budgets are directly based on information from the sales budget?

-Selling and administrative expense budget -Production budget

Using variable costing and the contribution approach for internal decision making:

-Supports decision making -Enables CVP analysis -Facilitates explaining changes in net income

Absorption costing and variable costing net operating income will be equal when:

-The number of units produced equals the number of units sold -There is no beginning and no ending inventory

Budgets

-communicate management's plan throughout the organization

Company A has sales of $500,000, variable costs of $350,000, and fixed costs of $150,000. Company A has _____

-reached the break-even point - a contribution margin equal to fixed costs

When a segment is eliminated, a:

-traceable fixed cost will disappear -Common fixed cost will remain unchanged

CVP analysis allows companies to easily identify the change in profit due to changes in _____

-volume -costs -selling price

A company's cost of supplies for when 5,000 units are sold in $7,500 or fixed costs plus $1.25 variable cost per unit. What is the increase in the total cost of supplies if 350 more units are sold than expected?

350 x $1.25= $437.50 Fixed costs remain the same

Which of the following budgets shows the company's planned profit and serves as a benchmark against which subsequent company performance can be measured?

Budgeted income statement

One mistake comparison make when preparing segmented income statements in arbitrarily assigning ____ fixed costs to segments

Common

Product costs under absorption costing are:

Direct Materials Direct Labor Variable manufacturing overhead Fixed manufacturing overhead

Absorption and variable costing net income are usually different due to the accounting for:

Fixed manufacturing overhead

Absorption Costing

Manufacturing and selling and administrative

A perpetual budget keeps managers focused at least one year ahead by adding one:

Month to the end of the budget as each month comes to a close

Ceramic Creations sells pots for $25. The variable costs per pot is $12 and 15,000 pots must be sold to break-even. IF Ceramic Creations sells 25,000 pots, net operating income will be____

Net income=(25,000-15,000)x($25-$12)=$130,000

Place the following line items in order to construct a contribution format income statement

Sales Variable Expenses Contribution Margin Fixed Expenses Net operating income

Company A has fixed costs of $564,000 and wishes to earn a profit of $800,000 this year. IF Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals____

Sales=($564,000+$800,000)/0.62= $2,200,000

Frames, Inc. Manufactures large wooden picture frames. Each Fram requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and total fixed manufacturing overhead cost per month is $15,000. the unit product cost of each frame using variable costing is $___

Unit product cost= $19+$40+$9=$68. Selling and administrative costs are not product costs. Under variable costing, fixed overhead is also not a product cost

Direct costing or marginal costing are other terms for ___ costing

Variable

In order to comply with GAAP and IFRS, the ____ costing method must be used for external reporting in the United States

absorption

Fixed manufacturing overhead costs are included as part of Work In Process inventory under:

absorption costing only

Costs are categorized by function when using ____ costing and by behavior when using ____ costing

absorption; variable

Unfavorable variance

actual revenue is less than budgeted revenue

Favorable variance

actual revenue is more than budgeted revenue

The budget variance is the difference between the ___ fixed overhead and the ____ fixed overhead

actual; budgeted

A detailed plan for the future that is usually expressed in formal quantitative terms is a

budget

IF a segment is eliminated ___ fixed costs that are not traced to the segment will not change

common

Variable costing income statements are based upon a ____ format

contribution margin

Gathering feedback to ensure that the plan is being followed is referred to as ____

control

The ending finished goods inventory budget computes the:

cost of unsold units

Net operating income is less under absorption costing than under variable costing when inventory for the period:

decreases

When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead:

deferred in the inventory account on the balance sheet

Budgetary slack occurs when a manager submits a budget that is

too easy to attain

Segment contribution margin equals segment revenue mins the ___ variable expenses for the segment

variable

Variable Costing

variable and fixed